Mixed Earnings Results for Finish Line - Analyst Blog
April 01 2013 - 4:50AM
Zacks
The premium retailer of athletic shoes, apparel and accessories
Finish Line Inc.'s (FINL) 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
traffic.
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
inventory.
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
$1.44 billion.
Store Update
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.
Outlook
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
with Macy's Inc. (M) 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 momentum.
Our Take
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 (SHLD) with a Zacks Rank #1
(Strong Buy). Investors can also consider one restaurant
stock, Red Robin Gourmet Burgers Inc.
(RRGB), which currently holds a Zacks Rank #1 (Strong Buy).
FINISH LINE-CLA (FINL): Free Stock Analysis Report
MACYS INC (M): Free Stock Analysis Report
RED ROBIN GOURM (RRGB): Free Stock Analysis Report
SEARS HLDG CP (SHLD): Free Stock Analysis Report
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