Finish Line Q2 2015 Results Earnings Call Transcript

Edited Transcript of Finish Line Q2 2015 Earnings Conference Call..

Company: Finish Line Inc. (FINL)

Event Name: Q2 2015 Results Earnings Conference Call

Date: September 26, 2014 8:30 AM ET

Operator: Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Finish Line second quarter fiscal year 2015 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Mr. Ed Wilhelm, Chief Financial Officer, you may begin your conference.

Ed Wilhelm – Chief Financial Officer

Good morning, everyone, and thank you for joining us. On the call with me today are our Chairman and CEO, Glenn Lyon; and President of the Finish Line Brands, Sam Sato.

Before I get started, I need to remind you that this call may include forward-looking statements involving risks, management assumptions and uncertainties that could cause actual results to differ materially from the statements expressed or implied. Such risks and uncertainties include, but are not limited to, product demand and market acceptance risks, the effects of economic conditions, the effects of competitive products and pricing, the availability of product, management of growth and other risks detailed in our news release and SEC filings.

The forward-looking statements included in this call are made only as of the date of this report, and the company undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances.

I will now turn the discussion over to Glenn.

Glenn Lyon – Chairman and CEO

Thanks, Ed, and welcome everyone. Thanks for joining us this morning. Well, needless to say, we are disappointed on our second quarter performance. While results in our core running business were solid, elements of our basketball offering underperformed versus planned.

Overall, comparable sales increased low-single digits, which were below our expectations.

We had expected comp trends to accelerate in July and August, due in part to an improved product lineup for basketball. However, our brand Jordan assortment in total did not resonate with customers as expected and was the primary driver of the shortfall in the quarter.

I assure you, we have been working diligently with our brand partners to improve our assortments in basketball, as well as to continue to elevate our leadership position in running to get sales back in line with our mid single-digit comp growth expectations.

We are confident we will rebound based on the strength of our consumer and brand relationships, our market-leading position and past experience navigating through similar situations. In a moment, Sam will go into more detail on our category performance and product pipeline for the back half of the year. Before he does, I do want to provide an update on other parts of our business.

First and foremost, our commitment to developing the leading omnichannel business and reinforcing our position as the destination of choice for athletic footwear is as strong as ever. We continue to make solid progress against the long-term vision we’ve outlined for the company, which is rooted in serving our customers whenever, wherever and however they choose to engage with the Finish Line.

The technology and people we’ve invested in are allowing us to create a seamless experience across each of these channels, which in turn is strengthening our consumer connections and driving traffic to our brand. This has been especially true of our digital business, which has experienced strong gains over the past several years.

New mobile app

We recently took the user experience one step further with the exciting launch of our new mobile app, which was designed with our current Winner Circle members in mind, as well as to entice more new customers to join our loyalty program.

The app allows all customers to locate stores closes to them, access customer service representatives by a phone call or on Twitter and keep up with the latest sneaker releases. Winner Circle members can also track their reward points and gain access to unique and exclusive content.

The deployment of our new app represents another exciting step in our consumer facing digital strategy. Data shows customers are using smartphones more frequently than any other device to engage with their favorite brands and we are well positioned to benefit from that growing trend.

Macy’s relationship

On the Macy’s front, by next month we will have substantially completed the rollout of shops as planned. This is a major milestone in the evolution of this exciting relationship. Since opening the first shop a little more than 16 months ago, we have moved swiftly to convert the Macy’s locations that we identified at the outset, while assuming management of the athletic shoe inventory in their other 280 stores.

We’ve incorporated key learnings from the build-out phase, which will benefit future performance, including fine tuning the merchandise mix in stores and on macys.com, as well as optimizing the staffing model.

As we’ve discussed, our strategy behind working with Macy’s was to go after a new consumer, one that didn’t necessarily shop at our existing store base. We have accomplished this goal evidenced by the fact that Finish Line stores at malls that also have a Macy’s shop are outperforming the company average. It has been a solid start to the year for our Macy’s business with sales tracking to the high end of our annual guidance range.

