Finish Line's Run Isn't Over Yet, but Downside Is Growing

When Finish Line's (NASDAQ: FINL  )  brands are moving up and up, the company is a direct beneficiary. The athletic apparel retailer has had a tumultuous year, including a big-time strategic shift, but it looks to have ended the year strong with a fantastic earnings report and broad support from the market. The results come from management's carefully executed plans as well as the strength of megabrands such as Nike. Looking ahead, things should only improve as the company's missteps go further into the rearview. The question now, after a 30% gain in stock price since early September, is whether investors can still benefit from the company's new initiatives.

Sound quarter
In Finish Line's fiscal 2014 third quarter, sales jumped an impressive 23% to $364.5 million. Same-store sales skyrocketed -- up 7.1%. Like many a retailer these days, Finish Line has been pushing the pedal down on an omnichannel selling strategy, utilizing brick-and-mortar stores as well as Web-based ones to move product.

Black Friday's Thursday through Sunday shopping period showed tremendous strength over the prior year's numbers, up 20%-plus. Due to customer outreach programs via email and other channels, Finish Line now sees more than 60% of its in-store sales from loyal customers, compared to just 33% three years ago.

The bottom line came in at $0.06 per share after excluding impairment charges.

Looking ahead to full-year results, Finish Line management is targeting same-store sales growth of 3% to 4% (a slight boost from previous guidance) and a 9% to 12% jump in adjusted earnings -- $1.60 to $1.65 per share.

The market rallied behind the report, mainly due to bullish guidance, and sent the stock to its 52-week high.

Slam dunk?
There's no denying the strength of Finish Line's business in the coming periods. And with companies (namely Nike -- making  up two-thirds of the former's sales) showing ever-stronger resilience in brand power and putting out new and attractive products, things look favorable both within and outside the retailer.

The market has clearly been paying attention, so do prospective investors have much incentive to jump in now?

With the great tailwinds and solid guidance from management, it looks as though Finish Line can continue to deliver outsize results for the time being. The stock will probably follow suit until it gets red hot. For a growth-hungry investor, the company is a good prospect, and there isn't nearly as much downside protection as there was, say, six months ago. In case things turned south for Finish Line -- perhaps at its Macy's in-store locations that, while encouraging, haven't quite delivered the results some hoped for -- investors will then have a rich valuation to justify, and could see much of this quarter's gains erased. While it's unlikely, it is something to keep in mind.

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11/26/2014 3:59 PM
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The Finish Line, I… CAPS Rating: ****

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