UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended August 31, 2013
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 0-20184
The Finish Line, Inc.
(Exact name of registrant as specified in its charter)
Indiana | 35-1537210 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) | |
3308 North Mitthoeffer Road Indianapolis, Indiana | 46235 | |
(Address of principal executive offices) | (zip code) |
317-899-1022
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter ) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Securities Exchange Act of 1934.
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Shares of Class A common stock outstanding at September 13, 2013: 49,122,498
PART IFINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE FINISH LINE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
August 31, 2013 |
September 1, 2012 |
March 2, 2013 |
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(unaudited) | (unaudited) | |||||||||||
ASSETS | ||||||||||||
CURRENT ASSETS: |
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Cash and cash equivalents |
$ | 203,832 | $ | 254,225 | $ | 226,982 | ||||||
Accounts receivable, net |
14,355 | 9,228 | 14,768 | |||||||||
Merchandise inventories, net |
295,952 | 250,634 | 243,770 | |||||||||
Other |
9,497 | 16,514 | 6,174 | |||||||||
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Total current assets |
523,636 | 530,601 | 491,694 | |||||||||
PROPERTY AND EQUIPMENT: |
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Land |
1,557 | 1,557 | 1,557 | |||||||||
Building |
42,490 | 42,308 | 42,460 | |||||||||
Leasehold improvements |
234,193 | 222,067 | 227,080 | |||||||||
Furniture, fixtures and equipment |
156,865 | 121,540 | 143,510 | |||||||||
Construction in progress |
48,558 | 35,832 | 36,339 | |||||||||
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483,663 | 423,304 | 450,946 | ||||||||||
Less accumulated depreciation |
281,213 | 265,765 | 270,345 | |||||||||
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202,450 | 157,539 | 180,601 | ||||||||||
Deferred income taxes |
10,965 | 17,508 | 12,018 | |||||||||
Goodwill |
21,544 | 8,503 | 13,888 | |||||||||
Other intangible assets |
550 | 550 | 550 | |||||||||
Other assets, net |
8,417 | 6,712 | 7,671 | |||||||||
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Total assets |
$ | 767,562 | $ | 721,413 | $ | 706,422 | ||||||
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See accompanying notes.
2
THE FINISH LINE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
August 31, 2013 |
September 1, 2012 |
March 2, 2013 |
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(unaudited) | (unaudited) | |||||||||||
LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||||||
CURRENT LIABILITIES: |
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Accounts payable |
$ | 107,030 | $ | 78,304 | $ | 75,641 | ||||||
Employee compensation |
19,148 | 16,870 | 15,579 | |||||||||
Accrued property and sales tax |
11,305 | 10,484 | 9,245 | |||||||||
Income taxes payable |
6,848 | 6,704 | 5,211 | |||||||||
Deferred income taxes |
6,453 | 7,403 | 7,239 | |||||||||
Other liabilities and accrued expenses |
21,338 | 19,049 | 21,122 | |||||||||
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Total current liabilities |
172,122 | 138,814 | 134,037 | |||||||||
Deferred credits from landlords |
28,544 | 26,748 | 27,215 | |||||||||
Other long-term liabilities |
17,131 | 15,970 | 16,638 | |||||||||
REDEEMABLE NONCONTROLLING INTEREST |
2,772 | 5,248 | 3,669 | |||||||||
SHAREHOLDERS EQUITY: |
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Preferred stock, $.01 par value; 1,000 shares authorized; none issued |
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Common stock, $.01 par value |
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Shares authorized 110,000 |
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Shares issued(August 31, 2013 60,145; September 1, 2012 59,573; March 2, 2013 59,587) |
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Shares outstanding(August 31, 2013 48,276; September 1, 2012 50,216; March 2, 2013 48,193) |
597 | 596 | 596 | |||||||||
Additional paid-in capital |
220,153 | 214,938 | 217,045 | |||||||||
Retained earnings |
529,626 | 477,064 | 504,883 | |||||||||
Treasury stock(August 31, 2013 11,482; September 1, 2012 9,357; March 2, 2013 11,394) |
(203,383 | ) | (157,965 | ) | (197,661 | ) | ||||||
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Total shareholders equity |
546,993 | 534,633 | 524,863 | |||||||||
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Total liabilities and shareholders equity |
$ | 767,562 | $ | 721,413 | $ | 706,422 | ||||||
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See accompanying notes.
3
THE FINISH LINE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(unaudited)
Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||
August 31, 2013 |
September 1, 2012 |
August 31, 2013 |
September 1, 2012 |
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Net sales |
$ | 436,030 | $ | 385,011 | $ | 787,083 | $ | 704,060 | ||||||||
Cost of sales (including occupancy costs) |
289,693 | 250,461 | 533,751 | 464,851 | ||||||||||||
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Gross profit |
146,337 | 134,550 | 253,332 | 239,209 | ||||||||||||
Selling, general and administrative expenses |
103,455 | 94,711 | 202,811 | 179,557 | ||||||||||||
Store closing costs |
17 | 325 | 203 | 420 | ||||||||||||
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Operating income |
42,865 | 39,514 | 50,318 | 59,232 | ||||||||||||
Interest income, net |
10 | 58 | 24 | 129 | ||||||||||||
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Income before income taxes |
42,875 | 39,572 | 50,342 | 59,361 | ||||||||||||
Income tax expense |
16,682 | 15,136 | 19,635 | 22,844 | ||||||||||||
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Net income |
26,193 | 24,436 | 30,707 | 36,517 | ||||||||||||
Net loss attributable to redeemable noncontrolling interest |
314 | 537 | 875 | 734 | ||||||||||||
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Net income attributable to The Finish Line, Inc. |
$ | 26,507 | $ | 24,973 | $ | 31,582 | $ | 37,251 | ||||||||
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Basic earnings per share attributable to The Finish Line, Inc. shareholders |
$ | 0.54 | $ | 0.49 | $ | 0.65 | $ | 0.73 | ||||||||
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Basic weighted average shares |
48,327 | 50,188 | 48,304 | 50,441 | ||||||||||||
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Diluted earnings per share attributable to The Finish Line, Inc. shareholders |
$ | 0.54 | $ | 0.49 | $ | 0.64 | $ | 0.72 | ||||||||
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Diluted weighted average shares |
48,757 | 50,866 | 48,744 | 51,135 | ||||||||||||
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Dividends declared per share |
$ | 0.07 | $ | 0.06 | $ | 0.14 | $ | 0.12 | ||||||||
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See accompanying notes.
