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Dick's Sporting Goods blames theft for plummeting profits

The retailer reported an astounding 23% drop in net income in the second quarter of 2023 compared to 2022.
Dick's Sporting Goods blames theft for plummeting profits
Posted at 7:45 AM, Aug 23, 2023

Dick's Sporting Goods stock lost about one-fourth of its value on Tuesday as the retailer posted softer-than-expected earnings for the second quarter of 2023. 

Dick's reported an astounding 23% drop in net income in the second quarter of 2023 compared to 2022. 

Even though the company claimed to gain market share in the second quarter, company leaders said a rise in theft dipped into its profits. 

"Two key factors impacted our second quarter gross margin relative to our original expectations," said Lauren Hobart, Dick's Sporting Goods CEO. "The first was the impact of higher inventory shrink, organized retail crime and theft in general, 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. We are doing everything we can to address the problem and keep our stores, teammates, and athletes safe."

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Navdeep Gupta, Dick's Sporting Goods' chief financial officer, estimated that theft represented a third of its merchandise margin decline.

"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," Gupta said. 

The National Retail Federation issued a report last month indicating just how far-reaching retail theft has become. It says that organized retail crime isn't just being conducted by hordes of people, like those seen in smash-and-grab incidents in the Los Angeles area in recent weeks. International groups have been involved in organized retail crime, the NRF said.

"Shrink is an industry-level problem," Hobart said. "It's a problem for our entire country, and it's something that we all need to work together on with our partners, with our trade organizations, and with our government, honestly, to continue to address the shrink issue. We've all seen the stories and it's quite alarming what's going on."

Macy's, which lost 14% of its stock value on Tuesday, said it has been addressing theft at its locations. 

"Shortage continues to be a headwind, and we are focused on a variety of mitigation strategies including testing the use of advanced technology, reporting, and tools; moving high-theft product away from entrances in our stores; optimizing asset-protection staffing to target high-risk areas; and collaborating with external parties to advocate for legislative change," said Macy's CFO Adrian Mitchell. 

One type of theft affecting retailers is cargo theft. According to CargoNet, there was a 57% increase in cargo thefts in the second quarter of 2023 compared to the same time period of 2022. The per-theft average increased nearly $100,000 to $260,703 as cargo thieves focused on high-value shipments, CargoNet said. 

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