With the store rollout soon to be completed, our teams will be free to dedicate a 100% of their time and resources to driving sales. On top of increasing the productivity of men’s and women’s to enhance assortments and an improved selling culture, kids represents a meaningful expansion opportunities.

Kids is currently offered in approximately 90 shops based on the profile of the Macy’s customer and the early success we’ve had – we’ve seen so far, we believe we can meaningfully increase the penetration of the kids’ business. Our plan also includes deploying aspects of our omnichannel strategy to create a better shopping experience for the Macy’s customer.

Next month, we will test a program that will give visitors to Macys.com access to inventory in approximately 50 of our shops. Based on the results of this test, we look to integrate all shops with the web which will improve inventory productivity and surely drive higher sales.

Running Specialty Group

Turning to the Running Specialty Group. Our vision continues to be to transform the Running Specialty market. But looking at the entire ecosystem that surrounds runners from the shoes they wear to the technology they use. We are focused on efficiently leveraging our vendor partnerships to gain additional market knowledge of our Specialty Running customers to better understand their needs and to provide exclusive product with unique content.

Under leadership of Bill Kirkendall, the business continues to move in a right direction. Since assuming day-to-day control in April, Bill and his team have focused on improving the merchandise assortment to better meet the needs of RSG’s customers and fine tuning the service model based on the best practices of the leading operators that we’ve acquired.

We’ve also begun elevating the business’ marketing tactics, executing more digital programs that allow us to connect with our loyal customer base in a more personalized and frequent manner. We remain in the market for acquisitions and still see an attractive pipeline of potential deals. We continue to be optimistic about the long-term prospects for the Running Specialty Group, especially as the recent restructuring will allow RSG to better leverage Finish Line’s infrastructure to drive growth and profitability in the years ahead.

Before I turn it over to Sam, let me say that while I’m not pleased with our second quarter results, we remain focused on the longer term opportunity we are creating for this business. Our first half performance is on track towards achieving our full-year guidance and we will continue to execute well on the strategic initiatives that will deliver our five-year financial goals.

Sam will now provide more color on merchandise trends and break down our category performance. Sam?

Sam Sato – President, Finish Line Brands

Thanks, Glenn. Q2 was more challenging than we expected. However, there were positives in our business that drove our 1.5% comp increase. Footwear comparable sales increased 2%, with kids leading the way of high single digit and both men’s and women’s were essentially flat. We are pleased with how our running business performed in total during the quarter, which helped offset disappointing results in basketball.

In terms of category performance, running remained strong driven by continued strength from NIKE, including both performance and casual footwear. For the second quarter, running comp increased mid single digit driven by strong performance across many platforms and items. From NIKE 3, 4.0 and 5.0, Lunarglide 6 and Roshe Run, all performed very well as did Brooks Adrenaline and Glycerin, Adidas SpringBlade and Under Armour’s Spine Clutch and SpeedForm.

Many of the upcoming product launches that we referenced on our Q1 call, including Air Max 2015, new versions of Adidas SpringBlade, as well as Under Armour’s SpeedForm are slated for the back half of the year. We expect this product pipeline will bring a lot of excitement to the market during the holiday season as well as fuel positive comps in running over the remainder of the fiscal 2015.

Basketball

Turning to basketball. We experienced solid growth with NIKE signature product like LeBron and KD as well as with performance products such as NIKE Hyperdunk and Zoom Soldier. However, this was not enough to offset softness in parts of our Brand Jordan business. The combined results delivered flat comparable sales.

To break down our Jordan results, Retro continues to be in high demand and sold through well, as did bring back models like True Flight. We are also very excited about new styles like Future Flight that has been extremely well received by our customers. However, other key styles which traditionally represent a meaningful percentage of our basketball revenue did not resonate as strongly as we expected with our consumers.

The basketball category has been a strong performer for some time and represents a meaningful percentage of our total footwear business. Although we are disappointed with our quarterly results, we are confident that there is room for further penetration and view the category’s recent performance more as a bump in the road versus the start of a trend.

