Market Overview

Finish Line Reports Fourth Quarter and Fiscal 2018 Full Year Results

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The Finish Line, Inc. (NASDAQ:FINL) today reported results for the
14-week and 53-week periods ended March 3, 2018, compared to the 13-week
and 52-week periods ended February 25, 2017.

For the 14-weeks ended March 3, 2018 compared to
the 13-weeks ended February 25, 2017*:

  • Consolidated net sales were $561.3 million, an increase of 0.7% over
    the prior year period.
  • Finish Line's sales decreased 0.9%.
    • Finish Line comparable sales decreased 7.9%.**
  • Finish Line Macy's sales increased 8.5%.
  • On a GAAP basis, diluted earnings per share from continuing operations
    were $0.40.
  • Non-GAAP diluted earnings per share from continuing operations, which
    primarily excludes the impact from impairment charges and store
    closing costs and the company's revaluation of its deferred tax
    liability as a result of the Tax Cuts and Jobs Act, were $0.59.

For the 53-weeks ended March 3, 2018 compared to
the 52-weeks ended February 25, 2017*:

  • Consolidated net sales were $1.84 billion, a decrease of 0.3% from the
    prior year period.
  • Finish Line's sales decreased 1.9%.
    • Finish Line comparable sales decreased 3.9%.**
  • Finish Line Macy's sales increased 7.5%.
  • On a GAAP basis, diluted earnings per share from continuing operations
    were $0.36.
  • Non-GAAP diluted earnings per share from continuing operations, which
    primarily excludes the impact from impairment charges and store
    closing costs and the company's revaluation of its deferred tax
    liability as a result of the Tax Cuts and Jobs Act, were $0.69

* Excludes comparable sales.
** Finish Line comparable sales were
calculated by comparing the 14-week and 53-week periods ended March 3,
2018 to the 14-week and 53-week periods ended March 4, 2017.

"While we anticipated that our business would be under pressure during
the fourth quarter due to a difficult selling environment for athletic
footwear, sales ended up being down more than we forecasted," said Sam
Sato, Chief Executive Officer of Finish Line. "Despite the top-line
headwinds, we worked hard on tightly controlling costs and managing
inventories to deliver adjusted earnings per share for the fourth
quarter at the high-end of our most recent guidance range of $0.58 to
$0.59."

Balance Sheet

As of March 3, 2018, consolidated merchandise inventories decreased 2.8%
to $321.7 million compared to $331.1 million as of February 25, 2017.

As of March 3, 2018, the company had no interest-bearing debt and $93.4
million in cash and cash equivalents. The company did not repurchase any
shares of its common stock during the fourth quarter.

Agreement with JD

On March 26, 2018, Finish Line announced that it had entered into a
definitive merger agreement with JD Sports Fashion Plc ("JD") under
which JD will acquire Finish Line for $13.50 per share in an all cash
transaction. The merger agreement is subject to Finish Line and JD
shareholder approval of the merger, the receipt of all required
regulatory approvals, and the satisfaction of other customary conditions
to closing. The expected timeline to close on this agreement is no
earlier than June 2018. In light of the pending merger, Finish Line will
not be hosting a conference call to discuss fourth quarter results.

Disclosure Regarding Non-GAAP Measures

This report refers to certain financial measures that are identified as
non-GAAP. The company believes that these non-GAAP measures, including
selling, general, and administrative expenses, operating income, income
tax (benefit) expense, net income from continuing operations, and
diluted earnings per share from continuing operations, are helpful to
investors because they allow for a more direct comparison of the
company's year-over-year performance and are useful in assessing the
company's progress in achieving its long-term financial objectives. This
supplemental information should not be considered in isolation or as a
substitute for the related GAAP measures. A reconciliation of the
non-GAAP measures to the comparable GAAP measures can be found at the
end of this press release.

About The Finish Line, Inc.

