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Executives

Bo Swenson, Chief Accounting Officer

Glenn Lyon - Chief Executive Officer

Steve Schneider - President, COO and Interim CFO

Analysts

Robbie Ohmes – BAS-ML

John Shanley – Susquehanna Financial

Bernard Sosnick – Gilford Securities

Jeff Van Sinderen – B. Riley & Company

Kate McShane – Citigroup

Sam Poser – Sterne Agee

Heather Boxsen – Sidoti & Company

The Finish Line, Inc. (FINL) F3Q09 Earnings Call January 7, 2009 8:30 AM ET

Operator

(Operator Instructions) At this time I would like to welcome everyone to the Finish Line Third Quarter Conference Call. At this time I’ll turn the call over to Mr. Bo Swenson, Chief Accounting Officer.

Bo Swenson

I’m Bo Swenson the Chief Accounting Officer for Finish Line. Thank you for participating on our conference call regarding Finish Line’s Third Quarter Results. A copy of the press release that we issued yesterday is available on our website at FinishLine.com.

We ask that you remember that some of the comments made by Finish Line management during this call may be considered forward looking statements that involve risks and uncertainties and therefore actual results may differ materially from those statements expressed or implied by management. Such risks and uncertainties include but are not limited to product demand and market acceptance risks, the effect of economic conditions, the effect of competitive products and pricing, the availability of products, management of growth and other risks detailed in the company’s January 6 press release and our SEC filings.

We will begin today’s call with some opening remarks by Glenn Lyon our Chief Executive Officer. Steve Schneider our President, COO and Interim CFO will then provide details on our operating results. I will then cover the quarter’s financial results before turning the call back to Glenn for closing remarks. At that time we will be pleased to take your questions.

Glenn Lyon

I’m pleased to serve the company for more than seven years now. I’ve talked with many of you over this time. However, this is my first call as the company’s CEO so I wanted to begin by telling you where I see The Finish Line heading. This will include a review of progress we’re making on our core initiatives as well as the opportunities I see to address the challenges our business is facing.

When I joined Finish Line I did so because I believed in the company and in the vision of creating a leading premium athletic specialty store. As President of The Finish Line I am proud of the part I played in developing the architecture around this vision. As we move forward we will build on this vision. It is our underlying foundation and will not change. Indeed it supported a $0.17 improvement year to date in earnings from continuing operations per diluted share on a non-GAAP basis.

This said we’re operating in extraordinary times. It’s the most challenging retail environment that I’ve seen in my 35 year career. While our focus on being a leading premium athletic specialty store will remain the same the environment in which we are operating requires we be more prudent and definitive in the actions we take to realize our vision. This means harvesting the value from investments that we’ve already made before we make new ones. It also means placing greater emphasis on the three core initiatives that we have previously defined for you.

These core initiatives are:

Instilling aggressive cost controls in our business.

Continuing to improve our inventory management.

Ensuring a premium assortment of products that differentiate The Finish Line with premium defined by the customer not by the price of the product.

I am pleased to report that even in this challenging environment we are making progress on all of these initiatives. Let me start with the cost controls. During the past nine months our cost control initiatives have focused on three primary areas; store freight, the distribution center, and occupancy costs. We are succeeding. By negotiating store freight programs and improving shipping logistics along with significantly reducing our inventory the company’s store freight costs are down 40 basis points compared to third quarter last year as well as on a year to date basis.

Distribution center expenses have also been reduced. Key actions such as reduction in wages, lower merchandise receipts, decreased vendor returns for the year have resulted in a 20 basis point improvement in distribution center costs over the same period of time.

Occupancy costs which have increased significantly over the last several years have been leveraged year to date through the hard work of our real estate management team. We’ve taken advantage of lease renewals; kick out opportunities and the closing of non-profitable stores. As a result of these and others our progress across these focus areas SG&A was down $2.2 million compared to third quarter last year, with occupancy costs also down and flat as a percent of sales despite the negative sales comparison.

Our progress is just beginning. We are reviewing every area of our operations to find additional cost opportunities. Among these areas efforts are underway to drive lower costs in IT, telecom, and payroll. These are just a few of the areas that we’ll be focusing on in the coming quarters.

We are also making progress improving inventory management, our second core initiative. Here our progress starts with better merchandising including content, quantities, and sell through. We remain focused on growing our sales faster than our inventory levels. We will continue to create and execute initiatives to support this strategy.

Timely mark downs and well priced everyday items such as those that are part of our 50 spot offerings have also contributed to inventory improvements. Let me be clear, we are not going to drive traffic and inventory turns at the expense of profitability. At Finish Line we will avoid storewide sales and promotions such as Friends and Family that others in our industry may pursue.

