Finish Line Is An Example Of How Not To Operate An Apparel Business

Finish Line Inc (NASDAQ: FINL)'s stock plunged 15 percent on Wednesday, and the decline carried over into Thursday's trading session in reaction to the company's poor third-quarter earnings report.

Gadfly's Shelly Banjo hinted that Finish Line's poor results shouldn't necessarily come as a surprise. Apparel sales plunged 50 percent in the quarter on a year-over-year basis and taking a quick look at the company's website explains why.

Banjo continued that Finish Line's product assortment consists of dull-colored jackets, plain and over-sized tanks. By comparison, peers — including Lululemon Athletica inc. (NASDAQ: LULU), Nike Inc (NYSE: NKE) and Under Armour Inc (NYSE: UAA) — offer colorful assortments that are fashionable.

Finish Line also offers 60 different kinds of women's leggings online, and while this may seem like it a lot it absolutely pales in comparison to the 423,000 pairs that are available on Amazon.com, Inc. (NASDAQ: AMZN).

In other words, Finish Line's assortment is bland and not exciting to consumers. Even though its clothing and accessories sales account for less than 10 percent of its business, investors are naturally worried.

Warning Signs

Banjo further argued that while Finish Line has fallen behind the competition, its peers could be next. After all, the $44 billion athleisure market is crowded and retailers ranging from Wal-Mart Stores, Inc. (NYSE: WMT) to Gucci and Versace are all getting in on the action.

"Run-of-the-mill athleisure no longer cuts it," Banjo concluded. "Companies that don't innovate beyond the basics will lag retailers that put time and money into developing new fabrics, textures and styles. Finish Line risks falling to the back of the pack."

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