Finish Line’s Shares Rise on Street Beat, Earnings Decline

Finish Line Inc.’s shares are up this morning after its better-than-expected Q4 performance exceeded Wall Street’s EPS and revenue estimates. The Indianapolis-based company’s profits, however, suffered a decline compared with the year-ago quarter.

Net Income: For the fourth quarter, ended Feb. 28, 2015, net income  was $40.8 million, down from the year-ago period’s $43 million.

EPS: Finish Line said its GAAP earnings per diluted share were 87 cents, equal to last year’s year-ago period’s EPS of 87 cents.

Net Revenue: Consolidated net sales were $551.3 million for the quarter, an increase of 6 percent over the prior year’s $518.9 million.

Hit, Miss or Beat: Finish Line’s performance was stronger than anticipated and an overall beat on the Street. Analysts polled by Yahoo Finance had predicted EPS of 85 cents in Q4, and Finish Line landed 2 cents above that.

For revenue, analysts had estimated $550.3 million, and the athletic retailer surpassed that by $1.3 million.

Executive Insights: “Finish Line traffic reached its highest level ever in fiscal 2015. However, we didn’t convert this traffic into quality sales as our merchandised assortments resonated less with our customers than we expected,” Finish Line’s CEO Glenn Lyon said in the conference call this morning. “Looking back at our recent performance, we must do a better job exceeding customer expectations through a heightened focus on our three core deliverables; great product, strong presentations, and world-class service.”

Looking Ahead: For the fiscal year ending Feb. 27, 2016, Finish Line said it expects comparable-store sales to move up to the low to mid single-digit range and earnings per share to rise to the low to mid single-digit range over fiscal year 2015’s non-GAAP diluted earnings per share of $1.67.

Analysts Weigh In: “[Finish Line’s] better-than-expected results were generally attributable to slightly better sales, which were driven by a 2.6 percent comp. However, we think sales could have been driven by greater promotional cadence as gross margins were slightly lower than expected.” – Kate McShane, Citigroup Global Markets Inc. analyst, in a March 27 note.

“It appears as if the revenue beat was driven on the back of promotional activity and cost-cutting … There may have been some pull forward of inventory due to the port slowdown. However, the FY16 [earnings per share and same-store sales] guidance of $1.67 infers ongoing margin pressure.” – Sam Poser, Sterne Agee analyst, in a March 27 note.

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