As a result of the actions we’ve taken we have achieved steady improvement in inventory turns and margins over the past year. For this quarter, inventory turns have improved 10% compared to third quarter last year and 10% on a year to date which is on our plan. As turns have improved, consolidated inventory per square foot has declined. It was down 12% at the end of the third quarter compared to the same period last year. In Q2 it was down 10% and it was down 8% in Q1. We anticipate that it will be down mid single digits at fiscal year end.

In addition to driving improved margins our progress on reducing inventory levels is helping to lower soft costs at the store level. For example, employees are spending less time handling product deliveries. The decrease in store to store transfers has also resulted in more time spent on servicing customers. This greater face time with customers has helped increase conversions and average dollars per transaction.

As a result The Finish Line has been more productive despite the decline in traffic count throughout the year. As we look ahead driving further improvement in these metrics and managing our inventory investment will remain a clear focus for us.

Our third core initiative is ensuring premium assortment of products. Sam Sato and his team are creating a distinct compelling and relevant assortment in our stores that resonates with our target customer. Our progress is evident, with strong performances from brands like Jordan, Converse, Lacoste, The North Face and Ed Hardy. In addition to our current portfolio of brands we will continue to search for new exciting trend leading premium brands to add to our assortment.

As we look ahead we will continue to emphasize the right assortment of both performance and sports style products from the best in class brands that lead consumer trends. Having reviewed our progress on these Finish Line core initiatives now let me turn to Man Alive. We plan for improvement in the Man Alive business which has not been realized. Clearly the results are not acceptable. Lou Spagna and the rest of our management team at Man Alive are doing a solid job. However, all urban retailers are challenged and have been for some time.

We are not content with the performance despite these macro trends. We will realize that as trends shift it is necessary to make changes and we are taking a hard look at the business. Right now we are working to reset the stores with different mix of inventory and marketing position. We will carefully monitor the results of our effort to invigorate Man Alive. We will make appropriate decisions based on the results over the coming year.

Before I discuss the focus for our coming quarters let me turn the call over to Steve now to review our third quarter operating performance. I surely want to congratulate Steve on his appointment as President. As many of you know, Steve has been with the company 20 years and has been and will continue to be a great partner for me.

Steve Schneider

I’m going to start with a few of the product results for The Finish Line business in Q3. Our footwear business was essentially flat in Q3. Kids was up low single digits, women’s was down single digits and men’s was flat. Nike continues to lead our footwear business with strong support from Brand Jordan. Performance categories were positive for the quarter. Running was led by Asics, Nike, Puma, and Brooks. Basketball was driven by Nike and Brand Jordan.

Seasonal products such as slides and boots showed strength in Q3. In soft goods we have found success with some premium branded apparel statements such as Under Armour, Jordan, Livestrong by Nike and The North Face. Overall, product margins in footwear and soft goods were up 60 basis points at Finish Line.

Now let’s talk about areas that have underperformed and the actions we are taking to improve them. Some of the traditional athletic brands are well below where they were last year. These vendors are working to provide us with new relevant products and stories to help their brands be successful. We will be closely tracking the performance of these products and will continue to adjust our assortment to improve results.

Although the sports style side of our footwear business has been below plan we have had success in both men’s and women’s brands as Glenn previously mentioned. We continue to search for and add brands to our assortment that we believe will resonate with our consumer.

In apparel our negative comp largely reflects the NFL and NBA products which have been unproductive and unprofitable. The poor performance in these products is largely due to the fact that they are broadly distributed across the marketplace and require promotional pricing. This kind of distribution and pricing is not consistent with our vision or product expectations at Finish Line. Therefore we are scaling back our offerings of these products and increasing our position with key premium brands as I noted earlier.

From an operational standpoint we have made progress in a number of areas. Cost improvements which Glenn discussed have resulted in savings in store freight, distribution center and occupancy costs. CapEx for the year is expected to be down approximately $4 million compared to our initial estimates earlier this year.

Improving merchandise content has led to significantly lower inventory per square foot and better turns which have resulted in much stronger cash flow. Dropping the average store size through smaller new store openings, downsizing larger stores and closing larger non-profitable stores continues to be a focus to help us improve sales productivity.

Going forward we believe the mall environment will provide opportunities as approximately 40% of our stores have leases that will either expire or hit kick out dates over the next 12 to 15 months. We intend to negotiate terms that work for both us and our landlord. In cases where we can’t mutually agree with terms with our landlords we are willing to close unprofitable stores.

Our balance sheet remains strong. Even considering the cash outlays related to the terminated merger our cash position improved $41 million over last years Q3. All of these areas have helped us financially and with that I will turn the call over to Bo for some details on the Q3 and year to date financial performance.

