Finish Line and Retail and Real Estate & Retail

Finish Line brass buoyant as key retail season arrives

August 6, 2011
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It’s not just students who feel anxious in the days leading up to the reopening of the nation’s schools. It’s also a period of high anxiety for retail executives, who hope to capture more than their share of spending during the second-most-important shopping season of the year.

But you don’t sense that tension at The Finish Line Inc. this fall. The company has a sterling record long term, though its performance has been notoriously volatile along the way, in part because of teens’ and twentysomethings’ fickle shifts in fashion.
 

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The Indianapolis-based chain in recent years has taken steps to smooth out performance with sharp management. But there’s no substitute for having what consumers want so much that they’re willing to pay full price—the situation Finish Line finds itself in these days.

Consider some of the effusive comments from company executives during Finish Line’s first-quarter conference call with analysts in late June:

• CEO Glenn Lyon: “I believe the conditions in our industry are perhaps the healthiest and most rational that I’ve experienced in my 10 years with Finish Line.”

• Lyon: “Despite the fact that consumers remain cautious in the face of unemployment concerns, high gas prices and other headwinds, our customer continues to shop with specific intent, and will purchase items at full price as long as they are trend-right, innovative and offer exciting new technology.”

• Lyon: “Our brands really get what’s going on with our consumers and the marketplace today. They are doing a great job of keeping the right products coming. Vendor partners such as Nike, Brand Jordan, Reebok and others have continued to anticipate the consumer, deliver fashion with technology, and aggressively market their products in creative ways like never before.”

• President Steven Schneider: “Our kids’ business is sensational and was up strong double-digits for the quarter, driven by running.”

Finish Line executives, world-weary after years in the retail trenches, don’t usually talk like this. As Lyon said on the call, “That’s the first time I’ve heard Steve use the word sensational in 10 years that I’ve known him, so he must be excited.”

Despite the optimism, there’s no guarantee Finish Line will have a breakout back-to-school season, of course. But the company clearly is on a nice run, with seven straight quarters of increasing same-store sales and increasing earnings per share.

The stock is up 21 percent this year, to around $21. The news is even better for investors who placed their faith in Finish Line in the darkest days of early 2008, when it looked as though the company would be forced to go through with its highly leveraged, $1.5 billion buyout of Tennessee-based Genesco Inc., parent of mall retailers Journeys and Hat World.

Finish Line had negotiated the deal in 2007, before credit markets slid into turmoil, sharply increasing borrowing costs, and before Genesco reported a sharp drop in sales. Finish Line stock slipped to as low as $1.70 before the company negotiated a settlement that extricated it from the deal and propelled shares higher.

Of course, plenty still could trip up Finish Line, from worsening economic conditions to the possibility that the NBA lockout will lead to the cancellation of the entire upcoming season.

But analysts generally are bullish, suggesting the firm is on such a tear it can do well even if it encounters some disappointments. In late June, before the market’s recent swoon, the investment firms Citigroup Global Markets and Sterne Agee put $27 price targets on the stock. Jefferies was even more bullish, saying shares could hit $28.

“Overall, we think Finish Line is positioned in an ideal product cycle, led by high-priced running and basketball styles across multiple premium brands,” Jefferies’ Taposh Bari said in a report.

Investors embrace Endocyte

Cancer-drug developer Endocyte Inc. continues to make up for its slow start.

The West Lafayette company cut the price of its initial public offering three times—from $14 a share to $7 and then to $6—before debuting on Wall Street in February.

But the shares soon doubled. And this month, Endocyte sold another 5.8 million shares at $12.26 each in a secondary offering that raised $66.8 million—nearly as much as the company raised in its IPO.

The secondary offering swelled the number of shares outstanding to more than 35 million, ballooning Endocyte’s stock market value to $426 million.•

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