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Dick’s Sporting Goods Inc.’s stock tumbled 22% Tuesday, after the retailer’s second-quarter profit missed consensus by a wide margin, while sales also fell short., and the company squarely blamed theft for its woes.
It was the company’s first earnings miss in three years. The last time Dick’s missed profit and sales consensus was in April of 2020, when it was reporting first-quarter earnings for that year.
“While we posted another double-digit EBT margin, our Q2 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 CEO Lauren Hobart in a statement.
Many retailers, including giant Walmart Inc.
WMT,
and Target Corp.
TGT,
have complained this earnings season about the growing problem of shrink, which can include damaged goods but increasingly refers to shoplifting, which companies say is being conducted by organized gangs. The issue is costing the sector billions of dollars a year, according to executives.
Last year, the National Retail Federation reported that retail-industry shrink amounted to $94.5 billion in 2021, up from $90.8 billion in 2020.
The NRF’s National Retail Security Survey, which was conducted with the Loss Prevention Research Council, found that retailers saw a 26.5% increase in organized retail crime incidents on average in 2021. Eight in 10 retailers surveyed also reported that violence and aggression associated with organized retail crime incidents had increased.
From the archive: Retailers say theft cost nearly $100 billion last year. But are stores using crime stats to cover up other problems?
“Organized retail crime and theft in general, is an increasingly serious issue impacting many retailers,” Hobart told analysts on the company’s earnings call.
Organized retail crime was “significantly higher than we anticipated,” said Chief Financial Officer Navdeep Gupta on the call.
For more, see: Walmart’s ‘shrink’ challenges differ from those of other retail giants, CEO says
Related: Target facing ‘unacceptable amount’ of retail theft and organized retail crime, CEO says
Pittsburgh-based Dick’s
DKS,
posted net income of $244 million, or $2.82 a share, for the quarter, down from $19 million, or $3.25 a share, in the year-earlier period. Adjusted per-share earnings also came to $2.82, below the $3.81 FactSet consensus.
Sales rose 3.6% to $3.224 billion from $3.112 billion a year ago, just below the $3.238 billion FactSet consensus.
Same-store sales rose 1.8% to lag the FactSet consensus of 2.7%.
“Despite moderating our 2023 EPS outlook, the enthusiasm we have for our business and the confidence we have in ourlong-term growth opportunities have never been stronger,” said Hobart.
Dick’s is now expecting full-year same-store sales to be flat to up 2%, while FactSet is expecting a 1% rise.
The company still expects adjusted EPS of $11.50 to $12.30.
Dick’s is cutting costs via an optimization plan and eliminated hundreds of corporate jobs on Monday, mostly support-center staff. The layoffs comprise less than 1% of the overall workforce, a person close to the company told Dow Jones Newswires on Monday.
The company expects to book a charge of $20 million to cover severance in the third quarter and to book total one-time charges of $25 million to $50 million in fiscal 2023.
CFRA analyst Zachary Warring reiterated his buy rating on the stock, but cut his price target to $150 from $175.
“We believe Dick’s is a top pick in retail even after a weak quarter, as the company continues to gain market share, generate strong free cash flow, and repurchase shares aggressively,” he wrote in a note to clients.
The stock has gained 22% in the year to date, while the S&P 500
SPX,
has gained 14.6%.
Additional reporting by James Rogers in New York.
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