Our confidence is based on the strong collaborative relationships we’ve built with our brand partners, which has allowed us to quickly rebound from similar situations in the past. As I mentioned earlier, our kids business performed well during the quarter, comping up high single-digits. NIKE and Brand Jordan were once again the primary growth drivers with New Balance, Under Armour and Puma also positively contributing to our results.

Softgoods

Now to softgoods, where comps returned to positive territory in the second quarter, increasing low single-digits led by accessories. Building off an improving trend in the first quarter, apparel sales accelerated as the second quarter progressed and were up double-digits in August. We saw a great response to our college fleece program, which was one of our key initiatives for back-to-school and the reason we are optimistic about the category’s prospects in the back half of the year.

We still have work to do on the apparel front, but we are in a much stronger position from both a strategy and inventory standpoint to execute our goal of increasing apparel’s penetration of our overall business.

Before I turn the call over to Ed, I want to touch on a few points that have us optimistic about delivering improved results over the remainder of fiscal 2015 and longer-term.

First, our running performance year-to-date underscores our leadership position and momentum is building in several areas within the category. As we outlined on our first quarter call, we’ve experienced meaningful growth in casual running, which contributed positively to our first and second quarter results.

This trend has continued into the third quarter and we believe we are well-positioned from an inventory standpoint to further capitalize on this burgeoning opportunity during the holiday. In addition, key brands in our core running business are set to introduce innovative new styles across multiple platforms in the coming months that will drive added excitement and increased demand.

Second, we are confident that we have our hands around the products specific issues that impacted basketball in the second quarter, and we have worked closely with our brand partners to address the merchandise opportunities for the second half of the year. While it will take some time to replace certain slow moving inventory with fresh receipts to drive better full price selling, we believe we can get basketball comps back into the mid single-digit territory before the end of the year.

With that, I will turn the call over to Ed.

Ed Wilhelm – Chief Financial Officer

Thanks, Sam. For Q2, consolidated sales were up 7.1%. This increase consisted of Finish Line sales that were up 1.5%, sales associated with Macy’s of $50 million versus $30.4 million last year and Running Specialty Group sales of $19.2 million versus $13.9 million last year.

Consolidated gross margin decreased 40 basis points from a year ago to 33.2%. Product margin, net of shrink, was down 10 basis points, as sales mix was negatively affected by lower basketball sales. Occupancy deleveraged by 30 basis points.

Consolidated SG&A expense was 24% of sales, which deleveraged 20 basis points from last year due to lack of expense leverage associated with the 1.5% comp increase at Finish Line.

On a consolidated basis, second quarter adjusted net income and EPS were flat over year at $26.3 million and $0.54 respectively. With respect to cadence, comps at Finish Line were down 2.1% in June, up 0.8% in July and up 4.6% in August.

On the category side, footwear comps were up 1.6% and the softgoods comp was up 1.1%. Footwear ASPs increased 3.7%.

Moving now to our balance sheet. Inventory was up 11.5% on a consolidated basis, driven by increases in our Macy’s business and Running Specialty Group. Finish Line inventories increased 2.7% over last year.

Capital expenditures were approximately $23 million in the second quarter and depreciation expense in Q2 was $9.7 million. We ended the quarter with $191 million in cash. During the quarter we bought back 133,000 shares, totaling $3.6 million and 3.1 million shares remained outstanding on the current board authorized buyback program.

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For Finish Line, we ended the quarter with 647 stores, including 4 openings and 2 closings. Our second quarter count for Macy’s stores with branded shops was 370. For the Running Specialty Group, we ended with 58 stores.

Now moving to our full year earnings outlook, which calls for a high-single to low-double-digit increase in EPS from adjusted EPS of $1.66 in fiscal 2014. Given our year-to-date performance, we are now more comfortable with the low-to-midpoint of that earnings growth rate. As we look to the back half of this year, we expect Finish Line comps to increase mid-single digits and product margins to be down in both Q3, and, as previously stated, in Q4.

As a result, our second half earnings growth will be driven by Q4, with Q3 expected to be challenged by sales and gross margin pressure at Finish Line. Comps to-date in September are up high-single digits and have been positively impacted by an increase in basketball sales, with specific strength coming from the Jordan Retro 14 Sneaker.

