Why Finish Line Shares Plunged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of footwear retailer Finish Line (NAS: FINL) sank 14% on Friday after its current-quarter outlook came in well below Wall Street expectations.

So what: Finish Line's fourth quarter managed to top estimates ($456.3 million versus the consensus of $432.6 million), but its forecast of a 30% profit decline in the first quarter is forcing investors to lower their valuation estimates. A shift in the promotional calendar and higher occupancy costs are beginning to weigh on margins, triggering fresh concerns over its long-term profitability.

Now what: Management's guidance implies first-quarter EPS of $0.21, well below the average analyst estimate of $0.35. Of course, Chairman and CEO Glenn Lyon reassured investors that Finish Line has "the right strategic plan in place" and that it looks forward to "creating value for shareholders over the long term." However, when you couple clear margin headwinds with the stock's strong price performance of late, I'd wait for a much bigger pullback before buying that bull case.

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At the time thisarticle was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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