Financial Performance

Finish Line Stock Dives on Earnings Warning

The footwear retailer says Q2 earnings will come in much lower than expected as it adopts an anti-takeover "poison pill."
Matthew HellerAugust 29, 2017

Shares in Finish Line fell more than 24% after the athletic footwear retailer warned of weak second-quarter earnings and adopted a “poison pill” to deter a possible takeover.

For the second quarter, Finish Line said consolidated net sales fell 3.3% to $469.4 million, driven by a 4.6% decrease in comparable store sales. Based on the decline in sales and pressure on gross margin from increased markdowns, it now expects to report second-quarter earnings in the range of $0.08 to $0.12 per share.

Analysts polled by FactSet had predicted earnings of 37 cents a share on sales of $477 million. In after-hours trading Monday, Finish Line’s shares dropped as much as 24.1% to $7.90, bringing the year-to-date decline to 67%.

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“The marketplace for athletic footwear became much more promotional as our second quarter progressed resulting in challenging sales and gross margin trends,” CEO Sam Sato said in a news release. “Despite these headwinds, we remained disciplined in managing our inventories and expect to end the quarter with inventory levels down approximately 7-8% compared with a year ago.”

The tough retail environment has hit other footwear stores, with Finish Line’s larger rival Foot Locker last week reporting disappointing quarterly sales amid a dearth of new products.

Finish Line also cited the “highly competitive and promotional” marketplace in announcing its board had adopted a shareholder rights plan “to reduce the likelihood that any person or group would gain control of Finish Line through open market accumulation or coercive takeover tactics.”

According to the Indianapolis Business Journal, the move “appeared aimed at staving off the United Kingdom-based retailer Sports Direct International, which has been aggressively accumulating stock in recent months.”

The poison pill bars any individual shareholder from owning more than 12.5% of outstanding Finish Line shares. Sports Direct, which operates the U.K’.s largest sportswear retailer, disclosed last week it owned 7.9% of the stock.

Finish Line now expects full-year comparable sales to decrease 3% to 5%, versus a previous guidance of an increase in the low-single digits.

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