Shares of Finish Line fell $1.92, or 18.5 percent, to $8.50 on Tuesday after the retailer significantly reduced its profit outlook for the full year amid disappointing sales in recent months.

The revised earnings weren’t surprising given that its primary competitor, Foot Locker, on August 18 reported earnings that came in well short of Wall Street’s targets while Dick’s Sporting Sports, Hibbett Sports and Genesco also have reduced their outlook. But shares of Finish Line had also fallen on competitor’s shortfalls and Finish Line’s revision was more severe. Shares of Finish Line started the year at $18.81.

“The marketplace for athletic footwear became much more promotional as our second quarter progressed, resulting in challenging sales and gross margin trends,” said Sam Sato, CEO, in a statement.

“We believe it is prudent to adjust our outlook as we expect the environment to remain highly competitive and promotional throughout the remainder of the year,” he added. “In light of our disappointing second quarter results and revised projections for fiscal 2018, we will remain very disciplined in managing our expenses and inventories throughout the remainder of the year.

For the second-quarter ended August 26, sales were $469.4 million, down 3.3 percent, driven by a 4.6 percent decrease in Finish Line comparable sales. Based on the decline in sales and pressure on gross margin from increased markdowns, earnings are expected to range between 8 to 12 cents a share. That compares to earnings of 53 cents in the 2016 second quarter and Wall Street’s consensus estimate of 38 cents.

At the quarter’s end, inventory levels are expected to be down approximately 7 to 8 percent versus year-ago levels.

Among the revisions going forward:

  • Fiscal year ending March 3, 2018: Based on year-to-date results and expectations that sales and gross margin trends remain challenging through the remainder of the fiscal year, Finish Line comps are expected to decrease 3 percent to 5 percent versus its previous guidance for an increase in the low-single-digit range. Adjusted EPS is now expected in the range of 50 to 60 cents versus the previous guidance range of $1.12 to $1.23, and compared with adjusted earnings per share of $1.06 the prior year. The latest year is 53 weeks versus 52 last year. The additional week is expected to contribute approximately 6 cents per share to fourth-quarter and full-year fiscal 2018 results.
  • Third quarter ending November 25, 2017: Finish Line comparable sales are projected to decrease 3 percent to 5 percent and the adjusted loss per share to be in the range of 32 cents to 40 cents, compared with an adjusted loss per share of 24 cents for the same period last year.
  • Fourth quarter ending March 3, 2018: Finish Line comparable sales are expected to decrease 3 percent to 5 percent and adjusted EPS to be in the range of 50 to 58 cents inclusive of the 6 cents per share contribution from an extra week in the 14-week period. That compares with earnings per share of 50 cents for the fourth quarter ended February 25, 2017, a 13-week quarter.

“Looking ahead, we are optimistic that the work we are doing with our vendor partners to enhance our merchandise assortments will start benefiting our top-line results early next year,” said Sato. “At the same time, we continue to focus on building our omnichannel capabilities to strengthen our customer connections, improve our service levels and further capitalize on the shift toward digital commerce. We are also making good progress rightsizing the business to better compete in the current environment. In the past 12 months, we’ve made a number of changes that have created a more nimble organization and generated approximately $6 million in annualized savings, and over the past two years we’ve closed approximately 80 underperforming stores. We remain steadfastly focused on executing our strategic plan to drive increased shareholder value over the longer term.”

On August 18, shares of Foot Locker fell 28 percent after the sneaker retailers reported second-quarter results that came in well short of Wall Street expectations. Adjusted earnings reached 62 cents share on sales of $1.7 billion. Analysts on average had expected earnings of 90 cents on sales of $1.8 billion. Same-store sales fell 6 percent.

Chairman and CEO Richard Johnson said in a statement that “sales of some recent top styles fell well short of our expectations and impacted this quarter’s results. At the same time, we were affected by the limited availability of innovative new products in the market.”

On August 15, Dick’s Sporting Goods’ shares lost more than 23 percent after the leading sporting goods chain reported second-quarter profits and sales that were weaker than analysts had expected and also cut its guidance for the year.

The retailer is now looking for earnings on an adjusted basis of $2.80 to $3 per share, down from previous guidance calling for earnings between $3.65 to 3.75. In the year-ago period, pro-forma earnings were $3.12 a share.

Same-store sales are projected to be flat or rise in the low single digits at Dick’s whereas guidance was up 1 to 3 percent previously. That compares to a 3.5 percent rise in same-store sales in 2016.

Dick’s CEO Ed Stack said on a conference call with analysts, “There’s a lot of people right now … in retail and in this industry in panic mode,” Stack added. “They seem to be in panic mode with how they’re pricing, and we think it’s going to continue to be promotional, and at times irrational, going forward.”

Stack said he noticed heavier promotions and price cuts particularly on athletic apparel, electronics, and hunting, fishing and camping gear beginning around Father’s Day this year. “And it continued to be very promotional — not only from retailers but also from some of the brands on a direct-to-consumer basis.”

On August 18, shares of Hibbett Sports reduced its full-year guidance to a range of $1.25 to $1.35, compared with previous guidance of $2.35 to $2.55, after showing a 12 percent drop in same-store sales in the second quarter.

“We experienced a very difficult retail environment in the quarter, with a significant decline in transactions and resulting pressure on gross margin,” president and CEO Jeff Rosenthal said. “Expenses were well-controlled, while maintaining proper staffing and customer service levels in our stores.”

Photo courtesy The Finish Line