Finish Line Reports Third Quarter Fiscal Year 2016 Results

Company Announces CEO Transition Plan, Store Profitability
Improvement and 11% Quarterly Dividend Increase; Revises Full Year
Guidance

INDIANAPOLIS–(BUSINESS WIRE)–The Finish Line, Inc. (NASDAQ: FINL) today reported results for the
thirteen weeks ended November 28, 2015.

For the thirteen weeks ended November 28, 2015:

  • Consolidated net sales were $382.1 million, a decrease of 3.5% over
    the prior year period.
  • Finish Line comparable store sales decreased 5.8%.
  • Diluted loss per share was $(0.49).

“Our third quarter performance was severely impacted by a disruption in
our supply chain following the implementation of our new warehouse and
order management system,” said Glenn Lyon, Chairman and Chief Executive
Officer of Finish Line. “Specifically, in October, we began experiencing
issues flowing fresh inventory into our stores as well as fulfilling
online orders as the new system was unable to process freight at volumes
necessary to support our sales plans. We worked quickly to address the
disruption in our system and improve our operating capabilities,
increasing technical and operational resources including third party
experts. We have achieved a pickup in sales trends as the quantity and
quality of our inventory improved in recent weeks. Fourth
quarter-to-date comps for Finish Line, which include the fiscal month of
December ended January 2, 2016, were up 6.2%. We anticipate that we’ll
return to a stable operating environment during the first quarter and we
will start leveraging the multiple benefits from our supply chain system
enhancements,” he added.

The company estimates that the total impact of the supply chain
disruptions on third quarter bottom line was a loss of $0.42 per share
which includes $32 million in lost sales combined with margin pressures
and additional SG&A expenses to correct the issues and improve operating
capabilities.

Balance Sheet

As of November 28, 2015, consolidated merchandise inventories increased
4.0% to $414.6 million compared to $398.6 million as of November 29,
2014. The increase in inventories was driven by a substantial increase
in receipts during the last week of the quarter. This was partially
offset by an average inventory decline of 14% throughout the quarter as
the result of the supply chain disruptions.

The company repurchased 500,000 shares of common stock in the third
quarter, totaling $9.7 million. The company has 4.3 million shares
remaining on its current Board authorized repurchase program.

As of November 28, 2015, the company had no interest-bearing debt and
$55.3 million in cash and cash equivalents.

CEO Succession Plan

In a separate release issued today, the company announced that Sam Sato,
currently President of Finish Line, will succeed Glenn Lyon as Chief
Executive Officer effective February 28, 2016 and will report directly
to the board of directors. Mr. Lyon will continue to serve as Executive
Chairman of the Board through December 31, 2016 before transitioning to
the role of non-Executive Chairman of the Board beginning January 1,
2017.

Store Profitability Improvement

The company also announced today that it will improve the profitability
of its store fleet by closing up to 150 stores, or 25% of its store base
over the next four years. These stores produce average annual sales of
approximately $1 million, a portion of which the company expects to
recapture at nearby locations and through its digital sites. The company
expects the store closures to generate a 100 basis point improvement in
store contribution margins.

Quarterly Cash Dividend Increased 11%

The board of directors has declared a quarterly cash dividend of $0.10
per share of outstanding common stock. This represents a $0.01 per
share, or 11%, increase over the previous dividend paid by the
company. The quarterly cash dividend will be payable on March 14, 2016
to shareholders of record as of February 26, 2016.

Lyon continued, “We are rigorously looking at all opportunities to
strengthen every component of this enterprise. We are confident that the
transformational changes we are making will positively impact our
customer connections, and lead to increased earnings power and greater
shareholder returns for years to come.”

Outlook

For the fiscal year ending February 27, 2016, the company now expects
Finish Line comparable store sales to be up low-single digits and
non-GAAP diluted earnings per share between $1.18 and $1.23.

For the fourth quarter ending February 27, 2016, the company expects
Finish Line comparable store sales to be up in the low-single to
mid-single digit range and non-GAAP diluted earnings per share between
$0.78 and $0.83.

Q3 Fiscal 2016 Conference Call Today, January 7,
2016 at 8:30 a.m.

The company will host a conference call for investors today, January 7,
2016, at 8:30 a.m. Eastern. To participate in the live conference call,
dial 866-923-8645 (U.S. and Canada) or 660-422-4970 (International),
conference ID #93848733. The live conference call will also be
accessible online at www.finishline.com.
A replay of the conference call can be accessed approximately two hours
following the completion of the call by dialing 855-859-2056, conference
ID #93848733. This recording will be made available through Sunday,
February 7, 2016. The replay will also be accessible online at www.finishline.com.

