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Finish Line Ups 1Q Guidance

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The Finish Line Inc. (FINL - Free Report) recently raised its projected comparable store sales and earnings for the first quarter of 2012. Now, Finish Line expects comparable store sales to increase nearly 8.5% from the earlier projection in the mid single-digit range. Diluted earnings per share are expected between 22 cents and 23 cents versus the previously targeted level of 21 cents.

This premium retailer of athletic shoes, apparel and accessories is in a strong product cycle for athletic footwear. The uptrend in comps is likely to bode well for the company. Finish Line also provided an update for its long-term operating goal through 2016. The company has projected consolidated net sales around 2.0 billion, operating income around $200 million, diluted earnings per share of approximately $2.50 and return of invested capital of 25%.  Finish Line has so far been committed to close under-performing stores, revamp old stores, renegotiate leases and lower occupancy costs.

However, management embarked on a set of initiatives to spur technology, stores and digital capabilities and has consequently invested substantially. While all the efforts centering around the ecommerce and specialty running business will pay off longer term, increased investment will lead to steeper SG&A expenses resulting in constrained operating margins in 2013 that could in turn weigh on earnings per share. However, management expects earnings to pick up beginning fiscal 2014, as the investments begin to reap returns. The company’s current fiscal year product pipeline remains strong led by Nike, Jordan and Adidas. Further, a price increase by vendors is also a positive catalyst at the current level.

Following the guidance raise, one out of seven analysts increased the estimate over the last 7 days while the Zacks Consensus Estimate remains unchanged at 22 cents.  Finish Line, which competes with Genesco Inc. (GCO - Free Report) currently, retains a Zacks #3 Rank (short-term Hold rating). For the long term, we reiterate our Neutral recommendation on the stock. The company is slated to release its first-quarter 2012 results on June 28 2012.

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