• Q3 profit jumps 56.% to $2.5m
  • Sales up 8.6% to $395.8m 
  • Cuts adjusted EPS outlook
Gross margin fell 140 basis points during the third quarter

Gross margin fell 140 basis points during the third quarter

US athletic apparel and footwear retailer The Finish Line has lowered its full-year earnings guidance, citing margin pressure, after booking a 56% hike in third-quarter profit.

Net income reached US$2.5m for the thirteen weeks to 29 November, compared to $1.6m in the same period a year ago.

Sales grew 8.6% to $395.8m from $364.5m last year, while comparable store sales increased 4.5%. Gross margin, however, fell 140 basis points.

"Third quarter comparable sales rebounded from second-quarter trends, however merchandise margin pressure kept us from achieving our profitability plan," said chairman and CEO Glenn Lyon.

"We remain confident in the strategic course we have set for the company and we'll continue to invest in the omni-channel initiatives focused on delivering the long-term financial goals we have previously outlined."

But, he added, the company is adjusting its near-term capital spending plans and will create a more flexible expense structure to protect profitability until stronger full price selling trends re-emerge.

Finish Line now expects full-year adjusted earnings per share to be flat, compared to its previous guidance of an increase in high single to low double digit range. Comparable store sales are forecast to grow low to mid-single digits, down from its earlier guidance of mid single digits.

Commenting on the results, FBR Capital Markets & Co analyst Susan Anderson said: "While we were encouraged by the comp performance, the outperformance may have been clearance- or promotion-driven as evidenced by the lower than expected gross margin.

"Given Finish Line's implicit reduction in fourth-quarter EPS guidance, we believe gross margin could continue to be pressured."