4
THE FINISH LINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Twenty-Six Weeks Ended | ||||||||
August 31, 2013 |
September 1, 2012 |
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OPERATING ACTIVITIES: |
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Net income |
$ | 30,707 | $ | 36,517 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
17,949 | 14,083 | ||||||
Deferred income taxes |
267 | (285 | ) | |||||
Share-based compensation |
3,382 | 3,598 | ||||||
Loss on disposal of property and equipment |
522 | 430 | ||||||
Excess tax benefits from share-based compensation |
(2,108 | ) | (2,033 | ) | ||||
Changes in operating assets and liabilities: |
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Accounts receivable, net |
455 | (187 | ) | |||||
Merchandise inventories, net |
(48,899 | ) | (30,229 | ) | ||||
Other assets |
(3,836 | ) | 46 | |||||
Accounts payable |
33,011 | 11,058 | ||||||
Employee compensation |
2,671 | (5,533 | ) | |||||
Income taxes payable |
3,517 | (6,256 | ) | |||||
Other liabilities and accrued expenses |
2,026 | 867 | ||||||
Deferred credits from landlords |
949 | (988 | ) | |||||
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Net cash provided by operating activities |
40,613 | 21,088 | ||||||
INVESTING ACTIVITIES: |
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Capital expenditures for property and equipment |
(43,206 | ) | (45,142 | ) | ||||
Proceeds from disposals of property and equipment |
52 | 30 | ||||||
Acquisitions, net of cash acquired |
(8,315 | ) | | |||||
Cash paid for investment |
| (1,000 | ) | |||||
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Net cash used in investing activities |
(51,469 | ) | (46,112 | ) | ||||
FINANCING ACTIVITIES: |
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Dividends paid to shareholders |
(6,756 | ) | (6,138 | ) | ||||
Proceeds from issuance of common stock |
4,610 | 2,237 | ||||||
Excess tax benefits from share-based compensation |
2,108 | 2,033 | ||||||
Purchase of treasury stock |
(12,256 | ) | (32,377 | ) | ||||
Funding of related-party note receivable |
| (4,000 | ) | |||||
Proceeds from sale of redeemable noncontrolling interest |
| 10,000 | ||||||
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Net cash used in financing activities |
(12,294 | ) | (28,245 | ) | ||||
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Net decrease in cash and cash equivalents |
(23,150 | ) | (53,269 | ) | ||||
Cash and cash equivalents at beginning of period |
226,982 | 307,494 | ||||||
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Cash and cash equivalents at end of period |
$ | 203,832 | $ | 254,225 | ||||
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Supplemental disclosure of noncash operating and investing activities: |
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Capital expenditures incurred but not yet paid as of August 31, 2013 |
$ | 6,639 | $ | | ||||
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Capital expenditures incurred but not yet paid as of March 2, 2013 |
$ | 9,715 | $ | | ||||
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See accompanying notes.
5
THE FINISH LINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements of The Finish Line, Inc., along with its consolidated subsidiaries (individually and collectively referred to as the Company), have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. Preparation of the financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation, have been included. Intercompany accounts and transactions have been eliminated in consolidation.
The Company has experienced, and expects to continue to experience, significant variability in sales, net income and merchandise inventories from reporting period to reporting period. Therefore, the results of the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year.
These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Companys Annual Report on Form 10-K for the year ended March 2, 2013 (fiscal 2013), as filed with the Securities and Exchange Commission (SEC) on April 29, 2013.
Segment Information
The Company is a premium retailer of athletic shoes, apparel and accessories for men, women and kids, throughout the United States, through four operating segments, brick and mortar stores, digital (which includes internet, mobile and tablet), shops within department stores, and The Running Specialty Group (Running Specialty). Given the similar economic characteristics of brick and mortar stores, digital, and shops within department stores, which include a similar nature of products sold, type of customer, and method of distribution, and Running Specialty being immaterial, the Companys operating segments are aggregated into one reportable segment. The following table sets forth net sales of the Company by major category for each of the following periods (in thousands):
Thirteen Weeks Ended (unaudited) | ||||||||||||||||
Category |
August 31, 2013 | September 1, 2012 | ||||||||||||||
Footwear |
$ | 389,325 | 89 | % | $ | 337,650 | 88 | % | ||||||||
Softgoods |
46,705 | 11 | % | 47,361 | 12 | % | ||||||||||
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Total |
$ | 436,030 | 100 | % | $ | 385,011 | 100 | % | ||||||||
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Twenty-Six Weeks Ended (unaudited) | ||||||||||||||||
Category |
August 31, 2013 | September 1, 2012 | ||||||||||||||
Footwear |
$ | 705,176 | 90 | % | $ | 620,208 | 88 | % | ||||||||
Softgoods |
81,907 | 10 | % | 83,852 | 12 | % | ||||||||||
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Total |
$ | 787,083 | 100 | % | $ | 704,060 | 100 | % | ||||||||
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Brick and mortar stores and digital are collectively referred to as Finish Line throughout this document.
Reclassification
Within the September 1, 2012 consolidated balance sheet, $2.3 million has been reclassified from deferred credits from landlords to other long-term liabilities to conform to the fiscal 2014 presentation.
2. Acquisitions
On March 29, 2012, GCPI SR LLC (GCPI) made a $10.0 million strategic investment in Running Specialty. The Company remained majority owner with a 51% ownership. GCPI has the right to put and the Company has the right to call after March 4, 2017, under certain circumstances, the remaining 49% interest in Running Specialty at an agreed upon price approximating fair value. Also, as part of the transaction, GCPI issued to the Company a $4.0 million related-party promissory note which is collateralized with GCPIs interest in Running Specialty due March 31, 2021 or earlier depending on certain stipulated events in the control of GCPI. The promissory note calls for interest payments based in part on a fixed rate and in part on participation in the value of other investments held by GCPI. The balance of the promissory note is $4.1 million, at August 31, 2013, and includes accrued interest and has been netted against the redeemable noncontrolling interest.
The redeemable noncontrolling interest is classified as mezzanine equity and measured at the greater of redemption value at the end of each reporting period or the historical cost basis of the redeemable noncontrolling interest, net of the $4.1 million promissory note and adjusted for cumulative earnings or loss allocations. The resulting increases or decreases in the estimated redemption amount are affected by corresponding charges against retained earnings, or in the absence of retained earnings, additional paid in capital. As of August 31, 2013, the redeemable noncontrolling interest is measured at historical cost basis. The loss allocation for the twenty-six weeks ended August 31, 2013 and September 1, 2012 were $0.9 million and $0.7 million, respectively.
6
On October 6, 2012, Running Specialty acquired substantially all the assets and assumed certain liabilities of Run On, Inc., for a purchase price of $2.3 million, net of cash acquired, which was funded through the Companys existing cash. As of the acquisition date, Run On, Inc. operated five specialty running shops in Texas. In addition to the cash consideration, the transaction included contingent consideration with an estimated fair value of $1.5 million which is included within other long-term liabilities. The Company determined the estimated fair value based on discounted cash flow analyses and estimates made by management.
