...to the Finish Line

09/03/2004 12:00 am EST

Focus:

Jessica Chiaverini

Associate Editor, The Prudent Speculator

Another company set to benefit from the Olympic spirit is athletic shoe retailer, Finish Line. Here, two leading advisors The Al Frank Fund's Jessica Chiaverini and Horizon Publishing's Richard Moroneylook at the prospects for the specialty retailer.

"Finish Line (FINL NASDAQ), one of the nation's leading athletic specialty retailers offering the best selection of athletic footwear, apparel, and accessories for men, women, and kids," says Jessica Chiaverini, contributing editor to The Prudent Speculator . "The company operates 553 stores in 46 states and online. In late June, the firm reported impressive results for its first fiscal quarter as diluted earnings per share soared to $0.43 per share, a 54% increase over the year-ago period. Finish Line had great success with its growth plan last year, focusing on premium and exclusive products and an aggressive new store opening plan. The 35% comparable store sales gain in soft goods was accomplished by a shift to greater licensed apparel in all the professional leagues as well as the NCAA. The company is excited about new product opportunities in fiscal 2005, particularly in running, an area that it is already a clear leader. Many brands will be launching updated versions of existing technologies, or new technologies, and the firm believes it is the best place to showcase and introduce many of these new products. Trading for 12 times earnings and 1.6 times book value, while having a debt free balance sheet that also shows about $4 a share in cash, we would be buyers of FINL up to $27.50, based on our liquidity goal price of $55."

Adds Richard Moroney, editor of Upside, "Finish Line’s gross profit margin reached 32.4% in the 12 months ended May—the highest since the 12 months ended May 1998. All three margin metricsgross profits, operating profit margin, and net profit margin have increased for eight straight quarters based on year-to-year comparisons. Apparel generally carries higher gross margins than footwear, and Finish Line devotes a greater percentage of its sales area to clothes than do typical footwear stores. The stock has retreated from its high of $39.38 set in April, partly because of profit-taking. Investors are also concerned about increased competition and difficult near-term sales comparisons. Still, strong profit gains are likely to drive the stock higher over the next six months. For fiscal 2005 ending February, per-share profits are expected to climb 26% to $2.43. The company announced its first quarterly dividend of $0.05 per share, payable Sept. 15. Finish Line also announced a repurchase program for up to 2.5 million common shares, or roughly 10% of the total outstanding. Finish Line is rated as one of our ‘Best Buy’ stocks."

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