Analysts Say Run From Finish Line After Profit Warning

Shares of Finish Line (FINL) are sliding after the shoe retailer reported downbeat preliminary second quarter results and cut its outlook for fiscal 2018. Following the announcement, several Wall Street analysts cut their ratings on the stock to sell-equivalent ratings.

PRELIMINARY RESULTS: Last night, Finish Line reported preliminary second quarter earnings per share of 8c-12c and revenue of $469.4M, both below consensus of 38c and $477.18M, respectively. The company also reported preliminary second quarter same-store sales to be down 4.6%, and cut its 2018 adjusted earnings per share view to 50c-60c from $1.12-$1.23. Further, Finish Line sees third quarter adjusted losses per share of (40c)-(32c), and same-store sales down 3%-5% for the quarter.

SELL FINISH LINE: In a research note to investors, Buckingham analyst Scott Krasik downgraded Finish Line to Underperform from Neutral and lowered his price target to $5 from $14 after the company pre-announced a second quarter miss and lowered second half 2018 guidance. The analyst said he is incrementally more concerned with the company’s ability to re-accelerate sales and margin trends given slower growth trends in athletic footwear overall and increased risk from expanded competition as Finish Line’s assortments are less differentiated than Foot Locker’s (FL). Further, Krasik told investors that he estimates Finish Line will generate only a modest amount of free cash flow the next two years that could put its dividend at risk. With the athletic footwear market in a downturn and the future for brick and mortar retailers uncertain at best, it is unclear how Finish Line can re-accelerate growth in the next two to three years, he contended. His peer at Citi also downgraded the stock to Sell from Neutral and lowered her price on the shares to $5 from $14. Analyst Kate McShane believes the competitive environment among athletic retailers “has only become more difficult” and Finish Line suffers from being a smaller mall- based chain relative to Dick’s Sporting Goods (DKS) and Foot Locker. Additionally, Deutsche Bank analyst Paul Trussell cut Finish Line’s rating to Sell saying that last night’s negative pronouncement highlight that increased promotional levels in the athletic footwear marketplace are pressuring both sales and margin. The analyst told investors that he believes the space could be in only the early innings of an “elongated lull in trends” and thinks Finish Line has a “weak real estate position” as a primarily mall-based destination. FBR Capital also downgraded Finish Line to Neutral from Buy this morning.