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Analyst Blog

The Finish Line Inc. (FINL - Snapshot Report) posted adjusted earnings per share of 30 cents in the first quarter of fiscal 2012, in line with the Zacks Consensus Estimate. However, the quarterly earnings exceeded the year-ago earnings by 5 cents.

Indianapolis-based Finish Line reported year-over-year net sales growth of 6.0% in the quarter to $299.5 million. Sales growth was aided by improved performance in all key metrics. Store conversion was up 0.2%, average dollars per transaction increased 2.1% and store traffic grew 1.5%. Both online sales and traffic were up over 50%.  

Comparable sales increased 6.5% in the first quarter on top of a 10.9% rise recorded in the prior-year quarter. This was the seventh consecutive quarter of same-store sales growth. Categorically, footwear comps were up 6.9% and soft goods’ comps rose 3.3%.

During the quarter, Finish Line’s gross profit increased 10% year over year to $103.3 million. Gross margin expanded 120 basis points to 34.5% driven by efficient cost containment.

Better-than-expected product margin growth of 20 basis points benefiting from increased sell-throughs at full retail prices was offset somewhat by the toning category. Toning sales represented about 1% of total sales compared to 4.5% of total sales in the year-ago quarter.

Financials

At quarter end, Finish Line had cash and cash equivalents of $287.0 million, compared to $248.1 million in the year-ago period. The company had no interest-bearing debt.

Finish Line bought back 449,000 shares in the first quarter for $9.6 million.

Store Update

Finish Line did not open any store in the first quarter, but closed seven. For the full year, the company expects to open 5 to 10 new stores and close 10 to 15.

Our Take

Going forward, we remain optimistic on Finish Line. This premium retailer of athletic shoes, apparel and accessories is in a strong product cycle for athletic footwear. The uptrend in the basketball category and other footwear will continue to bode well for the company. The basketball category delivered strong double-digit comps in the first quarter with stellar performance by Brand Jordan.

Moreover, Finish Line is squating on a pile of cash. The company plans to use cash generated from operations to fund growth initiatives within the existing business as well as dividend payments and share repurchases.

However, high unemployment rate and gasoline prices as well as the underperformance in the toning category will remain concerns in the near term.

Finish Line currently retains a Zacks #3 Rank (short-term Hold rating). For the long term, we also reiterate our Neutral recommendation on the stock. However, one of Finish Line’s peers, Genesco Inc. (GCO - Snapshot Report) retains the Zacks #1 Rank (short-term Strong Buy rating).

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