Finish Line Inc. (NASDAQ:FINL) is a retailer that I think you absolutely must know about if you do not already. Its steady growth continues to impress me. For those who are not aware of this growing company, it operates as a specialty retailer of athletic shoes, apparel, and accessories in the United States. It operates branded Finish Line stores that offer performance and athletic shoes, as well as apparel and accessories for men, women, and kids. What some who know the Finish Line brand may not realize is that the company also operates Running Specialty stores under The Running company, Run On!, Blue Mile, Boulder Running company, Roncker’s Running Spot, and VA Runner banners, which provide performance running shoes, as well as an assortment of performance apparel and accessories for men and women. In addition, Finish Line sells merchandise through its websites finishline.com and run.com.
As of April 25, 2014, it had approximately 850 stores, including 200 shops in Macy’s (NYSE:M) in malls in the United States and 49 Running Specialty stores across 11 states and the District of Columbia. After another impressive quarter, I am initiating coverage and my perspective is that this stock is a buy.
What do you need to know? Well, the quarter was pretty strong in most regards. The company beat on the top and bottom lines, the latter substantially. Consolidated net sales were $406.5 million, an increase of 15.8 percent over the prior year period. Finish Line comparable store sales increased 5.0 percent. On a GAAP basis, diluted earnings per share increased to $0.25 from $0.10 in the prior year. Non-GAAP diluted earnings per share, which excludes the impact of impairment charges in the current year and the impact of start-up costs related to the launch of the company’s operations in Macy’s in the prior year, increased 40.0 percent to $0.28 compared to $0.20 in the prior year.
What’s more, at the end of the quarter Finish Line’s consolidated merchandise inventories increased 0.8 percent to $295.0 million compared to $292.6 million as of June 1, 2013. Further, Finish Line joins a slew of companies in repurchasing shares at what management feels are a discount. The company repurchased 700,000 shares of its common stock in the first-quarter, totaling $18.7 million. The company also still has 3.2 million shares remaining on its current Board authorized repurchase program. I like the balance sheet, too. The company had no interest bearing debt and $196.6 million in cash and cash equivalents at the end of the quarter, compared to $195.9 million in the prior year. Glenn Lyon, Chair and Chief Executive Officer, stated:
We are very pleased with the strong start to fiscal 2015 we delivered in the first-quarter. The integration of our store and digital operations is allowing us to deliver great product and service to consumers in a seamless fashion no matter what channel they choose to shop. At the same time, we are reaching new consumers and expanding market share through our growing relationship with Macys. We are confident that our multidivisional, omnichannel strategies will strengthen our market position and drive growth in sales and earnings, allowing us to return increased value to our shareholders in the years ahead.
So where do we go from here? We have a stock that trades at 18 times earnings and pays a 1.4 percent dividend yield. Clearly the growth is there. Although the stock is up 37.5 percent in a year it can climb higher. It is not trading at a premium valuation but perhaps it deserves to be. Looking ahead, for the fiscal year the company still expects comparable store sales to be up mid single digits and earnings per share to increase in the high single to low double digit range over fiscal year 2014 non-GAAP diluted earnings per share of $1.66. This is growth that I think should be in the specialty retail allocation of your portfolio. I have a buy rating on the stock and a $35 price target.
Disclosure: Christopher F. Davis hold no position in Finish Line and has no plans to initiate a position in the next 72 hours. He has a buy rating on the stock and a $35 price target.
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