Disclosure Regarding Non-GAAP Measures

This report refers to certain financial measures that are identified as
non-GAAP. The company believes that these non-GAAP measures including
selling, general, and administrative expenses, operating (loss) income,
income tax (benefit) expense, net (loss) income attributable to The
Finish Line, Inc., and diluted (loss) earnings per share attributable to
The Finish Line, Inc. shareholders, are helpful to investors because
they allow for a more direct comparison of the company’s year-over-year
performance and are useful in assessing the company’s progress in
achieving its long-term financial objectives. This supplemental
information should not be considered in isolation or as a substitute for
the related GAAP measures. A reconciliation of the non-GAAP measures to
the comparable GAAP measures can be found in the company’s Form 8-K
filed with the Securities and Exchange Commission with this release.

About The Finish Line, Inc.

The Finish Line, Inc. is a premium retailer of athletic shoes, apparel
and accessories. Headquartered in Indianapolis, Finish Line has
approximately 1,010 Finish Line branded locations primarily in U.S.
malls and shops inside Macy’s department stores and employs more than
14,000 sneakerologists who help customers every day connect with their
sport, their life and their style. Online shopping is available at www.finishline.com
and www.macys.com.
Mobile shopping is available at m.finishline.com.
Follow Finish Line on Twitter at Twitter.com/FinishLine
or Twitter.com/FinishLineNews
and “like” Finish Line on Facebook at Facebook.com/FinishLine.
Track loyalty points and find store and product information with the
free Finish Line app downloadable for iOS
and Android
customers.

Finish Line also operates the Running Specialty Group. This includes 73
specialty running stores in 16 states and the District of Columbia under
the JackRabbit, The Running Company, Run On!, Blue Mile, Boulder Running
Company, Roncker’s Running Spot, Running Fit, VA Runner, Capital
RunWalk, Richmond RoadRunner, Garry Gribble’s Running Sports, Run
Colorado, Raleigh Running Outfitters, Striders and Indiana Running
Company banners. More information is available at www.jackrabbit.com
or www.boulderrunningcompany.com.
Follow the latest about the brand on Twitter or Instagram via
@JackRabbitNYC.

Forward-Looking Statements

This news release includes statements that are or may be considered
“forward-looking” within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These forward-looking statements generally can be identified by the use
of words or phrases such as “believe,” “expect,” “future,” “anticipate,”
“intend,” “plan,” “foresee,” “may,” “should,” “will,” “estimates,”
“outlook,” “potential,” “optimistic,” “confidence,” “continue,”
“evolve,” “expand,” “growth” or words and phrases of similar meaning.
Statements that describe objectives, plans or goals also are
forward-looking statements.

All of these forward-looking statements are subject to risks, management
assumptions and uncertainties that could cause actual results to differ
materially from those contemplated by the relevant forward-looking
statements. The principal risk factors that could cause actual
performance and future actions to differ materially from the
forward-looking statements include, but are not limited to, the
company’s reliance on a few key vendors for a majority of its
merchandise purchases (including a significant portion from one key
vendor); the availability and timely receipt of products; the ability to
timely fulfill and ship products to customers; fluctuations in oil
prices causing changes in gasoline and energy prices, resulting in
changes in consumer spending as well as increases in utility, freight
and product costs; product demand and market acceptance risks;
deterioration of macro-economic and business conditions; the inability
to locate and obtain or retain acceptable lease terms for the company’s
stores; the effect of competitive products and pricing; loss of key
employees; execution of strategic growth initiatives (including actual
and potential mergers and acquisitions and other components of the
company’s capital allocation strategy); cybersecurity risks, including
breach of customer data; a major failure of technology and information
systems and the other risks detailed in the company’s Securities and
Exchange Commission filings. Readers are urged to consider these factors
carefully in evaluating the forward-looking statements. The
forward-looking statements included herein are made only as of the date
of this report and Finish Line undertakes no obligation to publicly
update these forward-looking statements to reflect subsequent events or
circumstances.

  The Finish Line, Inc.

