Market Watchers Mixed on Finish Line

Finish Line Inc.’s new investments are off to a running start, though analysts remain mixed on the short-term upside to the firm’s stock.

“The company is exercising appropriate conservatism around its expected [comp-store sales] outlook, [but] any hints of accelerating sales trends stemming from the store remodels should be viewed constructively,” said Camilo Lyon, an analyst at Canaccord Genuity.

Sam Poser, analyst at Sterne Agee, countered, “While we continue to be bullish on the athletic cycle in the U.S., we view Finish Line’s heavy technology investments and lack of earnings flow-through — despite strong same-store sales — as a reason to remain on the sidelines. We continue to believe that Finish Line’s brick-and-mortar is losing share to Foot Locker.”

The Indianapolis-based retailer’s chairman and CEO, Glenn Lyon, said Friday that the implementation of its initial store and digital technology investments are on schedule and showing very positive returns.

He told analysts on a conference call, “The sales upside in the quarter translated into higher diluted earnings per share versus original guidance, a trend that will continue going forward to the extent sales come in above plan. Strong sales growth, coupled with our continued disciplined focus on managing expenses and strategic investments, allowed us to generate and report EPS of 3 cents above our original guidance.”
Innovative product from Finish Line’s strongest vendors drove sales in the first quarter.

Running comp sales increased in the low double digits, with Nike Free the clear standout across men’s, women’s and children’s, Lyon said. Nike Max Air and Brooks PureProject also performed well.

In basketball, comp sales have accelerated to the mid-teens, driven by new product introductions, such as Jordan Son of Mars 4.0 and Adidas Crazy Light 2, the exec added.
Lyon also provided a sales update at the new store prototype in Castleton Square mall in Indianapolis, which incorporates a brighter look, an atypical version of Nike Track Club, a newly designed Adidas shop-in-shop and new store technology such as POS handhelds and tablets.
“Since the store reopened last month, consumers are voting with their wallets and their feedback is that they love what we have done to enhance the store experience. While it is still early and this location is larger than our typical footprint, the initial results give us added confidence as we embark on our most aggressive retrofit schedule in years,” Lyon said.

Speaking to the impact of continued price increases, Sam Sato, president and chief merchandising officer at Finish Line, said, “The consumer continues to be driven by innovation in both technology and design, and our sales have not let up. Price increases over the next couple of quarters will still be in this mid- to high-single-digit range. They’ll normalize back to the 1 percent to 2 percent as we move into next year.”

Meanwhile, sales at The Running Co. stores totaled $6 million, driven by a high-single-digit comp increase, Finish Line said.

Finish Line beat the Street on Friday, earning 24 cents a share in its first quarter ended June 2.

Analysts were expecting earnings per share of 23 cents on revenue of $320.7 million, and the firm’s shares soared 11.9 percent to close at $20.91 Friday.

The firm’s profit slipped to $12.3 million, from $16.4 million. But net sales for the period advanced 6.5 percent to $319 million, on the back of an 8 percent comps increase.

Digital sales for the period surged 28.1 percent, the company added.

Finish Line now expects full-year EPS to increase between 6 percent and 7 percent over the $1.53 earned last fiscal year, up from its previous guidance of mid-single-digit growth. 

The firm ended the period with $262 million in cash and no significant long-term debt.

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