The Finish Line: Footwear giant has extra bounce in its step
Helping consumers run faster and jump higher always will be top priority in the athletic footwear industry. The Finish Line Inc. (Nasdaq:FINL), however, hopes a slight variation on that approach will help it clear the hurdle of what promises to be a rough holiday run in retail.
Finish Line will never stray far from money-making brands such as Nike (NYSE:NKE), adidas and New Balance. The Indianapolis small cap, which owns about 800 mall-based stores nationwide, was built on top-of-the-line athletic shoes and apparel aimed at the young male demographic. And providing more choices for those consumers has kept the chain competitive.
“Finish Line's primary point of difference is selection,” Kevin Wampler, the company’s chief financial officer, said in an email to SmallCapInvestor.com. “On average, our stores carry 600 to 800 unique styles of footwear, while the competition (Foot Locker Inc., DSW Inc.) might carry 200 to 300.”
That selection is set to widen still, as Finish Line ventures into other fashion areas, including casual men’s lines such as Greedy Genius and Yums, as well as women’s brands such as Pink Dice and Bebe Sport.
“The company is endeavoring to bring in more lifestyle footwear and apparel, including brands not offered by Foot Locker,” John Shanley, an analyst for Susquehanna Financial Group, said in an email. But it’s too early to determine if this strategy will succeed.”
Scaling back is one tactic that seems to have worked. Finish Line cut inventory levels by about 11% in the second quarter, has slowed its annual new-store growth and is closing under-performing stores rather than waiting for them to recover, Wampler said.
Growth was the concept behind the company since its inception in 1976, when three friends — Alan Cohen, David Klapper and John Domont — bought the franchise rights to The Athlete’s Foot in their home state of Indiana. They expanded the chain to 12 stores in the first five years but soon found that the only way to continue growing was to open a competing concept. The trio brought in two more partners from Indianapolis and opened the first Finish Line store in July 1982.
By 1991, the chain was 105 strong and was ringing up $100 million in annual sales. Five years later, the number of stores doubled to 220 and sales tripled to $300 million. In 2005, Finish Line reached the $1 billion sales plateau.
The company recorded a fiscal 2009 second-quarter profit of $13.1 million, or $0.24 a share, compared with a loss of $1.8 million, or $0.04 a share, in the same period last year. Revenue for the quarter grew 3.9% year over year to $353.3 million.
The boost in EPS, which beat analysts’ estimates by $0.07, was driven by better-than-expected same-store sales increases of 4.9%, according to the second-quarter recap by Susquehanna’s Shanley. Shanley, however, remained leery of retail unpredictability, and thus retained his “neutral” rating on the company’s stock. Finish Line shares have declined steadily since hitting a one-year high of $12.43 on Sept. 2, but are still well above the one-year low of $1.48 posted in January. Wednesday’s closing price was $7.46.
In light of the favorable quarter and a market cap of $409 million, Cohen decided last week that it was time to step down as chief executive, a post he held for 26 years. Current president Glenn Lyon will be the new CEO effective Dec. 1, and Cohen will remain chairman.
As Cohen draws one step closer to finishing his career, his company seems to have found solid footing during somewhat shaky times … and is far from slowing its pace.
About the Author
Stephen Ellison is a freelance writer and editor based in San Jose, Calif. He was a copy editor, Web editor and writer for a Silicon Valley business weekly and is a regular contributor to a Northern California law magazine.
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