The Finish Line, Inc. surpassed the billion dollar mark for the first time in their fiscal 2005 year ended February 26, but started to see their impressive comp sales gains moderate a bit more in the fourth quarter as comparable store sales increased 8% on top of a 19% increase in the year-ago period. Total sales, which included one month of sales from the Man Alive chain acquired in January, grew 18.4% to $361.4 million, compared to $305.3 million in Q4 last year.
Net income for Q4 was $28.2 million, or 57 cents per diluted share, versus $21.1 million, or 43 cents per diluted share, on a restated basis for Q4 LY, an increase of 33.4% for the period. Gross margins improved 50 basis points to 33.0% of sales versus 32.5% of sales in the year-ago quarter, boosted by a 70 basis point gain in merchandise margins offset a bit by a 20 basis point increase in occupancy costs. SG&A expenses improved by 80 basis points to 20.6% of sales from 21.4% of sales in Q4 last year.
Finish Lines Consumer Direct business was up 34% for the fourth quarter, adding one point to both the Q4 and full year comp sales increases. The Direct business was up 65% for the year after the segment doubled in the prior year. FINL increased catalog circulation by more than 40% for the year.
Comps were up in all months of the quarter, rising 9% in December, followed by a 5% gain in January and an 8% increase in February. Footwear comps were up 11% for the quarter on top of a 14% increase in Q4 last year, but apparel comps were off 2% versus a 35% increase in the year-ago period. (For a full breakdown of Q4 monthly results, see table in SEW_0510)
The Mens Footwear business was up in high-singles on stronger Running and Basketball sales. Womens and Kids were both up in double-digits, driven by the exclusive Maddie Max program. Average selling prices improved 5% for the quarter, driven by “continued momentum of premium and performance-based product.”
For the year, footwear comps were up 11%, but the apparel/accessories segment “comped down slightly” for the year. FINL finished the year with 79% of sales generated by footwear, up a point from 78% of total sales in the prior year.
Nike made up roughly 57% to 58% of total sales for the year, up about “a couple of percentage points” versus the prior year. Management sees it expanding a bit more in fiscal 2006, albeit not as much as 2005.
Licensed apparel made up about 50% of the total apparel business, while branded contributed 25% and private label made up the balance. FINL sees the licensed share falling to about 33% in fiscal 2006, and private label and branded are both expected to each make up a third of the apparel business.
Comps for the fiscal 2006 first quarter are seen above plan, up in the mid-single-digit range, while product margins are “running substantially above plan” in Q1. The increase in premium product sales in footwear and the higher share of the apparel business generated by private label are helping boost product margins.
Looking at the Man Alive deal, FINL sees upside in pro-viding direction in athletic footwear to the urban chain, a category they see as a real opportunity for the stores, but also expect that the Man Alive merchants can help The Finish Line stores with apparel direction.
FINL opened six Finish Line stores and remodeled one existing door during the quarter, ending the year with 598 stores, a net gain of 67 stores for the year. Man Alive had 37 stores at year-end.
Finish Line square footage increased 11% to 3.4 million square feet. Sales per square foot was $351 for the year, up 8% from $325/sf in fiscal 2004. For fiscal 2006, the retailer plans to open 70 new Finish Line doors and remodel another 25 existing stores. They still feel they can expand to over 1,000 stores in the U.S. over the next five years. They see adding 10 to 15 Man Alive stores in the current year.
Inventory was up 11% on a per square foot basis at year-end. Aged inventory was less than 1% of total.
FINL feels the inventory increase was due in large part to a shift in product releases earlier in the quarter as well as an earlier Easter holiday this year. Management said that vendors are recognizing the shift in retail sales caused by holiday gift cards generating sales in January and February.
For fiscal 2006, FINL sees total sales of approximately $1.33 billion generating EPS in the $1.43 to $1.47 per share range. Comps are projected to grow just 2.0% in that scenario. First quarter comps were planned to increase 2.0%, generating $294 million in sales and delivering 24 cents to 26 cents per diluted share.
