If you think doomsday athletic retail stories ended after Sports Authority shuttered, I’ve got some bad news for you. It seems that the pain isn’t over given the latest and not so greatest analyst sentiment on The Finish Line.
To be fair, Finish Line started out its current fiscal year on the good foot. The company boasts roughly 600 mall based stores in the U.S. And last year, digital sales had increased 14.5%, while its Winners Circle loyalty customer base had grown to over 10.5 million customers. The Finish Line also counts itself among the Macy’s “store within a store” roster, with 400 slots in that arena. Still, with all this going for it, Finish Line failed to resonate in a big way.
On December 21, Finish Line weighed in with third-quarter results that included weaker-than-expected adjusted earnings-per-share, and disappointing comps. Finish Line also cut its guidance.
During the call, CEO Sam Sato said that “Following the back-to-school season, we have projected sales to improve meaningfully over the remainder of the third quarter due in large part to easier comparisons as a result of our last year’s supply chain disruption.” However, weak traffic in October and November was “more challenging than we expected.”
Want to publish your own articles on DistilINFO Publications?
Send us an email, we will get in touch with you.
Notably, and probably, painfully, this bad news came at a time when consumer enthusiasm for activewear continues to thrive. This caused analysts to pump the breaks on their recommendations for the company, which orbits in this particular space.
Christopher Svezia of Wedbush handed down the most painful response by removing the company from its Best Ideas list on a downgrade to Neutral from Outperform:
“Finish Line has had a difficult history around execution with the most recent blunder occurring when a supply chain integration failed and resulted in product not being shipped to customers and its stores. Since then, the old CEO retired abruptly, the company began to roll-out a new store format, cut costs and looks to sell underperforming assets. In the last few quarters, inventory has gotten more in balance with demand, but there is still work to be done on capturing foot traffic and full price sales.”
Neil Saunders of Conlumino noted that despite Finish Line’s struggle in capturing the athletic wear enthusiasm, the shop within a shop concept at Macy’s wasn’t half bad. Finish Line’s dedication to refreshing its shops was also seen as a positive step, but Saunders cautioned, “This refresh will come at a cost and needs to be accompanied by strong comparable growth to keep Finish Line in the black.”
Meanwhile, Susquehanna’s Sam Poser and team noted that Finish Line is trying too hard with the customer and failing:
“Finish Line does not capture the imagination of its customers as well as the competition. Far too often, Finish Line focuses on having the “right product” as opposed to building true connections and engagement with customers. This misplaced focus is a critical mistake and a key reason why Finish Line’s same-store sales have underperformed.”
Deutsche Bank’s Paul Trussell and team noted that management cited weak mall traffic and retail’s heavily promotional landscape as culprits for its woes. The team noted that while it’s worth acknowledging, traffic and promotions are hardly the main problems. Instead, the team views these macro issues as having a “very modest impact to the quarter.”
“Third-quarter results and fourth-quarter guidance fell well below expectations, which we attribute largely to company-specific issues. In particular, we see ongoing challenges around decisions to materially alter the apparel merchandise mix, false assumptions for meaningful sales increases vs.easy compares, and the shift to dot.com and Macy’s at the expense of not yet remodeled Finish Line brick & mortar.”
Finally, Christian Buss and team of Credit Suisse took a cautiously optimistic route. They cautioned upfront about Finish Line’s underperformance and inability to improve upon “significant execution issues last year,” which “suggests that efforts to improve merchandising and product flow have not yet taken hold consistently.”
“In addition, we believe that commentary around fourth-quarter expectations related to delayed tax refunds hampering comps and earnings only tells part of the story, as underlying comps are likely to remain weak in spite of a reasonably healthy athletic environment. That said, refocusing on core Finish Line stores with the effort to sell the dilutive JackRabbit business looks appropriate, as does the investment in store remodels. These could eventually drive improving store productivity and returns.”
Date: December 31, 2016