The fiscal third quarter 2013 results of
Finish Line Inc.
) were break-even, which missed the Zacks Consensus Estimate of
10 cents as well as lagged the year-ago results of 11 cents.
Earnings suffered owing to weak reception of the e-commerce
business, aggressive promotional stance for underperforming
products and inefficient cost management.
Indianapolis-based Finish Line reported year-over-year net
sales growth of 5.2% in the quarter to $296.6 million. Sales
marginally beat the Zacks Consensus Estimate of $296.0 million.
However, a shift within athletic footwear trends and a less
effective consumer response to the new ecommerce site launched in
mid November impacted sales negatively.
Comps increased 3.6% which was lower than 7.7% growth recorded
in the year-ago period. A 0.6% increase in comparable
brick-and-mortar sales and a digital comp increase of 25% fuelled
the comp sales growth. By category, Footwear comps were up 3.1%
while soft good's comps increased 6.1%.
During the quarter, Finish Line's gross profit fell 1.3% to
$89.8 million. Gross margin shrunk 210 basis points year over
year to 30.3%. Occupancy expense increased 100 basis points as a
percent of sales. To counter recent deceleration in margins,
management plans to go back to its previous ecommerce site and
implement cost controls.
At quarter end, Finish Line had cash and cash equivalents of
$168.2 million compared with $216.6 million cash at the end of
November 26, 2011. The company had no interest-bearing debt.
Finish Line bought back 1.0 million shares of its shares
during the quarter for $21.2 million. The company had 1.3 million
shares left in its authorization of 5 million shares as of
December 1, 2012.
Subsequent to its earnings, Finish Line increased the
authorization by 5 million shares. This modification also
extended the authorization to repurchase shares through December
Finish Line opened 14 stores during the quarter and closed
one. In addition, the company relocated or refurbished 15 stores
and ended the quarter with 651 units. At quarter-end, the company
had 25 Running Company stores.
For the fourth quarter, Finish Line expects its comparable
store sales increase in the low single digit range and earnings
per share in a range of 74-78 cents.
Finish Line continues to expect its earnings per share to grow
6-9% year over year in fiscal 2013, between $1.47 and $1.51 per
share. The guidance takes into account annual comparable store
sales growth of 6-8%.
Although this premium retailer of athletic shoes, apparel and
accessories performed poorly on the earnings front in this
quarter, we believe management's latest initiatives will likely
bode well for its earnings in the upcoming quarter.
However, management's efforts to spur technology, stores and
digital capabilities will lead to increased SG&A expenses and
constrained operating margins in 2013. In the upcoming quarter
also, management expects to witness deleverage in store
occupancy, which will again pressurize its margins. Beginning
fiscal 2014, management expects to leverage the same.
For the long term, we reiterate our Neutral recommendation on
the stock. Finish Line, along with its peer
) carries a Zacks #3 Rank (a short-term 'Hold' rating).
FINISH LINE-CLA (FINL): Free Stock Analysis
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