Finish Line’s Stock Sinks On Q2 Sales Miss

Finish Line Inc.’s share price is down nearly 17 percent in midday trading Friday, following its Q2 earnings release indicating in-line earnings per diluted share, revenues that missed Wall Street’s estimates and declining profits.

Although revenues and profits were softer than expected, the Indianapolis-based athletic footwear-and-apparel retailer — which announced yesterday the rebranding of all 76 of its Running Specialty Stores under the JackRabbit moniker — saw a modest comparable-store sales gain of 1.5 percent in the quarter.

“I’m pleased to report that our team did a fine job managing expenses and inventory, while working closely with our brand partners to deliver a solid earnings performance on modest top-line growth,” said Chairman and CEO Glenn Lyon during the firm’s Q2 conference call. “Our team is incredibly focused on executing the company’s brand mission of delivering what we have termed [an] epic finish.”

Market watchers continue to compare the retailer’s performance with the robust sales growth reported by its main competitor, Foot Locker Inc. — some citing Nike Inc.’s stellar Q1 performance, announced yesterday, as proof of Foot Locker’s dominion.

“It’s clear that Finish Line is losing share to Foot Locker because Finish Line has not carved out a niche to which the athletic-specialty customer responds,” wrote Sterne Agee CRT analyst Sam Poser Friday.

UBS Investment analyst Michael Binetti also indicated concerns regarding how Nike’s plans to reduce elevated North American inventories over the next few quarters, announced during the firm’s conference call Thursday, will impact Finish Line.

Net Income: Net earnings for the second quarter, ending Aug. 29, 2015, declined 1 percent year-over-year, to $25.9 million, from $26.2 million in last year’s comparable quarter.

EPS: Earnings per diluted share saw an improvement of 3 cents year-over-year, to 57 cents per share.

Net Revenue: Net sales rose 3.5 percent year-over-year, to $483.2 million, from the year-ago quarter’s $466.8 million.

Hit, Miss or Beat: Finish Line’s results were mixed in Q2. Analysts polled by Yahoo Finance had predicted EPS of 57 cents and revenues of $490.8 million.

Executive Insights

Lyon on the Macy’s initiative:

“Our recent efforts to increase the productivity of the enterprise are bearing fruit — namely, the investment in our top shops aimed at improving adjacencies and optimizing square footage to drive higher traffic. In the last three months, we’ve repositioned and expanded 20 percent of our shops, which collectively are exceeding our expectations. We also see the opportunity to further improve sales and product margins at Macys.com by leveraging great traffic levels and our new store-fulfillment capabilities for the Web.”

Lyon on Running Specialty Group (RSG):

“We see exciting things starting to unfold. … We’ve had challenges as we’ve transitioned some of the acquired operators from an entrepreneurial mindset to a culture focused on growth and profitability. We’re in midst of creating something unique at RSG. The division is benefiting from taking greater advantage of the Finish Line size and experience, especially when it comes to enhancing the merchandise selection, supported by leading omnichannel capabilities. … The next step in the evolution of RSG involves creating a national brand under one banner — that banner will be JackRabbit, and we’ll be rebranding the entire store fleet over the next two years.”

“Since our last earnings call, we’ve strengthened the team at RSG with a new chief marketing officer and a new chief merchant.”

Looking Ahead: The company maintained its guidance for the year.

Analyst Insights

“Finish Line has a brand problem. … September [quarter-to-date] results will likely be strong but will fade away throughout the rest of 3Q as comparisons, especially in November, are difficult.”
— Sterne Agee CRT analyst Sam Poser

“We expect the stock to trade down slightly today given the underwhelming revenue results, though we’ll be particularly interested in initial 3Q trends given the impact of the later Labor Day holiday.”
— Citi Research analyst Kate McShane

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