XNAS:FINL Finish Line Inc Quarterly Report 10-Q Filing - 6/2/2012

Effective Date 6/2/2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 2, 2012

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 0-20184

 

 

The Finish Line, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Indiana   35-1537210

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

3308 North Mitthoeffer Road Indianapolis, Indiana   46235
(Address of principal executive offices)   (zip code)

317-899-1022

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report.)

 

 

Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter ) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934.

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨ (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨    No  x

Shares of common stock outstanding at June 15, 2012:

 

Class A

     49,554,652   

Class B

     1,204,429   

 

 

 


PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE FINISH LINE, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

 

     June 2,
2012
     May 28,
2011
     March 3,
2012
 
     (unaudited)      (unaudited)         
ASSETS         

CURRENT ASSETS:

        

Cash and cash equivalents

   $ 261,958       $ 287,045       $ 307,494   

Accounts receivable, net

     7,063         7,118         9,041   

Merchandise inventories, net

     236,545         206,501         220,405   

Other

     17,067         6,116         15,808   
  

 

 

    

 

 

    

 

 

 

Total current assets

     522,633         506,780         552,748   

PROPERTY AND EQUIPMENT:

        

Land

     1,557         1,557         1,557   

Building

     41,774         41,659         41,745   

Leasehold improvements

     221,969         223,456         220,532   

Furniture, fixtures and equipment

     118,305         116,392         115,798   

Construction in progress

     17,300         4,482         6,987   
  

 

 

    

 

 

    

 

 

 
     400,905         387,546         386,619   

Less accumulated depreciation

     263,156         263,525         259,622   
  

 

 

    

 

 

    

 

 

 
     137,749         124,021         126,997   

Deferred income taxes

     16,674         22,438         16,888   

Goodwill

     8,503         —           8,503   

Other intangible assets

     550         —           550   

Other assets, net

     5,941         5,393         5,810   
  

 

 

    

 

 

    

 

 

 

Total assets

   $ 692,050       $ 658,632       $ 711,496   
  

 

 

    

 

 

    

 

 

 

 

See accompanying notes.

 

1


THE FINISH LINE, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

 

     June 2,
2012
     May 28,
2011
     March 3,
2012
 
     (unaudited)      (unaudited)         
LIABILITIES AND SHAREHOLDERS’ EQUITY         

CURRENT LIABILITIES:

        

Accounts payable

   $ 87,645       $ 64,034       $ 67,246   

Employee compensation

     9,667         12,504         22,403   

Accrued property and sales tax

     7,198         5,860         10,312   

Income taxes payable

     3,968         595         13,348   

Deferred income taxes

     6,554         4,294         7,068   

Other liabilities and accrued expenses

     17,370         16,061         18,306   
  

 

 

    

 

 

    

 

 

 

Total current liabilities

     132,402         103,348         138,683   

Deferred credits from landlords

     30,150         32,877         30,080   

Other long-term liabilities

     13,583         14,450         13,196   

REDEEMABLE NONCONTROLLING INTEREST

     5,795         —           —     

SHAREHOLDERS’ EQUITY:

        

Preferred stock, $.01 par value; 1,000 shares authorized; none issued

     —           —           —     

Common stock, $.01 par value

        

Class A:

        

Shares authorized—100,000

        

Shares issued—(June 2, 2012 – 58,903; May 28, 2011 – 58,737; March 3, 2012 – 58,839)

        

Shares outstanding—(June 2, 2012 – 49,508; May 28, 2011 – 52,614; March 3, 2012 – 50,795)

     589         587         588   

Class B:

        

Shares authorized—10,000

        

Shares issued and outstanding—(June 2, 2012 – 643; May 28, 2011 – 631; March 3, 2012 – 571)

     6         6         5   

Additional paid-in capital

     212,955         206,325         211,271   

Retained earnings

     455,132         385,779         445,884   

Treasury stock—(June 2, 2012 – 9,395; May 28, 2011 – 6,123; March 3, 2012 – 8,044)

     (158,562)         (84,740)         (128,211)  
  

 

 

    

 

 

    

 

 

 

Total shareholders’ equity

     510,120         507,957         529,537   
  

 

 

    

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 692,050       $ 658,632       $ 711,496   
  

 

 

    

 

 

    

 

 

 

See accompanying notes.

