Will Margin Pressure Hurt Finish Line's (FINL) Q3 Earnings?

The Finish Line, Inc. FINL is slated to release third-quarter fiscal 2018 results on Dec 21. The question lingering in investors’ minds is whether this specialty retailer of athletic footwear, activewear and accessories will be able to post a positive earnings surprise in the quarter to be reported.

Finish Line delivered a 9.1% beat in the previous quarter. However, the company’s bottom-line lagged the Zacks Consensus Estimate in the trailing four quarters, by an average of 13.2%. So, let’s see how things are shaping up prior to this announcement.

What to Expect?

The current Zacks Consensus Estimate for the quarter under review is pegged at a loss of 37 cents, which is wider than a loss of 24 cents reported in the year-ago period. We note that the Zacks Consensus Estimate has been stable in the past 30 days. Additionally, analysts polled by Zacks expect revenues of roughly $360.9 million, down 2.9% from the year-ago quarter.

The Finish Line, Inc. Price, Consensus and EPS Surprise

The Finish Line, Inc. Price, Consensus and EPS Surprise | The Finish Line, Inc. Quote

Notably, Finish Line has outperformed the broader industry in the past month, reflecting a positive investor sentiment ahead of earnings. The company’s shares have gained 28%, compared with the industry’s growth of 18.8%.

Factors at Play

While Finish Line’s earnings topped the Zacks estimate in second-quarter fiscal 2018, it declined more than five folds compared with the prior-year figure. The company is not immune to the intense promotions in the athletic space along with the shift of most retailers to digital and differentiated retailing. This shift has thwarted Finish Line’s strategy of cutting on prices to sustain competition from big names in the industry. Further, the increased promotions have been considerably weighing upon the company’s margins for quite a while now.

Further, the company’s outlook for the second half and fiscal 2018 displays a dismal picture. The company anticipates comparable sales to decline 3-5% in the third and fourth quarter, as well as fiscal 2018. Moreover, it expects adjusted loss of 32-40 cents per share in the third quarter and earnings of 50-58 cents per share in the fourth quarter. Consequently, it also lowered earnings view for fiscal 2018 to range between 50-60 cents per share, way below the previous forecast of $1.12-$1.23 per share.

While Finish Line remains committed toward effective inventory and expense management, and developing omni-channel capacities, the aforementioned hurdles make us apprehensive about the company’s upcoming results.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Finish Line is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Finish Line currently has an Earnings ESP of +1.06.  However, the company carries a Zacks Rank #4 (Sell), which when combined with the company’s positive ESP makes surprise prediction difficult.

Stocks with Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

McDonald's Corporation MCD has an Earnings ESP of +0.22% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

NIKE Inc. NKE has an Earnings ESP of +8.06% and a Zacks Rank #3.

Walgreens Boots Alliance Inc. WBA has an Earnings ESP of +7.24% and a Zacks Rank #3.

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The Finish Line, Inc. (FINL) : Free Stock Analysis Report
 
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