The sporting goods retailer renegotiates leases and cuts costs to prepare for a turnaround.
While some retailers have crumbled under the pressure of sliding sales and falling profits, others are trying to be more proactive about surviving the now more than year-long recession. The Finish Line Inc. is one such company. The Indianapolis-based sporting goods retailer has been taking advantage of the downturn in the real estate market to renegotiate its leases—a process that cut its operating costs by nearly 4 percent in its fiscal fourth quarter alone. And it is looking for more upside in the year ahead; about 40 percent of its leases are up for renegotiation during its current fiscal year (which runs from March 2009 through February 2010).
The company, which sells sneakers and athletic apparel under the Nike Livestrong, Lacoste, North Face and Under Armour brand names among others, operates about 700 namesake stores and about 85 stores under the Man Alive brand that caters to urban consumers.
For its fiscal 2009, the chain posted consolidated net sales of $1.26 billion versus $1.28 billion for the 52 weeks ended March 1, 2008. Consolidated comparable store net sales decreased 0.4 percent. By concept, Finish Line comparable store net sales increased 0.3 percent and Man Alive comparable store net sales decreased 11.7 percent. Overall, the company reported income from continuing operations of $4.0 million in fiscal 2009 compared with a loss of $48.5 million the year prior.
So far, landlords have seemed eager to help the retailer. "I'm happy to report that in most cases we are finding terms that allow us to keep stores open," said President and COO Steve Schneider on the company's March conference call with investors. "I will tell you that we've been having a lot of success because obviously the landlords want to keep the malls filled. They don't want holes out there"
However, despite its push for concessions, Schneider cautioned that not all of the retailer's real estate costs would go down this year. More than half of its leases are not up for negotiation and costs may rise because of automatic bumps tied to common area maintenance and other fees.
Still, analysts that track the company say the ability to barter for better terms on much of its portfolio may be enough to boost profits.
Stifel Nicolaus analyst Thomas Shaw says the negotiations could lower costs enough to make up for slow sales. A problem for most retailers is that consumers have slowed down their spending. Shaw adds closing underperforming stores will also likely pad the firm's results. The Finish Line has said it will likely shutter about 10 to 15 of its underperforming namesake stores and 10 to 20 of its Man Alive stores in the next fiscal year, depending on the outcome of the lease negotiations.
The Man Alive chain, which the company purchased in 2005, is also undergoing some changes. The Finish Line is testing a new store name of "Decibel" and an edgier merchandise assortment focusing on t-shirts and jeans for three to four stores this year. "We're trying to be trend-right," said Schneider on the call. "More denim, more fashion denim, more skater looks, more rocker looks. We know those are trend-right for the street fashion business today."
Shaw also says the company's new smaller store footprint could lead to higher profits. The new design averages between 3,500 square feet and 3,700 square feet versus the chain's average of 5,400 gross square foot and moves the service area to the middle of the store. The analyst says early results show the new stores averaging sales of $450 per square foot—a considerable increase from the $307 per square foot company average.