The apparel and athletic shoe retailer Finish Line (FINL, Financial) reported its second-quarter results very recently. The lackluster numbers disheartened its investors and was quite below the analysts’ expectations. This resulted in a sharp fall in its share price. However, there is more than meets the eye. Let us explore further.
Digging into the quarter
Revenue jumped 7.1% to $466.9 million, over last year’s quarter. The analysts’ estimates were at $478 million. The top line was driven by same store sales growth of 1.5% as more customers flocked into the retailer’s stores. The company operates through Finish Line stores and through the Running Specialty Group. The Running Specialty segment was one of the best performers during the quarter, which added to the revenue growth.
However, softness in the basketball segment resulted in lower revenue, resulting in the miss on expectations. The basketball segment has been growing at a fast pace. But the footwear retailer does not have an influential presence in this space. Hence, it needs to focus on this area and sharpen its mettle. Companies such as Nike (NKE, Financial) are doing very well in both the basketball and the running segments. In fact, its recently reported quarter was a blockbuster one. The top line and the bottom line grew 15% and 23%, respectively. Also, both the numbers beat the Street’s expectations.
On the other hand, Finish Line’s running business has been growing. Running product sales increased as demand for casual and performance styles surged. Also, some acquisitions made in the last two years, in the running segment, seem to be bearing fruit. Moreover, it added 19 new Running Specialty stores, making the total store count in this segment to be 58.
Earnings also increased slightly to $0.54 per share but were below the analysts’ expectations of $0.60 per share. Although the retailer is managing its costs well, it is unable to meet the estimates.
Some points to note
The Running Specialty Group acquired Roadrunner and RunOn in 2012 in order to expand its presence in the running segment. Further, it acquired Boulder Running Co. in June 2013. Thus, Finish Line is taking initiatives to strengthen its product portfolio in order to grow. Also, it is focusing on the female demographic by introducing products for females. Athletic wear for females has gained a lot of popularity. Thus, expanding into this category should be beneficial.
One of the key strategies of the footwear retailer is its omni-channel strategy. It is willing to sell its products through all channels, such as through stores, websites, mobile apps as well as through partnerships. This has helped in attracting customers from all spheres. In fact, it has recently entered into a deal with Macy’s in order to showcase its products at Macy’s stores. Further, digital comparable store sales growth of 27% indicates that expanding the channels has been fruitful.
My takeaway
Finish Line is on the right track with its omni-channel strategy. Also, its new partnership with Macy’s should help in attracting more customers. Its Running Specialty Group offers products for the running professionals and the recently made acquisitions have helped this segment grow. However, it needs to take measures to strengthen its basketball segment. Nonetheless, its current initiatives, coupled with an increase in dividend of 14% to $0.08 per share, make the footwear retailer worth noting.
