Is There Hope Left For This Company?
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The Fiscal Cliff was a large matter of concern during the holiday season, forcing consumers to become more calculative about their spending. As a result, retailers found it difficult to stir demand, leading to poor sales. However, there were some footwear retailers such as Nike (NYSE: NKE) who managed to swim against the currents and register stellar quarterly numbers. The American market proved to be an amazing one for Nike, which enabled the retailer to post a 7% jump in revenue.
On the other hand, there is another footwear player that posted lackluster results. However, the third quarter of Finish Line (NASDAQ: FINL) didn’t fall prey to the prevailing economic conditions, as the company was held back by something else. Let us take a closer look.
Though revenue surged 5% to $296.6 million, Finish Line performed quite badly, largely missing estimates on the bottom line. The company could not manage its costs efficiently, which was a key reason why it had a negative bottom line. Also, higher promotional spending ate into its earnings.
The specialty footwear retailer could have witnessed a better top line if it did not launch its new version of its website just before the holiday season. Due to customers' less familiarity with the website, Finish Line suffered lower sales and had to finally withdraw the new version.
Moreover, the company lacks the ability to understand customers’ tastes and preferences. The shift of consumers’ interests to basketball products from running shoes was ignored by the retailer, leading to a loss in sales. This provided the opportunity for rivals such as Foot Locker (NYSE: FL) to capture market share. Foot Locker is more focused on basketball products, which led to higher footfall and revenue.
Unlike Finish Line, retailers such as Nike and Foot Locker have been quite active on the innovation front. Nike has been bringing new technological products in the market, which is giving it a stronger foothold compared to its competitors. Even Foot Locker has been adding new colors to its products in order to attract customers’ attention.
However, Finish Line has been busy enhancing its biggest category. It recently bought a specialty chain that provides premium products in the running category. The company also cut down its product prices for the category, which hurt margins as well as profits.
All these factors together impacted the company’s results unfavorably, enabling Finish Line to provide a dull outlook that again shattered all investor hopes.
A Ray of Hope
However, the recent partnership with Macy’s can help the retailer witness better days. As per the deal, Finish Line will be handling all athletic footwear sales of Macy’s. It will also launch 450 new stores in Macy’s locations, and the deal is expected to generate $250 to $350 million of annual revenue in future.
Additionally, Finish Line plans to shift its focus towards current trends as well as take proper cost management initiatives that might help the company to some extent.
Summing it up
Overall, the retail industry is going through a difficult phase, but some players have been exceptionally good with their strategies. However, it has been increasingly difficult for Finish Line to outperform its competitors such as Nike and Foot Locker, in spite of efforts such as adding new stores and promoting heavily.
Its various wrong decisions have been quite taxing this quarter and will continue to hurt Finish Line, since the company has nothing new to offer. Innovation plays a very important role in the industry, which is negligible in Finish Line’s case. However, its new deal with Macy’s might turn things around. But until then I think staying away from this retailer would be a more prudent decision.
justhimanshu has no position in any stocks mentioned. The Motley Fool recommends Nike. The Motley Fool owns shares of 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!