Has Finish Line Inc. turned the corner?
Analysts say that after a few difficult quarters, the odds are in the Indianapolis-based company’s favor for, at the very least, some improvements in 2016. But for now, they caution, there is still some work to do.
Finish Line’s Q3 had been negatively impacted by a supply chain disruption, which resulted in about $32 million in lost sales and cost the company’s bottom line a loss of 42 cents per share. Although the unexpected, one-time mishap would not have occurred once again in Q4, analysts said consequences could have rolled over into Q4, although to a much lesser extent.
“We believe Q4 had its share of volatility that included potential lingering effects from the supply-chain disruption (mainly on apparel) experienced in Q3 and a delay in tax refunds that likely hurt February comps,” Canaccord Genuity Inc. analyst Camilo Lyon wrote. “While the majority of the disastrous supply chain mishap that transpired in Q3 should be behind Finish Line, we believe the residual impact manifested in gross margin pressure due to incremental apparel markdowns and elevated SG&A expense in Q4.”
Still, Lyon added, “underlying fundamentals of the industry are supportive of solid growth” for the firm in the year ahead.
“The strength of product by brands like Under Armour (e.g. Steph Curry), Adidas (e.g. Boost, Superstar, Stan Smith) as well as Nike (Hurache) also should play to Finish Line’s strong suit. In fact, we believe the popularity of these branded styles has led to an easier increase in allocations that have been selling through well,” Lyon wrote.
Finish Line also announced the retirement of Glenn Lyon, its chairman and CEO since 2008, during its Q3 earnings release. Lyon stepped down on Feb. 28, and Sam Sato, formerly Finish Line’s director and president, took over the post.
“We believe the business is on the mend and should rebound in 2016 as the focus will likely turn to comp-to-date, new CEO commentary and FY17 guidance, with the latter benefiting from easy compares (45 cents to 50 cents supply chain reversal) and improving product assortments,” wrote Susquehanna Financial Group LLLP analyst Christopher Svezia.
Both Svezia and Lyon predict that the company’s Q4 diluted earnings per share was 80 cents, in line with consensus estimates. Sales are projected to be $568.14 million, according to consensus estimates.
Sterne Agee CRT analyst Sam Poser placed his EPS bet a penny above consensus, at 81 cents, but was less optimistic than his peers.
“[Q4] same-store sales may show some modest improvement in the near term aided by better product allocations, but such improvement is fleeting,” Poser wrote. “Finish Line will continue to lose share to Foot Locker.”
Poser predicts same-store sales growth of 2.7 percent in Q4.