As Finish Line's Q1 Earnings Approach, Some Concerned Top-Line Pressure In Athletic Retail Is Mounting

Piper Jaffray senior research analyst Erinn Murphy is taking a more cautious stance on Finish Line Inc FINL as she maintains her Neutral rating but lowered her estimates.

Murphy specifically cited a lack of comp money for retailers, negative impacts on margins from supply shortages, inactive loyalty members (flat year over year) as reasons to be concerned. This could drive down EPS growth according to Murphy (see Murphy's track record).

Is Athletic Retail At An Inflection Point?

Murphy sees mounting pressure against top-line athletic footwear and apparel retailers. “If the industry grows +LSD/MSD %, there simply is not enough dollar growth to go around for the retailers if vendor DTC businesses continue on (or even weaken from) their current trajectory,” Murphy said.

Basically, she thinks the best-case scenario is for same-stores sales to be flat over the coming years, and this would expose numerous flaws for Finish Line. In an analyst note on Nike Inc NKE, Murphy stated she sees an inflection point to be farther out than initially anticipated.

Piper Jaffray Sees Several Concerns Ahead

Murphy noted the fashion transition from Nike to Adidas footwear products could create possible execution risks for retailers like Finish Line. With current supply constraints, this further increases that concern. Additionally, Nike style reductions could "lower athletic retailers' competitive moat and lower the number of exclusives over time."

Finish Line was trading down nearly 4 percent during Monday's trading session and has an earnings meeting on June 23.

Related Links:

Finish Line, Down 18%, At Lowest Level Since August 2010