The results were largely expected by analysts and were tempered by relief over its exit from the unprofitable Man Alive.
The Indianapolis-based retailer announced last week it had handed off the urban-inspired chain, along with about $7 million in cash, to Jimmy Khezrie, owner of the Jimmy Jazz chain. The deal is expected to close in July.
“To be successful in this environment, you’ve got to be so focused,” said Sam Poser, senior research analyst at Sterne Agee & Leach. “Man Alive was definitely a distraction for them.”
The unconventional nature of the sale — the company will pay Khezrie’s company, Man Alive Acquisition LLC, $5 million at the deal’s closing and will distribute the rest over the next 12 months — was the “best case scenario,” added Christopher Svezia, a senior analyst at Susquehanna Financial Group. “Given the deterioration in the business, management cut further losses as quickly as possible. It helped investors look beyond the slight mess in earnings for the quarter.”
For the three months ended May 30, Finish Line reported a net loss of $600,000, or 1 cent a diluted share, compared with a profit of $900,000, or 2 cents, in the same period last year. Sales for the quarter fell 7 percent to $267.2 million, from $287.9 million last year. Analysts surveyed by Yahoo Finance had expected a 1 cent earnings-per-share increase on sales of $273.2 million.
Net sales at the Finish Line chain were down 5 percent to $259.1 million in the quarter, while comparable-store sales slipped 3.9 percent. At Man Alive, revenues plummeted 46 percent to $8.1 million, while comps dropped 39.1 percent.
“Finish Line wasn’t significantly off the mark,” said Svezia. “If you strip out Man Alive, the results aren’t really that bad.”
Ed Wilhelm, Finish Line’s CFO, told Footwear News that he was pleased about the Man Alive transaction. “Now we can focus all our resources on our core Finish Line business,” he said, pointing to opportunities such as Internet sales, direct marketing and the customer loyalty program.
Under terms of the deal, Man Alive Acquisition will pick up 75 stores under the Man Alive and Decibel names, along with their trademarks and trade names, leasehold interest and lease liabilities, and intellectual property. All of Man Alive’s workers will stay on with the new company.
Finish Line originally acquired Man Alive in January 2005 for $12 million in cash. However, Man Alive has been hemorrhaging money since, and Finish Line said it registered a $13.2 million loss from Man Alive for the year ended Feb. 28.
The retailer said the chain would be accounted for as a discontinued operation in the second quarter ending Aug. 29.