Dick’s Sporting Goods, a major player in the retail industry, announced a significant setback in its financial performance on Tuesday.

The company reported a sharp 23% drop in profits and revised its earnings guidance for the year.

The decline was primarily attributed to a surge in retail theft and sluggish sales in its outdoor product category.

For the first time in three years, Dick’s Sporting Goods failed to meet Wall Street’s expectations both in terms of revenue and earnings. The company disclosed plans to reduce its global workforce.

The market response was immediate, with the company’s stock plummeting by 24%, completely erasing its 22% year-to-date gain up to the previous day’s close.

Q2 performance vs Wall Street predictions

In its second fiscal quarter, Dick’s reported earnings per share of $2.82, falling short of the expected $3.81. The company’s revenue also disappointed, coming in at $3.22bn instead of the anticipated $3.24bn.

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By GlobalData

Compared to the same period the previous year, Dick’s net income for the three months ending 29 July dropped to $244m, or $2.82 per share, from $318.5m, or $3.25 per share.

One key factor leading to the profit decline was the rise in “shrink,” a retail industry term referring to inventory losses due to theft or internal issues. CEO Lauren Hobart acknowledged the seriousness of this issue and its impact on profitability.

Despite the reduced earnings outlook for 2023, the company remains confident in its long-term growth prospects.

New earnings guidance and margins

Dick’s now expects earnings between $11.33 and $12.13 per share for the year, compared to its previous guidance of $12.90 to $13.80. However, it maintains its forecast for comparable store sales and capital expenditures.

Surprisingly, despite the profit drop in the quarter, the retailer anticipates an increase in gross margins for the full year compared to 2022.

Dick’s Sporting Goods mentioned “shrink” in its earnings report for the first time in nearly two decades. This comes as the company faces increasing profit pressure from various sources, including a slowdown in its outdoor product category.

Efforts to address this issue include in-store security measures and collaboration with local authorities.

Following the earnings report, Dick’s Sporting Goods experienced its most challenging trading day since its initial public offering in October 2002, trading at four times its 30-day average volume.

Maintaining pandemic gains

Despite the recent financial difficulties, Dick’s Sporting Goods has managed to retain its pandemic-induced gains. Compared to 2019, the company’s profits have increased.

It continues to expand, opening seven new House of Sports locations in the quarter geared toward its athlete customer base.

In an effort to streamline its cost structure and reinvest in various areas of the business, the company recently implemented a workforce reduction of less than 1%, mainly affecting its customer support centre.

While these cuts will incur severance expenses of about $20m in the next quarter, additional one-time charges of $25m to $50m may follow.

Chairman Ed Stack emphasised that these moves are not primarily aimed at cost-saving but are intended to reallocate resources and invest in talent and technology.