Analysts Weigh In On Finish Line’s Better-Than-Expected Q4

Finish Line Inc.’s Q4 beat Wall Street’s forecast for earnings per share and revenues, but analysts say the Indianapolis-based specialty retailer’s FY 2016 guidance indicates product-margin headwinds. Susquehanna Financial Group analyst Christopher Svezia said in a note this morning that the biggest hit to product margins will happen in Q1, and that while the company’s guidance is disappointing, “there is still room.”

Citi Research analyst Kate McShane also noted this morning that the she anticipates product-margin pressure for the first half of the year, but she expects the hit to be offset by better performance in the second half.

“We’re encouraged by the upcoming pipeline, strong style performance highlights for [Nike] and [Under Armour], focus on optimizing operating performance, and digital communication initiatives,” McShane said. “However, we remain cautious that [Finish Line’s] product mix still needs improvement, and [it] may not be immune to further promotional cadence in the near term.”

The announcement by Finish Line’s executive team that the retailer will switch its growth strategy from  a focus on acquisitions by the Running Specialty Group (RSG) to “operational excellence” has received mixed reviews.

“[Finish Line] intends to focus on the profitability of RSG,” said Sterne Agee analyst Sam Poser in a note today. “We had been wondering if management has the appropriate amount of expertise, time, and resources to dedicate to this venture while its core business is struggling.”

But Svezia is optimistic about the strategy. “We liked management’s renewed focus on dealing with the underperforming operating structure versus pure growth,” he said.

Another hot topic is the company’s renewed digital push. Finish Line CEO Glenn Lyon announced on Friday that the company will upgrade its digital platform to improve the customer experience and build on its current momentum.

“Since we began pursuing our digital strategy in earnest three years ago, digital sales have tripled, and the percentage to our total business has doubled,” Lyon said during the conference call last week.

Finish Line’s digital sales represented over 20 percent of total sales in Q4 and over 16 percent of total sales for the year.

Svezia noted that digital is an important sales driver and may also have a decent impact on margins.

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