I will now turn the call back to Glenn for his closing remarks.

Glenn Lyon – Chairman and CEO

So as Ed just outlined, September comps have accelerated from second quarter levels, driven in part by the launch of several key basketball styles. Our month-to-date performance reaffirms our belief that the second quarter was no more than a blip on the screen. It also gives us confidence that we can achieve our guidance of a mid-single-digit comp increase for the second half of fiscal 2015.

Looking further out, we are as optimistic as ever about the long-term prospects about the multidivisional omnichannel business we are building and remain confident that we can deliver sustainable growth and increased shareholder value for years to come. Operator, we’re now ready for questions.

Question-and-Answer Session

Operator: (Operator Instructions) Your first question comes from the line of Sam Poser with Sterne Agee. Your line is open.

Sam Poser – Analyst, Sterne Agee

Good morning. Thank you for taking my call. I have actually got — I just wanted to verify something and then I have another question, just two things. Number one is, is the Finish Line brick and mortar, what were the comps for that? You said 1.5% increase, but was that a total number?

Ed Wilhelm: Yeah, the 1.5% increase is a total number, Sam. Brick and mortar comps for the quarter were down low-single digits and digital comps were up strong double digits.

Sam Poser – Analyst, Sterne Agee

Okay. And then secondly, I just lost it, let me come back on. I apologize.

Operator: Your next question comes from the line of Paul Trussell with Deutsche Bank.

Paul Trussell – Analyst, Deutsche Bank

Good morning. A question about basketball. Clearly, the September results being up high-single digits suggest that the category is doing well. Certainly, the leading vendor in that category had suggested that the category is doing well. So if you can just go back and connect the dots a bit for us to help us better understand what happened in 2Q from a product allocation standpoint? Were you unhappy perhaps with the mix? What changes in the assortment within basketball? Are you trying to alter as we move towards the second half?

Again, is there an allocation issue in terms of inventory? And also, if you can just help me understand the balance of in-store versus online distribution of your basketball product? Often I find, for example, the Ferrari Jordan Retro 14 last month was only available online, which obviously is going to negatively impact your store traffic on that weekend. So how do you think about that mix between stores and online with basketball going forward? Thanks.

Glenn Lyon: Paul, this is Glenn. First of all, no style do we ever just put online. Style like that is always in the stores and online. But first, let me clarify September because there is additional receipt in there — additional launch. That ‘14 is not comping anything. So that helped our sale by maybe 300 to 400 basis points for the beginning of the quarter. However, first result of September still stronger than what we experienced in the second quarter.

In terms of the question about allocations in Jordan and so on, I have had the good fortune of working here for 12 years. I think that adds up to 48 quarters and 144 months. I have said before that I have never been part of a more consistent, successful business and partnership than we have with NIKE in general and Jordan in particular. We made some errors in judgment and the assortment that we put together in collaboration with our partners at NIKE. It didn’t work in this quarter, a blip on the screen.

When we added up at the end of the year, we will have had another record performance is what I’ll stake my reputation on. This is not about allocation. Nothing has changed in the relationship, nothing has changed in the allocations of key style. This was an assortment blip in what we put together.

Sam Sato: Paul, this is Sam. Let me give you a little bit of color, maybe one clip lower than Glenn’s comment. He is absolutely correct. The allocated part of the business specifically Retros were not the issue at all. In fact, we’ve got our normal and planned allocations. We were pleased with them. The product sold through as we expected and demand remained extremely high.

Key items from our performance and off-court category that represents over half of our basketball revenue did not sell through as we expected and that was the lion share of what drove our disappointing results in basketball.

Paul Trussell – Analyst, Deutsche Bank

Okay. That’s helpful. And then it was mentioned that Macy’s was still running towards the higher end. I believe of the sales plan. If you can just give us an update on profitability expectations for this year? And as we kind of approach the end of the rollouts of shops. Ed, if you can help us better understand the CapEx associated to the Macy’s buildout? I believe it was about 15 million or so this year, how should we think about that CapEx amount next year?

