Recent performance at footwear retailer Finish Line (NASDAQ:FINL) has been uninspiring, to say the least. In addition to worries over American consumer spending patterns from subprime woes and rising gasoline prices, Finish Line is seeing its planned acquisition of Genesco (NYSE:GCO), another embattled footwear retailer, quickly come untied. Fools will get an update on both fronts when Finish Line reports second-quarter results on Thursday. Here's what to look for:    

What analysts say:

  • Buy, sell, or waffle? Twelve analysts currently follow Finish Line; all have hold ratings. The Motley Fool CAPS community has given Finish Line an unfavorable one-star rating (out of five stars).
  • Revenue. Analysts are projecting $345.1 million in second-quarter sales -- barely 2% above last year's sales amount. 
  • Earnings. Analysts expect quarterly earnings of $0.13, or 38% below last year's figure.

What management says:
Earlier in September, management announced that Genesco financier UBS planned to "defer any further work on the remaining closing documents," spurred by concerns over Genesco's financial health. Finish Line raised that same issue itself at the end of August, following Genesco's weak quarterly results. These recent developments put the entire deal into question, and Finish Line's own challenging quarter isn't helping matters.

What management does:
Net profit margins are on a steady downward slope, and have been for more than three years now. Management recently cited challenging trends in the moderately priced footwear category, overall women's sales, and apparel and accessories racks. Despite the sluggish retail scene these nearly every retailer now faces, the trends seem to show that mall-based retailers such as Finish Line and Foot Locker (NYSE:FL) are suffering more than off-mall locations operated by the likes of Kohl's (NYSE:KSS) and Dick's Sporting Goods (NYSE:DKS).

Margins

02/06

05/06

08/06

11/06

02/07

05/07

Gross

31.5%

31.2%

30.5%

30.4%

30.0%

29.3%

Operating

7.5%

6.4%

5.4%

4.9%

4.4%

3.5%

Net*

4.6%

4.0%

3.3%

3.0%

2.4%

1.8%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Right now, it's hard to tell whether Finish Line's predicament is due to an unappealing merchandise mix, or a secular move away from the mall, as has occurred with department store retailing over the last several decades. The former struggle should be easier to fix by selling popular brands such as Under Armour (NYSE:UA) and Puma. But a move to acquire Genesco will likely only exacerbate the second challenge. Perhaps there are other reasons to explain the sales and earnings weakness. If so, management had better figure them out soon, because Finish Line's stock is rapidly falling into oblivion.