The premium retailer of athletic shoes, apparel and
Finish Line Inc.
) fourth-quarter 2013 adjusted earnings per share of 76 cents
declined 6.2% year over year but beat the Zacks Consensus
Estimate by 2.7%. Earnings suffered owing to weak traffic growth,
aggressive promotional stance for underperforming products and
inefficient cost management.
Indianapolis-based Finish Line reported year-over-year net
sales decline of 3.1% in the quarter to $442.7 million. Sales
also missed the Zacks Consensus Estimate of $452.0 million.
Softness in the Running business and overall macro headwinds
impacted sales negatively.
Comps increased 0.7%, much lower than the year-ago comps
increase of 10.8%. Comps growth consisted of a 21.0% increase in
comparable digital sales and a decline of 2% in brick-and-mortar
comps. For the stores, comp sales declined 2.4% due to weak
By category, comps for soft goods increased 3.7% driven by
some strong gains in accessories. Footwear comps were
slightly up by 0.2%.
During the quarter, Finish Line's gross margin shrunk 210
basis points year over year to 35.1%. Occupancy expense increased
100 basis points as a percent of sales. Product margin fell 100
basis points owing to higher markdowns to clear out slow-moving
Fiscal Year Update
Finish Line's adjusted earnings were $1.47 per share versus
$1.60 per share in 2012. Sales increased 5.4% year over year to
Finish Line opened 29 stores in 2013 and closed 21. In
addition, the company relocated 19 and refurbished 14 stores and
ended the year with 645 units. At year-end, the company had 27
Running Company stores including 6 acquired and 2 new store
openings. Management expects to open 20 to 25 new Finish Line
stores and close 10 to 15 stores.
For fiscal 2014, Finish Line expects its comparable store
sales to increase slightly and earnings per share to grow in
mid-single digit range. The Running Company business is expected
to be modestly dilutive in 2014.
Management expects pressure on sales to persist even in the first
quarter of 2014. In addition, in the first quarter, Finish Line
will incur significant expenses associated with the partnership
) which will constrict its margins as well.
Beginning mid-April, Finish Line will be taking ownership of
the athletic footwear inventory at all Macy's stores. Finish Line
will also begin rolling out its branded shops to Macy's
stores nationwide. Upon completion, Finish Line targets to open
20 to 30 outlets every month and expand its presence to around
450 Macy's stores. Finish Line expects this partnership with
Macy's to deliver $250 million to $350 million in annual sales
and 30-35 cents per share in earnings once the initiative takes
Finish Line currently carries a Zacks Rank #4 (Sell). We had a
tepid performance from this premium retailer this earnings season
and we do not expect a drastic improvement in the upcoming
quarter as well.
However, the scenario might change as the year progresses
mainly on the back of the new growth initiative related to the
partnership with Macy's and digital activity. We believe these
initiatives will likely bode well for its earnings in the second
half of 2014.
One retail industry stock currently performing well includes
Sears Holdings Corp
) with a Zacks Rank #1 (Strong Buy). Investors can also consider
one restaurant stock,
Red Robin Gourmet Burgers Inc.
), which currently holds a Zacks Rank #1 (Strong Buy).
FINISH LINE-CLA (FINL): Free Stock Analysis
MACYS INC (M): Free Stock Analysis Report
RED ROBIN GOURM (RRGB): Free Stock Analysis
SEARS HLDG CP (SHLD): Free Stock Analysis
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