Bo Swenson

Q3 which ended November 29, consolidated net sales decreased 4.4% to $256.9 million from $268.7 million last year. Consolidated comp sales for Q3 declined 3.6%. By concept, Finish Line comps declined 3.3% and Man Alive comps declined 6.8% compared to the same thirteen week period last year. Comp sales by month for Finish Line stores were as follows: September declined 1.7%, October was flat and November declined 7.7%. For the quarter comp store footwear sales increased slightly up 0.1% while soft goods declined 17.3%. For the quarter the average selling price for footwear increased 6.7%.

For Q3 Man Alive reported a 6.8% decline in comp store sales. By month Man Alive September comps declined 5%, October declined 11.3% and November declined 4.5%. For Q3 on a GAAP basis the company posted a loss from continuing operations of $8.8 million or $0.16 per diluted share as compared to a loss from continuing operations of $13.8 million or $0.29 per diluted share for Q3 last year. Included in last years Q3 loss is the charge of $0.12 per diluted share related to the terminated merger with Genesco. Excluding these expenses the company’s Q3 loss last year was $0.17 per diluted share.

The gross profit percentage for the quarter decline 10 basis points versus Q3 last year to 25.9% of sales. This decline consisted of a 30 basis point decrease in product margins offset by a 20 basis point improvement in shrink. The reduced product margin was the result of mark downs in the Man Alive division offsetting the improvement in The Finish Line store product margin which increased 60 basis points.

Occupancy costs decrease in dollars for the quarter versus last year and despite a comp sales decline were flat as a percent of sales. SG&A expenses for the quarter were 31.5% of sales a 50 basis point increase compared to 31% in Q3 last year. The increase as a percentage of sales was primarily related to the affect of the negative comp store sales. In pure dollars, SG&A expenses declined $2.2 million for the quarter versus Q3 last year. The company benefited from reduced expenses in store freight, store payroll, distribution and depreciation.

Interest income was $194,000 for Q3 versus $223,000 for Q3 last year. The decrease reflects the decline in average invested interest rates versus last year despite having higher average invested balances year over year. The effective tax rate for Q3 was 38.2% as compared to 39.6% for last year. Diluted weighted average shares outstanding were 53.9 million for Q3 and 47.2 million last year. The increase in shares outstanding reflects the 6.5 million shares issued in connection with the terminated merger settlement earlier this year.

For the year consolidated net sales have increased slightly 0.4% to $898.1 million versus $894.4 million last year and comp sales having increased 1.1% year to date. On a GAAP basis the year to date income from continuing operations was $5.2 million or $0.10 per diluted share as compared to a loss from continuing operations of $9.5 million or $0.20 per diluted share last year.

Included in last years result is a charge of $0.13 per diluted share for expenses incurred in connection with the terminated merger. Excluding the expenses related to this matter the company incurred a loss of $0.07 per diluted share year to date last year.

The company opened three new Finish Line stores, remodeled one existing store and closed one store in Q3. For the year we opened nine Finish Line stores, closed seven stores and remodeled 15 existing stores. As of the end of the quarter the company operated 699 Finish Line stores compared to 701 at this time last year.

Finish Line store square footage decreased 1.4% to 3,820,000 compare to 3,875,000 at the end of Q3 last year. This decline in store square footage was the result of opening smaller stores and downsizing or closing larger format stores, both of which are part of our continued effort to improve store square foot productivity.

The company did not open or remodel any Man Alive stores this fiscal year and closed one store. The company operated 93 stores as of the end of the quarter compared to 96 stores one year ago, a decrease of 3%. In addition, Man Alive store square footage declined 3.3% to 321,000 square feet compared to 332,000 square feet at the end of Q3 last year. There are no planned remodels or additional new stores to be opened for either Finish Line or Man Alive for the remainder of fiscal 2009. However, the company does expect to close between 10 to 15 additional stores in Q4 between both concepts.

Merchandise inventories on a consolidated basis were $293.2 million at quarter end compared to $338.7 million at the end of Q3 last year. On a per square foot basis consolidated inventories decreased 12%. By division Finish Line inventories decreased 12% and Man Alive decreased 5%.

For the upcoming fiscal year, fiscal 2010 the company’s initial Finish Line store plan is to open 10 to 15 stores, remodel 15 to 20 stores and close 10 to 15 stores. There are no new Man Alive stores scheduled to open in fiscal 2010. Man Alive store closings are expected to be in the range of five to 10 stores.

Capital expenditures for Q3 were $3.9 million and $13.1 million year to date. The amount of depreciation and amortization expense in Q3 was $9 million and $28.4 million year to date. Our CapEx projections for this year are estimated to be $15 to $17 million and depreciation for the year is estimated to range from $37 to $39 million. Total CapEx for all store construction and corporate technology improvements for fiscal year 2010 is expected to range from $15 to $18 million with depreciation expected to be $33 to $36 million.

The company’s balance sheet remains strong with cash and short term investments of $55 million and no interest bearing debt. This is an increase of $41 million in cash and short term investments versus the same time last year. Additionally, the company has filed its third quarter 10-Q with the SEC which is now available on our website.

