After a second quarter where profitability fell short, Dick’s Sporting Goods announced a business optimization program that involved laying off 250 employees at the corporate level, as first reported by Bloomberg Business.

Dick’s said that the business optimization plan is intended to better align its talent, organization design, and spending.

“As part of our review, we eliminated certain positions primarily at our customer support center on Aug. 21, for which we expect to incur approximately $20 million of severance expense in the third quarter of 2023,” the company said in a release.

Cost savings are expected to be offset by strategic talent investments over the next twelve months, according to the release.  The company expects the realignment to be completed during fiscal 2023 and projects that it may result in additional one-time charges of $25 million to $50 million.

Retail workers were not part of the restructuring, according to Bloomberg.

On a conference call with investors, Dick’s executives also commented on the outdoor segment, including inventory status and sales strategy.

Sales Up on Back-to-School, New Stores

Dick’s delivered 1.8% growth in second quarter comparable store sales, driven by a 2.8% increase in transactions and market share gains for the quarter ending July 29, 2023.

“We are pleased with our strong sales performance for the second quarter led by robust transaction growth and continued market share gains,” said Lauren Hobart, president and chief executive officer for Dick’s.

But net income was down 23% to $244 million for the period.

“Within the quarter, sales accelerated significantly in July, and we remain confident in delivering positive comp sales for 2023. While we posted another double-digit EBT margin, 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.”

Hobart attributed the sales acceleration to the start of the back-to-school season and the opening its new House of Sport stores. Nine new House of Sport locations celebrated their grand openings in July and August.

“For the full year we remain confident in delivering comparable store sales in the range of flat to positive (2%), unchanged from our prior outlook,” she added.

Shrink Issue

However, the company has lost business due to “shrink” from organized retail crime and theft in general, according to Hobart. She said this is an “industry-level problem.”

“It’s actually a problem for our entire country,” she said. “We’ve all seen the stories. It’s quite alarming what’s going on.”

Hobart said that Dick’s is going to fight it “with increased security with cameras and working with local law enforcement and industry partners.”

CFO Navdeep Gupta said shrink represented a third of the company’s merchandise margin decline.

‘Aggressive’ Outdoor Sales

Beyond shrink, Hobart added that the company has also taken “decisive action” on excess product, particularly in the outdoor category. She said Dick’s is pleased that its inventory was down 5%.

“That allows us to bring in new receipts and ensure our inventory remains vibrant and well-positioned,” Hobart said. “Keeping our inventory fresh is one of our key operating philosophies.

Gupta added that there is a peak that happens in the outdoor category around the middle of the second quarter.

Hobart said that there was excess inventory in the marketplace, and a short window to sell through it.

“We were aggressive,” she said. “But it doesn’t change our expectations on the outdoor category in general. We are very excited about reinventing the outdoor category and delivering a great consumer experience. This was a short-term issue this past quarter.”

Store Expansion

Dick’s added seven Dick’s House of Sport stores during the quarter. The company now operates 860 stores, with 725 Dick’s Sporting Goods locations and 135 others, including Public Lands and Moosejaw.

Dick’s now operates 12 House of Sport stores.

“We are extremely excited about the future of our business,” said Ed Stack, executive chairman of Dick’s. “Our newest Dick’s concepts, Dick’s House of Sport and our next generation 50,000-square-foot Dick’s store, are yielding powerful results. We haven’t seen growth opportunities like these since we went public in the early 2000s.”

Q2 By the Numbers

Sales rose 3.6% to $3.2 billion for the quarter.

Net income was down 23% to $244 million for the period.

Gross margin declined to 34.4% compared to 36% a year ago.

Looking Ahead

Earnings per share for the year was revised down to the range of $11.33 to $12.13, and down to $11.50 to $12.30 on a non-GAAP basis, which eliminates the impact of the severance expected to be incurred as part of the business optimization.

Previous guidance called for EPS in the range of $12.90 to 13.80.

“Despite moderating our 2023 EPS outlook, the enthusiasm we have for our business and the confidence we have in our long-term growth opportunities have never been stronger,” Hobart said.

Bart Schaneman can be reached at bart@ordaily.outdoorretailer.com.