Finish Line's supply chain woes under control, CEO says

September 23, 2016

Indianapolis-based retailer The Finish Line Inc. says it has successfully tackled its recent supply-chain issues and is working to make the business more efficient.

During the firm's fiscal quarter that ended in November 2015, the athletic-apparel seller experienced problems with the launch of a new warehouse and order-management system. This disrupted the company’s supply chain, and left its stores and website with fewer items to sell.

In January, the company named Sam Sato as CEO, replacing Glenn Lyon. The retailer also announced it would close 150 stores over the next four years.

During an earnings call with stock analysts on Friday, Sato said the company has made good progress.

“We are pleased to report that we are now at, and in most cases above, historic levels on all key metrics such as direct-to-consumer fulfillment rates, speed of delivery and cancellations,” Sato said.

“Our focus remains on driving efficiencies from end to end in our supply chain that will benefit the company and our customers in the near and long term," he said.

The company also is working to become more efficient and nimble so that it can respond to trends more quickly. 

“This strategic initiative will result in a restructuring of responsibilities throughout the organization and the implementation of new processes that will help optimize productivity,” Sato said.

Ed Wilhelm, the company’s chief financial officer, said efficiency improvements should generate net cost savings of $6 million per year. Those savings should start to show up in the firm's fiscal fourth quarter with savings of $1 million, Wilhelm said.

Over the past 18 months, the retailer has closed 65 locations. As of Aug. 27, it had 585 standalone Finish Line stores and another 391 branded shops inside Macy’s department stores. It also operated 70 specialty running stores under the JackRabbit name.

The firm recently finished the second quarter of its 2017 fiscal year. For the 2017 fiscal year as a whole, Finish Line expects profits in the range of $1.50 to $1.56 per share. It expects comparable-store sales gains in the range of 3 to 5 percent.

For the fiscal second quarter ending Aug. 27, the firm on Friday reported net sales of $509.4 million, up from $483.2 million during the same period a year ago.

The company’s quarterly sales beat Wall Street forecasts. Six analysts surveyed by Zacks Investment Research had expected revenues of $493.6 million.

Net profit for the quarter declined to $22.1 million, or 53 cents per diluted share, down from $25.9 million, or 57 cents per diluted share a year ago.

The average estimate of 12 analysts surveyed by Zacks was for earnings of 53 cents per share. Comparable store sales—a key retail metric—increased 5.1 percent.

Other topics discussed during Friday’s call:

•    Effective Friday, former CEO Glenn Lyon transitioned from executive board chairman to non-executive board chairman. Originally, this transition was set to take place Dec. 31. 
•    The company debuted a remodeled store format in 15 locations, including eight in the Chicago area, during the second quarter. Sato said the changes included “a complete refresh” of the company’s logo, storefront, floor fixtures and shoe wall displays, with space that is more flexible for product merchandising. The company plans to roll out this new concept to another 35 stores by the end of the year, and across “a significant portion of the fleet” over the next three years.  
•    The company is keeping tabs on performance at its JackRabbit running stores. JackRabbit’s comparable store sales were up for the third consecutive quarter, Sato said, but JackRabbit needs to improve its profitability before The Finish Line will invest more money into this business. Sato said The Finish Line is “committed to making a decision on JackRabbit before the end of this fiscal year.”

Shares of the company were trading Friday morning at $23.36, down 3 percent from Thursday’s closing price.

Finish Line shares have increased 33 percent since the beginning of the year. The stock has decreased nearly 3 percent in the last 12 months.


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