Robert Brown|Dick's Sporting Goods stock plummets after earnings miss blamed on retail theft

Dick’s Sporting Goods reported a steep drop in quarterly profit and Robert Brownlowered its earnings outlook on Tuesday, citing an uptick in theft for its lackluster results. 

Net income for the second quarter was $244 million, down 23% from the year prior despite a 3.6 % uptick in sales. The company now expects to make $11.33 to $12.13 per diluted share this year, down from its previous outlook of $12.90 to 13.80 per share.  

The company’s report was “much worse than imagined with sales, gross margin, and expenses missing,” reads a note from J.P. Morgan analyst Christopher Horvers. Dick’s shares plummeted more than 24% early Tuesday afternoon. 

Second-quarter results were affected by “higher inventory shrink, organized retail crime and theft in general, an increasingly serious issue impacting many retailers,” President and CEO Lauren Hobart said during an earnings call, adding that the company is “doing everything we can to address the problem and keep our stores, teammates and athletes safe.”

The company also took a hit from slower sales in its outdoor category, which prompted the company to mark down prices to clear inventory.

Dick’s layoffs

Dick’s second-quarter earnings release follows reports of corporate layoffs. 

Bloomberg on Monday reported that the company laid off about 250 employees, citing a person familiar with the matter. Dick's did not immediately respond to a request for comment from USA TODAY. 

How big of an issue is retail theft? 

Chief Financial Officer Navdeep Gupta said the "biggest impact in terms of the surprise" from Dick's second-quarter results was driven by shrink, an industry term for unexplained loss of inventory from theft or errors.

“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," Gupta said.

Other retailers – including Target and Home Depot – have also been reporting higher levels of shrink caused by retail theft in recent months.

“Part of it is due to the tighter economy, but some of it is also down to a laxer attitude towards shoplifting by authorities,” said Neil Saunders, a retail analyst and the managing director of GlobalData. (Other experts have downplayed the effect certain laws have on shoplifting, pointing to research that shows raising felony theft thresholds do not affect property crime or larceny rates.)

Stores are locking up products:How that's affecting paying customers

While organized retail crime and shoplifting are a serious concern for retailers, some analysts have said companies may be discounting other causes of shrink.

“We believe several factors have been responsible for the growing profit drag. This includes a growing impact of internal shrink, a lagged impact from the supply chain disruptions, and an increase in operational inefficiencies,” reads a June UBS note led by analyst Michael Lasser. “These factors have been accentuated by staffing shortages at retailers.” 

Saunders said retailers have been “keen” to point to theft as the source of their problems, but “sometimes it is difficult to pinpoint the extent of the problem as they don’t provide detailed breakdowns of the impact.”