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Why Finish Line Stock Surged Today

By Timothy Green – Dec 21, 2017 at 4:42PM

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The holiday outlook wasn't great, but the company put together a decent third quarter.

What happened

Shares of footwear retailer Finish Line Inc (FINL) jumped on Thursday following a better-than-expected third-quarter report. The company managed to grow comparable sales, and its net loss was smaller than analysts expected. The stock was up about 13% at market close.

So what

Finish Line reported third-quarter revenue of $378.5 million, up 1.8% year over year and about $17.5 million higher than the average analyst estimate. Comparable store sales rose 0.8%, while sales through the company's partnership with Macy's rose 2.3%. "We finished the third quarter ahead of expectations despite a highly promotional environment for athletic footwear," said Finish Line CEO Sam Sato.

A Finish Line display within a Macy's store.

Image source: The Finish Line.

Non-GAAP earnings per share came in at a loss of $0.26, down from a loss of $0.24 in the prior-year period, but $0.10 better than analysts were expecting. The company lost $0.32 per share on a GAAP basis, with the difference primarily due to store impairment charges.

Sato discussed the company's successes during the quarter: "The growth initiatives that we've put in place are driving increased traffic to our brand and helping increase conversion. While we responded to certain pricing actions in the marketplace to be competitive, we delivered gross margin in line with forecasts, and remained highly disciplined in managing expenses and inventories."

Now what

Finish Line expects comparable sales to decrease by 3% to 5% during the fourth quarter, along with non-GAAP earnings per share (EPS) between $0.50 and $0.58. For the full year, the company sees non-GAAP EPS between $0.59 and $0.67, a bit above its previous guidance range. That compares to non-GAAP EPS of $1.06 last year.

Investors overlooked the lackluster fourth-quarter guidance, instead focusing on Finish Line's third-quarter results. The stock now trades for around 25 times the midpoint of the company's guidance for full-year non-GAAP earnings, which seems like a high price to pay for a retailer expecting a weak holiday quarter.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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