On December 31, 2012, Running Specialty acquired substantially all the assets and assumed certain liabilities of The Roadrunner of Richmond, Inc., which operated one specialty running shop in Virginia.
The Company allocated the purchase price of each acquisition based upon the tangible and intangible assets acquired, net of liabilities. The combined allocation of the purchase price for Run On, Inc. and The Roadrunner of Richmond, Inc. is detailed below (in thousands):
Allocation of Purchase Price |
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Goodwill |
$ | 5,497 | ||
Tangible assets, net of liabilities |
299 | |||
Contingent consideration |
(1,453 | ) | ||
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Total purchase price |
$ | 4,343 | ||
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On May 23, 2013, Running Specialty acquired substantially all the assets and assumed certain liabilities of The Running Company, LLC (Blue Mile), for a purchase price of $2.0 million, $1.7 million of which was funded through the Companys existing cash with a final payment due upon agreement of Blue Miles working capital as of May 23, 2013. As of the acquisition date, Blue Mile operated six specialty running shops in Indiana and Kentucky.
The Company allocated the purchase price based upon the tangible and intangible assets acquired, net of liabilities. The preliminary allocation of the purchase price for Blue Mile is detailed below (in thousands):
Allocation of Purchase Price |
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Goodwill |
$ | 1,874 | ||
Tangible assets, net of liabilities |
98 | |||
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Total purchase price |
$ | 1,972 | ||
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On May 31, 2013, Running Specialty acquired substantially all the assets and assumed certain liabilities of Boulders Heart & Sole, Inc. (Boulder Running Company), for a purchase price of $7.1 million, $6.4 million of which was funded through the Companys existing cash with the final payment due upon agreement of Boulder Running Companys working capital as of May 31, 2013. As of the acquisition date, Boulder Running Company operated three specialty running shops in Colorado.
The Company allocated the purchase price based upon the tangible and intangible assets acquired, net of liabilities. The preliminary allocation of the purchase price for Boulder Running Company is detailed below (in thousands):
Allocation of Purchase Price |
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Goodwill |
$ | 5,670 | ||
Tangible assets, net of liabilities |
1,459 | |||
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Total purchase price |
$ | 7,129 | ||
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A reconciliation of goodwill is detailed below (in thousands):
Goodwill | ||||
Balance as of September 1, 2012: |
$ | 8,503 | ||
Acquisitions |
5,385 | |||
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Balance as of March 2, 2013: |
13,888 | |||
Acquisitions |
7,544 | |||
Other |
112 | |||
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Balance as of August 31, 2013: |
$ | 21,544 | ||
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3. Fair Value Measurements
Fair value measurements are determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants exclusive of any transaction costs. The Company utilizes a fair value hierarchy based upon the observability of inputs used in valuation techniques as follows:
Level 1: | Observable inputs such as quoted prices in active markets; | |
Level 2: | Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and | |
Level 3: | Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
7
The following table provides a summary of the recognized assets and liabilities that are measured at fair value on a recurring basis (in thousands):
At August 31, 2013 | At September 1, 2012 | At March 2, 2013 | ||||||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||
Assets |
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Non-qualified deferred compensation plan |
$ | 5,238 | $ | | $ | | $ | 4,630 | $ | | $ | | $ | 4,940 | $ | | $ | | ||||||||||||||||||
Liabilities |
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Contingent consideration liability |
$ | | $ | | $ | 1,903 | $ | | $ | | $ | | $ | | $ | | $ | 1,453 |
Included in Level 1 assets are mutual fund investments under a nonqualified deferred compensation plan. The Company estimates the fair value of these investments on a recurring basis using readily available market prices.
The Company has two liabilities that are measured at fair value on a recurring basis related to the contingent consideration for $1.5 million and $0.5 million. The liabilities are adjusted to fair value each reporting period. The categorization of the framework used to price the liabilities is considered Level 3, due to the subjective nature of the unobservable inputs used to determine the fair values.
There were no transfers into or out of Level 1, Level 2 or Level 3 assets or liabilities for any of the periods presented.
Level 3 Valuation Techniques
Financial assets and liabilities are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The following table provides a reconciliation of the Companys Level 3 contingent consideration liabilities during the twenty-six weeks ended August 31, 2013:
(in thousands) | Level 3 Liabilities |
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Balance as of March 2, 2013 |
$ | 1,453 | ||
Contingent consideration from acquisition |
450 | |||
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Balance as of August 31, 2013 |
$ | 1,903 | ||
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4. Debt Agreement
On November 30, 2012, the Company entered into an unsecured $100 million Amended and Restated Revolving Credit Facility Credit Agreement (the Amended Credit Agreement) with certain Lenders, which expires on November 30, 2017. The Amended Credit Agreement provides that, under certain circumstances, the Company may increase the maximum amount of the credit facility in an aggregate principal amount not to exceed $200 million. The Amended Credit Agreement will be used by the Company, among other things, to issue letters of credit, support working capital needs, fund capital expenditures and other general corporate purposes.
Approximately $2.5 million in stand-by letters of credit were outstanding as of August 31, 2013 under the Amended Credit Agreement. No advances were outstanding under the Amended Credit Agreement as of August 31, 2013. Accordingly, the total revolving credit availability under the Amended Credit Agreement was $97.5 million as of August 31, 2013.
The Companys ability to borrow monies in the future under the Amended Credit Agreement is subject to certain conditions, including compliance with certain covenants and making certain representations and warranties. The Amended Credit Agreement contains restrictive covenants that limit, among other things, mergers and acquisitions. In addition, the Company must maintain a maximum leverage ratio (as defined in the Amended Credit Agreement) and minimum consolidated tangible net worth (as defined in the Amended Credit Agreement). The Company was in compliance with all such covenants as of August 31, 2013.
The Amended Credit Agreement pricing grid is adjusted quarterly and is based on the Companys leverage ratio (as defined in the Amended Credit Agreement). The minimum pricing is LIBOR plus 0.90% or Base Rate (as defined in the Amended Credit Agreement) and the maximum pricing is LIBOR plus 1.75% or Base Rate (as defined in the Amended Credit Agreement) plus 0.75%. The Company is subject to an unused commitment fee based on the Companys leverage ratio with minimum pricing of 0.10% and maximum pricing of 0.25%. In addition, the Company is subject to a letter of credit fee based on the Companys leverage ratio with minimum pricing of 0.40% and maximum pricing of 1.25%.