 

2


THE FINISH LINE, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

 

     Thirteen Weeks Ended  
     June 2,
2012
     May 28,
2011
 

Net sales

   $ 319,049       $ 299,474   

Cost of sales (including occupancy costs)

     214,390         196,211   
  

 

 

    

 

 

 

Gross profit

     104,659         103,263   

Selling, general and administrative expenses

     84,846         76,675   

Store closing costs

     95         17   
  

 

 

    

 

 

 

Operating income

     19,718         26,571   

Interest income, net

     71         142   
  

 

 

    

 

 

 

Income before income tax

     19,789         26,713   

Income tax expense

     7,708         10,297   
  

 

 

    

 

 

 

Net income

     12,081         16,416   

Net loss attributable to redeemable noncontrolling interest

     197         —     
  

 

 

    

 

 

 

Net income attributable to The Finish Line, Inc.

   $ 12,278       $ 16,416   
  

 

 

    

 

 

 

Basic earnings per share attributable to The Finish Line, Inc. shareholders

   $ 0.24       $ 0.31   
  

 

 

    

 

 

 

Basic weighted average shares

     50,694         53,107   
  

 

 

    

 

 

 

Diluted earnings per share attributable to The Finish Line, Inc. shareholders

   $ 0.24       $ 0.30   
  

 

 

    

 

 

 

Diluted weighted average shares

     51,403         53,973   
  

 

 

    

 

 

 

Dividends declared per share

   $ 0.06       $ 0.05   
  

 

 

    

 

 

 

See accompanying notes.

 

3


THE FINISH LINE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

     Thirteen Weeks Ended  
     June 2,
2012
    May 28,
2011
 

OPERATING ACTIVITIES:

    

Net income

   $ 12,081      $ 16,416   

Adjustments to reconcile net income to net cash used in operating activities:

    

Depreciation and amortization

     6,919        6,612   

Deferred income taxes

     (300     2,481   

Share-based compensation

     1,544        1,043   

Loss on disposal of property and equipment

     88        40   

Excess tax benefits from share-based compensation

     (4,617     (4,716

Changes in operating assets and liabilities:

    

Accounts receivable, net

     1,978        3,434   

Merchandise inventories, net

     (16,140     (12,996

Other assets

     (1,064     449   

Accounts payable

     20,399        (8,746

Employee compensation

     (12,736     (6,012

Income taxes payable

     (8,880     (3,405

Other liabilities and accrued expenses

     (4,067     (3,293

Deferred credits from landlords

     171        (1,776
  

 

 

   

 

 

 

Net cash used in operating activities

     (4,624     (10,469

INVESTING ACTIVITIES:

    

Additions to property and equipment

     (17,820     (4,178

Proceeds from disposals of property and equipment

     27        15   
  

 

 

   

 

 

 

Net cash used in investing activities

     (17,793     (4,163

FINANCING ACTIVITIES:

    

Dividends paid to shareholders

     (3,108     (2,653

Proceeds from issuance of common stock

     1,749        9,901   

Excess tax benefits from share-based compensation

     4,617        4,716   

Purchase of treasury stock

     (32,377     (9,610

Funding of related-party note receivable

     (4,000     —     

Proceeds from sale of redeemable noncontrolling interest

     10,000        —     
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (23,119     2,354   
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (45,536     (12,278

Cash and cash equivalents at beginning of period

     307,494        299,323   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 261,958      $ 287,045   
  

 

 

   

 

 

 

See accompanying notes.

 

4


THE FINISH LINE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of The Finish Line, Inc., along with its consolidated subsidiaries (individually and collectively referred to as the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. Preparation of the financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation, have been included. Intercompany accounts and transactions have been eliminated in consolidation.

The Company has experienced, and expects to continue to experience, significant variability in sales, net income and merchandise inventory from reporting period to reporting period. Therefore, the results of the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year.

These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended March 3, 2012 (“fiscal 2012”), as filed with the Securities and Exchange Commission (“SEC”) on May 2, 2012.

Reclassification

Certain amounts in the thirteen week period ended May 28, 2011 consolidated financial statements have been reclassified to conform them to the thirteen week period ended June 2, 2012 presentation.

Recent Accounting Pronouncements

During the first quarter of fiscal 2013, the Company adopted Accounting Standards Update (“ASU”) No. 2011-08, “Testing Goodwill for Impairment.” The revised standard is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a qualitative assessment to determine whether further impairment testing is necessary. The adoption of this ASU did not have a significant effect on our results of operations or financial position.

Other recently issued accounting pronouncements did not, or are not believed by management to, have a material effect on the Company’s present or future consolidated financial statements.

