Dick's Sporting Goods' stock slammed after earnings miss by a wide margin. Shoplifting cited as reason.

By Ciara Linnane

Stock slides 22% after the retailer's first earnings miss in three years

Dick's Sporting Goods Inc.'s stock tumbled 22% Tuesday, after the retailer's second-quarter profit missed Wall Street's consensus estimate 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 the profit and sales consensus estimates was in April 2020, when it was reporting first-quarter earnings for that year.

"While we posted another double-digit EBT [or earnings before tax] 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 CEO Lauren Hobart in a statement.

Many retailers, including the likes of 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 frequently being conducted by organized gangs. The issue is costing companies in the retail sector billions of dollars a year, according to executives.

Last year, the National Retail Federation reported that industrywide 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 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 [earnings per share] outlook, the enthusiasm we have for our business and the confidence we have in our long-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 earnings of $11.50 to $12.30 per share.

Dick's is cutting costs via an optimization plan and eliminated hundreds of corporate jobs on Monday, mostly support-center staff. The layoffs impact 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.

James Rogers contributed.

-Ciara Linnane

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08-23-23 0746ET

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