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WIKI ANALYSIS
The Finish Line, Inc. (NASDAQ: FINL) sells footwear and sporting goods in malls throughout the United States. Its 794 stores in 47 states are branded either Finish Line or Man Alive - Finish Line stores sell footwear and athletic gear, while Man Alive stores sell hip-hop clothing targeted to a younger population.[1] While the Finish Line stores remain the company's major revenue producer, with over $1B in footwear sales in 2007, Man Alive is its fastest growing segment - the company has opened over 40 new stores since acquiring the chain in 2005.[2]
In June 2007, Finish Line, Inc. pulled out of a plan to merge with fellow shoe retailer Genesco because of the latter's worse than expected earnings and dim future. Instead, the company focused its capital on the opening of Finish Line, Ltd., a concept store for young athletes, and on its new "4.0 stores," physical plants that are smaller in size but focused on customer service. The growth of these concepts will depend on whether consumers continue to spend discretionary income in malls, and on the apparel that the Finish Line offers. The company is exposed to a hurting U.S. economy and the credit crunch, and its core customers are spending a greater percentage of their money on necessary goods such as gasoline and food. Finish Line claims 7.3% of market share in the athletic shoe retailing industry, mainly competes with Footlocker--the company that dominates over 30% of the industry's market share.[3] The company also competes with sporting goods retailers such as Dick's Sporting Goods, Big 5, and The Sports Authority.
Business Overview
Finish Line, Inc. sells footwear and soft goods (apparel, accessories) and is one of the largest mall-based specialty retailers in the U.S. The company operates under The Finish Line and Man Alive brand names. Its sales increased annually except for 2007, where total sales dropped 4.1% from 2006 to $1.28 billion and comparable store net sales decreased 4.7%. 7 less business days in fiscal 2008 accounted for an approximate loss of $24.0 million.[5]
Finish Line: The company runs 700 Finish Line stores in 47 states, with an average store size of 5,530 square feet. Finish Line focuses on brand name athletic, lifestyle, and outdoor footwear. Soft goods, however, accounted for approximately 17% of total sales in 2007, a higher percentage that a typical athletic footwear specialty store. Finish Line products can be bought through its stores or website, finishline.com.[6]
Man Alive: The company acquired Man Alive and its 37 stores on January 29, 2005. Today, Finish Line, Inc. retails hip-hop clothing through its 94 Man Alive stores in 19 states. These stores average 3,472 square feet. Soft goods accounted for 91% of total sales in 2007. Man Alive products can also be bought through its website, manalive.com.[7]
Paiva: Paiva targeted athletic gear for active women. Finish Line, Inc., however, decided to close all 15 Paiva stores on August 27, 2007.[8]
Financial Performance and Business Metrics
Business Segments
- Footwear (79% of Finish Line, Inc.'s sales, 83% of Finish Line's sales, 9% of Man Alive's sales): In 2007, $1.01 billion, or 79%, of Finish Line, Inc.'s total sales stemmed from footwear. This segment's sales declined 2% from 2006 due to less popularity in women's footwear.[10]
- Soft Goods (21% of Finish Line, Inc's l sales, 17% of Finish Line's sales, 91% of Man Alive's sales): In 2007, soft goods (products such as apparel and accessories) contributed to $268 million, or 21%, of Finish Line, Inc.'s sales. Soft goods sales declined 14.3% from 2006, mostly from the continued decline of Man Alive's revenue. In addition, slow sales in Finish Line's jackets, outerwear, t-shirt, fleece, and hat departments have resulted in poorer performance.[11]
Key Trends and Forces
Failed acquisition of Genesco lets Finish Line focus on improving its shoe business
In June 2007, Finish Line, Inc. announced its intent to buy fellow shoe retailer Genesco for $1.5 billion with the help of Swiss bank UBS, who agreed to finance all but $11 million of the buyout. However, after Genesco's earnings suffered in the first half of 2007 Finish Line decided to pull out of the merger. On March 3, 2008, Genesco agreed to end the acquisition, in a settlement agreement that required Finish Line and UBS to pay a total of $175 million in cash and 12% of FINL's common stock to Genesco.[12] With the litigation resolved, Finish Line, Inc. will focus on the openings of its 4.0 stores and the newly developed Finish Line, Ltd.
