Overheard On Wall Street: Finish Line, DSW & Athleisure Trends

Finish Line
A Finish Line store at the Mall of Millenia in Orlando.
Courtesy of retailer.

Ugg markdowns, counterfeit conjecture and the return of a red-hot M&A market are just a few of the headline-making stories that kept Wall Street on its toes this week.

With so much footwear buzz going around, there’s a good chance a few important shoe-biz happenings may have slipped under your radar.

Here, FN’s business editor brings you up to speed.

Finish Line Inc.

Finish Line disappointed investors in September when its Q2 revenues missed Wall Street’s estimates, while profits fell 1 percent and comps rose a soft 1.5 percent. The retailer was dragged down by comparisons with its main competitor, Foot Locker Inc., which had had several quarters of strong earnings growth.

But Citi Research analyst Kate McShane said she sees better days ahead for the specialty-athletic retailer, raising the firm’s stock to a “buy” this week.

“We are upgrading Finish Line [because] we expect a return to a consistency of comp growth given better merchandising/assortments and the opportunity for running as new platforms are rolled out by major vendors before the Olympics,” McShane wrote. “We expect slower SG&A dollar growth in FY17 as management laps higher spending from .com investment; and the stock is trading at a trough multiple of 8x despite a strong health-and-wellness trend, strong vendor relationships and the opportunity for better earnings power as they lap investment spend.”

Finish Line reports Q3 on Jan. 7.

DSW Inc.

Market watchers had been slightly down on DSW in recent weeks after the discount retailer wasn’t able to pull off the ambitious earnings numbers that many analysts had forecast on the heels of the West Coast ports fiasco.

After returning from meetings with the firm’s C suite this week, CL King & Associates analyst Steve Marotta said DSW “endeavors to capitalize on unparalleled assortment, value and convenience to gain share in a highly fragmented industry.”

“Two critical, and self-imposed, factors have been contributing to [DSW’s] underperformance over the past two years or so,” Marotta wrote. “One, the multiple omnichannel initiatives, while a priority, were somewhat of a distraction for managers across departments, but, most importantly, for merchants as well. With much of the infrastructure now in place, merchants are once again freed up to focus solely on product assortment.”

Second, Marotta noted, marketing expenses, at around 2.5 percent of revenues, have been viewed as under-invested. But, he said, the company appears to be addressing that issue, too.

“While management was reticent about offering specific plans for 2016, we expect an uptick in the marketing budget,” Marotta said.

Athleisure Remains Strong

The athletic-shoe segment continues its sustained momentum, as evidenced by the latest sales data.

According to McShane, referencing stats from SportScan, total U.S. athletic footwear point-of-sales were up 10.7 percent year-over-year for the week ended Dec. 12, driven by a 5.7 percent rise in unit sales and a 4.7 percent jump in average selling price.

Sales of casual athletic styles from brands such as Nike, Skechers and Converse advanced 32.7 percent year-over-year, while sales in the basketball category shot up 20.2 percent year over year. Running-shoe sales also improved, by 7.6 percent year over year.