The Finish Line, Inc. is a premium retailer that carries the latest and
greatest shoes, apparel and accessories. Headquartered in Indianapolis,
Finish Line runs approximately 930 branded locations in U.S. malls and
shops inside Macy's department stores. Finish Line employs approximately
13,000 associates who connect customers to sneaker culture through style
and sport. Shop online at www.finishline.com
or get access to everything on the Finish Line app. Also keep track of
what's fresh by following Finish Line on Instagram,
Snapchat and Twitter.

Forward-Looking Statements

Statements in this press release, including statements regarding the
proposed transaction between Finish Line and JD, the expected timetable
for completing the proposed transaction, and the potential benefits
created by the proposed transaction, are intended to be covered by the
safe harbor for "forward-looking statements" provided by the Private
Securities Litigation Reform Act of 1995. These forward-looking
statements generally can be identified by use of statements that
include, but are not limited to, phrases such as "believe," "expect,"
"future," "anticipate," "intend," "plan," "foresee," "may," "should,"
"will," "estimates," "potential," "continue," or other similar words or
phrases. Similarly, statements that describe objectives, plans, or goals
also are forward-looking statements. Such forward-looking statements
involve inherent risks and uncertainties, many of which are difficult to
predict and are generally beyond the control of Finish Line or JD.
Finish Line cautions readers that a number of important factors could
cause actual results to differ materially from those expressed in,
implied, or projected by such forward-looking statements. Risks and
uncertainties include, but are not limited to: the failure of the
proposed transaction to close in a timely manner or at all; the effects
of the announcement or pendency of the proposed transaction on the
Company and its business; the nature, cost, and outcome of any
litigation related to the proposed transaction; general economic
conditions; Finish Line's reliance on a few key vendors for a majority
of its merchandise purchases (including a significant portion from one
key vendor); the availability and timely receipt of products; the
ability to timely fulfill and ship products to customers; fluctuations
in oil prices causing changes in gasoline and energy prices, resulting
in changes in consumer spending as well as increases in utility,
freight, and product costs; product demand and market acceptance risks;
the inability to locate and obtain or retain acceptable lease terms for
the company's stores; the effect of competitive products and pricing;
loss of key employees; cybersecurity risks, including breach of customer
data; the potential impact of legal or regulatory changes, including the
impact of the U.S. Tax Cuts and Jobs Act of 2017; interest rate levels;
the impact of inflation; a major failure of technology and information
systems; and the other risks detailed in Finish Line's Securities and
Exchange Commission (SEC) filings. Readers are urged to consider these
factors carefully in evaluating the forward-looking statements.
Investors and shareholders are also urged to read the risk factors set
forth in the proxy statement carefully when they are available.

If any of these risks or uncertainties materializes or if any of the
assumptions underlying such forward-looking statements proves to be
incorrect, the developments and future events concerning Finish Line and
JD set forth in this press release may differ materially from those
expressed or implied by these forward-looking statements. You are
cautioned not to place undue reliance on these statements, which speak
only as of the date of this document. We anticipate that subsequent
events and developments will cause our expectations and beliefs to
change. Finish Line assumes no obligation to update such forward-looking
statements to reflect events or circumstances after the date of this
document or to reflect the occurrence of unanticipated events, unless
obligated to do so under the federal securities laws.

Additional Information for Shareholders

This communication contains statements, among others, relating to the
proposed merger between Finish Line and JD. The proposed merger will be
submitted to Finish Line's and JD's shareholders for their consideration
and approval. In connection with the proposed merger, Finish Line and JD
will file relevant materials with (i) the SEC, including a proxy
statement of Finish Line, and (ii) the United Kingdom Listing Authority
(UKLA) in the U.K., including a circular of JD. When completed, a
definitive proxy statement and a form of proxy will be mailed to the
shareholders of Finish Line, and a circular will be mailed to the
shareholders of JD. This communication is not a substitute for the proxy
statement, circular, or other document(s) that Finish Line and/or JD may
file with the SEC or the UKLA in connection with the proposed
transaction. Finish Line's and JD's shareholders are urged to read
the proxy statement and other documents filed with the SEC and the U.K.
circular regarding the proposed merger transaction when they become
available because they will contain important information about Finish
Line, JD, and the proposed merger transaction itself.
Finish Line's
shareholders will be able to obtain, without charge, a copy of the proxy
statement (when available) and other relevant documents filed with the
SEC from the SEC's website at www.sec.gov.
Finish Line's shareholders also will be able to obtain, without charge,
a copy of the proxy statement and other relevant documents (when
available) by directing a request by mail or telephone to Finish Line,
Inc., 3308 N. Mitthoeffer Road, Indianapolis, Indiana 46235, Attention:
Corporate Secretary, or by calling (317) 899-1022, or from Finish Line's
website at www.finishline.com
under "Investor Relations – Financials & SEC Filings." The information
available through Finish Line's website is not and shall not be deemed
part of this document or incorporated by reference into other filings
Finish Line makes with the SEC. This communication does not constitute
an offer to sell or the solicitation of an offer to buy any securities.