5. Start-Up Costs
The Company entered into a department license agreement and an on-line shop license agreement (the Agreements) with Macys, Inc. (Macys) whereby the Company will be the exclusive provider of mens, womens, and kids athletic shoes (Athletic Shoes) within Macys stores and macys.com. The Company will merchandise and fulfill inventory at all of Macys locations, and perform in-store build out and staffing at up to approximately 450 of Macys locations. The Company has incurred start-up costs to accommodate a conversion of Macys Athletic Shoes assortments to Finish Line platforms. The Company took full control of Macys Athletic Shoes inventory at Macys department store locations as of April 14, 2013 and macys.com as of May 14, 2013. As a part of the conversion, the Company agreed to purchase certain of Macys Athletic Shoes at Macys original cost. The Company paid cash for the inventory during the second quarter ended August 31, 2013.
The charges from start-up costs related to the Agreements with Macys includes the following: freight and handling of inventory from Macys to the Company; leased warehouse space at a third party for sorting; and inventory reserves established for inventory purchased from Macys to record at the lower of cost or market.
8
For the twenty-six weeks ended August 31, 2013, the Company incurred $5.8 million in start-up costs through Cost of sales and $2.2 million within Selling, general and administrative expenses within the Consolidated Statements of Income for a combined $8.0 million. No start-up costs were incurred during the thirteen and twenty-six weeks ended September 1, 2012 or for the thirteen weeks ended August 31, 2013.
6. Earnings Per Share
Basic earnings per share is calculated by dividing net income attributable to the Companys common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share attributable to the Companys common shareholders assumes the issuance of additional shares of common stock by the Company upon exercise of all outstanding stock options and contingently issuable securities if the effect is dilutive, in accordance with the treasury stock method or two class method (whichever is more dilutive) discussed in Accounting Standards Codification (ASC) 260-10, Earnings Per Share.
ASC 260-10 requires the inclusion of restricted stock as participating securities, as they have the right to share in dividends, if declared, equally with common shareholders. During periods of net income, participating securities are allocated a proportional share of net income attributable to the Companys common shareholders determined by dividing total weighted average participating securities by the sum of total weighted average common shares and participating securities (the two-class method). During periods of net loss, no effect is given to participating securities since they do not share in the losses of the Company. Participating securities have the effect of diluting both basic and diluted earnings per share attributable to the Companys common shareholders during periods of net income.
The following is a reconciliation of the numerators and denominators used in computing earnings per share attributable to the Companys common shareholders (in thousands, except per share amounts):
Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
August 31, 2013 |
September 1, 2012 |
August 31, 2013 |
September 1, 2012 |
|||||||||||||
Net income attributable to The Finish Line, Inc. |
$ | 26,507 | $ | 24,973 | $ | 31,582 | $ | 37,251 | ||||||||
Net income attributable to participating securities |
316 | 202 | 375 | 300 | ||||||||||||
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|
|
|
|
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|
|||||||||
Net income available to The Finish Line, Inc. shareholders |
$ | 26,191 | $ | 24,771 | $ | 31,207 | $ | 36,951 | ||||||||
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|
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|
|
|
|
|||||||||
Basic earnings per share: |
||||||||||||||||
Weighted-average number of common shares outstanding |
48,327 | 50,188 | 48,304 | 50,441 | ||||||||||||
Basic earnings per share |
$ | 0.54 | $ | 0.49 | $ | 0.65 | $ | 0.73 | ||||||||
Diluted earnings per share: |
||||||||||||||||
Weighted-average number of common shares outstanding |
48,327 | 50,188 | 48,304 | 50,441 | ||||||||||||
Stock options(a) |
430 | 678 | 440 | 694 | ||||||||||||
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Diluted weighted-average number of common shares outstanding |
48,757 | 50,866 | 48,744 | 51,135 | ||||||||||||
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|
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Diluted earnings per share |
$ | 0.54 | $ | 0.49 | $ | 0.64 | $ | 0.72 | ||||||||
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|
(a) | The computation of diluted earnings per share excludes options to purchase approximately 1.3 million and 0.9 million shares of common stock in the thirteen weeks ended August 31, 2013 and September 1, 2012, respectively, and 1.3 million and 0.8 million shares of common stock in the twenty-six weeks ended August 31, 2013 and September 1, 2012, respectively, because the impact of such options would have been anti-dilutive. |
7. Common Stock
On July 21, 2011, the Companys Board of Directors authorized a stock repurchase program (the 2011 stock repurchase program) to repurchase up to 5,000,000 shares of the Companys Class A common stock outstanding through December 31, 2014. On January 3, 2013, the Companys Board of Directors amended the program (the Amended Program) and authorized the repurchase of an additional 5,000,000 shares of the Companys Class A common stock, which authorization shall expire on December 31, 2017.
The Company purchased 615,877 shares at an average price of $19.90 per share for an aggregate amount of $12.3 million for the twenty-six weeks ended August 31, 2013. As of August 31, 2013, there were 4,304,464 shares remaining available to repurchase under the Amended Program.
The Companys treasury shares may be issued upon the exercise of employee stock options, issuance of shares for the Employee Stock Purchase Plan, issuance of restricted stock, or for other corporate purposes. Further purchases will occur from time to time as market conditions warrant and as the Company deems appropriate when judged against other alternative uses of cash.
On July 18, 2013, the Company announced a quarterly cash dividend of $0.07 per share of the Companys Class A common stock. The Company declared dividends of $3.4 million during the thirteen weeks ended August 31, 2013. The cash dividends of $3.4 million were paid on September 16, 2013 to shareholders of record on August 30, 2013 and was included as of August 31, 2013 in Other liabilities and accrued expenses on the Companys consolidated balance sheet. Further declarations of dividends remain at the discretion of the Companys Board of Directors.
8. Commitments and Contingencies
Demandware, Inc. (the Plaintiff) filed an action against The Finish Line, Inc. in the United States District Court for the Southern District of New York on or about August 12, 2013, alleging breach of contract as it relates to the parties engagement to replace Finish Lines web commerce platform. Plaintiffs lawsuit seeks $6.6 million in alleged damages, as well as costs and attorney fees and other specified relief to be determined by the court. The possible range of loss for such contingency varies from zero to the extent of any judgment which may be rendered by the court. The Company intends to vigorously defend itself in this matter. The Company does not believe this matter is likely to have a material adverse impact on its consolidated results of operations, liquidity, or financial condition.
The Company is subject, from time to time, to certain legal proceedings and claims in the ordinary course of conducting its business. Although it is not possible to predict with certainty the eventual outcome of any litigation, in the opinion of management, the Companys legal proceedings are not expected to have a material adverse effect on the Companys financial condition or results of operations.
