Dick's Sporting Goods (DKS) stock tumbled more than 20% Tuesday morning after the sporting goods retailer said organized retail crime has cut into its profits.

"The biggest impact in terms of the surprise for Q2 primarily came from shrink," Dick's CFO Navdeep Gupta said on the company's earnings call. "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."

The unexpected shrink, or theft, weighed on the company's adjusted earnings per share which came in at $2.80 in the second quarter, about a dollar short of analysts expectations for $3.81. Dick's management team said on the earnings call that it expects shrink to also "remain elevated" through the back half of the year. The retailer cut it's full-year profit outlook due to the rise in retail crime. Dick's now sees full-year adjusted earnings per share in a range of $11.50-$12.30, down from a range of $12.90-$13.80.

"This is an issue that has negatively impacted many retailers, but has not been called out by DKS previously," Wedbush analyst Seth Basham wrote on Tuesday.

Dick's gross margins of 34.4% fell 5% from the same period in the year prior, and came up short of Wall Street's estimates for 36.3%. Gupta said shrink attributed to "one third" of the gross margin decline. The other portion of the decline came from "decisive actions" such as writing off outdoor products.

"There's a very short window in which to sell through (outdoor goods), and so we were aggressive," Dick's CEO Lauren Hobart said. "But it doesn't change our expectations on the outdoor category in general...This was a short-term issue this quarter."

Quarterly sales of $3.22 billion came in just shy of expectations for $3.24 billion and the retailer maintained its outlook for comparable sales to end the year in a range of flat to up 2% when compared to the year prior.

"We saw growth across every single income demographic," Hobart said. "We did not see a trade down from best to better or better to good product...It is really clear and important to note that our consumer is doing very well."

An industry wide issue

Organized retail crime has been a drag across the sector for more than year.

Target (TGT), Best Buy (BBY), Rite Aid (RAD), and Dollar Tree (DLTR) have all highlighted "shrinkage," which includes theft, as a factor weighing on profits.

In 2022, Target said it lost $400 million in profits due to inventory shrinkage. Last week, Target, Home Depot (HD), and Walmart (WMT) all called out shrink on their earnings calls.

"In the second quarter, our gross margin was 33%, a decrease of 8 basis points from the second quarter last year, primarily driven by pressure from shrink," Home Depot CFO Richard McPhail said on the company's earnings call.

"Shrink has been a consistent pressure over the last several quarters and even the last few years. It's something we're tackling every day."

On Tuesday's call, Hobart described shrink as a "industry-level problem," and believes companies need to work with trade organizations and government to address the issue.

"We are going to fight to the extent we can to keep our teammates, our athletes, and our stores safe, and that's with increased security, with lock lock-hop cameras, and working with local law enforcement and with our industry partners," Hobart said.

Josh Schafer is a reporter for Yahoo Finance.

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