Finish Line, JD, and their respective directors and certain of their
officers may be deemed to be participants in the solicitation of proxies
from Finish Line's shareholders with respect to the special meeting of
shareholders that will be held to consider the matters to be approved by
Finish Line's shareholders in connection with the merger transaction.
Information about Finish Line's directors and executive officers and
their ownership of Finish Line's common stock is set forth in the proxy
statement for Finish Line's 2017 annual meeting of shareholders, as
filed with the SEC on Schedule 14A on June 2, 2017. Shareholders may
obtain additional information regarding the interests of Finish Line and
its directors and executive officers in the proposed merger, which may
be different than those of Finish Line's shareholders generally, by
reading the proxy statement and other relevant documents regarding the
proposed merger, when filed with the SEC.

 
The Finish Line, Inc.

Consolidated Statements of Operations (Unaudited)

(In thousands, except per share and store/shop data)

Fourteen
Weeks Ended
March 3,
2018

 

Thirteen
Weeks Ended
February 25,
2017

 

Fifty-Three
Weeks Ended
March 3,
2018

 

Fifty-Two
Weeks Ended
February 25,
2017

Net sales $ 561,299 $ 557,452 $ 1,838,956 $ 1,844,393
Cost of sales (including occupancy costs) 384,377   395,298   1,306,859   1,295,989  
Gross profit 176,922 162,154 532,097 548,404
Selling, general, and administrative expenses 137,597 128,705 486,484 480,897
Impairment charges and store closing costs 27,912   13,129   36,691   13,312  
Operating income 11,413 20,320 8,922 54,195
Interest (income) expense, net (56 ) 101   (73 ) 279  
Income from continuing operations before income taxes 11,469 20,219 8,995 53,916
Income tax (benefit) expense (4,842 ) 7,919   (5,719 ) 18,760  
Net income from continuing operations 16,311 12,300 14,714 35,156
Net income (loss) from discontinued operations, net of tax 30   (21,771 ) (304 ) (53,364 )
Net income (loss) $ 16,341   $ (9,471 ) $ 14,410   $ (18,208 )
Diluted earnings (loss) per share:

Continuing operations

0.40 0.30 0.36 0.85
Discontinued operations   (0.53 ) (0.01 ) (1.29 )
Diluted earnings (loss) per share 0.40   (0.23 ) 0.35   (0.44 )
Diluted weighted average shares 40,381   40,790   40,339   41,367  
Dividends declared per share $ 0.115   $ 0.11   $ 0.445   $ 0.41  
 

Finish Line store activity for the period:

Beginning of period 566 580 573 591
Opened 1 3 6
Closed (11 ) (7 ) (20 ) (24 )
End of period 556   573   556   573  
Square feet at end of period 3,115,153 3,187,942
Average square feet per store 5,603 5,564
Branded shops within department stores activity for the period:
Beginning of period 378 392 374 392
Opened 4 1
Closed (3 ) (18 ) (3 ) (19 )
End of period 375   374   375   374  
Square feet at end of period 537,030 526,286
Average square feet per shop 1,432 1,407
   
       