We expect to report sales and earnings for Q4 which will end February 28, on Friday, March 27, and discuss the results on a conference call that same morning. I will now turn the call back to Glenn for some closing remarks.

Glenn Lyon

We have just finished December; the first month of our fourth fiscal quarter so let me give you some flavor on what we experienced this last holiday. Black Friday and Thanksgiving weekend were slightly stronger than we planned. After that weekend we saw a steep decline in traffic and conversion with customers largely buying value priced items.

In the days just before and just after Christmas, however, we saw a steady resurgence in traffic and sales. It put December comps down 6.8% and consolidated product margins down approximately 100 basis points versus a year ago. As we manage through the traffic and discounting issues which will continue to put pressure on our product margins for the balance of this fiscal year we will remain true to our vision of being a premium athletic retailer.

Certainly we’re realistic and know that there will be an ongoing demand for value priced offerings. That said, we are not going to change who The Finish Line is and we are not going to so alter the value equation that we sacrifice profitability and the premium product offering that has differentiated our company.

To manage through this downturn we will remain focused on the core initiatives including our aggressive cost controls, improving inventory management and ensuring a premium assortment of products. We are clearly making progress in each of these areas and we have identified additional actions to build on our success as I previously discussed.

To drive further gains in productivity and profitability at Finish Line and Man Alive optimizing occupancy will also be very important. Our current 2010 plan calls for limited number of new store openings. As Steve mentioned, approximately 40% of our existing Finish Line store leases will be in play over the next 12 to 15 months through lease expirations and/or kick out provisions. We intend to negotiate terms that work for both us and our landlords. In cases where we can’t reach mutually agreeable terms with our landlords we are willing to close unprofitable stores.

Additionally, our website will play a key role in our future success. We know that consumers are increasingly using the web to buy products not just gather information. Our direct to consumer business is performing well. Sales at FinishLine.com increased double digits in the third quarter and we see continued growth potential in this channel.

As we have with our store environments we will continue to invest in FinishLine.com to improve the shopping experience online and create a more premium and differentiated environment. Look for many more updates this spring.

As part of our premium product assortment we will continue to enhance our vendor relationships. This includes working to build new relationships and support existing ones. We want our vendors, landlords and other business partners to know that as the marketplace improves our strong balance sheet will allow us the flexibility to expand and provide Finish Line and our partners with additional growth opportunities.

In conclusion, we cannot predict when the economy will improve or when consumer confidence will return. However, we can control our expenses, our inventories, our premium positioning and the experience our customers have when they walk into our stores or visit our website. We are 100% focused on these tasks as part of our effort to improve profits even if sales continue to be challenging. We have made improvements in profitability and productivity over the past year but we still have much work to do.

I am confident that with these plans and the company’s strong balance sheet Finish Line has the ability to weather the current market so that we are well positioned for even stronger performance when economic trends improve.

Now we will be happy to take any of your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Robbie Ohmes – BAS-ML

Robbie Ohmes – BAS-ML

Can you for the December comps you gave can you give the breakout of footwear versus apparel for us and any other color on that would be terrific? If you could remind us of the upcoming Under Armour sneaker launch at the end of this month and how you feel you’re positioned to that and if that could be a benefit to your underlying comp trend?

You mentioned The North Face I was just curious on your Timberland business and also as you look to the quarter you just came through in the month of December were there anything that stood out that you felt you should have been a lot deeper in that might have helped you put up better same store sales?

Glenn Lyon

We don’t break out by segment but in terms of the footwear the comps in footwear were down 1% and the comps in apparel were down 22%, similar to the trends prior. With respect to Under Armour you know they’ve been a great partner to us almost from the beginning. The training launch was very successful for us and we had a good year or almost a year with that.

The running launch which comes in a couple of weeks, I think it’s the 31st of this month, is about twice the size of the launch that we had with training. It will represent a pretty significant part of our running assortment come the beginning of February. Especially at the beginning there are some opportunities to increment our running business by some double digit number in both men’s and women’s.

In terms of North Face and Timberland, North Face we continue to grow. I think about a year and a half ago Sam started with about 10 stores of product between apparel and footwear. We expanded to 25 stores. Now we’re building plans to be in excess of 100. We’re building some items with them and we’re very encouraged about our ability to create a differentiated product assortment with North Face and it’s a brand that we think has great opportunity for us.

Timberland has I think done some good work in the marketplace. Our average prices have gone up, limited store distribution and not a very big number for The Finish Line but certainly a more profitable number. Our guys continue to work with them on quite a bit of testing looking to some new products that are relevant for our core customer with Timberland.