An economic decline disrupts the discretionary spending patterns of Finish Line's core customers
Finish Line and other mall-based retailers are hurt by a declining economy because consumers lack the disposable income to purchase its products (department stores like Target and Wal-Mart, who offer goods such as food and household products, are less threatened in such a situation). Not only does the poor economy force Finish Line's core customers to spend more money on gasoline and heating costs, but the subprime mortgage fallout and resulting credit crunch contracts their spending even further, weakening the company's sales. According to New York-based research group Conference Board, its Consumer Confidence Index dropped to 50.4 in June 2008, the lowest since 1992.[13]
Seasonal fluctuations impact Finish Line Inc.'s sales
As a retailer, Finish Line, Inc. must anticipate fashion trends and seasonal fluctuations in its choices of inventory. 12 weeks during the late summer (late July through early September) and the holiday period between Thanksgiving and Christmas accounted for 32.7% of the company's earnings in 2007. The increase in sales during the late summer can be attributed to many kids buying sneakers and athletic gear for their upcoming school year.
Opening of new stores that are smaller in size drive Finish LIne, Inc.'s sales
Total sales have increased at an average of 11% over the past five years due to openings of new stores.
Although the company plans to open 8 to 11 Finish Line stores in 2008, it will expect a 1% to 3% decrease in square footage. This will be due to the closings of some existing stores and the development of four new ones that are smaller in size called a "4.0 store." A "4.0 store" will cover 3,500 square feet and offer 600 unique styles of shoes, as opposed to the 800 offered in present stores. The service area will be located in the center of the store to improve customer service. The performance of these four stores will determine whether Finish Line, Inc. will develop more "4.0 stores" in the future.[17]
11 new Man Alive stores opened in 2007, increasing square footage by 10.7%. Finish Line, Inc. will not develop more stores in 2008, but rather focus on productivity within existing Man Alive stores.[18]
Newly opened Finish Line, Ltd. serves as a springboard for potential expansion
On May 6, 2008, Nike and The Finish Line, Inc. opened a new retail project called Finish Line, Ltd., focused on young athletes and especially runners. This concept store, located in Phoenix's Chandler Fashion Center, is divided into three sections: running, sport style, and training. Finish Line, Ltd. will also provide Nike footwear and apparel that reflect the high school colors of the Greater Phoenix area. Students can have their Nike Pro apparel customized with their name, number, and sport. The success of the first Finish Line, Ltd. store will determine whether Nike and Finish Line, Inc. will expand this new concept.[19][20]
Competition
Finish Line, Inc.'s main competitor is Footlocker, who is the leading athletic footwear retailer in the U.S with total sales of $5.44 billion in 2007. Unlike Finish Line, Inc. who only retails in the U.S., Footlocker also operates in foreign countries such as Canada, Europe, Australia, and New Zealand.[21]
| Total Revenue | Gross Profit | Gross Margin | Operating (loss) Income | Operating Margin (Negative) | Total Stores | Same Store Sales (Decrease) | Sales Per Store | Market Share | |
|---|---|---|---|---|---|---|---|---|---|
| Finish Line, Inc. | $1.28B | $371M | 29.1% | ($67.8M) | (5.3%) | 794 | (4.7%) | $1.61M | 7.3% |
| Foot Locker | $5.44B | $1.42B | 26.1% | ($50M) | (0.92%) | 3,785 | (6.3%) | $1.44M | 31.1% |
Note: Market shares calculated with estimated $17.497 billion footwear retail market size.[24]
As a retailer of athletic apparel and footwear, Finish Line, Inc. also competes with the following companies:
- Dick's Sporting Goods: Dick's Sporting Goods is the nation's top sporting goods retailer and operates 340 stores in 36 states. The company sells a wide range of sporting equipment and apparel, and also runs Golf Galaxy and Chick's Sporting Goods chains.[25]In 2007, Dick's generated $3.89 billion of revenue, of which $1.16 billion yielded into gross profit.[26] Its gross margin in 2007 is therefore 29.8%.
