Finish Line Pushing Further Ahead

Finish Line (NASDAQ: FINL  ) is one of an increasingly few mall-based retailers finding success in today's difficult economy. Despite harsh weather around the country and a cautious consumer, the footwear and sports apparel store posted impressive top- and bottom-line growth figures in its most recent quarter. Finish Line and peer Foot Locker (NYSE: FL  ) have remained relevant in today's brick-and-mortar retail landscape by using innovative merchandising techniques, exclusive partnerships, and omnichannel selling strategies. While the stock is trading near its 52-week high, Finish Line still has more to offer investors.

Recent results
In Finish Line's fourth quarter, net sales grew more than 17%, alongside a 6.2% same-store sales gain and an adjusted bottom line of $0.87 per share -- 14.5% ahead of the prior year's figure. Compared to analyst estimates, the company beat on a per-share basis but came in low on revenue. As many a Fool is aware, these estimates are not gospel. Finish Line's performance, especially in current conditions, is all-around fantastic.

Leading the way, predictably, was the company's e-commerce segment. Sales on digital channels grew 15% and now represent 14% of total Finish Line-brand sales. Management is focused on driving digital and store sales closely together. Store initiatives are aimed at driving more traffic to the website (employees have handheld devices to help manage sales, inventory, and loyalty members, as well as smarter POS systems all around), and the website is likewise designed to drive more traffic to the stores. Examples of this include store shoppers being able to ship a product directly to their home (for instance, a size that is out of stock at that store), and website shoppers being able to order online and pick up in-store. People who order on the Web can return products in-store, as well.

The idea is to create a seamless experience between the digital world and the real one--a last bastion of competitive moat that the e-commerce giants have yet to successfully tackle. While it's an ambitious endeavor, and likely a primitive version of what physical retailing will look like in the near future, it appears to be working on the sales front.

Another source of Finish Line's sales prowess is its loyalty program (dubbed "The Winner's Circle"). In the most recent quarter, 60% of sales came from club members.

Finish Line's partnership with Macy's is proving valuable as well, and not just on the sales front. The company has 185 shops in Macy's department stores as of last quarter. It manages the footwear section (in an unbranded manner) for another 477. Macy's has a predominantly female customer base, which enables Finish Line to increase its brand relevance to the valuable demographic. 

How does it stack up?
Finish Line's performance has been similar to Foot Locker's in recent periods, and the market seems to hold both in esteem. The two retailers each have forward earnings ratios of roughly 13.5 times, though Finish Line has the advantage on an EV/EBITDA basis thanks to its slimmer balance sheet and zero long-term debt.

Considering Finish Line's ability to penetrate new markets with its Macy's partnership, and its successful omnichannel strategy in general, this is a great and right-priced business to own. Foot Locker has its own partnerships, including exclusive product deals with huge brands (think Nike), but Finish Line's concept of expanding the customer base via new outlets is more compelling in the long run. The retail landscape is brutal, and Finish Line is navigating it better than most. Risk-averse growth investors, take notice.

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