Analysts: Finish Line Navigating Challenges

Product realignment, a new Macy’s initiative and an e-commerce overhaul are all contributing to the uncertainty at Finish Line Inc., analysts said last week.

“They have a lot of balls in the air right now,” said Sterne Agee analyst Sam Poser. “Their 2013 guidance seems too back-end loaded, so there will be a lot of pressure on them.”

Christopher Svezia, an analyst at Susquehanna Financial, agreed: “The first half looks challenging as the company continues a shift into a larger mix of basketball product. This will clearly not happen overnight given long order lead times. A full realignment will take until the second half.”

Meanwhile, Camilo Lyon, an analyst at Canaccord Genuity, noted that the company was hurt by both macro headwinds that hit mall traffic and its own miscues. “They have likely resulted in market-share donation to a stronger competitor in Foot Locker,” he said.

Management addressed all these issues last Thursday on a conference call with analysts.

Glenn Lyon, chairman and CEO of Finish Line, said, “We are working relentlessly on [the] running business, not only with Nike but Adidas, Brooks, Asics and Mizuno. There is still plenty of great stuff out in the market. This is our issue, and we’re going to work our way through it.”

Sam Sato, president and chief merchandising officer, chipped in, “We’ve also had to ensure that, as demand increases for other categories — basketball being one of them — that we’re also dedicating resources, time, effort, our inventory and our marketing to ensuring that we’re also telling the story around our basketball presence.”

Additionally, the Indianapolis-based firm gave an update on its Macy’s initiative, which starts later this month. It aims to open 20 to 30 shops each month, until it reaches 450 Macy’s doors. “I want to reiterate that we view this as a business that can generate $250 million to $350 million in annual sales when fully ramped, with associated earnings of 30 cents to 35 cents per share,” said Lyon.

For 2013, Finish Line expects diluted earnings per share to increase mid-single digits, from $1.47 a year ago. This is based on an assumption of a slightly positive comparable-store sales gain for the year with continued pressure in the first half, particularly in the first quarter.

Finish Line’s fourth-quarter net income fell to $34.3 million, or 69 cents a share, from $41.9 million, or 80 cents a year ago. Revenue slipped to $442.7 million, from $456.3 million.

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