Segment Information

The Company is a premium retailer of athletic shoes, apparel and accessories for men, women and kids, throughout the United States, through three operating segments, “brick and mortar” stores, digital (which includes internet, mobile and tablet), and The Running Specialty Group (“Running Specialty”). Given the similar economic characteristics of both “brick and mortar” stores and digital, which include a similar nature of products sold, type of customer, and method of distribution, and Running Specialty being immaterial, the Company’s operating segments are aggregated into one reportable segment. The following table sets forth net sales of the Company by major category for each of the following periods (in thousands):

 

     Thirteen Weeks Ended  

Category

   June 2, 2012     May 28, 2011  

Footwear

   $ 282,544         89   $ 266,054         89

Softgoods

     36,505         11     33,420         11
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 319,049         100   $ 299,474         100
  

 

 

    

 

 

   

 

 

    

 

 

 

2. Running Specialty

On August 31, 2011, the Company acquired substantially all the assets and assumed certain liabilities of the Running Company for a purchase price of $8.5 million which was funded through the Company’s existing cash. As of the acquisition date, the Running Company operated 18 specialty running shops in Connecticut, District of Columbia, Florida, Maryland, Massachusetts, New Jersey, New York and Texas.

The Company has allocated the purchase price based upon the tangible and intangible assets acquired, net of liabilities, which is tentative. Pro forma effects of the acquisition have not been presented, as their effects were not significant to the consolidated results of the Company. The allocation of the purchase price is detailed below (in thousands):

 

     Allocation of
Purchase Price
 

Goodwill

   $ 8,503   

Tangible assets, net of liabilities

     1,675   

Net unfavorable lease obligation

     (1,678 )
  

 

 

 

Total purchase price

   $ 8,500   
  

 

 

 

The Company determined the estimated fair values based on discounted cash flow analyses and estimates made by management. Goodwill from the acquisition is deductible for tax purposes.

On March 29, 2012, GCPI SR LLC (“GCPI”) made a $10.0 million strategic investment in Running Specialty. The Company will remain majority owner with a 51% ownership. GCPI has the right to “put” and the Company has the right to “call” after March 4, 2017, under certain circumstances, the remaining 49% interest in Running Specialty at an agreed upon price approximating fair value. Also, as part of the transaction, GCPI issued to the Company a $4.0 million related-party promissory note which is collateralized with GCPI’s interest in Running Specialty due March 31, 2021 or earlier depending on certain stipulated events in the control of GCPI. The promissory note calls for interest payments based in part on a fixed rate and in part on participation in the value of other investments held by GCPI. The balance of the promissory note is $4.0 million at June 2, 2012 and has been netted against the “redeemable noncontrolling interest.”

 

5


The redeemable noncontrolling interest is classified as mezzanine equity and measured at the greater of redemption value at the end of each reporting period or the historical cost basis of the redeemable noncontrolling interest, net of the $4.0 million promissory note and adjusted for cumulative earnings or loss allocations. The resulting increases or decreases in the estimated redemption amount are affected by corresponding charges against retained earnings, or in the absence of retained earnings, additional paid in capital.

The redeemable noncontrolling interest is recorded at historical cost basis, net of the $4.0 million promissory note and adjusted for cumulative earnings or loss allocations as of June 2, 2012.

3. Fair Value Measurements

Fair value measurements are determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants exclusive of any transaction costs. The Company utilizes a fair value hierarchy based upon the observability of inputs used in valuation techniques as follows:

 

Level 1:    Observable inputs such as quoted prices in active markets;
Level 2:    Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3:    Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The Company has cash equivalents in short-term money market funds invested primarily in high-quality tax-exempt municipal instruments. The primary objective of our short-term investment activity is to preserve our capital for the purpose of funding operations and we do not enter into short-term investments for trading or speculative purposes. The fair values are based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1). Also included in Level 1 assets are mutual fund investments under the non-qualified deferred compensation plan. The Company estimates the fair value of these investments on a recurring basis using market prices that are readily available.

As of June 2, 2012, the Company had no non-financial assets or non-financial liabilities requiring measurement at fair value.

There were no transfers into or out of Level 1, Level 2, or Level 3 assets for any of the periods presented.

4. Earnings Per Share

Basic earnings per share is calculated by dividing net income attributable to the Company’s common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share attributable to the Company’s common shareholders assumes the issuance of additional shares of common stock by the Company upon exercise of all outstanding stock options and contingently issuable securities if the effect is dilutive, in accordance with the treasury stock method or two class method (whichever is more dilutive) discussed in Accounting Standards Codification (“ASC”) 260-10, “Earnings Per Share”.