Glenn Lyon: So coming into the year, Paul, we expected Macy’s to do top line, 175 million to 195 million. And as we’ve said, based on performance in the first half, we’re tracking towards the high end of that sales range. On the profitability side for this year, we expected Macy’s to be modestly accretive and we’re going to achieve modestly accretive business for Macy’s this year.

And completing the shop rollout next month, really as we indicated in our prepared remarks gives us resources and now focus fulltime on maximizing sales and taking care of those customers in driving these additional opportunities like kids and in macys.com. So the CapEx requirements for the business will be largely behind us after this year. We are spending about $15 million to $16 million this year to complete the rollout of our shops. And as we look to next year any CapEx for Macy’s will be modest in comparison to that number this year.

Operator: Your next question comes from the line of Robbie Ohmes with Bank of America Merrill Lynch. Your line is open.

Robbie Ohmes – Analyst, Bank of America Merrill Lynch

Hey, a couple of quick follow-up questions. The first question is on, are there — do you have a sense that any of your competitors might have made some mistakes with some of their key items they chose in the performance and off-court portion of the business? And how do you feel about competitive promotional activity as you look into fall or September or into holiday?

And then the second question is, could you remind us how you allocate or how the allocation process works between your own stores and Internet versus what you can find in your Macy’s stores? And if there are any differences there in terms of how you felt about the performance of Macy’s versus your own stores? Thanks.

Sam Sato: Robbie, good morning. This is Sam. So let me clarify something about the assortments, again going back to brand Jordan, I would maybe rephrase it a little bit differently. It was less of a mistake. It was more around we took a position on some key items. Again, that based on the categories drive a significant part of our revenue and they just didn’t sell through like we expected.

The good news is some of the products that were introduced in Q2 for brand Jordan that are a new design direction, sold through extremely well, like Future Flight as I mentioned in my prepared remarks, that becomes a greater share of the offer as we move into the back of the year. So that gives us confidence especially as we move into Q4 and more of that product hits the marketplace.

Robbie Ohmes – Analyst, Bank of America Merrill Lynch

And so just to clarify, so you took position on some key items. Were they very exclusive to Finish Line or are there others out there that sell NIKE Sneakers as well that might have similar key items that saw the same type of weak sell-through, so that they would be trying to get out of that while you are is kind of the crux of my question?

Sam Sato: Yeah. It’s not exclusive to Finish line and really don’t have insight into how the market sold through some of those items, not at this point. I think we’ll see that as we watch pricing in the marketplace and whatnot, that will give us an indication in terms of their sell-throughs, but obviously for us did not sell through as planned expectation. So that was the lion’s share of the shortfall.

Robbie Ohmes – Analyst, Bank of America Merrill Lynch

Got it. That’s very helpful. And just the other questions, which is reminding us some on the Macy’s and how you think about the product in those stores versus the Finish Line stores and sort of what the differences were last, this past quarter in performance or response to the assortments?

Sam Sat: So Macy’s, as you know, we’re targeting a different consumer. We’re really putting a lot of effort against this authority they have with the female consumer specifically. Our women’s business, men’s, and kids, all three are above planned, but we’ve got a very, very purposeful strategy around capturing a big share of the women’s business and leveraging their authority and expertise there.

It’s really more about as we learn more and we’re getting better and better at putting the right types of products in there, I will tell you that it’s been great from a women’s perspective that we are driving a lot of growth through the running category, which not only is the market leadership position for Finish Line brand, but something that we know whole heck of a lot about. So we’re pleased with what’s going on there. Glenn mentioned, I would be remiss if I didn’t underscore this opportunity around the kid’s business. We are only in 90 shops today and we think that there is a tremendous opportunity for us to improve that business as well.

Operator: Your next question comes from the line of Mitch Kummetz with Robert Baird.

Mitch Kummetz – Analyst, Robert Baird

I guess I got two. If you could just elaborate on your comments around back half earnings, particularly as it relates to gross margin. I mean, it sounds like you expect the back half earnings growth to come in Q4, I think that was a gross margin situation for that. And just how does that kind of — how should we think about the product margins in the back half, because I would imagine on a better comp you would probably see better results on the occupancy side, but maybe it’s the product margins that are weak and that’s the kind of Q3 issue?

