Dick's Sporting Goods reports eye-popping profit crash due to 'organized retail theft': 'Quite alarming'

Dick's Sporting Goods disclosed Tuesday that quarterly profits plummeted nearly 25% after the retail chain became a target of "organized retail theft."

The Pennsylvania-based company said that second-quarter profits dropped 23%, despite sales revenue increasing 3.6% over the same time period.

Last year, Dick's Sporting Goods reported a net income of $319 million in the second quarter. This year, profit amounted to only $244 million in the second quarter.

"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," CEO Lauren Hobart said in a statement.

As CNBC explained, inventory "shrink" refers to the "difference between inventory [retail stores are] supposed to have on their balance sheets and their actual inventory." The word thus "captures the loss of inventory from a variety of factors, including employee theft, shoplifting, administrative or cashier error, damage or vendor fraud."

Dick's Sporting Good's, in fact, specifically listed "organized retail crime and our ability to effectively manage inventory shrink" among the reasons why their second-quarter profit was lower than forecasted.

"It's quite alarming what's going on," Hobart said on a conference call Tuesday.

Retail theft has become a serious problem nationwide, especially in cities that generally do not prosecute "minor" thefts. According to the National Retail Federation, shrink has become an approximately $100 billion problemper year — and it's only getting worse.

The dismal profit news came one day after Bloomberg reported that Dick's Sporting Goods laid off 250 corporate employees. The company reportedly plans to use the freed up overhead to hire employees in other areas of the business.

After news of Dick's Sporting Good's profit decline broke on Tuesday, the company's stock tumbled 24%. Moreover, retail analyst Neil Saunders told Retail Dive that problems for Dick's Sporting Goods may only get worse if company leaders do not figure out how to stop the thefts.

"In our view this is a particular issue for Dick’s as many of the products it sells are desirable and have good resale values," Saunders explained. "While the problem is not one of Dick’s making, management does not seem to have any immediate solutions to the problem which could, if left unchecked, continue to weigh down on the bottom line."

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