As far as opportunities deeper I can’t think of too many. You know that everything we have done here over at least the last year has been about improving the productivity of our inventory, increasing our turns and in turn creating more profitability. Over my career increased turns have inevitably led to higher margins. We’re fighting a trend here of decreased traffic and traffic has been down mid to high single digits for a year now. The third quarter was at the high end of that as we got closer to Christmas.

We’re fighting an antsy customer if you will. We’ve got to be somewhat cautious. Having said that, as a buyer my whole life I don’t think I’ve ever had the right amount. I’ve either been too short or too long on products. I have a feeling that will go on forever.

Operator

Your next question comes from John Shanley – Susquehanna Financial

John Shanley – Susquehanna Financial

I was wondering if you could give some light on the lease cancellations that you mentioned. How many could you potentially extract yourself from if you wanted to really pull in in terms of the number of stores that you operate?

Steve Schneider

With almost 40% that are up over the next 15 months that’s almost 300 stores. Quite frankly we’re looking at it as the opposite not how many can we close its how many can we renegotiate to turn some of the losers into gainers and we’ve had a lot of success here over the last six to nine months in doing that. We think the mall operators certainly want to keep lights on and not see any more people go dark in their malls.

Having said that, there are going to be some. We did put in our projections that for the fourth quarter here we expect 10 to 15 stores will close and we expect maybe 10 to 15 more next year. If the landlords get really difficult then that number could go up some from there but our hope is that we can actually save more of these stores so we don’t close quite as many as that total of 20 or so.

John Shanley – Susquehanna Financial

You have kick out clauses for those stores that you would potentially want to close?

Steve Schneider

Yes, I don’t know what the breakout would be of that 40% as to how many were kick outs versus natural expiration but there’s a pretty good chunk of kick outs in there and those are the ones where we have even more leverage. I believe in those cases we’ve been batting a pretty high percentage as of the last six to nine months of getting the landlord to come up with the minimal lease terms that make sense for both of us.

In many of these cases what may happen is not that all of a sudden we renegotiate the entire lease it may mean that we push the kick out clause one, two or three years and go to some kind of alternative rent that’s more of either a percentage or lower number. In those cases we’re happy to do that to turn either a break even or a loser into a winner.

Glenn Lyon

There may be a few stores that are not salvageable but clearly our goal is not to downsize The Finish Line by any significant number of stores. We really do believe that with the landlords we can find a good common ground to keep these stores operating profitably for us and for them.

John Shanley – Susquehanna Financial

For the Man Alive stores how do you anticipate generating the positive comps that you’re going to need to be able to turn that business around from the losses that it’s currently generating? What would be the timeframe that you’d expect this business could eventually become profitable?

Glenn Lyon

I hear what you’re driving at here and I hope I’ve been clear that we here at The Finish Line are not happy with the performance at Man Alive. Having said that, it is our aim to ensure the most profitable and value preserving route for the shareholders. We get that part, we absolutely realize that. My hope is that as we make some changes to this mix and we evolve to a better place and a place that the world will see more evidence of as we get into the spring season and we’ll talk more about that and you’ll see more of that.

My hope is that we save 93 stores. Is it realistic to think that that’s going to be the case? Probably not. Here again its not that we are looking necessarily to downsize the whole business. There are some problematic stores in there that we will be renegotiating leases on.

John Shanley – Susquehanna Financial

Turning to the current promotional environment for the overall company, what is the environment right now in terms of business conditions? I don’t know whether you or Glenn wants to answer this but is it as bad as it was earlier in the year or has it improved to some degree. Can you give us temperament in terms of how your competitors are stacking up in terms of their promotional cadence right now?

Glenn Lyon

I don’t believe that this is as much about us and our competitors as it is about the general landscape in the mall. Whether it is the youth apparel retailers or the more grown up retailers or the department stores. The promotional activity is huge and it’s got to be. That’s something that we’re all facing. These are extraordinary times and I think there are very few retailers who would say to you anything different, that there’s any concept that holds up to traffic in malls being down mid to high single digits for extended periods of time.

This is challenging and as I said we will continue to look at our overheads, our costs, our cost of doing business and we recognize that we could be facing decreases in sales for the next six to 12 months. We have a plan in place to cut our overhead so that we can be more profitable than we were this year. That’s our hope.

I don’t think it’s necessarily about what’s going on in footwear, I think you look at the whole landscape and see what the customer isn’t shopping to start with and when they are shopping the opportunities to buy everywhere right up to the luxury people is bringing prices all down into the middle.

Steve Schneider

Because the environment is what it is we are really doing everything we can to keep our inventories in line. At the end of December, at the end this period that ended January 3rd our inventories are going to again be down double digits which I think is positive considering we didn’t get the comps we would have liked, we were down -6.8% or so. Also, our cash position which we expect to be darn good the whole quarter is over $100 million with no interest bearing debt.

