Dick’s Sporting Goods’ earnings plummeted by 23% due to a sharp rise in retail theft.
Dick’s Sporting Goods experienced a significant setback in the second quarter, with earnings plummeting by 23 percent. The company attributes this decline to a surge in organized retail theft and its efforts to sell off excess inventory.
This unexpected turn of events has forced the company to revise its earnings guidance for the year, as it anticipates lower annual profits due to the impact of retail theft on its business.
The release of Dick’s Sporting Goods’ second-quarter earnings report on Aug. 22 fell short of Wall Street investor expectations, causing a 24 percent drop in shares and erasing the 22 percent year-to-date gains.
This marks the first time in nearly 20 years that Dick’s has reported losses in a press release.
Dick’s Sees Lower Results in Second Quarter
The company’s net income for the second quarter, which ended on July 29, was $244 million, or $2.82 per share, compared to $318.5 million, or $3.25 per share, in the previous year.
Analysts surveyed by Refinitiv had expected earnings per share of $3.81, but the actual figure came in at $2.82. Similarly, revenue fell slightly short of earlier estimates, reaching $3.22 billion instead of $3.24 billion. However, sales did increase from $3.11 billion to $3.22 billion compared to the previous year.
The company experienced a 1.8 percent growth in second-quarter comparable-store sales, driven by a 2.8 percent increase in transactions and continued market share gains.
“While we posted another double-digit EBT [earnings before taxes] margin, our [second-quarter] profitability was short of our expectations due in large part to the impact of elevated inventory shrink, an increasingly serious issue impacting many retailers,” said Dick’s CEO and president, Lauren Hobart.
Despite the setback, Hobart expressed confidence in the company’s long-term growth opportunities, citing positive sales in July. She stated, “The enthusiasm we have for our business and the confidence we have in our long-term growth opportunities have never been stronger.”
Massive Losses From Theft Behind Lower Earnings
The company attributes a significant portion of its poor earnings growth to shrink, which includes losses from theft, fraud, and damaged inventory.
Retail chains across the United States have been grappling with a rise in theft over the past three years. In fact, retailers have experienced a 26.5 percent increase in large-scale theft compared to the previous year. Target alone is projected to lose half a billion dollars due to theft.
Dick’s Sporting Goods is the first major national retailer to primarily attribute its financial struggles to theft. Retailers nationwide are struggling to combat both petty shoplifting and organized sprees of large-scale theft that have resulted in empty shelves.
In May, Target warned investors about the rising theft in its stores, projecting a loss of half a billion dollars. Dick’s CEO, Lauren Hobart, acknowledged the impact of theft on the company’s shrink and emphasized the need for decisive action to address the issue.
The company’s Chief Financial Officer, Mr. Gupta, revealed that a physical inventory count conducted before the school season uncovered the extent of the elevated shrink levels. The unexpected increase in shrink significantly impacted the second-quarter results.
Despite the challenges posed by theft, Dick’s remains committed to finding solutions. The company is considering revisiting its inventory recording methods to better track and address the issue.
Company Also Faces Losses From Excess Inventory
However, the company’s losses were not solely attributed to theft. The clearance of excess store inventories through aggressive markdowns also contributed to the decline in earnings.
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