Why Finish Line Inc. Stock Sank Today

By Jeremy Bowman Markets Fool.com

What happened

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Shares ofFinish Line Inc.(NASDAQ: FINL) were coming in last today as the athletic apparel retailer crumbled after a disappointing fourth-quarter earnings report. As of 1:08 p.m. EDT, the stock was down 19.2%.

So what

Finish Line's tale is a familiar one. Like other mall-based retailers, the chain is seeing dwindling traffic, which has caused the company to offer more discounts in order to clear out merchandise. As a result, both sales and profits suffered. Suppliers likeNikeandUnder Armouralso posted weak holiday-quarter reports, a sign that the entire sector is experiencing a pullback.

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Comparable sales disappointed, falling 4.5% in the quarter, and total revenue edged down 0.4% to $557.5 million, topping expectations at $548.7 million as the company benefited from its new partnership with Macy's. On the bottom line, however, earnings per share shrunk from $0.85 to $0.50, missing estimates at $0.70.

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CEO Sam Sato said the results "represented a disappointing finish to a challenging year." He also said the company made an effort to clear merchandise in February to start clean in fiscal 2017.

Now what

Finish Line's guidance for 2017 was more encouraging as the company sees a low-single-digit increase in comparable sales and expects EPS of $1.12-$1.23, 6%-16% above the $1.06 it recorded in 2016. That forecast includes an additional week in the calendar.

If the company can delivery on that promise, shares look appealing today at a forward P/E of around 11. However, the malaise in the retail industry, especially for companies like Finish Line, means it won't be easy to deliver on that forecast.

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Jeremy Bowman owns shares of Nike. The Motley Fool owns shares of and recommends Nike and Under Armour (A Shares). The Motley Fool has a disclosure policy.