Buckingham: Finish Line's Q3 Could Be 'Positive Read-Through' For Foot Locker

Finish Line Inc FINL reported a narrower-than-expected loss of 26 cents per share on net sales of $378.5 million in third-quarter results Thursday. 

The retailer raised its fiscal 2018 earnings per share guidance, citing the third quarter outperformance; the earnings per share guidance for the fourth quarter, including the holiday season, is in line with the consensus.

The Analyst

Buckingham Research Group analyst Scott Krasik reiterated an Underperform and $7 price target on shares of Finish Line.

The Thesis

Finish Line banked on promotions throughout the quarter to keep inventories clean, which hurt gross margins, Krasik said in a Thursday note. (See the analyst's track record here.) 

Gross margins contracted 100 basis points in the quarter.

Krasik viewed the results with caution, as the company's fourth-quarter guidance implied an expansion in gross margins — even as it said industry promotions will be at an all-time high.

Finish Line is more exposed to competitive risk, given Amazon.com, Inc. AMZN's foray into the category in a more direct way, Krasik said. This is due to Finish Line's assortments being less differentiated, the analyst said. 

Buckingham Research Group sees the better-than-expected sales trend relayed by Finish Line as a positive read-through for peer Foot Locker, Inc. FL.

Buckingham's estimates and price target were under review pending Finish Line's Thursday earnings call, Krasik said. 

The Price Action

Finish Line shares were down about 38 percent for the year-to-period ahead of the results.

Traders have bid up the stock after the quarterly report, with the shares of the athletic footwear retailer up 12.57 percent to $13.16 at last check.

Foot Locker was up 3.28 percent at $47.80. 

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