Complications resulting from implementing new supply chain technology led to a sharp third quarter loss for athletic shoes and apparel chain retailer Finish Line as web and store sales suffered from inventory shortages, CEO Glenn Lyon told analysts on Thursday’s earnings call.
Finish Line went live with a new warehouse and order management system in September aiming to drive efficiencies through improved order routing and fulfillment, better inventory management and improved in-stock levels for stores, Lyon said. But in October the new order management system began having problems processing store and customer orders, which led to store inventory supply slowdowns and delays fulfilling web orders to the tune of online order cancellations 50% higher than normal, Lyon said on the earnings call.
“Digital sales were flat after being up 23% in the first half of the year due to a lack of new products available on our site,” Lyon said. “Outbound shipments were down 25% versus a year ago. As a result inventory of the newest goods available in stores and online was below Q3 of last year by an average of $41 million or 14%.”
Once the supply chain problems were identified the company brought in unnamed outside technology experts and focused other resources on rectifying the system issues, Lyon said. The result was a 6.2% increase in comparable sales for the December through Jan. 2 period of Q4. Finish Line expects to spend $5 million in Q4 to stabilize the supply chain system, he said.
“We anticipate that we’ll return to a stable operating environment during the first quarter and we will start leveraging the multiple benefits from our supply chain system enhancements,” Lyon said.
When the new order fulfillment system is fully functional Finish Line expects to boost the speed of online order deliveries “from click to doorstep by 25%,” Lyon said.
Mobile commerce continues to be a bright spot for the company as year-to-date digital sales have “increased double digits” and he expects Q4 mobile sales to be up by at least 10%. “We believe mobile will represent two-thirds of total digital traffic and nearly half of digital sales in fiscal year 2017,” Lyon said.
Finish Line’s earnings report also noted two other key developments regarding its store count and CEO succession plans.
Over the next four years it will close 150 underperforming stores—25% of its locations—that each produce average annual sales of about $1 million, Lyon said. Finish Line expects to capture a portion of the lost sales through other stand-alone stores and shops within Macy’s department stores and its e-commerce sites, which include FinishLine.com and JackRabbit.com, the online arm of stores by the same name that target serious runners and fitness-minded consumers with shoes and apparel.
The company also said president Sam Sato will replace Lyon as CEO effective Feb. 28. Lyon will serve as executive chairman of the board through the end of 2016, and then will become nonexecutive chairman of the board. Sato joined Finish Line in March 2007 as executive vice president and chief merchandising officer. In October 2014 Sato was named president of The Finish Line Inc. and was elected to the company’s board.
Lyon also said Finish Line is looking for a chief technology officer and has begun an immediate search for a new supply chain leader.
Finish Line has had its share of technology problems in recent years. In Q3 of fiscal 2014 the retailer aborted the rollout of a new e-commerce platform, citing unspecified performance factors, Lyon said in January 2013. Finish Line reverted to its previous e-commerce platform, but not before losing $3 million in sales, Lyon said.
Lyon did not name the vendor that provided the new platform, but Finish Line in November 2012 announced the relaunch of its website using services from e-commerce platform provider Demandware Inc. and digital marketing agency Big Spaceship, neither of which responded to Internet Retailer’s request for comment for an early February 2013 news article.
For the third quarter of fiscal 2016 ended Nov. 28, Finish Line, No. 144 in the Internet Retailer 2015 Top 500 Guide, reported:
- Web sales were flat compared with the prior-year quarter, which the company reported was 8.1%, a significant tail-off from 23% growth for the first six months.
- Total sales were $382.1 million, down 3.5% from $395.8 million in Q3 2015.
- Comparable-store sales decreased 5.8%.
- Net loss of $21.8 million compared with net income of $2.5 million in the prior year.
For the first nine months, Finish Line did not break out web sales but did report:
- Total sales were $1.31 billion, up 3.1% from $1.27 billion in the same period last year.
- Net income of $17.8 million compared with net income of $39.3 million.