Finish Line (FINL, Financial) is an American retail chain that sells athletic shoes and related apparel and accessories. The company operates 660 stores in 47 states, mostly in enclosed shopping malls, as well as Finish Line-branded athletic shoe departments in more than 450 Macy's stores. Although Finish Line’s share price is down this year, the company has been making many efforts to grow its top and bottom-line. Finish Line’s digital initiatives are gaining traction which is evident by the fact that company delivered strong quarterly results.
In Q4 FY15, the company reported earnings per share of $0.88, $0.02 greater than the analyst estimate of $0.86. The revenue was recorded $551.30, miss by consensus estimate of $551.87.
The company’s consolidated sales were up 6.3% followed by comparable sales that were increased by 2.6%. The Macy’s sales and specialty group sales were $61.3 million and $16.3 million, up 44.6% and 29.2% respectively compared to previous year.
The company’s consolidated gross margin declined 180 basis points from a year ago to 34.1%. Product margin net of shrink and occupancy were down by 120 basis points and 60 basis points respectively.
In terms of the full year, consolidated sales escalated 9% to $1.82 billion, including the company’s comparable store sales, Macy’s sales and running specialty group sales. The company’s capital expenditure was $24 million for the 4th quarter and $88 million for the year. Finish line expects full year non-GAAP diluted EPS for 2016 to increase in the low to mid-single-digit compared to the non-GAAP diluted EPS of $1.67 in fiscal 2015.
Digital Capabilities
Finish line has acknowledged the digital drift in the industry and in a way to beat this growth prospect, it endures to enhance its computer sites as well as mobile sites. The company has released new mobile based applications during FY'15. This will be a major plus for the company to further drive huge traffic through mobile phone, which constitutes around 50% of the company's digital traffic.
Exposure to Nike
Although bulk-buying directly from suppliers enables Finish Line to sustain economy of scale, it is a double-edged sword. Although its a positive, it looks risky due to the company’s high dependence on the supplier.
Over the years, Finish Line has bought close to 90% of its merchandise from its five largest suppliers, with Nike comprising of majority of the sales. This can act as a headwind for the company if Nike (NKE, Financial) decides to ditch the company. Although that doesn’t look likely to happen in the foreseeable future, it is still a risk. But until then, this will act as a big positive for the company.
Conclusion
Finish Lines’ expansion efforts are gaining traction and will benefit the company in the long-run. The company’s high dependence on Nike is risky, however it enables the company to maintain high economy of scales. As long as Finish Line holds onto its major suppliers, the stock will move higher.
