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Finish Line’s Deep Discounting a Top Concern for Analysts Ahead of Q3

Things have been looking up for Finish Line Inc. for much of the past year, but ahead of its third-quarter earnings report, some analysts say they’re concerned that the athletic specialty retailer is becoming too heavy-handed with promotions.

Cowen and Co. analyst John Kernan said that his firm’s proprietary footwear tracker found increased year-over-year promotions on Finishline.com in Q3. Those promotions were heavy in both men’s and women’s casual shoes, Finish Line’s largest segment, according to the analyst.

This is surprising given the supply chain related issues Finish Line dealt with during Q3 and Q4 [last year] which led to increased promotions,” Kernan wrote Monday.

Last year, a significant supply-chain disruption led the retailer to post much-lower-than-expected Q3 earnings. Diluted losses per share were 49 cents, comps declined 5.8 percent, and revenues dipped 3.5 percent, to $382.1 million.

This time around, consensus estimates call for significant improvements. Revenues expected to gain nearly 8 percent year-over-year, to $411.61 million, and losses per diluted share predicted to narrow, to 18 cents per share.

Despite the expected progress, Susquehanna Financial Group LLLP analyst Sam Poser said he will remain on the sidelines.

Finish Line does not capture the imagination of its customers as well as its competition does,” Poser wrote on Dec. 15. “Inventory levels may not be as clean as they appear, and promotional activity is more elevated than expected.”

With heavy promotions ranking among his chief concerns, Poser lowered his Q3 EPS estimates to a loss of 22 cents per share, from 20 cents per share. He also reduced his same-store sales estimate, from 9.3 percent, to 8.6 percent or in line with consensus.

While promotional activity at Finish Line may not be as aggressive as last year, promotional activity is likely greater than guidance inferred,” Poser wrote.

Nevertheless, Poser said a likely divestiture of its specialty running store chain JackRabbit “should support [Finish Line’s] stock price” in the coming months.

As of 2:15 p.m. ET today, Finish Line’s shares had gained nearly 3 percent, to $23.35.

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