Dicks’s Sporting Goods (DKS) stock tumbled nearly 20% in pre-market trading after the sporting goods retailer said organized retail crime has cut into its profits.
“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,” Dick’s CEO Lauren Hobart said in the company’s second quarter earnings release before the bell on Tuesday.
The company’s adjusted earnings per share of $2.80 in the second quarter came in about a dollar short of analysts expectations for $3.81.
Dick’s also cut it’s full-year profit outlook due to the rise in retail crime. Dick’s now sees full-year adjusted earnings per share in a range of $11.50-$12.30, down from a range of $12.90-$13.80.
The company’s earnings conference call is slated to begin at 10:00 a.m. ET.
“This is an issue that has negatively impacted many retailers, but has not been called out by DKS previously,” Wedbush analyst Seth Basham wrote on Tuesday.
Still, quarterly sales of $3.22 billion came in just shy of expectations for $3.24 billion and the retailer maintained its outlook for comparable sales to end the year in a range of flat to up 2% when compared to the year prior.
“[Dick’s management] said sales significantly accelerated in July, however that is unlikely to alleviate doubts about their ability to achieve…comp guidance against more difficult promotionally driven comparisons in [the second half of 2023],” Citi managing director Paul Lejuez wrote in a note to clients after the release.
Lejuez added the firm expects shares to trade down “significantly” based on the quarterly miss and the lowered outlook, which still contains potential downside risks.
Organized retail crime has been a drag across the sector for more than year.
Target (TGT), Best Buy (BBY), Rite Aid (RAD), and Dollar Tree (DLTR) have all highlighted “shrinkage,” which includes theft, as a factor weighing on profits.
In 2022, Target said it lost $400 million in profits due to inventory shrinkage. Last week, Target, Home Depot (HD), and Walmart (WMT) all called out shrink on their earnings calls.
“In the second quarter, our gross margin was 33%, a decrease of 8 basis points from the second quarter last year, primarily driven by pressure from shrink,” Home Depot CFO Richard McPhail said on the company’s earnings call.
“Shrink has been a consistent pressure over the last several quarters and even the last few years. It’s something we’re tackling every day.”
Josh Schafer is a reporter for Yahoo Finance.
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