Finish Line Falters in Execution Race

If Finish Line earns 60% of its sales from Nike, and Nike reports a blowout quarter, wouldn’t that immediately translate into a good quarter for Finish Line as well?

Apparently not, as we found out on Thursday.

Nike beat the Street’s $1.01-a-share estimates by 13 cents, with an 8% increase in revenues. Even more importantly, future orders, a company program that allows retailers to order Nike products five to six months in advance, in constant currency were up 13%. That’s the biggest increase in a decade and much better than the 9% that analysts were expecting. Overall demand is so high, in fact, that Nike is accelerating its production to keep pace.

Cramer attributed the strong performance to smart strategizing and execution from Nike. The company made big investments in market and infrastructure, in addition to reorganizing its product lines around sports categories, and those strategies are paying off. Now, after a two-year pause during the recession, business is picking up and the stock is, according to Cramer, “poised to break out to new highs over the next few quarters.”

But while Nike sets the standard for execution, Finish Line falls far short of it. The company missed Wall Street’s consensus estimate of 31 cents a share in earnings by 5 cents on disappointing sales that were up only 0.8% from the year before. The killer here was a lack of inventory going into the quarter, Cramer said, leaving FINL sold out of the light-weight running shoes that were so in demand. And factory supply constraints and transportation delays made it impossible to restock.

“The takeaway from the quarter is that the category’s still very strong,” Cramer said, “but consumers will just go elsewhere if they can’t get the products they want at any given store.”

Therefore, Nike is still a buy. And if you want to own one of its retailers, consider Foot Locker instead of Finish Line. FL doesn’t suffer from Finish Line’s execution issues, and it offers a nice 4.2% dividend yield.

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