- The Sports Authority: The Sports Authority boasts over 400 stores in 45 states and offers a large spectrum of athletic equipment and gear.[27]
- Academy Sports & Outdoors: Academy operates just under 100 stores throughout the South and Southwest regions of the U.S. The company offers apparel and equipment for outdoor activities such as camping, hunting, fishing and boating.[28]
- Recreational Equipment, Inc. (REI): REI operates about 90 stores and, like Big 5, runs mostly in the Western half of the U.S. The company sells mostly apparel and equipment used for hiking, climbing, kayaking and other outdoor activities.[29]
- Big 5 Sporting Goods : Big 5 operates 363 stores, each averaging around 11,000 square feet, in 11 states. The company opens stores in relatively small metropolitan and suburban areas, especially important in the sparsely populated western states that are Big 5's focus. In 2007, Big 5 sold over $898 million in products, for a gross margin of $309 million.[30]
- Hibbett Sports: Hibbett Sports operates over 600 small-format stores, usually situated in strip malls and based primarily in the Southeast region of the US. The company sells a variety of sporting equipment and apparel.[31]
References
- ↑ FINL 2007 10k, Item 1:Business, pg. 1-2
- ↑ FINL 2007 10K, Item 1:Business, pg. 1-2
- ↑ Needham Initiate 03/10/08:BGFV
- ↑ FINL 2007 10k, Item 6:Selected Financial Data, pg.17
- ↑ FINL 2007 10K, Item 7:Management's Discussion and Analysis of Financial Condition and Results of Operations, pg. 18
- ↑ FINL 2007 10K, Item 1:Business, pg. 1-2
- ↑ FINL 2007 10K, Item 1:Business, pg. 1-2
- ↑ FINL 2007 10K, Item 1:Business, pg. 1-2
- ↑ FINL 2007 10k, Item 1:Business, pg.3
- ↑ FINL 2007 10k, Item 6:Selected Financial Data, pg.17
- ↑ FINL 2007 10k, Item 6:Selected Financial Data, pg.17
- ↑ New York Post: "Genesco Shoe Merger Dead at Finish Line," 03/04/08
- ↑ The Wall Street Journal: "Consumer Confidence Plummets," 06/25/08
- ↑ FINL 2005 10k, Item 2:Properties, pg.12
- ↑ FINL 2006 10k, Item 2:Properties, pg.12
- ↑ FINL 2007 10k, Item 2:Properties, pg.12
- ↑ FINL 2007 10K, Item 1:Business, pg. 2-3
- ↑ FINL 2007 10K, Item 1:Business, pg. 2-3
- ↑ MediaPost Publications: "Nike, Finish Line to Open Concept Store for Serious Runners," 05/08/2008
- ↑ Reuters: "Nike, Finish Line open Finish Line Ltd store," 05/06/2008
- ↑ FL 2007 10k, Item 1:Business, pg.1
- ↑ FINL 2007 10k, Item 6:Selected Financial Data, pg.17
- ↑ FL 2007 10k, Item 6:Selected Financial Data, pg.8
- ↑ Needham Initiate 03/10/08:BGFV
- ↑ Dick's Sporting Goods (DKS)
- ↑ DKS 2007 10k, Item 6:Selected Consolidated Financial and Other Data, pg. 24
- ↑ The Sports Authority:About us
- ↑ Dick's Sporting Goods (DKS)
- ↑ Dick's Sporting Goods (DKS)
- ↑ BGFV 2007 10k, Item 6:Selected Financial Data, pg. 19
- ↑ HIBB 2007 10K, Item 1:Business, pg.5
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