The Finish Line Is Running at Full Speed: Is the Stock a Winner?

Source: The Finish Line.

The Finish Line (NASDAQ: FINL  ) announced rock-solid financial performance for the first quarter of fiscal 2015 on Friday. Management is quite confident regarding future growth prospects, and competitors such as Foot Locker (NYSE: FL  ) and Dick's Sporting Goods (NYSE: DKS  ) are confirming that demand for sports shoes and apparel remains strong across the industry. Should you buy The Finish Line?

Sprinting to the goal
Total sales during the quarter ended on May 31 increased 15.8% versus the same period in the prior year, to $406.5 million. This came in above analysts' expectations of $394.5 million in revenues for the quarter.

Company sales were up 5.2% on the back of a 5% increase in Finish Line comparable-store sales. Sales associated with Macy's increased to $43.8 million, versus $13 million during a partial quarter in 2013, and Running Specialty Group sales increased to $17.3 million versus $10 million last year.

Non-GAAP diluted earnings per share, which excludes the impact of impairment charges in 2014 and start-up costs related to the launch of the company's operations in Macy's during 2013, increased 40% to $0.28 per share versus $0.20 per share in the prior year. The number was comfortably better than Wall Street forecasts of $0.21 in earnings per share during the quarter.

Glenn Lyon, chairman and chief executive officer, provided a positive view of The Finish Line's performance during the last quarter and its opportunities for growth over the coming years.

We are very pleased with the strong start to fiscal 2015 we delivered in the first quarter. The integration of our store and digital operations is allowing us to deliver great product and service to consumers in a seamless fashion no matter what channel they choose to shop. At the same time, we are reaching new consumers and expanding market share through our growing relationship with Macy's. We are confident that our multidivisional, omnichannel strategies will strengthen our market position and drive growth in sales and earnings, allowing us to return increased value to our shareholders in the years ahead.

Industry landscape
Foot Locker is materially bigger than The Finish Line, and the company delivered truly impressive financial performance during the last quarter. Total sales during the quarter ended on May 3 increased 14% versus the same quarter in the prior year to $1.87 billion, while comparable-store sales jumped 7.6%.

Foot Locker delivered growing profit margins during the quarter and gross margin increased to 34.6% of sales versus 34.2% in the year-ago period, while selling, general, and administrative expenses fell to 19% of sales from 19.2 %. Overall, Foot Locker delivered a strong increase of 22% in earnings per share.

Foot Locker is a big competitive challenge for The Finish Line, and the company is growing at a considerable speed, so this is an important risk to monitor. On the other hand, strong sales and growing profit margins from Foot Locker are showing that industry demand remains healthy for well-run companies in the sector, and The Finish Line is proving its ability to successfully compete and grow while facing tough competition from Foot Locker.

Dick's Sporting Goods is in a very different situation: The company delivered disappointing financial performance for the last quarter, and management also reduced its guidance for the rest of the year. Net sales during the quarter ended on May 3 grew 7.9% to $1.4 billion, while same-store sales increased only 1.5% versus the prior year.

Dick's Sporting Goods said in its earnings press release that its disappointing performance during the quarter was mostly due to weakness in golf and hunting, while categories such as athletic apparel, athletic footwear, and team sports remained healthy during the period.

It's hard to tell at this stage if hunting and golf were transitorily hurt by the unusually cold weather, or if Dick's Sporting Goods is facing something more serious and permanent. Still, investors in The Finish Line should be comforted by the fact that Dick's Sporting Goods is reporting healthy demand in areas such as athletic footwear, a big business for The Finish Line.

Foolish takeaway
Thanks to initiatives like a strong online presence, a smart alliance with Macy's, and strategic acquisitions, The Finish Line reported remarkably healthy financial performance during the last quarter. In addition, competitors such as Foot Locker and Dick's Sporting Goods are providing encouraging signals when it comes to evaluating industry demand. The Finish Line looks well positioned to continue running at full speed and delivering healthy returns for investors.

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Andrés Cardenal

Andres Cardenal, CFA is a tenacious researcher of the best investment opportunities around the world. Andres is an economist and CFA Charterholder living in Buenos Aires, Argentina. Naturally flavored. Follow me on Twitter for more investment ideas:

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8/28/2015 4:00 PM
FINL $26.61 Down -0.30 -1.11%
The Finish Line, I… CAPS Rating: ***
DKS $50.40 Up +0.80 +1.61%
Dick's Sporting Go… CAPS Rating: ****
FL $71.62 Down -0.21 -0.29%
Foot Locker, Inc CAPS Rating: ****