ASC 260-10 requires the inclusion of restricted stock as participating securities, as they have the right to share in dividends, if declared, equally with common shareholders. During periods of net income, participating securities are allocated a proportional share of net income attributable to the Company’s common shareholders determined by dividing total weighted average participating securities by the sum of total weighted average common shares and participating securities (“the two-class method”). During periods of net loss, no effect is given to participating securities since they do not share in the losses of the Company. Participating securities have the effect of diluting both basic and diluted earnings per share attributable to the Company’s common shareholders during periods of net income.

The following is a reconciliation of the numerators and denominators used in computing earnings per share attributable to the Company’s common shareholders (in thousands, except per share amounts):

 

     Thirteen Weeks Ended  
     June 2,
2012
     May 28,
2011
 

Net income attributable to The Finish Line, Inc.

   $ 12,278       $ 16,416   

Net income attributable to participating securities

     98         164   
  

 

 

    

 

 

 

Net income available to The Finish Line, Inc. shareholders

   $ 12,180       $ 16,252   
  

 

 

    

 

 

 

Basic earnings per share:

     

Weighted-average number of common shares outstanding

     50,694         53,107   

Basic earnings per share

   $ 0.24       $ 0.31   

Diluted earnings per share:

     

Weighted-average number of common shares outstanding

     50,694         53,107   

Stock options(a)

     709         866   
  

 

 

    

 

 

 

Diluted weighted-average number of common shares outstanding

     51,403         53,973   
  

 

 

    

 

 

 

Diluted earnings per share

   $ 0.24       $ 0.30   

 

(a) The computation of diluted earnings per share excludes options to purchase approximately 0.7 million and 0.3 million shares of common stock in the thirteen weeks ended June 2, 2012 and May 28, 2011, respectively, because the impact of such options would have been anti-dilutive.

5. Common Stock

On July 21, 2011, the Company’s Board of Directors authorized a stock repurchase program (the “2011 stock repurchase program”) to repurchase up to 5,000,000 shares of the Company’s Class A common stock outstanding through December 31, 2014. The Company purchased 1,511,119 shares at an average price of $21.43 per share for an aggregate amount of $32.4 million for the thirteen weeks ended June 2, 2012. The remaining shares available for repurchase under the stock repurchase program are 2,288,981 shares as of June 2, 2012.

The Company’s treasury shares may be issued upon the exercise of employee stock options, issuance of shares for the Employee Stock Purchase Plan, issuance of restricted stock, or for other corporate purposes. Further purchases will occur from time to time as market conditions warrant and as the Company deems appropriate when judged against other alternative uses of cash.

 

6


On April 18, 2012, the Company announced a quarterly cash dividend of $0.06 per share of the Company’s Class A and Class B common shares. The Company declared dividends of $3.0 million during the thirteen weeks ended June 2, 2012. The cash dividends of $3.0 million were paid on June 18, 2012 to shareholders of record on June 1, 2012 and was included as of June 2, 2012 in “Other liabilities and accrued expenses” on the Company’s consolidated balance sheet. Further declarations of dividends remain at the discretion of the Company’s Board of Directors.

 

7


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This quarterly report on Form 10-Q may contain certain statements that we believe are, or may be considered to be, “forward-looking” statements, 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 use of statements that include phrases such as “believe”, “expect”, “future”, “anticipate”, “intend”, “plan”, “foresee”, “may”, “should”, “will”, “estimates”, “potential”, “continue” or other similar words or phrases. Similarly, statements that describe our objectives, plans or goals also are forward-looking statements. All of these forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those contemplated by the relevant forward-looking statement. 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; the availability of products; loss of key employees; execution of strategic growth initiatives (including actual and potential mergers and acquisitions and other components of our capital allocation strategy); 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 in this Form 10-Q are made only as of the date of this report and we undertake no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances.

General

The following discussion and analysis should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations, including Critical Accounting Policies, contained in the Company’s Annual Report on Form 10-K for the year ended March 3, 2012 (“fiscal 2012”).

The following table sets forth store and square feet information of the Company by brand for each of the following periods:

 

      Thirteen Weeks Ended  

Number of Stores:

   June 2,
2012
    May 28,
2011
 

Finish Line:

    

Beginning of period

     637        664   

Opened

     9        —     

Closed

     (6     (7
  

 

 

   

 

 

 

End of period

     640        657   
  

 

 

   

 

 

 

Running Specialty:

    

Beginning of period

     19        —     

Opened

     —          —     

Closed

     —          —     
  

 

 

   

 

 

 

End of period

     19        —     
  

 

 

   

 

 

 

Total

    

Beginning of period

     656        664   

Opened

     9        —     

Closed

     (6     (7
  

 

 

