Why Shares of The Finish Line Plunged Today

By Timothy Green Markets Fool.com

Image source: The Finish Line.

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What happened

Shares of footwear and apparel retailer The Finish Line (NASDAQ: FINL) dropped on Wednesday following a disappointing third-quarter report. The company fell well short of analyst expectations, with major declines in apparel and accessory sales hurting its results. At 10:45 a.m., Finish Line stock was down about 11.5%.

So what

Finish Line reported third-quarter revenue of $371.7 million, up 3% year over year but nearly $40 million below the average analyst estimate. Comparable-store sales rose by just 0.7%, while the company's partnership with department store Macy's produced 33% growth.

Non-GAAP (adjusted) per-share loss came in at $0.24, better than a $0.44 loss during the third quarter of 2015 but $0.06 below analyst expectations. Looking ahead, Finish Line expects comparable sales to decline by 3% to 5% during the fourth quarter, with non-GAAP earnings per share between $0.68 and $0.73. For the full year, comparable sales are expected to grow by 0% to 1%, with non-GAAP EPS between $1.24 and $1.30.

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Finish Line CEO Sam Sato explained the company's poor results:

We are disappointed that our third-quarter sales and earnings fell short of our expectations. Steep declines in apparel and accessories offset a high-single-digit footwear comp gain and a 33% sales increase in our Macy's business.

Now what

Going forward, Finish Line is focusing on its core footwear business and its partnership with Macy's. Both areas produced solid growth during the third quarter, but apparel and accessories knocked down the company's results.

Sato remains optimistic about the company's plan:

We are now fully benefiting from our enhanced supply chain and are just beginning to realize the$6 millionin annualized savings from our actions aimed at streamlining our organizational structure. Despite our recent underperformance, we remain confident in the strategic course we have set for the Finish Line.

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