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Does Finish Line Deserve a Place in Your Portfolio?

By Pratik Thacker – Jan 21, 2014 at 1:23PM

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Will Finish Line's product innovation and marketing efforts help your portfolio grow?

The holiday season is an exciting period for retailers as people are tempted to open their wallets and fill those retailers' coffers. In fact, this period is exciting for investors too as they watch their companies prosper. This was seen when shoe retailer Finish Line (FINL) posted its third-quarter results recently. Its numbers were ahead of analysts' estimates and sent shares higher.

Reasons to smile
Finish Line's revenue surged 23% to $364.5 million over last year's quarter. This increase in top line was driven by an increase in demand for its products, especially basketball products. The company also reported same-store sales growth of 7.1%. Adjusted earnings for the quarter stood at $0.06 per share, as compared to a break even last year.

Finish Line shifted in focus toward basketball products due to a sharp increase in demand. Finish Line had to diversify its product portfolio, as consumers were losing interest in running shoes, and focus on basketball came in handy.

In fact, peer Foot Locker (FL -3.45%), which concentrates more on basketball products, could not match up with Finish Line's same-store sales. In its recent quarter, Foot Locker witnessed comparable store sales growth of 4.1%, with total sales growing 6.4% to $1.6 billion over last year . However, both Foot Locker and Finish Line witnessed growth in basketball sales. The popular brands were Jordan and Nike (NKE 1.23%), which saw increased demand.

Nike has been a key driver for both footwear companies since its products such as Air Max, Free, and Flyknit are very popular among customers. Nike's growing popularity and success are evident from its second-quarter results, which it reported recently. Its revenue grew 8% to $6.4 billion as sales from both Nike brand and Converse increased. Also, its gross margin expanded since it has shifted to higher margin products such as Flyknit. Moreover, Nike's future looks bright as the footwear manufacturer reported an increase of 12% in its future orders .

Since both Finish Line and Foot Locker sell Nike's products, both benefited from growth at Nike. However, for Finish Line, product innovation has been an important reason for its top line growth. Products such as SpringBlade and Spine Laser by Adidas and Under Armour were some of its new products that were very successful. Similar to Foot Locker, Finish Line experienced sales growth in Jordan's products.

Future plans
Finish Line is expected to benefit from new products, including those that have already been introduced and some that are expected to launch in coming months. In fact, Nike's CEO plans to introduce more higher-margin products in the future, encouraged by the success of Flyknit shoes.

Additionally, the footwear retailer plans to strengthen its marketing efforts and online presence. It promoted its recent product launch by sending emails to its Winner's Circle members and received a great response .

Finish Line's partnership with Macy's has also been quite helpful in the company's growth. The shoe retailer has its shops in 181 Macy's stores. Macy's provides great exposure to Finish Line as its makes adjustments to its merchandise and product assortments. Most importantly, Macy's helped the company expand its female customer base. This addition of female customers should help Finish Line boost its sales.

Bottom line
The footwear industry seems to be doing well. Finish Line looks well placed with more efforts on marketing strategies, product innovations, and a fruitful partnership. Moreover, Nike has been performing well because of popularity of its products and its effort to bring in new products. This should continue to benefit the footwear retailer, especially when combined with its promotional efforts. Because of this, Finish Line should be a rewarding investment.

Pratik Thacker has no position in any stocks mentioned. The Motley Fool recommends Nike. The Motley Fool owns shares of Nike. 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.

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