By Chelsey Dulaney And Sara Germano
Finish Line Inc. shares sank to their lowest level in more than
a year on Friday after the sporting-gear retailer said it had to
use discounts to drive sales of running and basketball shoes
hurting its margins.
Finish Line lowered its earnings outlook for the year and said
it would cut spending to protect profitability until the current
pricing environment improves.
Shares fell 20% to their lowest point in a year Friday
afternoon.
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 running shoes at full price suggests that the discounts
pervasive at general retailers may be seeping more into the
sporting market.
Finish Line Chief Executive Glenn Lyon said the company is
struggling to keep up with customers' 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 and
executives warned that the margin squeeze would likely continue in
the near-term as the company works through stale inventory.
"In short, running, which makes up approximately 40% of our
footwear business, isn't currently strong enough from a product
innovation standpoint to support full price selling," Mr. Lyon
said. Finish Line executives also said they were working on
improving their selection in the basketball category. Some of
Nike's Jordan brand styles--typically hot sellers in its basketball
category--failed to resonate with customers.
Running shoes have been losing popularity to basketball styles.
So far this year, basketball shoe sales are up 15.7%, while running
shoe sales are up just 3.5%, according to data from
SportScanInfo.
For the year ending Feb. 28, Finish Line now forecasts its
per-share earnings to be flat. The company had previously said
earnings would increase in the range of high-single to low-double
digits.
The disappointing outlook came as Finish Line posted a surprise
loss of 2 cents a share in its 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. Sales grew 8.6%
to $395.8 million, topping analysts' expectations for $390.95
million.
Finish Line's troubles come as one of its chief suppliers, Nike
Inc., saw shares tumble Friday after its second-quarter earnings
revealed a slowdown in future orders of its products by
distributors. Nike is a major supplier to Finish Line.
Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com and Sara
Germano at sara.germano@wsj.com
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