Finish
Line's slump draws investor ire
For nearly three years, The Finish Line was a darling
of Wall Street.
The specialty retailer of athletic and leisure footwear
had strong sales, low debt and a soaring stock price.
But a shift in consumer tastes, from performance shoes
to trendy, fashionable footwear, is denting the Indianapolis
company's success.
Same-store sales, a key industry measure, have fallen
in recent quarters. The company's stock price has slumped
32 percent this year, setting off alarm bells for at least
one New York shareholder.
The Clinton Group, a hedge fund that owns 5.1 percent
of the company's shares, says if share prices continue
to dip, Finish Line should explore strategic alternatives,
including going private or selling the company.
Clinton also wants Finish Line to discard its dual-class
voting structure, under which company insiders control
56 percent of the overall voting shares, but only 11 percent
of the economic interests.
The hedge fund outlined its case in a letter to Finish
Line management, which was included in a filing Friday
with the Securities and Exchange Commission.
The news gave a slight boost to its stock. Finish Line
shares traded at $11.94, up 83 cents.
Clinton Group did not return calls seeking comment on
the filing. Finish Line, which also owns Man Alive hip-hop
apparel stores and Paiva upscale women's apparel stores,
declined comment, citing a quiet period before its earnings
release on Thursday.
Alan Cohen, Finish Line CEO, in earlier presentations
this year attributed the company's sliding performance
to "significant weakness" in women's performance
running shoes.
It's a trend that's plaguing the whole industry, experts
say. Die-hard athletes buy only 5 percent of performance
footwear. The rest ends up dressing the feet of fashion-conscious
teens and professional women.
"Specialty footwear stores haven't really had a
strong year," said Tom Doyle, vice president for
information and research at the National Sporting Goods
Association. "It's just the whims of the marketplace,
and this shift doesn't mean a company is in bad shape."
What's making the road especially bumpy for Finish Line
is its upbeat performance leading up to the slump this
year.
In 2002, Finish Line benefited from a tussle between
footwear giant Nike and rival athletic retailer Foot Locker.
As a result of the spat, Nike began launching new shoes
exclusively at Finish Line stores, at a time when women
and girls took a fancy to athletic shoes.
Now, Finish Line is struggling to catch up to the trend
away from athletic shoes toward fashionable footwear such
as designer shoes and flip-flops, experts say. Finish
Line officials are already working on righting the merchandise,
analysts say.
"It's important to understand that most of the problem
is due to the wrong merchandise in the store," said
John Shanley, a senior analyst with Susquehanna Financial
Group. "When a retailer makes a fashion bet and the
market doesn't agree, you may lose a quarter or two as
long as the fundamental premise of the business is healthy."
As for Clinton's demands that Finish Line consider strategic
alternatives, several analysts said it's not something
the company needs to worry about. Clinton controls a small
number of shares, not enough to cause major changes.
"It was a little bizarre," said Shanley, of
Susquehanna Financial Group. "It's not like if Finish
Line doesn't do something, they will take over. Quite
frankly, they can't."
Experts continue to be enthusiastic about Finish Line's
other chains, include Man Alive and Paiva. Analysts say
they also have faith in the company because it continues
to have low debt, generates a healthy amount of cash,
and has a management team that's steady and conservative.
"The prospects are very good long-term for Finish
Line," said Jeff Van Sinderen, an analyst with B.Riley,
a California-based research, trading and investment banking
firm. "It's going to be a very compelling turnaround
story."