Right now I think cash is king and there is so much uncertainty out there we’d rather sit back here and wade through this thing and be as good as we can with inventory control and cost control until we can see what’s going to happen. As we read everywhere there’s going to be changes in the malls. The concern over the traffic being down is real.

Glenn Lyon

Everything we talked about here is about quality. Productivity of our people, productivity of our inventory that’s everything we’re talking about here today. We think we can make improvements everywhere.

Operator

Your next question comes from Bernard Sosnick – Gilford Securities

Bernard Sosnick – Gilford Securities

With regard to your comment that you want to be positioned to perhaps even improve profits with decreasing sales, could you give us an idea of at what point perhaps in comps you feel you might be able to break even?

Glenn Lyon

We have continued to leverage ourselves better than we were. I think probably two years ago Kevin Wampler was talking about we needed 4% increases. Recently we were down to 2% and we’ve given you some results here that we could leverage at minus a couple of percent. Can we make some improvement in that? Yes, I think that as long as you’re low single digits I think we can leverage profitability. When we start getting higher than that the decisions start to need to be more aggressive than what we’re even planning here in the next six to 12 months.

Bernard Sosnick – Gilford Securities

I think if you can lever it -2% it would be wonderful. With regard to sales in the third quarter and especially December, there was the weakness in apparel. A year ago you had cut your inventories in apparel greatly and had planned for lower sales going forward so you’re doing even worse than you planned decrease for apparel. To what extent did apparel put pressure on profits in the third quarter and let’s say December? How is the profitability outlook for footwear?

Glenn Lyon

On the apparel we actually made our plan and we made our plan with the license portion of or business being below plan and below margin plan. Our productivity, our turns were up, our margins were up in apparel and in soft goods in total. That didn’t hurt our plan as much as parts of the footwear business were disappointing to us and that had as much to do with selling at the more value part of our business than we had experienced. That actually started to really show its face to us not until almost the first week of November.

If you look at our numbers and you can extract some of the margin numbers it’s really the last eight or nine weeks that we’ve seen customers going to the more promotional ends of our offerings. The answer to you on the apparel and soft goods part is no that did not affect our third quarter results. We planned for that and in fact our inventories are down much more around 40% actually. We will respond to things that are good out in the market I think we’ve shown that over time.

We talked about Under Armour, we talked about Livestrong from Nike, we talked about The North Face, those are all products and Jordan is a big part of our opportunity in apparel. Those are all premium products with good distribution that we think we can make money with. How we grow those business and how we get smarter with them that’s going to take us some time.

Bernard Sosnick – Gilford Securities

I commend you on the game plan. Based on your last comment regarding footwear, are you saying that premium footwear slowed down in sales and customers gravitated to the lower price points where there was a great deal of promotion?

Glenn Lyon

No, all I’m saying to you is that price points have come down a bit on all parts of our business. We were selling products on average at the premium end at $100; they’re selling at $95 on average. We’ve had to take some markdowns to keep our inventory moving. That’s all I’m saying to you.

Bernard Sosnick – Gilford Securities

Could you amplify a little bit at the low end of the price spectrum? There was more interest in the lower end of the price spectrum for footwear but that’s with a promotional intensity is greatest.

Glenn Lyon

We get into a competitive situation outside of our core customer when we’re dealing in $50 products. We have a 50 spot program that we like, it’s a small percent of our business, and it gives the value customers some choices in our store. It doesn’t alienate them from our store but we can’t make that too big. We’ve got to depend on the high end businesses on the premium business, on the new brands, on the new categories and the new launches that’s what we’re about.

Operator

Your next question comes from Jeff Van Sinderen – B. Riley & Company

Jeff Van Sinderen – B. Riley & Company

Can you talk a little bit more about how do you avoid being excessively promotional without losing market share and how do you stay premium while adding more value merchandise while the value merchandise trend continues?

Glenn Lyon

It clearly starts with timely markdowns. In our world we have had to be more aggressive on timely mark downs. It’s always been the right item drives business at The Finish Line. It’s a little tougher to find the right item and it’s a little tougher to get 10% sell through instead of 9% sell through. That’s what we’re facing.

Our vendor partners are cognizant of this; they work with us week in, week out, quarter in, quarter out. They are all sensitive to it. We work on seasonal plans, we review them quarterly with all of our key vendors and we have seen no leakage in support and partnership from any of the people that we do business with today.

Jeff Van Sinderen – B. Riley & Company

With someone like Nike how do they work with you as far as markdown dollars?

Steve Schneider

I was going to add something to what Glenn was just saying. Clearly though there was a change in December than from Q3, although we don’t give a lot of color on December we went from being up in Q3 almost 7% on the average footwear price to just up over 1% in December so that certainly is the value customer and what Glenn was talking about timely markdowns affected the average footwear price.

