The Finish Line (FINL), an Indianapolis-based shoe retailer with 950 locations, is trading nicely higher today (+8%) after reporting 2Q18 (Aug) earnings results this morning. Non-GAAP EPS fell to $0.12 from $0.56 in the prior year period. However, that was on the high end of prior guidance of $0.08-0.12. Revenue fell 3.3% year/year to $469.4 mln, which actually had been pre-reported on August 28 so no surprise there. Same store comps declined -4.5%, pretty similar to prior guidance in late August.
In terms of guidance for Q3 (Nov) and full year results, FINL is keeping it unchanged from its August 28 guidance. As such, FINL continues to expect FY18 same store comps to decline 3-5% and for non-GAAP EPS to come in at $0.50-0.60. For Q3 (Nov), FINL continues to expect same store comps to decrease 3-5% and to report a non-GAAP loss of $(0.40)-(0.32).
The AugQ was a bit difficult for FINL as the marketplace for athletic footwear became much more promotional as the quarter progressed resulting in challenging sales and gross margin trends. Despite the industry headwinds weighing on sales and margins, FINL says it remained disciplined in terms of managing expenses and inventories. Looking ahead, FINL is planning for a challenging retail environment in the near-term.
In addition to earnings, FINL also announced that it appointed Faisal Masud as a director of the company. Masud is Chief Technology Officer for Staples (SPLS). With the appointment of Masud, the Board of Directors increases from 7 to 8 directors. The idea is that his technology expertise across enterprise systems will bring key insights to Finish Line's board as it moves through the ever-changing retail environment. Faisal has held several roles at leading consumer-focused brands that have positioned him at the intersection of technology and the retail experience. He will be integral in assisting FINL with long-term strategies related to e-commerce and online merchandise channels.
In sum, it's a difficult time for athletic footwear retailers. They are facing stiff competition from online retailers like Zappos and Amazon. And shoes are the type of product that is well-suited for online purchases and online comparisons in terms of pricing. This makes it difficult for brick-and-mortar stores like FINL. As more consumers shop online and mall traffic declines, FINL has to adapt and that's a big reason why they hired Faisal Masud as a director to bring his online expertise to FINL. The company already does sell shoes online via its FinishLine.com website and app. However, they apparently need to make it better.
The stock price has been in rough shape as it has steadily declined over the past year or so. It has gone from $24 in December 2016 to around $9 now. So it'll be interesting to see if they can improve their performance in a changing retail environment.