Finish Line Inventories Should Stabilize Earnings Going Forward

UBS says the second half earnings of Finish Line Inc FINL should stabilize given clean inventory in the second quarter.

The company expects third quarter same-store sales to be +HSD. That said, consensus models already expect solid third quarter same-store sales.

However, the brokerage remains Neutral rated as the company's solid product cycle could be offset by store closure overhang.

"[W]e see some emerging industry dynamics that could be incremental LT headwinds for FINL: 1) Macy's closing 100 doors (FINL is in 391 of Macy's 728 stores), & 2) Our concerns about FINL's hopes to retain sales in markets where it will be closing 25% of its stores," analyst Michael Binetti wrote in a note.

Moreover, the analyst noted that Finish Line's largest vendors have all built strong ecommerce businesses in recent years.

UBS was surprised to see negative store traffic and conversion in the second quarter, despite being positive over the recent fashion trend shift to casual athletic that should help retailers like FINL drive better frequency to stores this fall/holiday.

Further, the company made optimistic comments on the pipeline of technical running product (a core category) coming in Spring/Summer 2017.

Binetti raised his price target to $23 from $20 on second quarter comp beat and reiteration of FY 2017 guidance.

At time of writing, share of Finish Line were up 0.44 percent to $22.71.