Struggling Finish Line strives to reduce reliance on apparel

Slumping sales of apparel led The Finish Line Inc. to report a steep loss in its latest quarter, validating the company's attempts to reduce its dependency on the category.

The Indianapolis-based athletic shoe and apparel chain on Wednesday reported a loss of $40.4 million on sales of $371.1 million for the quarter ended Nov. 26, much worse than what analysts were expecting. That compares to a loss of $21.8 million, on sales of $361 million, in last year’s fiscal third quarter.

Finish Line CEO Sam Sato, in a conference call with investors, attributed much of the decline to weak apparel sales, which were down almost 50 percent from the year-ago period.

“I think that over the next couple of quarters, we're going to continue to see a drag from our apparel business as we start to really narrow this assortment and reduce the dependency we have on certain parts of the apparel business,” he said.

Sato pointed to Finish Line’s plans to exit the licensed NCAA fleece business as an example of narrowing its apparel focus while still striving for profitability in the category.

"We have been working hard to narrow our assortment and align our offering with customer demand," he said. "This includes enhancing our branded offering with a heightened focus on key items, while deemphasizing our licensed apparel collections."

“Certainly our intention and our desire is to grow the business, but it's not going to be a strategy we lay out to make it a larger share, necessarily of the total, in terms of top line [revenue],” Sato said. “But certainly we want it and need it to be a profitable and healthy part of the business.”

Sales of footwear, conversely, increased nearly 10 percent, driven by the running, basketball and casual categories.

Overall, same-store sales rose 0.7 percent. Finish Line projected same-store sales will decline 3 percent to 5 percent in the current quarter, which ends Feb. 25.

The one bright spot for Finish Line in the quarter was that sales of Finish Line shops located inside Macy’s department stores rose 33.2 percent.

In its third quarter, Finish Line introduced its new format in 27 more of its stand-alone locations, bringing the total to 42 stores that now feature the updated design.

The company also closed six of its stand-alone locations, bringing the total to 71. In January, Finish Line announced it would shut 150 stores within four years.

In late-morning trading, Finish Line shares were $20.28, down $2.73, or 11.8 percent, on the day.