Finish Line Has 'Few Catalysts,' Canaccord Says In Its Downgrade

Finish Line Inc FINL reported disappointing FQ3 results mainly due to a significant decline in soft goods comps. The apparel comp drag is likely to continue through the first half of 2017, and there seem to be few catalysts to drive the company’s shares, Canaccord Genuity’s Camilo Lyon said in a report.

Lyon downgraded the rating on the company from Buy to Hold, while reducing the price target from $25 to $22.

Disappointing Results

Finish Line reported its FQ3 comps at 0.7 percent, significantly missing the Canaccord estimate of 8.5 percent. EPS came in at -$0.24, which was also meaningfully short of the Canaccord estimate of -$0.17. Although footwear generated high-single-digit comps in the quarter, the earnings shortfall was driven by a 37 percent decline in soft goods comps.

“At issue is the drag on slow-selling apparel that will necessitate higher levels of promotions to clear out the slow-turning product,” Lyon wrote. He added that the apparel drag was “ill-timed,” since footwear was comping well, Macy's Inc M generated significantly higher-than-expected sales growth of 33 percent and the early remodels were “yielding positive results.”

Finish Line has the potential to achieve a turnaround in the back half of 2017 “assuming the apparel strategy (~4 percent of mix) is sorted out,” the analyst mentioned.