Inventory Theft Hurts DICK's Sporting Goods' Earnings

Oct 17, 2023

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DICK's Sporting Goods Inc. (DKS), the largest U.S. sporting goods retailer, reported a sharp profit decline for the most recent quarter amid tepid sales growth and an increase in inventory theft, driving shares down by almost 25% in Tuesday trading following the announcement.

DICK's posted earnings and revenue below expectations for the second quarter and announced cuts to its global headcount as the company cited the impact of "inventory shrinkage"—losses of inventory often attributed to theft—for the first time in decades. Slow sales growth also reflects the continued negative impact of inflation on consumer non-essential items, as well as weakened demand for the company's outdoor products.

DICK's earnings per diluted share fell 13% to $2.82, while net sales increased by less than 4% to $3.2 billion for the quarter. Gross margins fell to 34% from 36% in the prior-year quarter, below analysts' expectations. About a third of margin reduction is attributable to inventory shrink. The increasing theft problem has also pushed DICK's to lower its earnings guidance for the year, to a range of $11.50-$12.30, down from a range of $12.90-$13.80. DICK's shares were down about 24% by Tuesday afternoon following its earnings announcement earlier in the day.

DICK's CEO Lauren Hobart said in the company's earnings release that shrinkage is an "increasingly serious issue impacting many retailers." Recent earnings calls from retailers including Target Corp. (TGT) and Home Depot Inc. (HD) also highlighted the prevalence of shrinkage. As of 2021, retail shrinkage cost the industry about $100 billion per year, more than double what it was just a few years before in 2015.

Still, DICK's continues to enjoy a pandemic-driven boost. Same-store sales climbed almost 2% year-over-year after being down 5% the same time last year. The company reaffirmed its comparable stores outlook for the year, expecting up to 2% growth in this area overall. DICK's also announced that it opened seven new locations of its House of Sport specialty store in the last quarter.

CNBC. "Dick’s Shares Fall 24% as Retailer Slashes Outlook Over Theft Concerns."

Yahoo! Finance. "DICK's Sporting Goods Inc. (DKS)."

DICK's Sporting Goods Inc. "DICK'S Sporting Goods Reports Second-Quarter Results."

Yahoo! Finance. "Retail Theft: Walmart, Home Depot, Target Detail 'Unacceptable Amount' of Crime."

Yahoo! Finance. "Dick's Sporting Goods Stock Tanks as Retail Thieves Snatch Profits."