Finish Line Q1 Profits Slip on New Macy's Business Costs, Still Top Expectations

Andrew Klips |

The Finish Line, Inc. (FINL) reported on Friday that total and same-store sales were up in the first quarter of fiscal 2014, while expansion into Macy's (M) stores dampened net profits, but not as much as analysts had predicted.

For the quarter ended June 1, Indianapolis-based Foot Locker, a retailer of athletic shoes, apparel and accessories, recorded revenue of $351.1 million, up 10 percent from $319.1 million in the year prior quarter. GAAP-based profits were $5.1 million, or 10 cents per share, down from $12.3 million, or 24 cents per share. Adjusted net income, which excludes start-up expenses related to the launch of Macy's business, was $9.93 million, or 20 cents per share, versus $12.3 million, or 24 cents per share, in Q1 fiscal 2013.

Wall Street was expecting adjusted earnings of 16 cents per share on revenue of $343.0 million.

Same-store sales, sales at stores open more than one year, increased 2.4 percent year-over-year.

The Finish Line has 652 stores in malls across the U.S. and manages the athletic footwear inventory at 660 Macy's stores. During the quarter, 41 new branded shops were opened with Macy's locations, bringing the total store-in-store locations to 44. Last September, Macy's and The Finish Line stuck a deal to open Finish Line-branded shops in more than 450 Macy's locations as well as online.

Cost of sales, not counting occupancy expenses, were higher by $29.7 million compared to the year earlier, at $244.1 million. Selling, general and administrative costs increased from $84.9 million last year to $99.4 million this year.

"We have clear vision and sound strategies in place to transform our Company into a premier, multi-divisional, omni-channel retailer and drive increased value for our shareholders," said Glenn Lyon, chairman and chief executive at Finish Line.

The company said that they were pleased with improving trends in their running business – which has long been the company's main focus – as well as strength in their basketball business, a line that Finish Line has been focusing on more heavily over that past few quarters to meet demand.

During the latest quarter, the company bought back 366,000 shares for an aggregate amount of $6.8 million. The current repurchase plan still has 4.6 million shares authorized.

Looking forward, Finish Line sees fiscal 2014 comparable store sales to improve "slightly" and for GAAP profits to rise a mid-single digit percent compared to fiscal year 2013. Adjusted earnings per share are guided at $1.47.

Analysts were targeting fiscal 2014 adjusted earnings at $1.56 per share.

The better-than-expected first quarter is overshadowing the soft outlook in pre-market trading, with shares of FINL ahead about one-half percent on low volume. Shares closed Thursday at $21.20 and are up about 12 percent so far in 2013.

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Companies

Symbol Name Price Change % Volume
FINL The Finish Line Inc. 21.73 0.10 0.46 594,649
FULLL Full Circle Capital Corporation 8.25% Notes due 20 25.56 -0.04 -0.14 1,911

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