A significant supply-chain disruption is being blamed for the much-lower-than-expected Q3 earnings posted by specialty athletic retailer Finish Line Inc. on Thursday. The company, which has been grappling with softer sales and stiff competition, posted a diluted loss per share of 49 cents, or $21.8 million, a comp decrease of 5.8 percent and revenues well below Wall Street’s bets in the third quarter.
Glenn Lyon, Finish Line’s chairman and CEO since 2008, relayed his disappointment in the company’s performance during the quarter and also addressed his upcoming retirement — also announced in a company release on Thursday — during the firm’s conference call.
“Our performance for the quarter was not what anyone, including our team, had expected. The results we reported are not acceptable, and I, along with [President and Director] Sam [Sato], [EVP and CFO] Ed [Wilhem] and the entire senior management team are working swiftly to ensure the issues are addressed and that we get back on track to generate the benefits we continue to believe will be achieved through our supply-chain system enhancements,” Lyon said.
Lyon will step down on Feb. 28, 2016, and Sato — who joined Finish Line in March 2007 as EVP and chief merchandising officer before becoming president in 2014 — will take over the CEO post.
“As many of you know, Sam is a seasoned retail industry and footwear executive with a career that includes more than 20 years at Nordstrom,” Lyon said on the call. “Since joining Finish Line in 2007, Sam has dramatically impacted our premium brand placement in the athletic retail world. Importantly, he has built strong bridges with our brand partners. He truly understands the importance of serving the customer in an omnichannel world, and I’m honored to announce his elevated role.”
Lyon, who currently serves as CEO and chairman of the board, will serve as executive chairman of the board through the end of calendar year 2016. At the beginning of 2017, Lyon will transition to the role of non-executive chairman of the board.
Regarding the challenged third quarter, the company estimates that the total impact of the supply-chain disruptions on the third-quarter bottom line was a loss of 42 cents per share, including $32 million in lost sales, combined with margin pressures and additional SG&A expenses to “correct the issues and improve operating capabilities.”
Lyon said the company has now worked through most of the hiccups resulting from the implementation of the new management system in the quarter.
“We worked quickly to address the disruption in our system and improve our operating capabilities, increasing technical and operational resources including third-party experts,” Lyon said. “We have achieved a pickup in sales trends as the quantity and quality of our inventory improved in recent weeks. Fourth quarter-to-date comps were up 6.2 percent. We anticipate that we’ll return to a stable operating environment during the first quarter, and we will start leveraging the multiple benefits from our supply-chain system enhancements.”
Still, the company announced that it would also need to close up to 150 stores, or 25 percent of its store base, over the next four years to boost profitability.
Finish Line’s FY16 EPS guidance was lowered to $1.18 to $1.23, from $1.70 to $1.77, and comp guidance was lowered to an expectation of low-single digits from a prior range of mid-single digits to low-single digits.
At press time, Finish Line’s share price was down nearly 10 percent.
Net Income: Finish Line posted a net loss of $21.8 million, compared with profit of $2.6 million in the comparable quarter.
EPS: Loss per diluted share was 49 cents, compared with EPS of 5 cents in the comparable quarter.
Net Revenue: Revenue declined 3.5 percent year-over-year, to $382.1 million.
Hit, Miss or Beat: Finish Line missed estimates for the quarter. Analysts polled by Yahoo Finance predicted a diluted loss per share of 4 cents and revenues of $407.7 million.