We also said that our margins were down 100 basis points so those two went together in December and that is a change from what Q3 is. That is why we said we expect the margins to be under pressure for Q4. The question is as to how far this economy goes next year will dictate whether or not we can get back to that average footwear price going up again more and the margins staying up. It’s a question mark that we can’t really answer right now.

Jeff Van Sinderen – B. Riley & Company

Did you break out how much of your business was Nike?

Glenn Lyon

Nike’s contribution to our business went up about three percentage points.

Steve Schneider

In total it’s getting close to 58%.

Glenn Lyon

They earn that every day.

Steve Schneider

It’s higher in footwear than in total but in total it’s around 58% of Finish Line. We don’t carry Nike in Man Alive.

Jeff Van Sinderen – B. Riley & Company

As far as Man Alive, if we can shift there for just a minute do you have a timeframe in mind for making a determination on Man Alive. It sounds like obviously you want to turn it around you want to keep all the stores open as I think anybody would want to do. Is there a timeframe you have in mind there for making a determination of closing a number of stores or would you even consider just closing the whole chain?

Glenn Lyon

We don’t have a specific date. We need to see improvement in that business. Improvement can come in different ways. It can come in margins improving, sales improving, occupancy costs improving so there’s a lot of levers that we’re pulling today that we’re expecting to see results. It’s very important that we see significant improvement over this calendar year through next Christmas. It’s very important that we see something that tells us that there is light at the end of the tunnel.

Jeff Van Sinderen – B. Riley & Company

Any thoughts you have going into the spring season how you expect that to play out in terms of sales trends and any other color you can give us on promotion cadence.

Glenn Lyon

There are lots of great product that we purchased for this season. I think I say that every single season. Having said that, the most important metric to us right now is the fact that we have less customers shopping in the mall and in our stores. How that goes, how our landlords motivate people, how the economy affects people will have the greatest effect on how our sales go. We feel good about our inventory; we have invested in a lot of new brands and a lot of new initiatives with people.

As I said at the beginning, this is the most challenging retail environment I’ve seen in 35 years. I don’t think we can take this lightly. Our strong balance sheet, we’re going to continue to control our inventory and our costs. I can’t drive those points home enough times in terms how we’re spending our time and how we’re looking at Finish Line.

Jeff Van Sinderen – B. Riley & Company

It seems like you’re focusing on the things that you can control. That’s the right thing to do.

Glenn Lyon

Exactly.

Operator

Your next question comes from Kate McShane – Citigroup

Kate McShane – Citigroup

In regards to Under Armour how is the footwear offering going to be differentiated from some of the other players in the mall that are going to be selling the new Under Armour running shoe? In regards to your apparel strategy what is your longer term strategy for private label?

Glenn Lyon

Under Armour is very focused on our core customer, the high school, college kid. They’re very focused on that. I don’t know if you’ve seen the ads that have already started to break pre-launch of the product. The design of the shoe is young although technical. We’re optimistic about this. Any time new launches, new vendors come into the market people like The Finish Line benefit. It also elevates the game of their competitors. It’s all good and we think that this launch is important to us and it’s a significant quantity of product and it will take a significant position in our stores.

With respect to apparel we have done a good job on private label apparel in basic items. As we have ventured out to try and design and compete with the athletic vendors we have not been terribly successfully. I wouldn’t say to you that it is not at all part of our strategy but it is a very minimal part of our strategy. It’s a very item driven business, t-shirts, sweat shirts, basketball shorts, and things like that. We’re talking about taking key positions with the most premium brand.

We want to grow the Nike business, the Jordan business, the Under Armour business, The North Face business, that’s where our attention is. That’s the investment we’re going to make. By the way, that helps us in average selling price, square foot productivity. We need to sell things at $50 not $5. We’re a premium retailer.

Kate McShane – Citigroup

Even though it would help with average selling price and square footage productivity brand name product is still a lower margin product so there would be a margin shift there.

Glenn Lyon

What you’re assuming that you do competent private label product. In our environment we’re still a shoe store that sells apparel. To create compelling product that competes with not only athletic people but also with other youth apparel retailers with all the private labels and all of the things they do is a very big challenge. We have been to this show for many years at Finish Line and never really done a great job of it.

I’m still hanging my hat on the brand partnerships, with new relevant things for teen customers such as Under Armour, North Face, Nike, Jordan. Those are the guys that are going to take us there.

Steve Schneider

The key in retailing for us is maximizing the gross margin dollar per square foot. Even though you may run at five to 10 points lower on branded product than private label if you’re selling a $5 t-shirt versus a $50 jacket obviously we can sell a lot less of the jacket and still gross margin dollars be much higher.

Glenn Lyon

We’re very sensitive to density in our stores. We think that by eliminating some of this lower priced product that we’ve had in the stores in the past it’s created better sight lines, it’s created a more premium environment. We’re continuing along that path. I want to trade at the highest level as possible for our core customers.

