Retail giant Dick's Sporting Goods watched profits plummet 23% amid a drastic rise in organized retail theft, the company stated Tuesday.
The sinking profits were accompanied by slashes related to Dick's earnings guidance for 2023, and markdowns have been put in place to help move overstocked outdoor products, according to a report.
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Failing to meet Wall Street estimates for its top and bottom line, Dick's shares fell 24%, terminating a 22% year-to-date gain that came to an end with Monday's close.
All this has seen the retailer diminish its profit forecast as it expects more inventory to be lost to theft and internal issues, also known as shrink, the report noted.
Dick's has not included a reference to shrink in a press release or earnings call in close to two decades, according to the report.
"Organized retail crime and theft in general is an increasingly serious issue impacting many retailers. Based on the results from our most recent physical inventory cycle, the impact of theft on our shrink was meaningful to both our Q2 results and our go forward expectations for the balance of the year," CEO Lauren Hobart said.
"Beyond shrink, we also took decisive action on excess product, particularly in the outdoor category, to allow us to bring in new receipts and ensure our inventory remains vibrant and well positioned," she added.
A prior issued earnings guidance, running between $12.90 to $13.80 per share, was amended by Dick's to an expected $11.33 to $12.13 per share for the year, according to the report.
However, in spite of Q2 profit losses, Dick's anticipates an increase in gross margins for 2023 when compared to 2022.
"The biggest impact in terms of the surprise for Q2 primarily came from shrink," Chief Financial Officer Navdeep Gupta said.
"We thought we had adequately reserved for it. However, the number of incidents and the organized retail crime impact came in significantly higher than we anticipated and that impacted our Q2 results as well," he added.
A physical inventory count is conducted once a year by Dick's, Gupta said, and it was during this annual inspection, right before the school year, that the impact of shrink was noticed.
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"This is not just a Dick’s Sporting Goods challenge. This is a collective retail challenge," Gupta said.
He added, "For now, for the near term, we do anticipate this will remain with us."