Finish Line's New Plan Is Compelling, If It Works

Morgan Stanley says Finish Line Inc FINL could be back to winning ways, as it believes the plan of new CEO Sam Sato is compelling.

"New FINL CEO Sam Sato's strategy to stabilize operations, build stronger brand relationships, and grow EPS is more compelling than previously thought. Our rating remains EW, but we see upcoming catalysts which could impact our view," analyst Jay Sole wrote in a note.

Sole said the new plan, if it works, should end the series of self-inflicted supply chain mishaps and lead to better same store sales and protection from Amazon.com, Inc. AMZN as it garner better product allocation from key brands like Nike Inc NKE, adidas AG (ADR) OTC: ADDYY) and Under Armour Inc UA.

Related Link: Finish Line Inventories Should Stabilize Earnings Going Forward

Further, the analyst expects long-term margins should rise into the HSD range from the current 5 percent.

Meanwhile, the market debates 1) whether Sam Sato can stabilize operations; 2) will the store remodels work; and 3) can Adidas and Nike both thrive at the same time. The analyst's "gut" feeling says the answer to all three key debates is "yes."

"We model a 5 percent 4-yr. EPS CAGR based on 2 percent annual sales growth, slightly down EBIT margin and 4 percent annual share count reduction," Sole noted.

The analyst said upcoming catalysts include decision on Jack Rabbit, expected sometime during first quarter of FY18 and store remodel progress update sometime during the first half of CY17.

At the time of writing, shares of Finish Line were up 0.36 percent at $22.49.

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