Finish Line Supply Chain System Issues Hit Q3 Numbers

Supply chain performance issues tied to new order management and warehouse management systems led to inventory shortfalls and poor third quarter results for sporting apparel retailer Finish Line, which reported consolidated net sales of $382.1 million, down 3.5% from the prior year, and a 5.8% decline in same-store sales.

Finish Line also posted a net loss per share of 49 cents per share for the quarter, compared with a gain of 5 cents per share in 2015.

Glenn Lyon, who is transitioning out as chairman and CEO of Finish Line, said the new OMS and WMS systems, installed in September, were meant to drive efficiencies in its direct-to-consumer business through improved order routing and fulfillment, inventory management and improved in-store stock levels.

“However in October, we began experiencing issues with the flow of fresh inventory into our stores, as well as significantly reduced ability to fulfill online orders as the new system was unable to process freight at the volumes necessary to support our sales plans,” Lyon said during the third-quarter earnings call.

For the quarter, outbound shipments were down 25% compared to the prior year, Lyon said, meaning new product in store and online was behind Q3 2015 by an average of $41 million or 14%.

“This lack of inventory had a significant impact on our ability to convert traffic into sales,” he said. “Third-quarter traffic was flat compared to last year, which was consistent with first-half trends, but conversions dropped off in Q3 as we didn’t have the fresh receipts on shelves that our customers were looking for.”

Finish Line’s ecommerce sales were flat in the quarter even though they had been up 23% in the first half of the year, because of the lack of available online product. The company also experienced order processing issues, leading to cancellation rates 50% above normal.

“We estimate the total impact to our top line was approximately $32 million in lost sales,” Lyon said. “This includes a comp decrease of 9.8% for October and November combined which was a significant deceleration from the 1.3% comp increase we posted in September. The impact to our bottom line was a loss of approximately $0.42 per share.”

Lyon said Finish Line did respond quickly to the supply chain disruption, increasing technical and operational resources including third-party experts to correct the system issues and improve operating capability.

Finish Line President Sam Sato will succeed Lyon as CEO on Feb. 28. Lyon will continue to serve as executive chairman of the board through the end of the year, then moving to non-executive chairman thereafter.

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