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
Finish Line Q2 2015 Earnings Call – Webcast audio
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.
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.
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.