Athletic Footwear Retailers Down On Finish Line 2Q Forecast
Dow Jones Newswires
By Ted Kemp
NEW YORK (Dow Jones)--Athletic shoe retailers lost their footing Thursday following Finish Line Inc.'s (FINL) announcement that it sees second-quarter net income flat with or below year-ago levels and short of Wall Street's expectations.
The sector also stumbled in reaction to a round of rating downgrades from BT Alex. Brown Inc.
Finish Line said after Wednesday's market close that it expects to report earnings of between 29 cents and 34 cents a share for the quarter ending Aug. 29, compared with 34 cents a year ago and First Call Corp.'s projection of 40 cents.
The company added that if current sales trends continue into the second half, earnings for the year will be in the range of $1 and $1.10 a share, compared with $1.02 a year ago and a Wall Street consensus of $1.21.
After being halted earlier in the day, Finish Line recently was down 3 9/16, or 25.9%, to 10 3/16 on Nasdaq volume of 7.6 million, dwarfing average daily volume of 596,900. The shares struck a 52-week low of 9 11/16 earlier, passing the low of 11 7/8 set Jan. 16.
In a research note, BT Alex. Brown cut Finish Line to market perform from strong buy, citing the dour earnings outlook and back-to-school season sales that are below plan.
The firm also revisited its ratings on retailers Footstar Inc. (FTS) and Just For Feet Inc. (FEET), cutting both companies to buy from strong buy.
Just For Feet recently was down 4, or 21.2%, at 14 7/8, on volume of 2.7 million shares, well ahead of typical daily turnover of 454,800. Footstar lost 2 5/8, or 7.8%, to 31 3/16.
Another decliner was Venator Group Inc. (Z), which operates the Foot Locker chain of retailers, among other stores. The company's stock recently ran down to 12 5/8, a loss of 3/4, or 5.6%. The intraday low of 12 1/2 dipped under the previous 52-week low of 12 9/16 set Aug. 5.
Finish Line attributed the sales shortfall during the critical back-to-school season to promotions in the industry, soft athletic-apparel sales and Labor Day sales slipping into the third-quarter.
Steve Schneider, Finish Line's chief financial officer, told Dow Jones that same-store sales moved according to plan for the first three weeks of July - up 6.5% over the previous year - but then abruptly turned south.
"The biggest change was a different position that Venator took in promoting their product," Schneider said.
The Indianapolis company finished the month with a same-store sales increase of 3%, and Schneider said softness has continued into August.
Analyst Michael Glover of Raymond James & Associates Inc., who downgraded Finish Line to neutral from accumulate, said Venator's back-to-school promotion is unusual because it cuts prices on most Adidas running shoes, which is one of the best-selling brands.
Running shoes account for about 30% of Finish Lines' sales, and Venator's promotion, which features a 25% price cut on most men's and women's Adidas running shoes, is cutting into sales of a key brand during a critical season.
"Adidas is really the only brand that's had any significant momentum over the last year," Glover said. "(The promotion) was a completely different approach and it took everybody by surprise."
A Venator spokesman declined to comment on the strategy behind the Adidas promotion, and attributed recent softness in Venator's stock to the company's July 7 forecast that it will report a second-quarter loss of 5 cents to 10 cents a share, below expectations at that time. Venator cited disappointing May and June sales for the loss, especially in its athletic stores group.
Dave Ricci, an analyst with William Blair & Co., attributed the group's share-price declines to broader concerns about the industry as a whole.
"We've got an industry where the specialty store square footage is growing at 20% a year, well below consumer demand, which is in the single digits," he said. "I'm concerned about there being an oversupply of stores and that having an effect on the industry."
BT Alex. Brown cited uncertainty in the industry for its downgrades of Just For Feet and Footstar, but said it sees Footstar's separate discount and athletic operations helping to protect it from sales declines.
As for Just For Feet, BT Alex. Brown said the retailer's acquisition of privately held Sneaker Stadium gives the company "critical mass and enhanced buying power," and increased its 1999 earnings estimate for the company to $1.40 a share from $1.35.
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