   

 

 

 

End of period

     659        657   
  

 

 

   

 

 

 

 

     June 2,
2012
     May 28,
2011
 

Square feet information as of:

     

Finish Line

     

Square feet at end of period

     3,457,170         3,533,930   

Average square feet per store

     5,402         5,379   

Running Specialty

     

Square feet at end of period

     57,302         —     

Average square feet per store

     3,016         —     

Total

     
  

 

 

    

 

 

 

Square feet at end of period

     3,514,472         3,533,930   
  

 

 

    

 

 

 

 

8


Results of Operations

The following tables set forth net sales of the Company by major category for each of the following periods (in thousands):

 

      Thirteen Weeks Ended  

Category

   June 2, 2012     May 28, 2011  
     (unaudited)     (unaudited)  

Footwear

   $ 282,544         89   $ 266,054         89

Softgoods

     36,505         11     33,420         11
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 319,049         100   $ 299,474         100
  

 

 

    

 

 

   

 

 

    

 

 

 

The following table and subsequent discussion sets forth operating data of the Company as a percentage of net sales for the periods indicated below.

 

     Thirteen Weeks Ended  
     June 2,
2012
    May 28,
2011
 
     (unaudited)  

Net sales

     100.0     100.0 %

Cost of sales (including occupancy costs)

     67.2        65.5   
  

 

 

   

 

 

 

Gross profit

     32.8        34.5   

Selling, general and administrative expenses

     26.6        25.6   

Store closing costs

     —          —     
  

 

 

   

 

 

 

Operating income

     6.2        8.9   

Interest income, net

     —          —     
  

 

 

   

 

 

 

Income before income tax

     6.2        8.9   

Income tax expense

     2.4        3.4   
  

 

 

   

 

 

 

Net income

     3.8        5.5   

Net loss attributable to redeemable noncontrolling interest

     0.1        —     
  

 

 

   

 

 

 

Net income attributable to The Finish Line, Inc.

     3.9     5.5
  

 

 

   

 

 

 

 

9


THIRTEEN WEEKS ENDED JUNE 2, 2012 COMPARED TO THIRTEEN WEEKS ENDED MAY 28, 2011

Net Sales

 

     Thirteen Weeks Ended  
     June 2,
2012
    May 28,
2011
 
     (dollars in thousands)  
     (unaudited)  

Net sales

   $ 319,049      $ 299,474   

Comparable store sales increase

     8.0     6.5

Net sales increased 6.5% for the thirteen weeks ended June 2, 2012 compared to the thirteen weeks ended May 28, 2011. The increase was attributable to a comparable store sales increase of 8.0% for the thirteen weeks ended June 2, 2012 resulting primarily from a 4.9% increase in average dollar per transaction and a 28.1% increase in digital sales. The increase in net sales also included $6.0 million of net sales from the Running Specialty stores for the thirteen weeks ended June 2, 2012, which were acquired on August 31, 2011. These increases were offset partially by store closings since May 28, 2011 as well as a calendar shift which replaced the first week of March, historically a strong sales week, with the first week of June, historically a lower sales week due to the end of season sale. Comparable store footwear sales for the thirteen weeks ended June 2, 2012 increased 8.5% while comparable store softgoods sales increased 4.6%.

Cost of Sales (Including Occupancy Costs) and Gross Profit

 

     Thirteen Weeks Ended  
     June 2,
2012
    May 28,
2011
 
     (dollars in thousands)  
     (unaudited)  

Cost of sales (including occupancy costs)

   $ 214,390      $ 196,211   

Gross profit

   $ 104,659      $ 103,263   

Gross profit as a percentage of net sales

     32.8     34.5

The 1.7% decrease in gross profit, as a percentage of net sales, for the thirteen weeks ended June 2, 2012 as compared to the thirteen weeks ended May 28, 2011 was primarily due to 1.0% decrease in product margin as a percentage of net sales and a 0.7% increase in occupancy costs as a percentage of net sales. The 1.0% decrease in product margin as a percentage of net sales was primarily due to the calendar shift of replacing the first week in March, historically a strong sales and margin week, with the first week in June, historically a lower sales and product margin week due to the end of season product sale. Also, digital sales, which typically have a lower overall product margin than stores, increased as a percentage of total net sales as compared to the prior period. The 0.7% increase in occupancy costs as a percentage of net sales reflects more store openings, annual rent escalations as well as longer-term lease agreements entered into for some of our best performing stores. In addition, the Company received and recognized $1.1 million in landlord audit settlements during the prior period.

