Five Below (FIVE) and Dollar General (DG) are the latest retailers taking a hit on profits due to increased levels of theft, or "shrink."
Discount retailer Dollar General's stock sank 12% to close at $138.50 on Thursday after its second quarter gross profit margin slid to 31.1% compared to 32.3% a year ago. The company said the decline was "primarily attributable to lower inventory markups and increased shrink," among other factors.
The Tennessee-headquartered company cut its earnings per share growth forecast for 2024 to -8%-0%, down from its prior forecast for growth between 4% and 6%. The report comes after a tragic shooting at a Dollar General in Jacksonville, Florida.
Meanwhile, Five Below saw shares fall about 6% after the value retailer slashed its full-year guidance because of costs related to increased theft.
"We believe it is prudent to increase our shrink reserve for the balance of the year, and we expect a significant impact in the third quarter," Five Below’s CFO Kristy Chipman told analysts during the company's earnings call.
The company revised down its full-year earnings forecast to a range of $5.27-$5.55 against a previous target of $5.31-$5.71, though it kept its sales outlook unchanged.
"You're all familiar with the recent media and videos that are out there where retailers across the sector are experiencing increased levels of shrink and related crime incidents. And we are not immune to this as we're finding out,” Ken Bull, Five Below COO, told analysts during the earnings call.
"This is ... what we view as an external societal issue, and it is going to require involvement from government and local leaders to fully resolve it. We've also noticed that the traditional measures for mitigation around asset protection are not as fully effective as they've been previously," Bull said.
"So, we are focusing our shrink mitigation efforts on more of a comprehensive approach that actually includes both asset prevention — loss asset prevention, and crew safety."
In waves of earnings calls, retailers across the board have been sounding the alarm on the industry's increasing shrink problem.
Last week, value retailer chain Dollar Tree (DLTR) said it is taking steps to combat theft, including moving certain items behind the checkout stand and removing some SKUs altogether.
Dick's Sporting Goods stock tanked earlier this month after calling out higher costs from shrink in its most recent quarter. "The number of incidents and the organized retail crime impact came in significantly higher than we anticipated, and that impacted our Q2 results," CFO Navdeep Gupta said.
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