Steve Schneider

Our soft goods and apparel margins are up over 150 basis points this year.

Operator

Your next question comes from Sam Poser – Sterne Agee

Sam Poser – Sterne Agee

Going back to Under Armour you put out a flying saying that you could take pre-orders on the product beginning around the first of the year going through the date of the launch. What’s been the response to the pre-ordering?

Glenn Lyon

I can’t tell you, that’s never been a big part of our business, any of the pre-ordering business. I don’t think necessarily customers expect that from us. That’s the one I’d have to get back to you on. It’s not high on my radar screen as to what that significance is. The real key is launch date number one, that’s when the excitement happens for us.

Sam Poser – Sterne Agee

Can we expect merchandise margins into 2010 to continue to improve or the way we’re looking at it now we think it’s going to be flat or down?

Glenn Lyon

It’s certainly always our goal to improve merchandise margins. The plans we have in place to improve turns as I said typically all through my career that has always enabled retailer to improve his margins. Having said that, I’ll remind you I think we’re dealing in extraordinary times. To promise that today or throw a number out there I think would not be responsible on my part. I can control my expenses.

Sam Poser – Sterne Agee

Man Alive, you talked about Finish Line leases, what about Man Alive leases and kick outs and expirations there, how are you looking to renegotiate those and where does that stand?

Steve Schneider

That’s actually in those numbers we’re talking about. There may actually be a few more Man Alive’s in that as a percentage than 40%. I think it was more than that.

Glenn Lyon

We’re four years into that business and a lot of those leases; remember we started with 37 Man Alive. We’ve opened up a lot of stores and there are a lot of kick outs in those leases. It may be a higher percent but as Steve said that 40% was our entire company.

Sam Poser – Sterne Agee

In theory though with a higher number there since that’s not happening today that could allow you a profitable way out of the business if the time came for that.

Steve Schneider

As those leases come up for kick out certainly gives us an opportunity to look at the profitability of each ones of those stores and get out of it with no additional cash outlet.

Sam Poser – Sterne Agee

You revised your credit agreement for the change of some dating on LCs and I just wanted to ask you what was the thought process there?

Bo Swenson

Our credit agreement expires February 25, 2010, given the current credit environment we’re not in negotiations to renew that at this point, we’re going to wait a little bit. What that was, was just extending any LCs that we will get in to, into next year. Typically those will go out for a year the LCs and so we just needed to have some language in there that basically extended past that term of February 25, 2010.

Steve Schneider

We’re in an enviable position where we don’t need the credit line. As we talk to even some of the banks that aren’t even in our credit agreement they say why would you do this now? Why would you go out and try to renegotiate now, wait a little bit to get the pricing down. That’s basically what we’ve done.

Sam Poser – Sterne Agee

The cash at the end of the year what are you looking to have? You mentioned on the last call.

Steve Schneider

I think it still will be $100 million plus or minus. What you see with our CapEx that we gave you for next year and our depreciation number our hope is that we’re going to grow the cash. In these environments we would rather be with cash as king be more and more…

Glenn Lyon

Cautiously optimistic.

Operator

Your last question comes from Heather Boxsen – Sidoti & Company

Heather Boxsen – Sidoti & Company

My question has to do with the cash balance, if it’s going to be $100 million at the end of the fiscal year that would be almost 40% of your market cap right now. In addition to the dividend are there any planned uses for the cash?

Steve Schneider

As we’ve said, our concern right now is getting through this unprecedented times and make sure that we don’t have anything come up that we can’t handle. For right now, we’re looking at things very opportunistically. I wouldn’t tell you we wouldn’t do a buy back but we want to be prudent and we’re going to be looking at all that. We’ll be getting advice from our Board as well. I don’t want to say we won’t but we certainly are right now it’s probably not the number one priority.

Glenn Lyon

That will bring to a close this session. I want to make one more comment before we get off here. I thought for sure somebody might ask me about how I might approach the business differently than Alan as the new CEO. You can all imagine I spent seven years with Alan, he taught me a lot of things, I like to think I taught him a few. At the end of the day I think we ended up in the same place many times. More importantly than that, what I’m saying to you is there’s not a lot going to change in our approach here.

One of the things I just wanted to comment on is that we have an unbelievably strong management team here. That’s something that I’m blessed with. I recognize its one of the great assets of the company. Same thing with the Board of Directors, we have a Board that has given me great insight over my seven years here and I’ve learned a lot from them.

Whether its merchandizing, real estate, store ops, legal, IT, distribution or finance, part of the biggest thing I have to do is keep my team motivated and keep our company successful that way. That’s one of the major focuses that I have in the short term here.

Thank you all for participating and I’m sure we will cross paths here at conferences and at the next call.

Operator

This concludes today’s conference call you may now disconnect.

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