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 Breaking Headlines

Finish Line Responds To Serra's Cheap Shot; Suing 34th Street, Charges Spying

MAY 21, 2004 -- Finish Line has responded to a cheap shot made by Foot Locker CEO Matt Serra. It looks like Serra is getting testy about the growth of his rival. Until he blundered into a feud with Nike that cost him marquee products for months, Serra had really no big competitors. When Nike pumped marquee product into Finish Line, the latter's sales and comps soared much beyond anything Foot Locker could report. What Serra had not planned was that the new product gave Finish Line a new urban customer, who had been used to going to Foot Locker for that footwear. Former Footaction vendors are sending thank you notes to Finish Line CEO Alan Cohen for entering the bidding for the Footaction stores. The creditors ended up with a better return on the dollar in that Serra had to cough up another $65 million for the Footaction doors. Serra, when asked about mall promotion during his conference call, said that the fact that some shoes were being sold by Finish Line at 70% off indicated his competitor obviously had inventory problems. Serra may be forced to eat his words if Finish Line Q1 results show no problems. Finish Line is already reported its average selling price improved in Q1. Serra was risking his credibility with the shot he took.

Finish Line took the slam seriously. It said the chain is currently running a previously planned, yearly liquidation sale on aged inventory in all of the company's 551 stores. The goods included in this sale are older footwear items approaching one year in age. As has been done in prior years, this sale is part of Finish Line's normal course of business to keep inventory fresh rather than a reaction to current inventory levels. In recent quarters, Finish Line has been much more aggressive than in the past in liquidating aged inventory.

All strategic indicators, the company said, reflect a positive inventory position as the company completes its Q1. These indicators include inventory level compared to sales trends, product margins, level of aged inventory and average selling price.

Finish Line's current level of inventory is in line with its previous plan. Quarter to date, the company's increase in sales is outpacing its increase in inventory. Product margins during the current quarter to date have increased over Q104, and the percentage of aged inventory has decreased versus the same period a year ago. Quarter to date, the average selling price of footwear has continued to climb versus a year ago, increasing more than $2.50 per pair.

Since Finish Line still has nine days left in the current quarter, further discussion regarding Q1 results will be included in the sales report scheduled to be released on June 3. While it is Finish Line's policy generally not to comment on current business conditions prior to a quarter's end, when it believes it is in the interests of Finish Line's stockholders, as under the current circumstances, the company will promptly correct misinformation placed in the marketplace by others about the company's current operations and inventory.

Things stand to get dicier going forward. The Indianpolis Star reported that Finish Line is suing Foot Locker, alleging corporate spying. Finish Line filed suit, accusing 34th Street of stealing its employees in a corporate spying plot.

The lawsuit, filed in US District Court in Indianapolis, accuses Foot Locker Inc. of recruiting Finish Line workers to obtain secret sales information. Finish Line executives declined to discuss the lawsuit with the paper. Foot Locker officials could not be reached.

The suit alleges that it has actively recruited Finish Line's store managers, regional managers and corporate officers. These employees have access to confidential information, including sales projections, business plans and information about the profitability of individual Finish Line stores, the suit said.

"If Finish Line were to lose a significant portion of that management team, it would suffer serious competitive harm," the suit charged.

 Breaking Headlines
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