9
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This quarterly report on Form 10-Q may contain certain statements that the Company believes is, or may be considered to be, forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally can be identified by use of statements that include, but are not limited to, phrases such as believe, expect, future, anticipate, intend, plan, foresee, may, should, will, estimates, potential, continue or other similar words or phrases. Similarly, statements that describe the Companys objectives, plans or goals also are forward-looking statements. All of these forward-looking statements are subject to risks and uncertainties that could cause the Companys actual results to differ materially from those contemplated by the relevant forward-looking statement. The principal risk factors that could cause actual performance and future actions to differ materially from the forward-looking statements include, but are not limited to, the Companys reliance on a few key vendors for a majority of its merchandise purchases (including a significant portion from one key vendor); the availability and timely receipt of products; the ability to timely fulfill and ship products to customers; fluctuations in oil prices causing changes in gasoline and energy prices, resulting in changes in consumer spending as well as increases in utility, freight, and product costs; product demand and market acceptance risks; deterioration of macro-economic and business conditions; the inability to locate and obtain or retain acceptable lease terms for the Companys stores; the effect of competitive products and pricing; the availability of products; loss of key employees; execution of strategic growth initiatives (including actual and potential mergers and acquisitions and other components of the Companys capital allocation strategy); and the other risks detailed in the Companys Securities and Exchange Commission filings. Readers are urged to consider these factors carefully in evaluating the forward-looking statements. The forward-looking statements included in this Form 10-Q are made only as of the date of this report and the Company undertakes no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances.
General
The following discussion and analysis should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations, including Critical Accounting Policies, contained in the Companys Annual Report on Form 10-K for the year ended March 2, 2013.
The Company is a premium retailer of athletic shoes, apparel and accessories for men, women and kids, throughout the United States, through four operating segments, brick and mortar stores, digital (which includes internet, mobile and tablet), shops within department stores, and The Running Specialty Group (Running Specialty). Brick and mortar stores and digital are collectively referred to as Finish Line throughout this document.
The following table sets forth store and square feet information for each of the following periods:
Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||
Number of Stores: |
August 31, 2013 |
September 1, 2012 |
August 31, 2013 |
September 1, 2012 |
||||||||||||
Finish Line: |
||||||||||||||||
Beginning of period |
651 | 640 | 645 | 637 | ||||||||||||
Opened |
9 | 4 | 19 | 13 | ||||||||||||
Closed |
(1 | ) | (6 | ) | (5 | ) | (12 | ) | ||||||||
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|
|||||||||
End of period |
659 | 638 | 659 | 638 | ||||||||||||
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Branded shops within department stores: |
||||||||||||||||
Beginning of period |
44 | | 3 | | ||||||||||||
Opened |
89 | | 130 | | ||||||||||||
Closed |
| | | | ||||||||||||
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End of period |
133 | | 133 | | ||||||||||||
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Running Specialty: |
||||||||||||||||
Beginning of period |
38 | 19 | 27 | 19 | ||||||||||||
Acquired |
| | 9 | | ||||||||||||
Opened |
1 | | 3 | | ||||||||||||
Closed |
| | | | ||||||||||||
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End of period |
39 | 19 | 39 | 19 | ||||||||||||
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Total: |
||||||||||||||||
Beginning of period |
733 | 659 | 675 | 656 | ||||||||||||
Acquired |
| | 9 | | ||||||||||||
Opened |
99 | 4 | 152 | 13 | ||||||||||||
Closed |
(1 | ) | (6 | ) | (5 | ) | (12 | ) | ||||||||
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End of period |
831 | 657 | 831 | 657 | ||||||||||||
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August 31, 2013 |
September 1, 2012 |
|||||||
Square feet information as of: |
||||||||
Finish Line: |
||||||||
Square feet |
3,571,267 | 3,449,041 | ||||||
Average store size |
5,419 | 5,406 | ||||||
Branded shops within department stores: |
||||||||
Square feet at end of period |
158,948 | | ||||||
Average square feet per store |
1,195 | | ||||||
Running Specialty: |
||||||||
Square feet |
119,964 | 60,436 | ||||||
Average store size |
3,076 | 3,181 | ||||||
Total: |
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|
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Square feet |
3,850,179 | 3,509,477 | ||||||
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10
Results of Operations
The following tables set forth net sales of the Company by major category for each of the following periods (in thousands):
Thirteen Weeks Ended (unaudited) | ||||||||||||||||
Category |
August 31, 2013 | September 1, 2012 | ||||||||||||||
Footwear |
$ | 389,325 | 89 | % | $ | 337,650 | 88 | % | ||||||||
Softgoods |
46,705 | 11 | % | 47,361 | 12 | % | ||||||||||
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Total |
$ | 436,030 | 100 | % | $ | 385,011 | 100 | % | ||||||||
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|
|
Twenty-Six Weeks Ended (unaudited) | ||||||||||||||||
Category |
August 31, 2013 | September 1, 2012 | ||||||||||||||
Footwear |
$ | 705,176 | 90 | % | $ | 620,208 | 88 | % | ||||||||
Softgoods |
81,907 | 10 | % | 83,852 | 12 | % | ||||||||||
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Total |
$ | 787,083 | 100 | % | $ | 704,060 | 100 | % | ||||||||
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The following table and subsequent discussion sets forth operating data of the Company as a percentage of net sales for the periods indicated below:
Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||
August 31, 2013 |
September 1, 2012 |
August 31, 2013 |
September 1, 2012 |
|||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Net sales |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of sales (including occupancy costs) |
66.4 | 65.0 | 67.8 | 66.0 | ||||||||||||
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Gross profit |
33.6 | 35.0 | 32.2 | 34.0 | ||||||||||||
Selling, general and administrative expenses |
23.8 | 24.6 | 25.8 | 25.5 | ||||||||||||
Store closing costs |
| 0.1 | | 0.1 | ||||||||||||
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|
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Operating income |
9.8 | 10.3 | 6.4 | 8.4 | ||||||||||||
Interest income, net |
| | | | ||||||||||||
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|
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Income before income tax |
9.8 | 10.3 | 6.4 | 8.4 | ||||||||||||
Income tax expense |
3.8 | 3.9 | 2.5 | 3.2 | ||||||||||||
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Net income |
6.0 | 6.4 | 3.9 | 5.2 | ||||||||||||
Net loss attributable to redeemable noncontrolling interest |
| 0.1 | 0.1 | 0.1 | ||||||||||||
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|
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Net income attributable to The Finish Line, Inc. |
6.0 | % | 6.5 | % | 4.0 | % | 5.3 | % | ||||||||
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11
THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 31, 2013 COMPARED TO THE THIRTEEN AND TWENTY-SIX WEEKS ENDED SEPTEMBER 1, 2012
Net Sales
Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||
August 31, 2013 |
September 1, 2012 |
August 31, 2013 |
September 1, 2012 |
|||||||||||||
(dollars in thousands) | (dollars in thousands) | |||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Net sales |
$ | 436,030 | $ | 385,011 | $ | 787,083 | $ | 704,060 | ||||||||
Comparable store sales increase: |
0.9 | % | 12.3 | % | 1.6 | % | 10.3 | % |
Net sales increased 13.3% for the thirteen weeks ended August 31, 2013 compared to the thirteen weeks ended September 1, 2012. The increase was attributable to a Finish Line comparable store sales increase of 0.9%, an increase in Running Specialty sales of $7.6 million, new Finish Line non comparable store sales contributing $12.8 million due to 21 net additional stores for the thirteen weeks ended August 31, 2013 compared to September 1, 2012, and net sales associated with the shops within department stores of $30.4 million for the thirteen weeks ended August 31, 2013. The Finish Line comparable store sales increase of 0.9% is due to an increase in average dollar per transaction and digital traffic, offset partially by a decrease in store traffic and conversion.
