The Finish Line is showing no sign that their white hot trend is slowing after posting another blockbuster sales quarter and strong operational performance that catapulted the retailer into the black for Q3 ended November 29, 2003. FINL is also pointing to a shift in consumer trends that favors color over the sea of white that has been the Classics trend.
November comps were up 24%, October gained 22% and September posted a 28% increase in same-store sales results. The athletic specialty retailer was comping against a year-ago quarter that was off 1.0%. E-commerce, which is not included in the comp numbers, increased more than 100% for the quarter.
The positive results continued into the current quarter as management indicated that December comps had jumped 21%.
Footwear narrowed the gap a bit with the Apparel/Accessories category, posting a 23% comp gain for the quarter versus a 30% increase for the A/A business, which had to anniversary an 18% comp gain in the year-ago period and may have seen some impact from heavy promotional activity around Licensed Apparel.
The Average Selling Price in footwear was up “slightly” for the quarter and progressed nicely though Q3, gaining 1.0% in Oct. and 4.0% in Nov. The retailer indicated that the ASP for December was up even higher”.
The Finish Line pointed to product (or color) exclusivity and shoes “at $100 and above” that “have more than doubled” as their clear differentiation in the market and a key traffic driver. In fact, the CEO said that basic white retro had flattened as a trend and FINL has seen color play a “more important role” since BTS.
Company CEO Alan Cohen said that traffic was indeed up, and that they “have captured significant market share from their competition”.
Cohen also sees “renewed strength in performance product” and that “Finish Line has the best performance assortment in the mall and customers now expect to find this product in our stores first.”
Product margins improved in the quarter, with higher sales enabling leverage of Occupancy (-260 bps) and SG&A expenses (-190 bps). Merchandise margins improved by 10 basis points. The swing to profit in the quarter was also helped by a three cents per share gain FINL realized on a tornado insurance settlement.
As a result of “planned early holiday receipts”, merchandise inventories at the end of Q3 increased approximately 18% on a per square foot basis. Management expects inventory at end of Q4 to be up in mid to high singles per square foot. FINL said 86% of footwear inventory is less than six months old. Only one percent is over a year old.
Sales per square foot improved 25% in the quarter and is “annualizing” to $322 per square foot. Online sales were up “triple digits”. Noting that the urban fashion based licensed business has peaked, “we continue to see new demand in fan-based products”.
Based on the strong December results, FINL increased its Q4 guidance, now projecting EPS of 73 cents to 75 cents — up from previous estimates of 67 cents to 69 cents on sales of $287 million — an increase of $10 million from previous guidance — and a 12% comp store sales gain, which is is up from the previously guided 8% gain.
“The Finish Line is in the best competitive situation than we have ever experienced,” said Cohen, discussing future plans. “The playing field is more level than it has ever been. If and when our primary competitor gets back into premium product, I really dont feel we are ever going back to the days when they had substantial lead time and exclusives on a lot of key product.”
Management gave 2005 guidance for the first time, projecting sales at $1.1 billion on a comp store sales gain of 3%. EPS are estimated to be in the range of $2.11 to $2.15, an increase of 18% over the estimate for the current year.
OTHER KEY METRICS:
- Marketing spend is up 25% “much of which is supported by our vendor partners”
- “Negotiated better product margins” with all key vendors
- Nike will be 60% of assortment spring 2004.
- LBJ shoe liquidated at 75% in the first week.