Selling, General and Administrative Expenses

 

     Thirteen Weeks Ended  
     June 2,
2012
    May 28,
2011
 
     (dollars in thousands)  
     (unaudited)  

Selling, general and administrative expenses

   $ 84,846      $ 76,675   

Selling, general and administrative expenses as a percentage of net sales

     26.6     25.6

The $8.2 million increase in selling, general and administrative expenses for the thirteen weeks ended June 2, 2012 as compared to the thirteen weeks ended May 28, 2011 was primarily due to the following: 1.) investments to support the Company’s omni-channel strategy, 2.) 0.4% increase as a percentage of sales in marketing expenses to drive traffic to our website and our stores, and 3.) variable costs in fulfillment, freight and payroll in conjunction with the 28.1% increase in digital sales as well as the increase in store sales.

Store Closing Costs

 

     Thirteen weeks ended  
     June 2,
2012
    May 28,
2011
 
     (dollars in thousands)  
     (unaudited)  

Store closing costs

   $ 95      $ 17   

Store closing costs as a percentage of net sales

     —       —  

Number of stores closed

     6        7   

Store closing costs represent the non-cash write-off of any property and equipment upon a store closing.

 

10


Interest Income, Net

 

     Thirteen Weeks Ended  
     June 2,
2012
    May 28,
2011
 
     (dollars in thousands)  
     (unaudited)  

Interest income, net

   $ 71      $ 142   

Interest income, net as a percentage of net sales

     —       —  

The decrease of $0.1 million was due to lower interest rates on invested balances during the thirteen weeks ended June 2, 2012 compared to the thirteen weeks ended May 28, 2011.

Income Tax Expense

 

     Thirteen Weeks Ended  
     June 2,
2012
    May 28,
2011
 
     (dollars in thousands)  
     (unaudited)  

Income tax expense

   $ 7,708      $ 10,297   

Income tax expense as a percentage of net sales

     2.4 %     3.4 %

Effective income tax rate

     38.9 %     38.5 %

The increase in the effective tax rate for the thirteen weeks ended June 2, 2012 compared to the thirteen weeks ended May 28, 2011 relates to the Company’s ability to record a tax benefit only on its share of the Running Specialty joint venture loss while 100% of the Running Specialty joint venture loss is included in income before income tax.

Redeemable noncontrolling interest

 

     Thirteen Weeks Ended  
     June 2,
2012
     May 28,
2011
 
     (dollars in thousands)  
     (unaudited)  

Net loss attributable to redeemable noncontrolling interest

   $ 197       $ —     

Net losses attributable to the redeemable noncontrolling interest represents 49% of the loss before income tax generated by Running Specialty since March 29, 2012, which was the date of the investment by GCPI.

Net income attributable to The Finish Line, Inc.

 

     Thirteen Weeks Ended  
     June 2,
2012
    May 28,
2011
 
     (dollars in thousands)  
     (unaudited)  

Net income attributable to The Finish Line, Inc. shareholders

   $ 12,278      $ 16,416   

Net income attributable to The Finish Line, Inc. shareholders as a percentage of net sales

     3.9 %     5.5 %

Net income attributable to The Finish Line, Inc. shareholders per diluted share

   $ 0.24      $ 0.30   

The $4.1 million decrease in net income attributable to The Finish Line, Inc. for the thirteen weeks ended June 2, 2012 compared to the thirteen weeks ended May 28, 2011 was primarily due to the decrease in product margin as a percentage of net sales, the increase in occupancy expense, along with the investments to support the Company’s omni-channel strategy within selling, general and administrative expenses, partially offset by net sales improvement.

Liquidity and Capital Resources

The Company’s primary source of working capital is cash-on-hand and cash flow from operations. The following table sets forth material balance sheet and liquidity measures of the Company (in thousands):

 

     June 2,
2012
     May 28,
2011
     March 3,
2012
 
     (unaudited)      (unaudited)         

Cash and cash equivalents

   $ 261,958       $ 287,045       $ 307,494   

Merchandise inventories, net

   $ 236,545       $ 206,501       $ 220,405   

Interest-bearing debt

   $ —         $ —         $ —     

Working capital

   $ 390,231       $ 403,432       $ 414,065   

 

11


Operating Activities

The Company had cash flows used in operating activities during the thirteen weeks ended June 2, 2012 of $4.6 million compared to $10.5 million used for the thirteen weeks ended May 28, 2011. The decrease in net cash used in operating activities was primarily a result of the change in accounts payable for the thirteen weeks ended June 2, 2012 compared to the thirteen weeks ended May 28, 2011. Cash equivalents are invested in short-term money market funds invested primarily in high-quality tax-exempt municipal instruments with daily liquidity.

