By Thomas J. Ryan
Finish Line Inc. said it will take a goodwill impairment charge in its third quarter of approximately $44 million to write off JackRabbit, confirming reports earlier in the month that it would try to sell the specialty running business that has fallen short of its expectations.
On November 14, Finish Line said it had hired Peter J. Solomon Company LLC as its financial advisor to help explore a sale. “After a comprehensive review, the company believes its long-term growth strategy and profitability improvement plans align with simplifying the business to focus on the Finish Line brand and has decided to evaluate possible alternatives for JackRabbit, including a potential sale,” officials said in a statement.
Finish Line said there’s no definitive timeline or assurance that the process would result in a sale transaction, adding that the company does not intend to provide any further updates until the board approves a final decision.
The for-sale confirmation comes as the JackRabbit business is improving but still underperforming since it was launched about four years ago with a bold ambition to consolidate the run specialty channel. On its second-quarter conference call held on September 23, Finish Line’s officials indicated that it planned to make a decision on whether to continue investing in JackRabbit or divest the chain by the end of its fiscal year. The $44 million charge represents all of the goodwill allotted to JackRabbit on Finish Line’s balance sheet that stemmed from JackRabbit’s many acquisitions.
Finish Line formed the Running Specialty Group (RSG), the predecessor name to JackRabbit, in 2011 after purchasing an 18-store chain for $8.5 million operating under The Running Company banner. It subsequently acquired multiple run specialty stores across the country to create the second-largest run specialty group in the U.S. It had 70 stores in operation at the close of its second quarter.
In March 2015, Finish Line put the brakes on any further expansion of the specialty business while it focused on improving the segment’s profitability. In September 2015, Finish Line decided to gradually rebrand all of the segment’s multiple banners to JackRabbit Sports, and that process continues. The segment’s banners include JackRabbit, The Running Company, Run On!, Blue Mile, Boulder Running Company, Roncker’s Running Spot, Running Fit, VA Runner, Capital RunWalk, Richmond RoadRunner, Garry Gribble’s Running Sports, Run Colorado, Raleigh Running Outfitters, Striders and Indiana Running Company.
Possible suitors could include a private-equity firm, which could help finish the turnaround with the ultimate goal of leading the consolidation of the run-specialty channel. Dick’s Sporting Goods, which has been testing a True Runner specialty concept with three locations over the last few years, might also show interest.
As reported, the sales talks and part of JackRabbit’s struggles arrive amid a softening observed in the run specialty channel. Sales for the channel are generally seen as flat over the last two years following double-digit gains for several years. The previous strong years led to over-saturation of stores in some markets, but also led to much of the key running product, previously largely confined to the run specialty channel, to be available in many other places, including online. Other contributing factors to the slowdown include a fashion shift away from running styles, the end of the minimalist trend and declining participation in marathons and half-marathons in favor of mud runs, color runs and other shorter, experiential events.
Any buyer of JackRabbit would likely continue to face any challenges Finish Line already experienced in its attempts to operate a chain of run specialty stores from a national level. Local ownership in particular is seen as key in supporting local run communities and motivating store staff.
Photo courtesy JackRabbit