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Run to the Finish Line

Chris Laudani

On Friday, footwear retailer Finish Line FINL is expected to report fourth-quarter and fiscal 2012 results. With the stock reaching new highs almost every day, will the shares sprint ahead or will the company feel the agony of defeat?

I ask because footwear retailers have been kicking it higher lately, but footwear makers keep tripping up.

Last week, for example, discount shoe retailer DSW DSW reported strong results. Revenue increased 9.7% to $513.7 million and same-store sales jumped 5.6%.

But footwear makers Crocs CROX and Deckers Outdoor DECK both fell hard when they missed Wall Street expectations. Deckers fell 12% after the company said first-quarter earnings would be down 50% due to the rising cost of sheepskin used in its popular UGG line. Crocs fell 9% after the company offered first-quarter guidance below analysts' expectations.

Nike NKE turned in mixed results. Earnings per share were three cents better than expectations on $5.85 billion in revenue. But, if you looked deeper, even Nike had a tough time. Gross margins declined 200 basis points to 43.8% on higher production costs.

It seems that America's foot fetish has kept them running to the shoe store. In the fiscal third quarter that ended in November, Finish Line reported that sales rose 8% to $282 million and operating income rose 16.2% to $7.5 million. In the fiscal second quarter, the company reported earnings per share grew 11% on higher same-store sales and 10% higher total revenues.

In the first nine months of the fiscal year, Finish Line has run away with a gold medal. The company reported revenue rose 8% to $912.9 million and operating income leaped 21.7%. Holy cow!

With results like that, the stock has been on a wild ride. The stock seems to be making new highs every day. It bottomed out in January and hasn't looked back. It's up 32% year-to-date.

Right now, Wall Street expects fourth-quarter revenue of $431.2 million, up 12% year-over-year. For fiscal year 2012, Wall Street expects revenue to jump 9.4% to $1.34 billion. According to Thomson One, of the 13 analysts that follow Finish Line, only one has a Hold rating. (I haven't read the report, but my guess is the rating is tied to valuation.)

Even good old Foot Locker FL has been on a marathon run. When the company reported on March 1, earnings per share increased 47% and it was the eighth consecutive quarter that sales and profit increased. Gross margins rose, comparable-store sales rose, sales were up 11%. The board raised the dividend and approved a new $400 million stock buyback. Whew!

My advice: If you want to run with the momentum crowd, use the footwear retailers and avoid the footwear makers. Just keep an eye on higher gas prices. Americans may love to buy shoes, but if they can't afford to drive to the mall, all bets are off.