The Finish Line Looks a Lot Closer Now
Eric is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Shoe seller Finish Line (NASDAQ: FINL) struggled a few years back, but good traffic on Black Friday suggests that this retailer's turnaround could be underway. Canaccord Genuity, at Forbes, reported that Finish Line was a strong shoe seller on Black Friday. Finish Line also made some recent moves that could help drive its long term growth, including deals with both department store Macy's (NYSE: M) and shoe maker Nike. (NYSE: NKE) Finish Line's financials have also shown some definite improvements in 2012.
A Failed Buyout Breaks Finish Line's Stride
Back in 2007, Finish Line was all set to take over Genesco (NYSE: GCO). Evelyn M. Rusli, at Forbes, reported that this $1.5 billion dollar deal would help Finish Line diversify into head wear, casual shoes, and other accessories. Soon afterward, Genesco reported weak quarterly results and Finish Line struggled to find enough cash for the deal, reported the Fool's Tom Taulli. Finish Line tried to call off the deal while Genesco tried to make the merger go through.
This acquisition attempt turned into a nasty legal battle that also involved deal backer UBS. Rose French, for the AP, reported that Finish Line and UBS eventually broke off the deal in 2008, announcing a settlement that awarded Genesco $175 million and 12% of Finish Line's stock. Finish Line headed into the global financial crisis a much weaker company.
Finish Line Makes a Deal With Macy's
Hot companies like Under Armour and Lululemon show that shoppers want to buy clothing designed for healthy, athletic lifestyles right now. Athletic footwear and apparel could provide opportunities for Macy's to capitalize on the health trend, and the department store realized that a partner that sold sports shoes could make this strategy work a lot better. Macy's and Finish Line agreed to a deal where Finish Line would set up shoe shops inside Macy's stores.
The Finish Line press release explained that this deal could eventually produce between $250 million and $350 million in annual revenue, and Finish Line could eventually have 450 of these shops inside Macy's stores by late 2004.
Finish Line Offers Nike Exclusives
On Nov. 1, 2012, Finish Line announced that several new Nike shoes under the Total Blackout line would be available during the holiday season. This deal shows that Nike can work well with Finish Line, and the retailer has also received other relatively scarce products from Nike. Seeking Alpha contributor Valuentum noted that Nike's new and popular Flyknit shoes showed up at Finish Line stores but weren't that common elsewhere.
A Strong Recovery
Finish Line's long term figures explain why investors lack confidence in this shoe store, but more recent figures show a much different trend. The shoe store currently has a trailing P/E of 12 and a forward P/E of 10.8. Finish Line's five year revenue growth was just 1.17%, but the store's revenue growth over the past year was a much healthier 11.4%. Finish Line also reported 16.1% higher sales and 19.4% higher income last quarter, which could mean that its growth has accelerated further. With weak historical results, Finish Line might also have an easier time beating comps in upcoming quarters.
Finish Line's turnaround might have started already, as this shoe store's recent quarterly results and performance over the last year show. Deals with Macy's and Nike give the store two long term growth drivers, although the stores inside Macy's won't provide their full payoff immediately. This company already looks like it's on track to a good holiday season after Black Friday. Investors don't have high expectations for Finish Line either, so the shoe store could deliver some upside surprises in upcoming quarters.
enovinson has no positions in the stocks mentioned above. The Motley Fool owns shares of Nike. Motley Fool newsletter services recommend Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!