Consolidated Statements of Operations (Unaudited)

(In thousands, except per share and store/shop data)

Thirteen Weeks Ended   Thirty-Nine Weeks Ended

November 28,
2015

 

November 29,
2014

November 28,
2015

 

November 29,
2014

Net sales $ 382,090 $ 395,828 $ 1,308,634 $ 1,269,239
Cost of sales (including occupancy costs) 293,574   284,074   921,935   873,485  
Gross profit 88,516 111,754 386,699 395,754
Selling, general, and administrative expenses 125,019 114,923 359,080 335,701
Impairment charges and store closing costs 181   462   509   3,155  
Operating (loss) income (36,684 ) (3,631 ) 27,110 56,898
Interest (expense) income, net (3 )   (4 ) 6  
(Loss) income before income taxes (36,687 ) (3,631 ) 27,106 56,904
Income tax (benefit) expense (14,852 ) (6,126 ) 9,346   17,595  
Net (loss) income (21,835 ) 2,495 17,760 39,309
Net loss attributable to redeemable noncontrolling interest   83   96   1,861  
Net (loss) income attributable to The Finish Line, Inc. $ (21,835 ) $ 2,578   $ 17,856   $ 41,170  
Diluted (loss) earnings per share attributable to The Finish Line,
Inc. shareholders
$ (0.49 ) $ 0.05   $ 0.39   $ 0.85  
Diluted weighted average shares 44,542   47,478   45,211   48,013  
Dividends declared per share $ 0.09   $ 0.08   $ 0.27   $ 0.24  
 
Finish Line store activity for the period:
Beginning of period 620 647 637 645
Opened 3 2 8 9
Closed (6 ) (7 ) (28 ) (12 )
End of period 617   642   617   642  
Square feet at end of period 3,390,971 3,492,050
Average square feet per store 5,496 5,439
Branded shops within department stores activity for the period:
Beginning of period 394 370 395 185
Opened 1 27 1 213
Closed (1 )   (2 ) (1 )
End of period 394   397   394   397  
Square feet at end of period 478,134 406,063
Average square feet per shop 1,214 1,023
Running Specialty store activity for the period:
Beginning of period 76 58 71 48
Acquired 7 4 15
Opened 1 1 3
Closed (2 )   (2 )  
End of period 74   66   74   66  
Square feet at end of period 271,761 234,162
Average square feet per store 3,672 3,548
 
  Thirteen Weeks Ended   Thirty-Nine Weeks Ended

November 28,
2015

 

November 29,
2014

November 28,
2015

 

November 29,
2014

Net sales 100.0

 %

100.0 % 100.0 % 100.0 %
Cost of sales (including occupancy costs) 76.8   71.8   70.5   68.8  
Gross profit 23.2 28.2 29.5 31.2
Selling, general, and administrative expenses 32.8 29.0 27.4 26.5
Impairment charges and store closing costs   0.1     0.2  
Operating (loss) income (9.6 ) (0.9 ) 2.1 4.5
Interest (expense) income, net        
(Loss) income before income taxes (9.6 ) (0.9 ) 2.1 4.5
Income tax (benefit) expense (3.9 ) (1.5 ) 0.7   1.4  
Net (loss) income (5.7 ) 0.6 1.4 3.1
Net loss attributable to redeemable noncontrolling interest   0.1     0.1  
Net (loss) income attributable to The Finish Line, Inc. (5.7 )% 0.7 % 1.4 % 3.2 %
 
  Condensed Consolidated Balance Sheets

November 28,
2015

 

November 29,
2014

 

February 28,
2015

(Unaudited) (Unaudited)
ASSETS
Cash and cash equivalents $ 55,273 $ 85,426 $ 149,569
Merchandise inventories, net 414,626 398,615 343,403
Other current assets 75,099 44,384 37,685
Property and equipment, net 282,082 256,262 274,360
Goodwill 44,029 32,902 34,719
Other assets, net 8,667   9,017   10,119
Total assets $ 879,776   $ 826,606   $ 849,855
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities $ 257,898 $ 209,049 $ 197,497
Deferred credits from landlords 32,390 29,507 29,143
Other long-term liabilities 31,899 20,625 33,481
Redeemable noncontrolling interest, net 480 90
Shareholders’ equity 557,589   566,945   589,644
Total liabilities and shareholders’ equity $ 879,776   $ 826,606   $ 849,855
 

Reconciliation of Selling, General, and Administrative Expenses,
GAAP to
Selling, General, and Administrative Expenses,
Non-GAAP (Unaudited)
(In thousands)

