Finish Line Shares Climb Despite Sales Decline, Earnings Miss

Company is preparing for 'challenging retail environment'

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Sep 22, 2017
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Athletic footwear and apparel retailer The Finish Line Inc. (FINL, Financial) reported second-quarter 2018 results before the opening bell on Sept. 22.

The Indianapolis-based company posted earnings per share of 12 cents, below estimates of 14 cents. Revenue of $469.4 million narrowly missed expectations of $470.5 million and decreased 3.3% from the prior-year quarter.

While the retailer’s same-store sales during the quarter declined 4.5%, its Macy’s (M, Financial) sales increased 5.6%.

The trend in the company’s revenue growth over the past decade is illustrated in the graph below.

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Following the announcement, shares initially fell over 5% in premarket trading before recovering soon after the market opened.

CEO Sam Sato said Finish Line’s results were “shaped by a very promotional marketplace for athletic footwear.”

“With industry headwinds weighing on our sales and margin trends, we remain disciplined in managing our expenses and inventories,” he added.

On Aug. 28, the company gave an updated outlook for 2018. For the full year, Finish Line projects same-store sales will decrease 3% to 5% versus its previous guidance of a low single-digit increase. Adjusted EPS are expected to range between 50 cents and 60 cents for the year, down from the previously forecasted range of $1.12 to $1.23.

“While we are planning for a challenging retail environment in the near term, we are confident that the merchandise, digital, in-store and operational initiatives currently in place will allow us to achieve our current full-year outlook and best position the company to deliver increased shareholder value over the long term,” Sato said.

In late August, the company announced its board of directors adopted a shareholder rights plan, or poison pill, to protect the interests of shareholders and prevent an individual or group from taking control of the company through “open market accumulation or coercive takeover tactics.”

The announcement sparked speculation Finish Line is hoping to thwart a takeover by U.K.-based Sports Direct International PLC (LSE:SPD, Financial), which was revealed in an SEC filing to have taken a 7.9% stake in the company in April and has since added to its position.

Barrow, Hanley, Mewhinney & Strauss is Finish Line’s largest guru shareholder with 0.45% of outstanding shares. Joel Greenblatt (Trades, Portfolio) established a position in the second quarter. Chuck Royce (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and George Soros (Trades, Portfolio) are also shareholders.

Disclosure: I do not own any stocks mentioned.