Fourteen
Weeks Ended
March 3,
2018

Thirteen
Weeks Ended
February 25,
2017

Fifty-Three
Weeks Ended
March 3,
2018

Fifty-Two
Weeks Ended
February 25,
2017

Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales (including occupancy costs) 68.5   70.9   71.1   70.3  
Gross profit 31.5 29.1 28.9 29.7
Selling, general, and administrative expenses 24.5 23.1 26.4 26.1
Impairment charges and store closing costs 5.0   2.4   2.0   0.7  
Operating income 2.0 3.6 0.5 2.9
Interest (income) expense, net        
Income from continuing operations before income taxes 2.0 3.6 0.5 2.9
Income tax (benefit) expense (0.9 ) 1.4   (0.3 ) 1.0  
Net income from continuing operations 2.9 2.2 0.8 1.9
Net income (loss) from discontinued operations, net of tax   (3.9 )   (2.9 )
Net income (loss) 2.9 % (1.7 )% 0.8 % (1.0 )%
 
     

Condensed Consolidated
Balance Sheets

March 3,

2018

  February 25,

2017

(Unaudited) (Unaudited)
ASSETS
Cash and cash equivalents $ 93,385 $ 90,856
Merchandise inventories, net 321,742 331,146
Other current assets 47,011 69,408
Property and equipment, net 138,562 157,594
Intangible assets, net 68,884 90,303
Other assets, net 5,448   7,161
Total assets $ 675,032   $ 746,468

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities $ 170,571 $ 221,971
Deferred credits from landlords 34,629 32,133
Other long-term liabilities 18,842 40,866
Shareholders' equity 450,990   451,498
Total liabilities and shareholders' equity $ 675,032   $ 746,468
 
 

Condensed Consolidated Statements of
Cash Flows

March 3,

2018

  February 25,

2017

(Unaudited) (Unaudited)
Operating activities:
Net income (loss) $ 14,410 $ (18,208 )
Net loss from discontinued operations (304 ) (53,364 )
Net income from continued operations 14,714 35,156
Impairment charges and store closing costs 36,691 13,312
Depreciation and amortization 52,870 49,376
Other non-cash expenses and changes in working capital (58,488 ) 69,670  
Net cash provided by operating activities - continuing operations 45,787 167,514
Net cash provided by (used in) operating activities - discontinued
operations
31,953   (2,975 )
Net cash provided by operating activities 77,740 164,539
Investing activities:
Capital expenditures for property and equipment (39,358 ) (61,096 )
Payments for intangible assets (10,151 ) (13,688 )
Other investing activities (2,447 ) (7,721 )
Net cash used in investing activities - continuing operations (51,956 ) (82,505 )
Net cash used in investing activities - discontinued operations   (1,659 )
Net cash used in investing activities (51,956 ) (84,164 )
Financing activities:
Net cash used in financing activities - continuing operations (21,755 ) (69,014 )
Net cash used in financing activities - discontinued operations (1,500 )  
Net cash used in financing activities (23,255 ) (69,014 )
Net increase in cash and cash equivalents 2,529   11,361  
Cash and cash equivalents at beginning of period 90,856   79,495  
Cash and cash equivalents at end of period $

93,385

  $ 90,856  
 
 

Reconciliation of Selling, General, and Administrative Expenses,
GAAP to Selling, General, and Administrative Expenses,

Non-GAAP (Unaudited)

(In thousands)

       

Fourteen Weeks
Ended
March 3, 2018

Thirteen Weeks
Ended
February 25, 2017

Fifty-Three Weeks
Ended
March 3, 2018

Fifty-Two Weeks
Ended
February 25, 2017

Selling, general, and
administrative expenses,
GAAP

$ 137,597     24.5 % $ 128,705     23.1 % $ 486,484   26.4 % $ 480,897   26.1 %

Employee severance,
retirement, and other costs

        (338 )   (2,132 ) (0.2 )

Selling, general, and
administrative expenses, Non-
GAAP

$ 137,597   24.5 % $ 128,705   23.1 % $ 486,146   26.4 % $ 478,765   25.9 %
 
 
Reconciliation of Operating Income, GAAP to Operating Income,
Non-GAAP (Unaudited)
(In thousands)
       

