A Dick’s Sporting Goods Inc. store in Clarksville, Indiana, experienced a decline in profits by 23% and lowered its earnings forecast for the year due to increased theft and sluggish sales in its outdoor category, the company announced on Tuesday.
The company failed to meet Wall Street’s expectations for both revenue and earnings per share, which marked the first time in three years. It also announced workforce reductions. As a result, the company’s stock dropped by 24% on Tuesday, erasing its 22% gain from the beginning of the year until Monday’s close.
Here’s how the company’s second fiscal quarter performance compares to Wall Street’s expectations:
- Earnings per share: $2.82 vs. $3.81 expected
- Revenue: $3.22 billion vs. $3.24 billion expected
In the three-month period ending on July 29, the company reported a net income of $244 million, or $2.82 per share, compared to $318.5 million, or $3.25 per share, in the same period a year earlier. Sales increased from $3.11 billion to $3.22 billion year-over-year.
The company revised its profit forecast for the year, citing concerns about inventory loss due to theft and internal issues. CEO Lauren Hobart acknowledged the impact of elevated inventory shrink on the company’s Q2 profitability and emphasized the enthusiasm and confidence in their long-term growth opportunities.
Dick’s now expects earnings per share for the year to be between $11.33 and $12.13, compared to the previously issued guidance of $12.90 to $13.80. However, the company maintains its forecast for flat to 2% growth in comparable store sales and has no plans to reduce its capital expenditures. Despite the decline in profits, the retailer still anticipates an increase in gross margins for the full year compared to 2022.
This is the first time Dick’s has mentioned shrink in nearly 20 years, signaling the growing concern over the impact of retail theft. The decline in profits is attributed to various factors, including a slowdown in the outdoor category, which includes camping equipment.
During the quarter, Dick’s used promotions to reduce inventory in this category. Overall, inventories were down about 5% compared to the same period last year.
Dick’s gross margins decreased from 36% to 34% year-over-year, with about a third of the reduction attributed to shrink. Chairman Ed Stack acknowledged the challenges posed by organized retail crime and their efforts to curtail it with enhanced security measures and collaboration with local authorities.
Earlier this month, CNBC published a three-part series on organized retail crime, shedding light on the claims made by retailers and the actions taken by companies and policymakers to combat it. While retail theft remains a serious concern, accurately quantifying it is difficult, and retailers are not obligated to disclose such information.
Dick’s experienced its worst day in the stock market since its IPO in October 2002 following the release of its earnings report. Trading volume was four times higher than the 30-day average.
Holding on to Pandemic Gains
Despite the challenging quarter, Dick’s has managed to sustain its gains from the COVID-19 pandemic. Profits are higher compared to 2019. The company has opened seven new House of Sport locations during the quarter and intends to continue expanding. These specialized stores, spanning up to 100,000 square feet, are interactive and specifically tailored to meet the needs of their athlete customer base.
Same-store sales increased by 1.8% compared to a 5.1% decline in the same period last year, driven by a 2.8% increase in transactions. Analysts had anticipated a 2.7% increase.
In an effort to streamline costs and reinvest in various areas of the business, the company reduced its global workforce by less than 1%, primarily at its customer support center. These cuts mainly affected headquarters roles and represent less than 10% of corporate positions, according to Stack.
The planned job cuts will result in approximately $20 million in severance expenses in the next quarter and may lead to additional one-time charges of $25 million to $50 million.
Stack clarified that the purpose of these cuts is not to save costs, but rather to reallocate resources, stating, “We are going to reinvest all of these dollars back into talent and the technology that we want.”
CNBC’s Courtney Reagan contributed to this report.
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