Finish Line Board and Management Adopt Poison Pill to Save Their Jobs

Retail

Published: August 29, 2017 6:35 am

Last Updated: January 12, 2020 8:42 am

Finish Line Inc. (NASDAQ: FINL) might be the worst-run sports retailer in the country. However, based on recent results from other companies in the industry, it cannot hold that distinction on its own. After releasing its most recent financial results, the board has adopted a poison pill, which may be the only way its members and senior management can keep their jobs. In particular, CEO Samuel M. Sato would not want to be pushed out of a position for which he was paid $4.8 million last year.

Poor earnings drove Finish Line’s shares down 22% to $8.10. The stock price is down over 50% this year and off its 52-week high of $24.52. For its fiscal second quarter, which ended August 26, revenue dropped 3.3% to $469 million. Comparable store sales were off 4.6% for the period. Oddly, management could not peg per-share earnings, which will be between $0.08 and $0.12, a wide spread. Brutally, Finish Line said:

Based on year-to-date results and the expectation that sales and gross margin trends remain challenging through the remainder of the current fiscal year, the company now expects Finish Line comparable sales to decrease 3% to 5% versus its previous guidance for an increase in the low-single digit range. Adjusted earnings per share are now expected to be in the range of $0.50 to $0.60 for the 53-week fiscal year ending March 3, 2018, versus the previous guidance range of $1.12 to $1.23, and compared with adjusted earnings per share of $1.06 for the fiscal year ended February 25, 2017, which was a 52-week year. The company estimates that the additional week will contribute approximately $0.06 per share to fourth quarter and full year fiscal 2018 results.

Finish Line has started to look like Macy’s, without as many store closings.

The Finish Line board says the company needs protection. However, the shareholders may need protection from the board. Finish Line disclosed:

[I]ts Board of Directors has unanimously adopted a shareholder rights plan (the “Rights Plan”) to protect the best interests of Finish Line shareholders. The Rights Plan is intended to reduce the likelihood that any person or group would gain control of Finish Line through open market accumulation or coercive takeover tactics that the Board of Directors determines are not in the best interests of the Company and its shareholders.

Shareholders deserve better. If an outsider is willing to pay a premium to buy the company, the board should allow it. Finish Line’s stock, otherwise, has nowhere to go but down.

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