Higher promotions, spending to hit Finish Line profit

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(Global Markets) - Footwear retailer Finish Line Inc (FINL.O) warned that increased promotions and higher spending would eat into its first-quarter profit, spooking investors who sent the stock tumbling 16 percent on Friday.

Finish Line, which sells brands from companies such as Nike Inc (NKE.N), Puma (PUMG.DE) and Adidas AG (ADSGn.DE), is facing a shift in its promotional calendar this year, with a lot of activity moving from the second quarter to the first quarter.

The company is ramping up spending and promotions to stay ahead of its rivals, such as Foot Locker (FL.N) and Dick's Sporting Goods (DKS.N), as it vies for a larger slice of the athletic footwear market.

While most of the U.S. retail industry faced sluggish sales over the past few years, with shoppers scaling back spending in a weak economy, demand for athletic footwear, like running shoes, has stayed relatively strong.

Finish Line, which has posted higher earnings for the past five quarters, is increasing spending on its website and on in-store devices, such as tablets and handheld electronic gadgets that list its products, to make shopping more convenient.

It plans to spend about $85 million in fiscal 2013 on revamping stores, e-commerce, improving technology and new store openings.

The company, which is also facing higher occupancy costs, forecast a 30 percent plunge in first-quarter earnings per share, implying a profit of 21 cents per share. Analysts had expected 36 cents per share, according to Thomson Global Markets I/B/E/S.

In its latest reported quarter, the company's adjusted profit of 81 cents a share was in line with Wall Street estimates, even as sales comfortably surpassed expectations.

"Given the stronger reported fourth-quarter comps, we would have expected better flow through to earnings per share, yet Finish Line continues to reinvest much of its comps strength back into growing its e-commerce platform," Canaccord Genuity analyst Camilo Lyon said.

Sales rose 18.6 percent to $456.3 million, beating estimates of $432.6 million. <ID:ASA03WK0>

GART INVESTMENT

Finish Line also said Gart Capital Partners will invest $10 million in its Running Specialty Group, and the business will launch its Run.com website by mid-April to better tap the $1 billion running segment.

The division will be majority owned by Finish Line, which picked up the business with its 2011 acquisition of an 18-store chain of specialty running shoe shops operating under 'The Running Company' banner.

The business will be relocated to Denver, Colorado, with Gart Capital managing operations and new acquisitions.

Finish Line shares -- which had risen by nearly a third so far this year, excluding their losses on Friday -- were down 15 percent at $21.52 in afternoon trading on the Nasdaq. They touched a low of $21.24 earlier in the day.

(Reporting by Juhi Arora in Bangalore; Editing by Sriraj Kalluvila, Viraj Nair)