Dick’s shares fall 20% as the retailer lowers its outlook amid theft fears

Signage outside a Dick's Sporting Goods Inc. store in Clarksville, Indiana on Monday, November 9, 2020.

Luke Sharrett | Bloomberg | Getty Images

Dick's sporting goods reported a 23% drop in profits and lowered its profit forecast for the year after retail thefts rose and sales in the outdoor category fell, the company announced on Tuesday.

In a rare failure for the sportswear retailer, Dick's underperformed Wall Street estimates on sales and profits and announced cuts in its global workforce. Shares fell about 20% in premarket trading.

Here's how the company fared in its fiscal second quarter versus Wall Street expectations, based on a Refinitiv analyst poll:

  • Earnings per share: $2.82 versus $3.81 expected
  • Revenue: $3.22 billion versus $3.24 billion expected

The company's reported net income for the three-month period ended July 29 was $244 million, or $2.82 per share, compared to $318.5 million, or $3.25 per share last year.

Revenue increased to $3.22 billion from $3.11 billion last year.

The company lowered its earnings guidance for the year in part because it believes shrinkage, a retail industry term that refers to inventory lost through theft or internal problems, will get worse before it gets better.

“Our second-quarter profitability fell short of our expectations, due in large part to the impact of increased inventory depletion, an increasingly serious issue affecting many retailers,” CEO Lauren Hobart said in a press release. “Despite the softening of our 2023 EPS outlook, the excitement we have for our business and the confidence we have in our long-term growth opportunities have never been greater.”

Dick's now expects earnings per share of $11.33 to $12.13 for the year, compared to a previously issued guidance of $12.90 to $13.80. The company reiterated its comparable-store sales guidance of unchanged to 2% and is not cutting planned capital expenditures. Despite the profit loss in the quarter, the retailer still expects full-year gross margins to increase compared to 2022.

The reference to shrinkage is the first Dick's has made in an earnings announcement or press release in nearly 20 years, according to FactSet. Similar to other retailers that reported earnings last quarter, this notice comes at a time when Dick's earnings are under pressure from multiple sources, including a decline in its outdoor category, which includes durable goods like camping gear . During the quarter, Dick's used promotions to move inventory out of the category.

Dick's margins fell to 34%, down from 36% in the year-ago period. CEO Ed Stack told CNBC that a third of the margin decline was due to contraction.

“It has moved. It kind of went up. We think it could get even a little worse. We built a slightly larger reserve for this in the second half of the year. Just because of what we're seeing in organized retail. “Crime, Grab and Go's,” Stack said in an interview. “We believe we are doing our utmost to contain it through the security we have in stores and working with local authorities.”

Though the quarter is a bit bumpy compared to Dick's usual reports, the retailer is still holding on to its profits generated by the pandemic. Profits are up compared to 2019. The Company opened seven new House of Sport locations during the quarter and plans to open additional new doors in the future. The sprawling specialty stores, covering up to 100,000 square feet, are interactive and geared towards the athlete customer base.

To streamline its cost structure and invest in various business areas, the company cut less than 1% of its global workforce on Monday, primarily in the customer service center. The cuts mostly impacted headquarters jobs, accounting for less than 10% of the company's positions, Stack said.

The cuts will cost approximately $20 million in severance costs in the next quarter and may result in an additional one-time charge of between $25 million and $50 million.

Stack warned that the cuts are not a cost-cutting strategy, but rather an attempt to reallocate resources.

“We're going to reinvest all of those dollars back into talent and the technology that we want,” Stack said. “So that wasn't a cost-cutting move.”

-Courtney Reagan of CNBC contributed to this report

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