Athletic footwear retailer adopts poison pill; lowers guidance

The Finish Line's board on Monday adopted a shareholders rights plan as the retailer warned of a grim second quarter and a steep decline in sales and profits for the year.



"The board believes that it is in the best interests of Finish Line and our shareholders to adopt a shareholder rights plan given the current market conditions and recent share accumulations,” said Glenn S. Lyon, chairman of Finish Line. “The plan is designed to ensure that the company’s board of directors is able to appropriately consider whether proposals, if any, are in the best interests of all our shareholders. The company remains positioned to fully capture the opportunities we foresee to optimize value for all our shareholders.”



Sports Direct International, a U.K.-based sporting goods retailer, recently increased its interest in Finish Line from 7.9% — as reported in a filing in April — to 17.4%, according to Footwear News. Sports Direct operates 700 stores in the U.K. and continental Europe, and 80 premium lifestyle stores in the U.K., along with a portfolio of brands that include Everlast and Kangol. In June, it acquired Bob's Stores and Eastern Mountain Sports out of bankruptcy.



The rights plan adopted by Finish Line has an expiration date of August 28, 2020, or earlier if shareholder approval of the plan has not been obtained at or before the company’s 2018 Annual Meeting of Shareholders



The move comes on the same day that the retailer announced disappointing preliminary results for its second quarter, ended August 26, 2017, and cut its outlook for the fiscal year ending March 3, 2018. For the second quarter, consolidated net sales fell 3.3% to $469.4 million, driven by a 4.6% decrease in Finish Line same-store sales.



Based on the decline in sales and pressure on gross margin from increased markdowns, the company expects to report second quarter earnings per share in the range of $0.08 to $0.12. The company now expects Finish Line comparable sales to decrease 3% to 5% for the year versus its previous guidance for an increase in the low-single digit range.



Adjusted earnings per share are now expected to be in the range of $0.50 to $0.60 for the 53-week fiscal year ending March 3, 2018, versus the previous guidance range of $1.12 to $1.23, and compared with adjusted earnings per share of $1.06 for the fiscal year ended February 25, 2017, which was a 52-week year.



“We believe it is prudent to adjust our outlook as we expect the environment to remain highly competitive and promotional throughout the remainder of the year," said Sam Sato, CEO, Finish Line, which runs approximately 950 branded locations in U.S. malls and shops inside Macy’s department stores. "In light of our disappointing second quarter results and revised projections for fiscal 2018, we will remain very disciplined in managing our expenses and inventories throughout the remainder of the year."



Sato said the company is making good progress "rightsizing" its business to better compete in the current environment.



"In the past 12-months, we’ve made a number of changes that have created a more nimble organization and generated approximately $6 million in annualized savings, and over the past two years we’ve closed approximately 80 underperforming stores," he said. "We remain steadfastly focused on executing our strategic plan to drive increased shareholder value over the longer term.”



The Finish Line's disappointing results echo those of its rival Footlocker. On Aug. 18, the retailer reported a 4.4% drop in net sales, to $1.7 billion, and a 6.6% drop in same-store sales for its second quarter.