By Chelsey Dulaney
Finish Line Inc. shares sank to their lowest level in more than
a year on Friday after the sporting-apparel retailer warned that
it, too, is feeling the impact of a tepid retail environment.
Finish Line lowered its earnings outlook for the year on intense
margin pressures, announcing that it would cut spending to protect
profitability until the current pricing environment improves.
Sporting-apparel retailers have been a bright spot in a dismal
retailing environment characterized by weak traffic and aggressive
discounting. Finish Line's warning Friday that it is struggling to
sell merchandise at full price indicates a reversal of that
trend.
Finish Line shares fell 21% to $22.91 in afternoon trading
Friday and, paired with Nike Inc.'s lackluster quarterly report on
Thursday, helped send other sports retailers shares down with it.
Foot Locker Inc. shares fell 7.9%, while Hibbett Sports Inc. fell
2.2%.
On a call with analysts Friday, Finish Line Chief Executive
Glenn Lyon said the company is struggling to keep up with
customer's demand for a steady stream of new products. The
company's inventory was up 10.6% in the quarter, leading the
company to ramp up discounts at the cost of its margins.
Gross margin narrowed to 28.2% from 29.6% a year earlier, as the
company cut prices on slow-moving basketball inventory that had
built up in the previous quarter. Some of Nike's Jordan brand
styles--typically hot sellers in its basketball category--failed to
resonate with customers.
Company executives warned Friday that the squeeze on the
retailer's margins are likely to continue in the near-term as the
company works through stale inventory.
Friday's disappointing outlook came as Finish Line posted a
surprise loss of 2 cents a share in the quarter ended Nov. 29,
excluding a tax benefit and other one-time items. Analysts polled
by Thomson Reuters had expected a per-share profit of a penny.
Same-store sales improved from the previous quarter, increasing
4.5% as sales of key Nike products remained strong.
Overall, the company posted earnings of $2.58 million, up from
$2.32 million a year earlier. Sales grew 8.6% to $395.8 million,
topping analysts' expectations for $390.95 million in revenue.
For the year ending Feb. 28, Finish Line said it now expects its
per-share earnings to be flat, compared with its previous
expectations for earnings growth in the high single to low double
digits.
Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com
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