Dickin’s Sporting Goods On Tuesday, the company reported a 23% drop in profit after seeing an increase in retail theft and slower sales in the outdoor category, and cut its earnings guidance for the year.
In a rare setback for a sportswear retailer, Dick’s missed Wall Street’s top- and bottom-line estimates and announced global job cuts. Shares fell nearly 20% in premarket trading.
Here’s how the company fared in its fiscal second quarter compared to Wall Street expectations, based on a survey of analysts by Refinitiv:
- Earnings per share: $2.82 vs. $3.81 expected
- Revenue: $3.22 billion, expected $3.24 billion
The company’s reported net income for the three months ended July 29 was $244 million, or $2.82 per share, compared with $318.5 million, or $3.25 per share, a year earlier.
Sales rose to $3.22 billion from $3.11 billion a year earlier.
The company lowered its profit forecast for the year in part because it expects a decline in the retail industry term, which refers to inventory lost to theft or internal problems getting worse rather than better.
“Second quarter profitability was below our expectations due to the impact of high inventory shrinkage, an increasingly serious problem affecting many retailers,” CEO Lauren Hobart said in a press release. “While we have moderated our 2023 EPS outlook, our passion for our business and our confidence in our long-term growth opportunities have never been stronger.”
Dick’s expects earnings of $11.33 to $12.13 per share for the year, compared with $12.90 to $13.80 previously provided. It affirmed its comparable-store sales forecast of up 2% and is not reducing planned capital spending. Despite the profit loss during the quarter, the retailer still expects gross margins to increase for the full year compared to 2022.
The reference to downsizing is the first Dick’s has made in an earnings call or press release in nearly 20 years, according to FactSet. Similar to other retailers that reported earnings last quarter, the reference comes at a time when Dick’s profits are under pressure from multiple sources, including a slowdown in the outdoor category, which includes hard goods such as camping equipment.
During the quarter, Dick’s used promotions to load inventory from the category. Overall, inventories fell about 5% in the quarter compared to the prior period.
Dick’s margin fell to 34% from 36% a year ago. According to StreetAccount, analysts were expecting a gross margin of 36%.
Chairman Ed Stack told CNBC that about a third of the margin reduction was from the contraction.
“It’s moved. It’s kind of moved up. We expect it could get a little bit worse. We took a little bit more stock on that in the second half of the year. Just the crime, grab-and-go, from what we’ve seen in organized retail,” Stack said in an interview. “We think we’re doing everything we can to try to mitigate that with the security we have in our stores by working with local authorities.”
Although the quarter was a bit rough compared to Dick’s usual reports, the retailer still maintained its pandemic earnings. Its profit has increased compared to 2019. It opened seven new Sports Houses during the quarter and plans to continue opening new doors in the future. Widespread specialty stores with facilities of up to 100,000 square meters are interactive and focused on an athletic customer base.
Same-store sales rose 1.8% in the quarter, down from 5.1% a year ago, driven by a 2.8% increase in operations. Analysts had expected them to rise 2.7%, according to StreetAccount.
The company on Monday cut less than 1% of its global workforce, primarily in its customer support center, in an effort to simplify its cost structure and reinvest in different parts of the business. The cuts have affected key headquarters roles and represent less than 10% of corporate positions, Stack said.
The layoffs will cost about $20 million in severance costs next quarter and could result in additional one-time charges of $25 million to $50 million.
Stack cautioned that the cuts are not a cost-saving strategy, but rather an attempt to reallocate resources.
“We’re going to reinvest all those dollars into the talent and the technology we want,” Stack said. “So it wasn’t a cost-cutting move.”
-CNBC’s Courtney Reagan contributed to this report