Consolidated inventories increased 14.6% at June 2, 2012 compared to May 28, 2011, and were 7.4% higher than at March 3, 2012. Finish Line inventories increased 11.9% at June 2, 2012 compared to May 28, 2011 and increased 6.7% from March 3, 2012. The increase over the prior year is to support the positive comparable store sales.

Investing Activities

Net cash used in investing activities for the thirteen weeks ended June 2, 2012 was $17.8 million compared to $4.2 million for the thirteen weeks ended May 28, 2011. The increase in cash used in investing activities was primarily a result of an increase in capital expenditures of $13.6 million related to nine new stores, the remodeling of existing stores, digital investments and store technology and IT system investments.

For the fiscal year ending March 2, 2013, the Company anticipates opening 25-30 new stores (9 were opened during the thirteen weeks ended June 2, 2012), remodeling 35 to 40 existing stores (7 were remodeled during the thirteen weeks ended June 2, 2012), and closing 10 to 20 stores (6 were closed during the thirteen weeks ended June 2, 2012). In addition, the Company plans on projected capital expenditures of approximately $13-$15 million intended for store technology, which includes items like new POS software, tablets and handhelds for our stores, approximately $18-$20 million intended for IT infrastructure investments to support new supply chain and merchandise systems, and approximately $7-$8 million intended for technology to support growth in our digital business. The Company expects capital expenditures for the current fiscal year to approximate $80 to $90 million ($17.8 million during the thirteen weeks ended June 2, 2012). The source of funds for these capital expenditures is expected to be the Company’s cash and cash equivalents on-hand.

Financing Activities

Net cash used in financing activities for the thirteen weeks ended June 2, 2012 was $23.1 million compared to net cash provided by financing activities of $2.4 million for the thirteen weeks ended May 28, 2011. The $25.5 million change was due to an additional $22.8 million of stock repurchases, $0.5 million increase in dividends paid, an $8.2 million decrease in proceeds received from the issuance of common stock in connection with employee stock programs, funding of a related-party note receivable for $4.0 million, offset by proceeds from the sale of redeemable noncontrolling interest of $10.0 million related to Running Specialty.

On July 21, 2011, the Company’s Board of Directors authorized a stock repurchase program (the “2011 stock repurchase program”) to repurchase up to 5,000,000 shares of the Company’s Class A common stock outstanding through December 31, 2014. The Company purchased 1,511,119 shares at an average price of $21.43 per share for an aggregate amount of $32.4 million for the thirteen weeks ended June 2, 2012. The remaining shares available for repurchase under the stock repurchase program are 2,288,981 shares as of June 2, 2012.

The Company’s treasury shares may be issued upon the exercise of employee stock options, issuance of shares for the Employee Stock Purchase Plan, issuance of restricted stock, or for other corporate purposes. Further purchases will occur from time to time as market conditions warrant and as the Company deems appropriate when judged against other alternative uses of cash.

On April 18, 2012, the Company announced a quarterly cash dividend of $0.06 per share of the Company’s Class A and Class B common shares. The Company declared dividends of $3.0 million during the thirteen weeks ended June 2, 2012. The cash dividends of $3.0 million were paid on June 18, 2012 to shareholders of record on June 1, 2012 and was included as of June 2, 2012 in “Other liabilities and accrued expenses” on the Company’s consolidated balance sheet. Further declarations of dividends remain at the discretion of the Company’s Board of Directors.

Recent Accounting Pronouncements

During the first quarter of fiscal 2013, the Company adopted Accounting Standards Update (“ASU”) No. 2011-08, “Testing Goodwill for Impairment.” The revised standard is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a qualitative assessment to determine whether further impairment testing is necessary. The adoption of this ASU did not have a significant effect on our results of operations or financial position.

Other recently issued accounting pronouncements did not, or are not believed by management to, have a material effect on the Company’s present or future consolidated financial statements.

Contractual Obligations

The Company’s contractual obligations primarily consist of operating leases and purchase orders for merchandise inventory. For the thirteen weeks ended June 2, 2012, there were no significant changes to the Company’s contractual obligations from those identified in the Company’s Annual Report on Form 10-K for the fiscal year ended March 3, 2012, other than those which occur in the normal course of business (primarily changes in the Company’s merchandise inventory related to purchase obligations, which fluctuate throughout the year as a result of the seasonal nature of the Company’s operations, and changes to operating leases due to store openings and closings.)