Fourteen Weeks
Ended
March 3, 2018

Thirteen Weeks
Ended
February 25, 2017

Fifty-Three Weeks
Ended
March 3, 2018

Fifty-Two Weeks
Ended
February 25, 2017

Operating income, GAAP $ 11,413     2.0 % $ 20,320     3.6 % $ 8,922     0.5 % $ 54,195     2.9 %
Employee severance, retirement, and other costs 338 2,132 0.1
Impairment charges and store closing costs 27,912   5.0   13,129   2.4   36,691   2.0   13,312   0.7  
Operating income, Non-GAAP $ 39,325   7.0 % $ 33,449   6.0 % $ 45,951   2.5 % $ 69,639   3.7 %
 
 
Reconciliation of Income Tax (Benefit) Expense, GAAP to Income Tax
Expense, Non-GAAP (Unaudited)
(In thousands)
       

Fourteen Weeks
Ended
March 3, 2018

Thirteen Weeks
Ended
February 25, 2017

Fifty-Three Weeks
Ended
March 3, 2018

Fifty-Two Weeks
Ended
February 25, 2017

Income tax (benefit) expense,

GAAP

$ (4,842 )   (0.9 )% $ 7,919     1.4 % $ (5,719 )   (0.3 )% $ 18,760     1.0 %
Tax effect of:

Employee severance,
retirement, and other
costs*

130 1,453 0.1

Impairment charges and
store closing costs*

9,822 1.8 5,053 0.9 13,201 0.7 5,125 0.3

Tax Cuts and Jobs Act on
deferred tax liability

10,071   1.8       10,071   0.6      

Income tax expense, Non-
GAAP

$ 15,051   2.7 % $ 12,972   2.3 % $ 17,683   1.0 % $ 25,338   1.4 %
 

* Tax rate used within is 36.0% and 38.5% for March 3, 2018 and February
25, 2017, respectively.

 
Reconciliation of Net Income From Continuing Operations, GAAP to
Net Income From Continuing Operations, Non-GAAP (Unaudited)
(In thousands)
       

Fourteen Weeks
Ended
March 3, 2018

Thirteen Weeks
Ended
February 25, 2017

Fifty-Three Weeks
Ended
March 3, 2018

Fifty-Two Weeks
Ended
February 25, 2017

Net income from continuing operations, GAAP

$ 16,311   2.9 % $ 12,300     2.2 % $ 14,714   0.8 % $ 35,156     1.9 %

Employee severance,
retirement, and other costs,
net of
income taxes

208 679 0.1

Impairment charges and
store closing costs, net of
income
taxes

18,090 3.2 8,076 1.5 23,490 1.3 8,187 0.4

Effect of Tax Cuts and
Jobs Act on deferred tax
liability

(10,071 ) (1.8 )     (10,071 ) (0.6 )    

Net income from continuing
operations, Non-GAAP

$ 24,330   4.3 % $ 20,376   3.7 % $ 28,341   1.5 % $ 44,022   2.4 %
 
 
Reconciliation of Diluted Earnings Per Share From Continuing
Operations, GAAP to
Diluted Earnings Per Share From Continuing Operations, Non-GAAP
(Unaudited)
       

Fourteen
Weeks Ended
March 3,
2018

Thirteen
Weeks Ended
February 25,
2017

Fifty-Three
Weeks Ended
March 3,
2018

Fifty-Two
Weeks Ended
February 25,
2017

Diluted earnings per share from continuing operations,
GAAP

$ 0.40 $ 0.30 $ 0.36 $ 0.85

Employee severance, retirement, and other costs, net
of
income taxes

0.02

Impairment charges and store closing costs, net of
income
taxes

0.44 0.20 0.58 0.19

Effect of Tax Cuts and Jobs Act on deferred tax

liability

(0.25 )   (0.25 )

Diluted earnings per share from continuing operations,
Non-GAAP

$ 0.59   $ 0.50   $ 0.69   $ 1.06
 

Note: See Disclosure Regarding Non-GAAP Measures above.

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