The Finish Line Inc. (FINL) posted earnings of 49 cents per share in the second quarter of fiscal 2013. The quarterly earnings per share beat the Zacks Consensus Estimate of 44 cents and were ahead of the year-ago results of 39 cents.
Indianapolis-based Finish Line reported year-over-year net sales growth of 16.1% in the quarter to $385.0 million backed by strong comparable sales (comps). Comps increased 12.3% versus 11% growth recorded in the year-ago period. Sales in the quarter under review were buoyed by market share gains in running and basketball categories.
By category, Footwear comps were up 13.5%. Average selling price at Footwear increased 10.4%. Soft good’s comps increased 3.6%. The company’s decision to leave the private label business marred soft goods’ sales to some extent.
During the quarter, Finish Line’s gross profit nudged up 15.7% year over year to $134.6 million. Gross margin shrunk 10 basis points year over year to 35.0%.
Liquidity
At quarter end, Finish Line had cash and cash equivalents of $254.2 million. The company had no interest-bearing debt.
Share Buyback
Finish Line did not repurchase any shares during the quarter. The company has now 2.3 million shares left in its authorization of 5 million shares.
Store Update
Finish Line opened four stores during the quarter and closed six. In addition, the company relocated or refurbished 15 stores and ended the quarter with 638 units. At quarter-end, the company had 19 Running Company stores.
Guidance
Finish Line expects its earnings per share to grow 6–9% year over year (previous range was 6-7%) in fiscal 2013. The guidance takes an annual comparable store sales growth of 6–8% (previous range was 5–6%) into account.
Outlook
This premium retailer of athletic shoes, apparel and accessories is in a strong product cycle for athletic footwear. The uptrend in comps will continue to bode well for the company.
However, management embarked on a set of initiatives to spur technology, stores and digital capabilities and consequently invested substantially. This will lead to increased SG&A expenses and constrained operating margins in 2013.
In the upcoming third and fourth quarters, management expects to witness deleverage in store occupancy. Beginning fiscal 2014, management expects to leverage the same.
Finish Line, which competes with Genesco Inc. (GCO), currently, retains a Zacks #2 Rank (short-term Buy rating). For the long term, we reiterate our Neutral recommendation on the stock.
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