How a Delay in Tax Returns Affected Finish Line’s Sales

The Finish Line Inc.’s shares are plunging today — down more than 16 percent, to $13.40 as of 11:45 a.m. — after the firm’s fourth-quarter earnings and outlook missed expectations.

The specialty-athletic retailer posted a net loss of $9.5 million, or 23 cents per diluted share. On an adjusted basis, earnings per diluted share, at 50 cents per share, were significantly below Wall Street’s estimates for EPS of 71 cents. (Finish Line sold its JackRabbit business during the period; net income from continuing operations was $12.3 million, or 30 cents per diluted share.)

Revenues slipped 0.4 percent, to $557.5 million, but topped forecasts for revenues of $550.5 million. Comparable-store sales also stumbled 4.5 percent.

Finish Line director and CEO Sam Sato said significant pressure on product margins were responsible for the firm’s weak Q4 bottom line, while a decision by the Internal Revenue Service to delay income tax returns hurt comps.

The fourth quarter was more challenging than we expected, which resulted in a disappointing finish to fiscal 2017,” Sato told investors during the company’s conference call. “Our comp performance reflects [a delay in tax returns] combined with our continued work to reduce the penetration of soft goods to a smaller, more profitable percentage of our overall mix.”

He added, “While these headwinds were contemplated in our outlook, the composition of our footwear comparable sales contained a higher percentage of promotional sales than we forecasted.”

Analysts also pegged Finish Line’s Q4 results “a disappointment,” noting that — despite larger industry pressures — many of Finish Line’s issues seem company specific.

Q4 results came in worse than expected and raise concerns that Finish Line’s merchandising strategy still needs meaningful improvement,” Citi Research analyst Kate McShane wrote in a memo.

Finish Line’s outlook for the current year signals that the weakness is likely to continue. The company said it expects comparable sales to increase low single digits and earnings per share to be in the range of $1.12 to $1.23, an increase of 6 percent to 16 percent year-over-year. Analysts expected the firm to predict a comparable-sales gain of 2.1 percent and EPS of $1.44.

Finish Line closed fiscal year 2017 with sales up 2.5 percent, to $1.84 billion, while comps gained 0.3 percent. The company posted a net loss of $18.2 million, or 44 cents per diluted share. Adjusted EPS were $1.06. (Net income from continuing operations was $35.2 million, or 85 cents per diluted share.)

The Finish Line-Macy partnership continues to be a bright spot for the athletic retailer. Its Macy’s sales increased 35 percent in Q4 and 30 percent during the year.

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