Net sales increased 11.8% for the twenty-six weeks ended August 31, 2013 compared to the twenty-six weeks ended September 1, 2012. The increase was attributable to a Finish Line comparable store sales increase of 1.6%, an increase in Running Specialty sales of $11.3 million, new Finish Line non comparable store sales contributing $20.7 million due to 21 net additional stores for the twenty-six weeks ended August 31, 2013 compared to September 1, 2012, and net sales associated with the shops within department stores of $43.5 million for the twenty-six weeks ended August 31, 2013. The Finish Line comparable store sales increase of 1.6% is due to an increase in average dollar per transaction and an increase in both digital and store traffic, offset partially by a decrease in conversion.
Cost of Sales (Including Occupancy Costs) and Gross Profit
Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||
August 31, 2013 |
September 1, 2012 |
August 31, 2013 |
September 1, 2012 |
|||||||||||||
(dollars in thousands) | (dollars in thousands) | |||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Cost of sales (including occupancy costs) |
$ | 289,693 | $ | 250,461 | $ | 533,751 | $ | 464,851 | ||||||||
Gross profit |
$ | 146,337 | $ | 134,550 | $ | 253,332 | $ | 239,209 | ||||||||
Gross profit as a percentage of net sales |
33.6 | % | 35.0 | % | 32.2 | % | 34.0 | % |
The 1.4% decrease in gross profit, as a percentage of net sales, for the thirteen weeks ended August 31, 2013 as compared to the thirteen weeks ended September 1, 2012 was primarily due to a 1.1% decrease in product margin, net of shrink, as a percentage of net sales, and a 0.3% increase in occupancy costs, as a percentage of net sales. The 1.1% decrease in product margin, net of shrink, as a percentage of net sales, was due primarily to higher markdowns as the Company continues to adjust product assortments to meet customer demand. The 0.3% increase in occupancy costs, as a percentage of net sales, is primarily due to longer lease agreements entered into for the Companys better performing stores within the last year.
The 1.8% decrease in gross profit, as a percentage of net sales, for the twenty-six weeks ended August 31, 2013 as compared to the twenty-six weeks ended September 1, 2012 was primarily due to a 1.5% decrease in product margin, net of shrink, as a percentage of net sales, and a 0.3% increase in occupancy costs, as a percentage of net sales. The 1.5% decrease in product margin, net of shrink, as a percentage of net sales, was due primarily to $5.8 million, or 0.8% of net sales, of start-up costs related to inventory reserves established for inventory purchased from Macys during the twenty-six weeks ended August 31, 2013, as well as higher markdowns as the Company continues to adjust product assortments to meet customer demands. The 0.3% increase in occupancy costs, as a percentage of net sales, is primarily due to longer lease agreements entered into for the Companys better performing stores within the last year.
Selling, General and Administrative Expenses
Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||
August 31, 2013 |
September 1, 2012 |
August 31, 2013 |
September 1, 2012 |
|||||||||||||
(dollars in thousands) | (dollars in thousands) | |||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Selling, general and administrative expenses |
$ | 103,455 | $ | 94,711 | $ | 202,811 | $ | 179,557 | ||||||||
Selling, general and administrative expenses as a percentage of net sales |
23.8 | % | 24.6 | % | 25.8 | % | 25.5 | % |
The $8.7 million increase in selling, general and administrative expenses for the thirteen weeks ended August 31, 2013 as compared to the thirteen weeks ended September 1, 2012 was primarily due to the following: 1.) investments to support the Companys omni-channel strategy, and 2.) variable costs in fulfillment, freight and payroll in conjunction with the 13.3% increase in consolidated net sales.
The $23.3 million increase in selling, general and administrative expenses for the twenty-six weeks ended August 31, 2013 as compared to the twenty-six weeks ended September 1, 2012 was primarily due to the following: 1.) $2.2 million, or 0.3% of net sales, in start-up costs associated with shipping and handling for the initial inventory takeover and assortment of Macys athletic footwear for the twenty-six weeks ended August 31, 2013, 2.) investments to support the Companys omni-channel strategy, 3.) variable costs in fulfillment, freight and payroll in conjunction with the 11.8% increase in consolidated net sales, and 4.) the initial ramp up of costs associated with building a team and infrastructure for the Macys business.
12
Store Closing Costs
Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||
August 31, 2013 |
September 1, 2012 |
August 31, 2013 |
September 1, 2012 |
|||||||||||||
(dollars in thousands) | (dollars in thousands) | |||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Store closing costs |
$ | 17 | $ | 325 | $ | 203 | $ | 420 | ||||||||
Store closing costs as a percentage of net sales |
| % | 0.1 | % | | % | 0.1 | % | ||||||||
Number of stores closed |
1 | 6 | 5 | 12 |
Store closing costs represent the non-cash write-off of any property and equipment upon a store closing.
Interest Income, Net
Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||
August 31, 2013 |
September 1, 2012 |
August 31, 2013 |
September 1, 2012 |
|||||||||||||
(dollars in thousands) | (dollars in thousands) | |||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Interest income, net |
$ | 10 | $ | 58 | $ | 24 | $ | 129 | ||||||||
Interest income, net as a percentage of net sales |
| % | | % | | % | | % |
The decrease of $0.1 million during the thirteen and twenty-six weeks ended August 31, 2013 compared to thirteen and twenty-six weeks ended September 1, 2012, respectively, was due to lower invested balances.
Income Tax Expense
Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||
August 31, 2013 |
September 1, 2012 |
August 31, 2013 |
September 1, 2012 |
|||||||||||||
(dollars in thousands) | (dollars in thousands) | |||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Income tax expense |
$ | 16,682 | $ | 15,136 | $ | 19,635 | $ | 22,844 | ||||||||
Income tax expense as a percentage of net sales |
3.8 | % | 3.9 | % | 2.5 | % | 3.2 | % | ||||||||
Effective income tax rate |
38.9 | % | 38.2 | % | 39.0 | % | 38.5 | % |
The increase in the effective tax rate for the thirteen and twenty-six weeks ended August 31, 2013 compared to the thirteen and twenty-six weeks ended September 1, 2012 relates to the Company incurring additional expenses that are not deductible for income tax purposes.
