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Finish Line Stumbles on the Sneaker War Battlefield

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Athletic footwear retailer Finish Line (FINL) reported disappointing financial results late last week, causing its stock to lose almost a quarter of its value in the days since, and causing investors to worry that the specialty retailer is losing the battle for dominance to arch-rival Foot Locker.

In the three months ending Aug. 29, earnings fell from $26.2 million to $25.9 million, or $.57 per share (an increase from $.54 per share in the prior year due to a lower share count) in line with Wall Street expectations.

Total revenue in its more than 1,000 doors rose by only 3.5%, however, to $483 million, hampered by a sluggish 1.5% rise in same-store sales that lagged the prior quarter’s 5.5% gain. Bricks-and-mortar comps in the quarter were slightly down, while ecommerce was up by double digits. Analysts had hoped for revenue of over $490 million. Gross margin narrowed by 20 basis points to 33 percent.

Company management blamed slow demand for men’s performance running products, which more than offset explosive sales of Under Armour’s Stephen Curry and Nike’s Kyrie sneakers. Men’s products currently represent 60 percent of the retailer’s business. Strength in women’s footwear, particularly in casual women’s shoes like the Nike Roshe Run and Juvenate, and Converse Chuck Taylor styles, helped offset the weak men’s segment, as did retro-inspired products such as Nike’s Air Huarache and New Balance 574s.

The company said that same-store sales in September, a key back-to-school month, are tracking at a disappointing level in the low-single-digits.

Finish Line operates 400 shop-in-shops in Macy’s, which generated $60.8 million in the quarter for Finish Line, up 21.6% compared to last year.

Finish Line also operates specialty running stores in 17 states across the country under The Running Company, Blue, Mile, Boulder Running Company, VA Runner, Run Colorado and JackRabbit Sports, and is in the process of transforming that division into a monobrand retailer under the Jack Rabbit banner. RSG sales were $24.4 million in the quarter, up 27 percent compared to last year.

Chairman and CEO Glenn Lyon told analysts on the company’s quarterly earnings conference call that the biggest challenge for Finish Line is having the right inventory to meet changing consumer needs. “Over the past year, no secret, there has been a major change in trends and customer appetite moving from performance to casual, and we continue to move our inventory in that direction.”

Lyon went on to say, “…this market is strong. We need to perform better. We need to step up. So, we get that. There’s an opportunity out there that we need to seize, and our team knows that.”

Finish Line’s results look particularly anemic coming only a week after Nike, one of the retailer’s primary suppliers, knocked its most recent earnings report out of the park. And the Indiana-based Finish Line’s rival, The Foot Locker, certainly seems to be seizing the opportunity. Last month the New York City-based footwear merchant reported second fiscal quarter revenue of almost $1.7 billion, a 3.3% increase over the prior year and ahead of Wall Street expectations. Comps rose 9.6% in the quarter, and earnings leaped by more than 30 percent to $.84 per share, beating analyst estimates of $.69.

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