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Finish Line Q4 margins drop on toning shoes fire sale

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Reuters
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today Mar 28, 2011
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March 24 - Finish Line Inc's quarterly profit met Wall Street expectations as discounted sale of the once-popular toning footwear hit the athletic footwear retailer's margins and offset better-than-expected sales.

Finish Line
Adidas and Nike are among the various brands sold on Finish Line's website

The company's shares were down 2 percent in after-market trade.

As the fad of toning footwear fizzles out, retailers have been liquidating inventory of these shoes that are supposed to exercise leg and buttock muscles by making the wearer work harder while walking.

The company expects a "little bit of negative impact," both in sales and margins in the first quarter as it clears out piled up inventory.

"As we move into the second quarter, we should be free of both our historical comparisons and our inventories will be in pretty good shape," the company's Chief Financial Officer Edward Wilhelm told Reuters by phone.

The strong same-store sales performance augurs well for the company despite the weak margins, Susquehanna Financial Group analyst Christopher Svezia told Reuters.

Weak margins overshadowed a 10.1 percent rise in same-store sales for the period February 27 to March 20.

The company's largest supplier Nike Inc posted a lower-than-expected profit in its latest quarter, and said it plans to raise prices on shoes and sports clothing next year to counter rising costs.

Finish Line said its ability to pass on price increases to consumers hinges on product innovation.

"For this year we think that the costs will remain pretty balanced. We're going to talk to our brands and keep a close eye on that, but as long as product innovation continues at the pace that it has for the last 18 months, the consumer will continue to react favorably," Wilhelm said.

The company's results are also in contrast to its rivals Foot Locker Inc and sporting goods retailer Dick's Sporting Goods Inc , which reported better-than-expected quarterly profits earlier this month.

Despite a patchy economic recovery, retailers such as Finish Line and larger competitor Foot Locker Inc that sell footwear under brands from Nike Inc , Converse, Puma and Adidas AG , have benefited from improving demand for athletic and running shoes.

For the fourth quarter, the company posted a profit of $34.2 million or 63 cents a share, compared with $30.6 million or 55 cents a share, a year ago.

Shares of the company were down 2 percent at $18.00 in extended trade on Thursday. They closed at $18.40 on Nasdaq.

(Reporting by Viraj Nair in Bangalore; Editing by Vyas Mohan)

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