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Dick’s Sporting Goods Calculation Error Sparks Losses Securities Class Action

Dick's Sporting Goods Store Interior

Dick’s Sporting Goods, Inc. seems to have made a large error in its calculations of figures—or did it in fact not have adequate control over its financial reporting for 2016?

The class for this action is all persons who acquired Dick’s securities between March 7, 2017 and May 15, 2017.

Dick’s Sporting Goods is a retailer that sells brand name sporting goods equipment, clothing, and footwear. It also own companies like Golf Galaxy, Inc. and Field & Stream.

The class period opens with Dick’s filing of a Form 8-K and issuing a press release on results for the quarter and fiscal year ended January 28, 2017.

The complaint quotes the Form 8-K as saying, in part, “Adjusted EBITDA should not be considered as an alternative to net income or any other generally accepted accounting principles measure of performance or liquidity. Adjusted EBITDA, as the Company has calculated it, may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA is a key metric used by the Company that provides a measurement of profitability that eliminates the effect of changes resulting from financing decisions, tax regulations, capital investments and certain non-recurring, infrequent or unusual items.”

The company’s Form 10-K 2016 annual report concluded that the company’s internal control over financial reporting was effective as of January 28, 2017.

Unfortunately, the complaint claims that this was not true. On May 12, 2017, Dick’s put out a current report on Form 8-K/A saying that “a computation error resulted in a $23.4 million overstatement of Adjusted EBITDA amounts for both the 13 weeks and 52 weeks ended January 28, 2017.” It also repeated the remarks quoted previously about EBITDA.

At this news, the company’s stock price fell by more than 5%.

Also, on May 16, 2017, Dick’s announced that sales in the first quarter of 2016 had fallen short of forecasts and said that it planned to do fewer openings of new stores in 2018 and 2019.

At this second piece of news, the company’s stock price fell again, this time by more than 14%.

The complaint claims that the company’s statements during the class period were false and misleading, in that the company did not have control over its financial reporting. It claims that the company violated the Securities Exchange Act of 1934 and that it is responsible for the stock losses incurred by investors when corrective information was revealed. 

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