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to adopt accounting policies related to estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. On an ongoing basis, management evaluates its accounting policies, estimates and judgments, including those related to inventories, long–lived assets and contingencies. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For a discussion of the Company’s market risk associated with interest rates as of March 3, 2012, see “Quantitative and Qualitative Disclosures about Market Risk” in Item 7A of Part II of the Company’s Annual Report on Form 10-K for the fiscal year ended March 3, 2012. For the thirteen weeks ended June 2, 2012, there has been no significant change in related market risk factors.

 

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures. With the participation of our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the

 

12


“Exchange Act”)), as of the end of the period covered by this Report. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures were effective in ensuring that (i) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms and (ii) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this Report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

13


PART II—OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

The Company is subject, from time to time, to certain legal proceedings and claims in the ordinary course of conducting its business. Although it is not possible to predict with certainty the eventual outcome of any litigation, in the opinion of management, the Company’s legal proceedings are not expected to have a material adverse effect on the Company’s financial position or results of operations.

 

ITEM 1A. RISK FACTORS

Risk factors that affect the Company’s business and financial results are discussed in “Item 1A: Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended March 3, 2012. There has been no significant change to identified risk factors for the thirteen weeks ended June 2, 2012.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Information on the shares repurchased under the 2011 stock repurchase program during the thirteen weeks ended June 2, 2012 is as follows:

 

Month

   Total Number of
Shares Purchased
     Average Price
Paid per Share
(1)
     Total Number of
Shares Purchased
as Part of Publicly
Announced
Plans or Programs
     Maximum Number (or
Approximate Dollar
Value) of Shares that
May Yet Be Purchased
Under the Program (2)
 

March (3/4/12 – 4/7/12)

     1,038,780       $ 21.49         1,038,780         2,761,320   

April (4/8/12 – 5/5/12)

     472,339       $ 21.21         472,339         2,288,981   

May (5/6/12 – 6/2/12)

     —         $ —           —           2,288,981   
  

 

 

    

 

 

    

 

 

    
     1,511,119       $ 21.43         1,511,119      
  

 

 

    

 

 

    

 

 

    

 

(1) The average price paid per share includes any brokerage commissions.

 

(2) The 2011 stock repurchase plan was announced on July 21, 2011, whereby the Company is authorized to repurchase up to 5,000,000 shares of the Company’s Class A common stock outstanding through December 31, 2014.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

 

ITEM 5. OTHER INFORMATION

None.

 

ITEM 6. EXHIBITS

(a) Exhibits

 

31.1    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as amended.
31.2    Certification of Chief Financial Officer Pursuant to Rule 13a–14(a) and 15d-14(a) of the Securities Exchange Act, as amended.
32    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101    The following materials from The Finish Line, Inc.’s Form 10-Q for the quarterly period ended June 2, 2012, formatted in an XBRL Interactive Data File: (i) Consolidated Balance Sheets-unaudited; (ii) Consolidated Statements of Income-unaudited; (iii) Consolidated Statements of Cash Flows-unaudited; and (iv) Notes to Consolidated Financial Statements-unaudited.*

 

* Users of the XBRL-related information in Exhibit 101 of this Quarterly Report on Form 10-Q are advised, in accordance with Regulation S-T Rule 406T, that this Interactive Data File is deemed not filed or as a part of a registration statement for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is otherwise not subject to liability under these sections. The financial information contained in the XBRL-related documents is unaudited and unreviewed.

 

14


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    THE FINISH LINE, INC.
Date: June 29, 2012   By:  

/S/    EDWARD W. WILHELM

    Edward W. Wilhelm
   

Executive Vice President, Chief Financial

Officer

 

15


Exhibit Index

 

Exhibit
Number

  

Description

31.1    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as amended.
31.2    Certification of Chief Financial Officer Pursuant to Rule 13a–14(a) and 15d-14(a) of the Securities Exchange Act, as amended.
32    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101    The following materials from The Finish Line, Inc.’s Form 10-Q for the quarterly period ended June 2, 2012, formatted in an XBRL Interactive Data File: (i) Consolidated Balance Sheets-unaudited; (ii) Consolidated Statements of Income-unaudited; (iii) Consolidated Statements of Cash Flows-unaudited; and (iv) Notes to Consolidated Financial Statements-unaudited.*

 

* Users of the XBRL-related information in Exhibit 101 of this Quarterly Report on Form 10-Q are advised, in accordance with Regulation S-T Rule 406T, that this Interactive Data File is deemed not filed or as a part of a registration statement for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise not subject to liability under these sections. The financial information contained in the XBRL-related documents is unaudited and unreviewed.

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