Ed Wilhelm: Yeah. So, Mitch, we said, back half performance, the growth in EPS that we are expecting will come in Q4. From a product margin standpoint, we expect product margins in Q3 to be down and our expectations for product margins in Q3, previous to this quarter was that they were going to be up, so directionally that’s the change and that change is a result of the time that is going to take to work through slow moving inventory that we are working through to get the fresh receipts in and with a lot of that pointing toward holiday, which will be more impactful on Q4.

So Q4 we said last quarter to expect product margin decline, primarily because of the difficult compare that we have last year. So, again, comps kind of strengthening throughout the back half with particular strength in Q4, product margins strengthening throughout the back half and we will get SG&A leverage more weighted towards Q4, which will in part drive that earnings growth.

The other thing to note in terms of our back half with the Macy’s rollout being completed in next month, essentially, the costs related to hiring and putting in place shops will be largely behind us and that will set ourselves up in Q4 for stronger Macy’s topline and bottom line.

Mitch Kummetz – Analyst, Robert Baird

And then just real quickly, can you give us comp performance in the quarter for RSG and Macy’s? And then also maybe talk a little bit about performance men’s versus women’s in the quarter?

Ed Wilhelm: Yeah. So, comp performance at RSG was down mid-single digits, which is a sequential improvement of where we were in the first quarter, but certainly not where we want to be. The team there continues to work on executing assortment improvements, improving the service model and improving our community marketing spend, and also driving our digital business. So our expectations for RSG is that that will continue to improve throughout the year.

In terms of Macy’s, again, we’re tracking towards the high-end of the sales range. We see strong increases in sales as we convert from an unbranded shop to a branded shop and then we see continued ramping up sales, once we put the branded shop in place. So we are feeling very good about that business and tracking towards the high-end of the sales guidance range for the year.

In terms of like-for-like sales it is just not meaningful in our opinion to kind of talk about a handful of stores. So, but what’s most important to us is that we are tracking towards the high-end of that sale range, which will then lead us to our long-term goal here, which are $250 million to $350 million at Macy’s.

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Mitch Kummetz – Analyst, Robert Baird

Okay. Sam, anything on men’s versus women’s?

Sam Sato: You are talking about at the Finish Line business?

Mitch Kummetz – Analyst, Robert Baird

Yeah.

Sam Sato: As I said, in my prepared remarks, men’s, women’s both flat in total. And Kids, yeah, kids up high-single digits.

Operator: Your next question comes from the line of Jeff Van Sinderen with B. Riley.

Jeff Van Sinderen – Analyst, B. Riley & Co.

Good morning. I wonder if you can just give us a little better sense of the inventory situation. I think you said inventory for Finish Line was up $2.7 or something along those lines. And I am just wondering, since you mentioned basketball being or the soft part of basketball, weak part being roughly half of your basketball assortment. I am just trying to get a sense of how much of your inventory is not good or you are going to have to be promoting or discounting? And when do you see getting through that process? Is that over in Q3 or does that extend into Q4? Any color on that would be helpful.

Glenn Lyon: Hey, Jeff, this is Glenn. Over the years, Sam has built a model that has moved our inventory turns up over three times a year. So, and we face the problems that we have with the proper immediacy relative to its position in the marketplace. So this is a three to four-month blip on the screen and we will clean this up. Our age of our inventory is in good shape as ever and this is a piece of the inventory that’s got to be cleaned up, marked down and moved through over the next 60, 90 days.

Jeff Van Sinderen – Analyst, B. Riley & Co.

Okay. And then, I know you mentioned that you’re brick-and-mortar comps were down for Finish Line and I’m just wondering based on the guidance you’re giving, are you expecting a brick-and-mortar comp for Finish Line to turn positive in the second half? And I guess, the question there would be what do you see driving that and obviously I would think that you would expect your digital comp streaming positive. Can you just….

Glenn Lyon: Yeah. So the mid single digit comp in the back half of the year would be comprised of continued strength in the digital business, a very strong double-digit growth in our digital business as well as an improving trend in brick and mortar. So low single-digit positive like performance.

