The Finish Line laid out a revised strategy for growth as the traditionally mall-based retailer pointed to the addition of stores in “lifestyle centers” and even street locations that will push the companys store count projection above the 800 door level they had previously forecasted to reach over the next few years. Management said the numbers could go up “substantially” with the new venues.
The addition of the new formats will add to FINLs mall expansion that will see the company add 55 to 58 stores this fiscal year and 60 stores next year. The retailer sees the most opportunity in the Northeast corridor, Florida and the West Coast. Management said “a lot more stores can be opened” in Florida, especially South Fla., but sees the biggest upside in CA.
The company is also looking at its growing cash position as an opportunity for potential acquisitions, but no immediate targets were identified.
Sales and earnings growth continues to roll along, with FINL reporting a 93% gain in net income for the fiscal second quarter ended August 30, 2003. Excluding the benefit from repositioning reversals in Q2 LY, diluted EPS actually increased 115% versus comparable earnings of 34 cents per diluted share for Q2 LY. Net sales increased 33% to $270.8 million and comp stores jumped 21.4% for the fiscal 2004 second quarter.
As previously reported in SEW 0336, footwear comps for Q2 increased 17.9%, attributed to increased Nike allocations and solid performances from K-Swiss, Reebok and adidas. Apparel/accessories comps jumped 38.4%, led by gains in Licensed Apparel. Internet sales have doubled YTD after almost tripling last year. Refer to SEW 0336 for more granular sales detail.
Management said the positive trend in Q2 has continued into the third quarter, with comps for the first three weeks of September outpacing plan and the impressive Q2 numbers.
FINL said they see Licensed Apparel staying strong through Holiday and even into Spring, as the Retro elements of the current trend give it more opportunity to hang on longer. They also said they are seeing success in other Licensed areas like Womens and Kids that they “never had before”.
When asked about the opportunity for Branded Apparel, management pointed to the last strong Licensed run from 1992 to 1995 that was followed by a big uptick in the Branded business.
On the footwear front, FINL sees no near-term change in the Nike re-distribution in the mall that has brought the retailer so much good fortune. Management said they see consistency through Spring and Back-to-School next year, but cant say “what it looks like beyond that”.
Regarding the impending LeBron James product launches, FINL said they will see the first launch the day after Christmas and again in early February and early April. CEO Alan Cohen said that the product “falls under (Nikes) U.S. distribution policy” and would not be in the Foot Locker, Inc. stores.
The company will still look to Classics and Retro for Spring, but also sees “big, big business in higher end performance” product. They said they were “excited” about what they are seeing in the $100 and $100 plus area. Shox appears to be taking the lead here.
Second quarter margin improvement was driven by a 150 basis point decrease in occupancy costs and a 70 basis increase in merchandise margins. Management pointed to a “more relevant product mix”, driven by Nike statement, launch and elite product.
Based on the Q2 results, diluted EPS is now seen in the $1.54 to $1.58 range on sales of $925 million for the year, up from the previous guidance of $1.52 to $1.56, and up 84% from the prior year earnings performance. Comps are expected to be up 13% for the year, with a 10% gain in Q3 and 6% in Q4. Third quarter sales are seen at $176 million and Q4 at $271 million.
Margins for the current Q3 to-date have trended lower, due primarily from a bigger push to liquidate aged footwear inventory during a historically slow month. Inventory that is more than six months old is currently about 15% of total inventory, a level the company said is lower than last year at this time. FINL is still striving to get aged inventory that is more than one year old to less than one percent of inventory. Inventory was up 8.5% on a per square foot basis. Total retail square footage increased approximately 9.0%.
Cohen said that he saw no real changes in the promotional environment of the market, with “BOGOs, 2 for $89 and 30% off all product” continuing in the marketplace. He said they will lead through product rather than price.
>>> Now, with all the success FINL has seen with their strategy, will other mall retailers follow that lead and dump their own price first mantra???
