Dick's shares plunge as theft surge hits Q2 profits, 2023 outlook

Dick's Sporting Goods Inc.  (DKS) - Get Free Report shares plunged lower Tuesday after the biggest U.S. sporting goods retailer slashed its full-year profit forecast following weaker-than-expected second quarter earnings that were impacted by high levels of inventory theft.

Dick's posted adjusted earnings of $2.82 per share for the three months ending in April, a 23.4% decrease from the same period last year that missed Street forecasts by nearly $1 per share.

Group revenues rose 3.7% from last year to around $3.244 billion, a figure that narrowly topped analysts' estimates of a $3.236 billion tally. 

Looking into the back half of its financial year, which ends in February, Dick's said it sees diluted earnings in the region of $11.33 to $12.13 per share, down from its prior forecast of between $12.90 to 13.80 per share, with comparable sales flat or +2% to 2022 levels. 

"We are pleased with our strong sales performance for the second quarter led by robust transaction growth and continued market share gains," said CEO Lauren Hobart. "Within the quarter, sales accelerated significantly in July, and we remain confident in delivering positive comp sales for 2023."

"While we posted another double-digit EBT margin, 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," she added. "Despite moderating our 2023 EPS outlook, the enthusiasm we have for our business and the confidence we have in our long-term growth opportunities have never been stronger." 

Dick's shares were marked 19.52% lower in pre-market trading immediately following the earnings release to indicate a Tuesday opening bell price of $118.34 each. 

Last week, Target CEO Brian Cornell said the retailer "continues to face an unacceptable amount of retail theft and organized retail crime", with incidents rising 120% over the first five months compared to last year.

Cornell said in May that theft from its U.S. stores would likely cost $500 million more than it did last year.

The National Retail Federation defines "organized retail crime" as "the large-scale theft of retail merchandise with the intent to resell the items for financial gain." The trade group said members suffered more than $94 billion in losses over the 2021 financial year as a result.

Senate lawmakers, in fact, earlier this year introduced a bill to target so-called flash mobs that carry out large-scale theft. Lawmakers' move aims to "improve our federal response to organized retail crime and establishes new tools to recover goods and illicit proceeds, and deter future attacks on American retailers," according to co-sponsor Chuck Grassley (R-Iowa).

Action Alerts PLUS offers expert portfolio guidance to help you make informed investing decisions. Sign up now.