FINL Relies on Cost Cuts, Upscale Styles

NEW YORK — Performance footwear was a bright spot for Finish Line Inc. in the third quarter — and the company is banking on its merchandise mix to help it stand out in a weak environment.

A continued emphasis on cost-cutting, which helped the company trim its losses in the quarter, is also expected to be a priority moving forward.

On the footwear front, the Finish Line chain saw particular strength in Nike and Jordan product, as well as performance running. CEO Glenn Lyon said on a conference call that the retailer would continue to focus on “premium” product and higher price points.

Analysts were upbeat about the strategy. “We believe the company should see continued benefi ts from a shift in its merchandise mix at The Finish Line chain to [higher-priced] technical footwear and sport lifestyle offerings from its key vendors,” John Shanley, an analyst at Susquehanna Financial, wrote in a research note. “While we do not believe these steps will be enough to overcome a very challenging retail environment, they should help the company to partially weather the storm and emerge well-positioned for growth once conditions improve.”

As part of its continued effort to trim costs, Finish Line said it expected more savings would come in the next 15 months, when almost 40 percent of its stores would be up for lease renewal or would hit their “kick-out clause” date — the date a company can cancel or renegotiate a lease if the landlord has not met certain conditions or obligations. Finish Line currently operates 698 Finish Line stores in 47 states and 93 Man Alive stores in 19 states.

Steven Schneider, COO and interim CFO, said on the call that 10 to 15 store closings were projected for the fourth quarter, with 10 to 15 more during the next year. But the company hopes to keep most stores in operation under more favorable lease terms. “We’ve had a lot of success here over the last six to nine months in [negotiating leases],” Schneider said. “The mall operators certainly want to keep lights on and not see any more people go dark in their malls.”

For the quarter ended Nov. 29, Finish Line posted a net loss of $8.8 million, or 16 cents a diluted share, compared with a loss of $16 million, or 34 cents a share, for the year-ago period. Analysts had expected pershare losses of 13 cents. Excluding discontinued operations, the net loss for the 2007 third quarter was $13.8 million, or 29 cents a share. Revenues declined 4.4 percent, to $256.9 million from $268.7 million. Comps fell 3.3 percent at Finish Line stores and 6.8 percent at Man Alive units.

Investors were upbeat about the fi rm’s report, with shares vaulting 11 percent in Wednesday trading, the day after the results were announced. By Thursday’s close, the stock had inched up to $6.02.

Finish Line said it expects continued “variability” on its balance sheet and declined to make projections. Analysts on average expect EPS of 38 cents on revenues of $382 million in the fourth quarter.

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