Redeemable Noncontrolling Interest
Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||
August 31, 2013 |
September 1, 2012 |
August 31, 2013 |
September 1, 2012 |
|||||||||||||
(dollars in thousands) | (dollars in thousands) | |||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Net loss attributable to redeemable noncontrolling interest |
$ | 314 | $ | 537 | $ | 875 | $ | 734 | ||||||||
Net loss attributable to redeemable noncontrolling interest as a percentage of net sales |
| % | 0.1 | % | 0.1 | % | 0.1 | % |
Net losses attributable to the redeemable noncontrolling interest for both the thirteen and twenty-six weeks ended August 31, 2013 represents 49% of the net loss generated by Running Specialty for such periods. Net losses attributable to the redeemable noncontrolling interest for the twenty-six weeks ended September 1, 2012 represents 49% of the net loss generated by Running Specialty since March 29, 2012, which was the date of the investment by GCPI SR LLC.
Net Income Attributable to The Finish Line, Inc.
Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||
August 31, 2013 |
September 1, 2012 |
August 31, 2013 |
September 1, 2012 |
|||||||||||||
(dollars in thousands) (unaudited) |
(dollars in thousands) (unaudited) |
|||||||||||||||
Net income attributable to The Finish Line, Inc. shareholders |
$ | 26,507 | $ | 24,973 | $ | 31,582 | $ | 37,251 | ||||||||
Net income attributable to The Finish Line, Inc. shareholders as a percentage of net sales |
6.0 | % | 6.5 | % | 4.0 | % | 5.3 | % | ||||||||
Net income attributable to The Finish Line, Inc. shareholders per diluted share |
$ | 0.54 | $ | 0.49 | $ | 0.64 | $ | 0.72 |
13
The $1.5 million increase in net income attributable to The Finish Line, Inc. for the thirteen weeks ended August 31, 2013 compared to the thirteen weeks ended September 1, 2012 was primarily due to a 13.3% increase in net sales partially offset by a decrease in product margin, as a percentage of sales, and the investments to support the Companys omni-channel strategy within selling, general, and administrative expenses.
The $5.7 million decrease in net income attributable to The Finish Line, Inc. for the twenty-six weeks ended August 31, 2013 compared to the twenty-six weeks ended September 1, 2012 was primarily due to the $8.0 million of start-up costs ($4.9 million net of income taxes) along with a decrease in product margin as a percentage of net sales, and the investments to support the Companys omni-channel strategy within selling, general and administrative expenses, partially offset by net sales improvement.
Liquidity and Capital Resources
The Companys primary source of working capital is cash-on-hand and cash flow from operations. The following table sets forth material balance sheet and liquidity measures of the Company (in thousands):
August 31, 2013 |
September 1, 2012 |
March 2, 2013 |
||||||||||
(unaudited) | (unaudited) | |||||||||||
Cash and cash equivalents |
$ | 203,832 | $ | 254,225 | $ | 226,982 | ||||||
Merchandise inventories, net |
$ | 295,952 | $ | 250,634 | $ | 243,770 | ||||||
Interest-bearing debt |
$ | | $ | | $ | | ||||||
Working capital |
$ | 351,514 | $ | 391,787 | $ | 357,657 |
Operating Activities
Net cash provided by operating activities during the twenty-six weeks ended August 31, 2013 was $40.6 million compared to $21.1 million for the twenty-six weeks ended September 1, 2012. The increase was primarily a result of a net increase in the cash flow from working capital balances partially offset by a decrease in net income for the twenty-six weeks ended August 31, 2013 compared to the twenty-six weeks ended September 1, 2012. Cash and cash equivalents consist primarily of cash on hand and all highly liquid instruments purchased with a maturity of three months or less at the date of purchase. At August 31, 2013, substantially all of the Companys cash was invested in deposit accounts at banks.
Consolidated inventories increased 18.1% at August 31, 2013 compared to September 1, 2012, and were 21.4% higher than at March 2, 2013. The increase over the prior year and prior year quarter is primarily related to the purchase of Macys Athletic Shoes inventory, as well as the Companys merchandise assortment within Macys. Finish Line inventories decreased 0.5% at August 31, 2013 compared to September 1, 2012 and increased 2.9% from March 2, 2013.
Investing Activities
Net cash used in investing activities for the twenty-six weeks ended August 31, 2013 was $51.5 million compared to $46.1 million for the twenty-six weeks ended September 1, 2012. The increase in cash used in investing activities was primarily a result of two acquisitions completed by Running Specialty for $8.3 million, partially offset by a decrease in capital expenditures of $1.9 million.
The Company intends to invest approximately $80-$90 million in capital expenditures during fiscal 2014. Of this amount, approximately $8-$9 million is intended for the construction of approximately 20-25 new Finish Line stores, and approximately $14-$15 million is intended for the remodeling or repositioning of 25-30 existing Finish Line stores with additional brand shops such as Finish Lines Nike Track Club, Brand Jordan, as well as other key brand partnerships for store-within-store models. In addition, approximately $18 million is expected to be spent on building out shops within department stores. The Company anticipates satisfying all of these capital expenditures through the use of cash-on-hand and operating cash flow. The remaining $40-$48 million to be invested is related primarily to projected capital expenditures of approximately $32-$38 million intended for IT infrastructure investments to support new supply chain and merchandise systems and approximately $2-$3 million intended for technology to support growth in Finish Lines digital business and $6-$7 million to support Running Specialty new store growth which excludes acquisition capital.
Financing Activities
Net cash used in financing activities for the twenty-six weeks ended August 31, 2013 was $12.3 million compared to $28.2 million for the twenty-six weeks ended September 1, 2012. The $16.0 million reduction in cash used was primarily due to a reduction of $20.1 million of stock repurchases, offset partially by a $2.4 million increase in proceeds from the issuance of common stock, and the sale of redeemable noncontrolling interest, net, of $6.0 million during the twenty-six weeks ended September 1, 2012.
On July 21, 2011, the Companys Board of Directors authorized a stock repurchase program (the 2011 stock repurchase program) to repurchase up to 5,000,000 shares of the Companys Class A common stock outstanding through December 31, 2014. On January 3, 2013, the Companys Board of Directors amended the program (the Amended Program) and authorized the repurchase of an additional 5,000,000 shares of the Companys Class A common stock, which authorization shall expire on December 31, 2017.
The Company purchased 615,877 shares at an average price of $19.90 per share for an aggregate amount of $12.3 million for the twenty-six weeks ended August 31, 2013. As of August 31, 2013, there were 4,304,464 shares remaining available to repurchase under the Amended Program.
