Finish Line Earnings Call Insights: Q2 Model, Digital Investment

On Friday, Finish Line Inc (NASDAQ:FINL) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed.

Q2 Model

Taposh Bari – Jefferies: I wanted to ask a couple of questions. It looks like you are not providing second quarter guidance, but in light of the shift in the calendar, I was just hoping to get some more clarity around kind of model of that quarter. So, I know in the first quarter there was a negative spread, can you just give us some context around what that spread should look like in the second quarter and possibly in the back half of the year in terms of sales versus same-store sales? Then in terms of gross margins you clearly got hurt in the first quarter, can you just help us kind of have some more clarity on to how that shift benefits the second quarter gross margins?

Glenn S. Lyon – Chairman and CEO: So, the calendar shift that hurt us in the first quarter for both sales and margin actually helps us in the second quarter. We alluded to this on the March call. It helps us in the second quarter. We lose the first week in June, which is an end-of-season sale week for a sale week for us, so it’s low sales volume, low margin. We pick up the first week in September, which is kind of the back-to-school period, so higher sales volume, better margin. So, again, while it hurt us in the first quarter, it helps us in the second quarter. I would say order of magnitude on the sales side, it helps us by about 100 basis points on the spread. Taposh, just commenting on your question on the guidance, while we came into the year giving guidance for the first time in a long time and we gave guidance not only for the full year but specifically for the first quarter, we did that because we saw that the analyst consensus models were kind of well off where we were headed. So we felt like we had to do that coming into the first quarter. We’re sitting here now in a position and we want to get away from quarterly guidance and stick to annual guidance, so kind of feel comfortable with what’s out there at least for the second quarter and then again feel very confident in our annual guidance, the ability to deliver that 6% to 7% EPS increase and 5% to 6% comp sales increase. So hope that clarifies Taposh?

Taposh Bari – Jefferies: That does. I guess the other question I had was in terms of the calendar shift or the shift on the comp to-date trends in June. Can you just kind of maybe elaborate on that a little bit more? I guess, does that shift out of the month of July, how should we be thinking about kind of a normalized comp run rate for the quarter?

Glenn S. Lyon – Chairman and CEO: Yeah, so my comment with respect to the shift, some sales for May actually went into the month of June, particularly on the digital side. So, there was a Jordon Retro launch at the end of our first quarter period that shifted some of the business into the first week of June for us. We’re very pleased with the start to June, strong start with low double-digit comps; but in my prepared remarks, I was purposeful in making the reference to the Jordan Retro product. We are benefiting in this three-week period with some Jordan Retro products, particularly one product launch more than what we had in the year-ago period that has helped that number.

Digital Investment

Kate McShane – Citigroup: Just to delve on the June month to-date comp question, Ed or Glenn, can you comment at all about trends that you are seeing here in the months? Are there any categories that’s embedded than they did in Q1 or worse than they did in Q1 just from what you see continuing so far?

Glenn S. Lyon – Chairman and CEO: It’s Glenn. Now, basketball and running still strong; basketball continuing to trend up; Jordan continuing to be really good. We did have an extra launch in June. So, there is a positive in this month as we get through the month, but that was just an extra one for the year – for this quarter. So, all good. All new running product has been exciting. We launched Nike+ today and there has been great buzz digitally about that and then the knit shoe comes end of July. The Brooks – this Brooks PureProject has been sensational for us, and it just keeps continuing to evolve. The colors are great and that’s been really – it’s kind of a removal from the past with Brooks being highly technical and this has added a fashion element to it that’s been especially good for the Finish Line. So nothing really changing a whole lot, just good.

Kate McShane – Citigroup: You made a comment on the digital investments that you’ve made, you’ve seen good return so far. Could just elaborate a little bit more on this and in terms of what you’re seeing and how you’re measuring the good returns?

Glenn S. Lyon – Chairman and CEO: Well, I mean, Kate, what I am referring to is now digital, is up to 12% of our sales. We believe as we have said before that this is a high teens kind of a goal that we have set out there. So, all of the investments that we’ve made in the site and in our ability to get customers into the site and process it have been paying off, the service levels have been great, the customer has been talking to us as they do about exceptional service and some exciting, entertaining that we’re doing.

Edward W. Wilhelm – CFO: Kate, in terms of measuring the returns on those investments and we talked about this at our Analyst Day, but I’ll just remind everyone. Our digital business last year had operating margins of 8% and this year, we’re expecting those operating margins to expand to 10% and with the start that we have had in the first quarter, we’re well our way to achieving that target and again, our goal in 2016 is to have this business doing $450 million of sales with operating margins in the mid teens.