   
Thirteen Weeks Ended Thirty-Nine Weeks Ended
November 28, 2015   November 29, 2014 November 28, 2015   November 29, 2014
Selling, general, and administrative expenses, GAAP $ 125,019     32.8 % $ 114,923   29.0 % $ 359,080     27.4 % $ 335,701   26.5 %
Employee resignation costs     (842 ) (0.2 )     (842 ) (0.1 )
Selling, general, and administrative expenses, Non-GAAP $ 125,019   32.8 % $ 114,081   28.8 % $ 359,080   27.4 % $ 334,859   26.4 %
 

Reconciliation of Operating (Loss) Income, GAAP to Operating
(Loss) Income, Non-GAAP (Unaudited)
(In thousands)

   
Thirteen Weeks Ended Thirty-Nine Weeks Ended
November 28, 2015   November 29, 2014 November 28, 2015   November 29, 2014
Operating (loss) income, GAAP $ (36,684 )   (9.6 )% $ (3,631 )   (0.9 )% $ 27,110     2.1 % $ 56,898     4.5 %
Impairment charges and store closing costs 181 462 0.1 509 3,155 0.2
Employee resignation costs     842   0.2       842   0.1  
Operating (loss) income, Non-GAAP $ (36,503 ) (9.6 )% $ (2,327 ) (0.6 )% $ 27,619   2.1 % $ 60,895   4.8 %
 

Reconciliation of Income Tax (Benefit) Expense, GAAP to Income Tax
(Benefit) Expense, Non-GAAP (Unaudited)
(In thousands)

   
Thirteen Weeks Ended Thirty-Nine Weeks Ended
November 28, 2015   November 29, 2014 November 28, 2015   November 29, 2014
Income tax (benefit) expense, GAAP $ (14,852 )   (3.9 )% $ (6,126 )   (1.5 )% $ 9,346     0.7 % $ 17,595     1.4 %
Tax effect of:
Impairment charges and store closing costs 70 178 196 1,215 0.1
Employee resignation costs 324 0.1 324
One-time tax benefit     4,313   1.1       4,313   0.3  
Income tax (benefit) expense, Non-GAAP $ (14,782 ) (3.9 )% $ (1,311 ) (0.3 )% $ 9,542   0.7 % $ 23,447   1.8 %
 

Reconciliation of Net (Loss) Income Attributable to The Finish
Line, Inc., GAAP to
Net (Loss) Income Attributable to The
Finish Line, Inc., Non-GAAP (Unaudited)
(In thousands)

   
Thirteen Weeks Ended Thirty-Nine Weeks Ended
November 28, 2015   November 29, 2014 November 28, 2015   November 29, 2014
Net (loss) income attributable to The Finish Line, Inc., GAAP $ (21,835 )   (5.7 )% $ 2,578   0.7

 %

$ 17,856     1.4 % $ 41,170   3.2 %
Impairment charges and store closing costs, net of income taxes and
redeemable noncontrolling interest
111 284 0.1 313 1,884 0.1
Employee resignation costs, net of income taxes 518 0.1 518 0.1
One-time tax benefit     (4,313 ) (1.1 )     (4,313 ) (0.3 )
Net (loss) income attributable to The Finish Line, Inc., Non-GAAP $ (21,724 ) (5.7 )% $ (933 ) (0.2 )% $ 18,169   1.4 % $ 39,259   3.1 %
 

Reconciliation of Diluted (Loss) Earnings Per Share Attributable
to The Finish Line, Inc. Shareholders, GAAP to
Diluted (Loss)
Earnings Per Share Attributable to The Finish Line, Inc.
Shareholders, Non-GAAP (Unaudited)

   
Thirteen Weeks Ended Thirty-Nine Weeks Ended

November 28,
2015

 

November 29,
2014

November 28,
2015

 

November 29,
2014

Diluted (loss) earnings per share attributable to The Finish Line,
Inc. shareholders, GAAP
$ (0.49 ) $ 0.05 $ 0.39 $ 0.85
Impairment charges and store closing costs, net of income taxes and
redeemable noncontrolling interest
0.01 0.01 0.04
Employee resignation costs, net of income taxes 0.01 0.01
One-time tax benefit   (0.09 )   (0.09 )
Diluted (loss) earnings per share attributable to The Finish Line,
Inc. shareholders, Non-GAAP
$ (0.49 ) $ (0.02 ) $ 0.40   $ 0.81  

Note: See Disclosure Regarding Non-GAAP Measures above.

Contacts

The Finish Line, Inc.
Media Contact:
Dianna Boyce, 317-613-6577
Corporate
Communications
or
Investor Contact:
Ed Wilhelm,
317-613-6914
Chief Financial Officer