The Companys treasury shares may be issued upon the exercise of employee stock options, issuance of shares for the Employee Stock Purchase Plan, issuance of restricted stock, or for other corporate purposes. Further purchases will occur from time to time as market conditions warrant and as the Company deems appropriate when judged against other alternative uses of cash.
On July 18, 2013, the Company announced a quarterly cash dividend of $0.07 per share of the Companys Class A common stock. The Company declared dividends of $3.4 million during the thirteen weeks ended August 31, 2013. The cash dividends of $3.4 million were paid on September 16, 2013 to shareholders of record on August 30, 2013 and was included as of August 31, 2013 in Other liabilities and accrued expenses on the Companys consolidated balance sheet. Further declarations of dividends remain at the discretion of the Companys Board of Directors.
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Contractual Obligations
The Companys contractual obligations primarily consist of operating leases and purchase orders for merchandise inventory. For the twenty-six weeks ended August 31, 2013, there were no significant changes to the Companys contractual obligations from those identified in the Companys Annual Report on Form 10-K for the year ended March 2, 2013, other than those which occur in the normal course of business (primarily changes in the Companys merchandise inventory related to purchase obligations, which fluctuate throughout the year as a result of the seasonal nature of the Companys operations, and changes to operating leases due to store openings and closings.)
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to adopt accounting policies related to estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. On an ongoing basis, management evaluates the Companys accounting policies, estimates and judgments, including those related to inventories, longlived assets and contingencies. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
For a discussion of the Companys market risk associated with interest rates as of March 2, 2013, see Quantitative and Qualitative Disclosures about Market Risk in Item 7A of Part II of the Companys Annual Report on Form 10-K for the fiscal year ended March 2, 2013. For the twenty-six weeks ended August 31, 2013, there has been no significant change in related market risk factors.
ITEM 4. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures. With the participation of our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), as of the end of the period covered by this Report. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures were effective in ensuring that (i) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commissions rules and forms and (ii) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Companys management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this Report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART IIOTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
The Company is subject, from time to time, to certain legal proceedings and claims in the ordinary course of conducting its business. Although it is not possible to predict with certainty the eventual outcome of any litigation, in the opinion of management, the Companys legal proceedings are not expected to have a material adverse effect on the Companys financial condition or results of operations
ITEM 1A. | RISK FACTORS |
Risk factors that affect the Companys business and financial results are discussed in Item 1A: Risk Factors in the Companys Annual Report on Form 10-K for the fiscal year ended March 2, 2013. There has been no significant change to identified risk factors for the twenty-six weeks ended August 31, 2013.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
On July 21, 2011, the Companys Board of Directors authorized the 2011 stock repurchase program to repurchase up to 5,000,000 shares of the Companys Class A common stock outstanding through December 31, 2014. On January 3, 2013, the Companys Board of Directors amended the program and authorized the repurchase of an additional 5,000,000 shares of the Companys Class A common stock, which authorization shall expire on December 31, 2017. Information on the shares repurchased under the Companys stock repurchase program during the thirteen weeks ended August 31, 2013 is as follows:
Month |
Total Number of Shares Purchased |
Average Price Paid per Share (1) |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Program |
||||||||||||
June (6/2/13 7/6/13) |
| $ | | | 4,554,284 | |||||||||||
July (7/7/13 8/3/13) |
59,820 | $ | 21.99 | 59,820 | 4,494,464 | |||||||||||
August (8/4/13 8/31/13) |
190,000 | $ | 21.90 | 190,000 | 4,304,464 | |||||||||||
|
|
|
|
|
|
|||||||||||
249,820 | $ | 21.92 | 249,820 | |||||||||||||
|
|
|
|
|
|
(1) | The average price paid per share includes any brokerage commissions. |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
ITEM 5. | OTHER INFORMATION |
None.
ITEM 6. | EXHIBITS |
(a) Exhibits
10.1 | Retirement Agreement for Steven J. Schneider (incorporated by reference to Exhibit 10.1 of registrants Form 10-Q for the period ending June 1, 2013). | |
10.2 | Retirement Agreement for George S. Sanders (incorporated by reference to Exhibit 10.2 of registrants Form 10-Q for the period ending June 1, 2013). | |
31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as amended. | |
31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a14(a) and 15d-14(a) of the Securities Exchange Act, as amended. | |
32 | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101 | The following materials from The Finish Line, Inc.s Form 10-Q for the quarterly period ended August 31, 2013, formatted in an XBRL Interactive Data File: (i) Consolidated Balance Sheets-unaudited; (ii) Consolidated Statements of Income-unaudited; (iii) Consolidated Statements of Cash Flows-unaudited; and (iv) Notes to Consolidated Financial Statements-unaudited, with detailed tagging of notes and financial statement schedules.* |
* | Users of the XBRL-related information in Exhibit 101 of this Quarterly Report on Form 10-Q are advised, in accordance with Regulation S-T Rule 406T, that this Interactive Data File is deemed not filed or as a part of a registration statement for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is otherwise not subject to liability under these sections. The financial information contained in the XBRL-related documents is unaudited and unreviewed. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
THE FINISH LINE, INC. | ||||||
Date: September 27, 2013 | By: | /s/ Edward Wilhelm | ||||
Edward W. Wilhelm | ||||||
Executive Vice President, Chief Financial Officer |
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Exhibit Index
Exhibit Number |
Description | |
10.1 | Retirement Agreement for Steven J. Schneider (incorporated by reference to Exhibit 10.1 of registrants Form 10-Q for the period ending June 1, 2013). | |
10.2 | Retirement Agreement for George S. Sanders (incorporated by reference to Exhibit 10.2 of registrants Form 10-Q for the period ending June 1, 2013). | |
31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a14(a) and 15d-14(a) of the Securities Exchange Act, as amended. | |
31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a14(a) and 15d-14(a) of the Securities Exchange Act, as amended. | |
32 | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101 | The following materials from The Finish Line, Inc.s Form 10-Q for the quarterly period ended August 31, 2013, formatted in an XBRL Interactive Data File: (i) Consolidated Balance Sheets-unaudited; (ii) Consolidated Statements of Income-unaudited; (iii) Consolidated Statements of Cash Flows-unaudited; and (iv) Notes to Consolidated Financial Statements-unaudited, with detailed tagging of notes and financial statement schedules.* |
* | Users of the XBRL-related information in Exhibit 101 of this Quarterly Report on Form 10-Q are advised, in accordance with Regulation S-T Rule 406T, that this Interactive Data File is deemed not filed or as a part of a registration statement for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is otherwise not subject to liability under these sections. The financial information contained in the XBRL-related documents is unaudited and unreviewed. |