Operator: (Operator Instructions) Your next question comes from the line of Steven Strycula with UBS.

Steven Strycula – Analyst, UBS

So question, one more question on basketball. It seems like the implied comp miss was about 2 to 3 percentage points. On the backout math, it feels like basketball might have been down as much as double digits for the quarter. Can you comment on that and regarding for the fourth quarter that basketball will kind of exit the year at a 5% comp rate? Does that mean that it’s currently below the current industry growth rate, just wondering when you’ll grow back in line with your overall basketball category?

Glenn Lyon: Steve, just to clarify our basketball comps were flat in the quarter. So it’s implied to be strengthening throughout the back half of the year as Sam talked about in his prepared remarks. So tracking towards that mid single digit or better comp range for the back half of the year with a lot of that strength coming in Q4.

Steven Strycula – Analyst, UBS

And then with the running category or with the total footwear ASPs being up about 3% in the quarter, can you talk about how you view specifically the running category. There has been a lot of market place concern that the Roshe might be degrading the overall category price point but it seems like you guys are performing quite strong there. So can you provide some better color?

Glenn Lyon: So ASPs, footwear ASPs were up 3.7% in the quarter and a lot of that was driven on the strength of the running category, certainly products like 3 and Lunarglide performed well. But Roshe was a strong contributor as well and it helped to drive that ASP increase for us.

Operator: Your next question comes from the line of Camilo Lyon with Canaccord Genuity.

Camilo Lyon – Analyst, Canaccord Genuity

Given the commentary on basketball, why shouldn’t we think that that’s more symptomatic of traffic shifting away from Finish Line doors to some of your competitors that might have a better overall basketball assortment. What have you seen that makes you confident that that’s not the case?

Sam Sato: Camilo, this is Sam. So our analogy is couple of things. One, as Glenn said we’ve had a long and consistent run with Brand Jordan in particular. The basketball business primarily made up of Brand Jordan is a significant, over half of our business is Brand Jordan. And this was really based on a couple of big items within limited categories that that just didn’t perform to our expectation. All of the other pieces of our basketball business like Retro’s, like Bringback models, like True Flight, future models, future design by Future Flight, sell-throughs on signature product from NIKE like KD and LeBron continues to show us that we are a meaningful player in the basketball business. But we’ve built a solid business with Brand Jordan beyond just Retro’s that that just didn’t performed to our expectation.

Camilo Lyon – Analyst, Canaccord Genuity

So you’re seeing similar rate of discounting on those particular styles of basketball across the landscape?

Sam Sato: We are.

Camilo Lyon – Analyst, Canaccord Genuity

And then just my final question on Macy’s, does the inclusion or the extension opportunity in kids and online – actually to the online inventory in store. Does that increase your overall long-term sales target that you have $250 million to $350 million?

Glenn Lyon: The digital piece of it’s especially as we’ve seen the response of the Macy’s customer to our digital assortments and the fact is that they can only fulfill that through our warehouse, which is only about 80% of what we do with the Finish Line and fulfill through our warehouse versus our stores. That is a significant opportunity in dollars. The kids’ is a little bit different than the men’s and woman’s because even if kids’ is great in the store, the service model is more challenging.

So it’s a combination of including kids’ in some of the shops that exists where we would be talking to our partners at Macy’s about expanded departments across the three genders, or some sort of a model in the kids’ world where the service would be support — helped by Macy’s. So there is still some strategies to go through and I would say to you clearly the opportunity on the digital side is a big deal and could change the dynamic of it.

Camilo Lyon – Analyst, Canaccord Genuity

Any way to frame what the incremental of that could be from that?

Sam Sato: It’s too early to tell. We’ve got a pilot starting next month. So the only frame of reference, we have is knowing what it did to the Finish Line and it really accelerated digital sales, allowed us to turn our inventories faster and improve gross margin. So we’re expecting those kinds of benefits as we get into this, with our Macy’s business.

Operator: Your next question comes from the line of Christopher Svezia with Susquehanna Financial Group.