How do four guys create a $1.3 billion business over nearly 25 years and still remain best friends? Ask the founders of Finish Line Inc. (FINL), who have built the nation's second-largest athletic shoe retailer. (Foot Locker Inc. (FL) is No. 1.) "We would yell and scream, but we never brought it back to the office the next day," says Chief Executive Alan H. Cohen. "It was almost like we were brothers."
Success like Finish Line's will smooth over a lot of rifts. Annual earnings growth of 53% over the past three years helped land the Indianapolis-based footwear chain a spot at No. 66 on BusinessWeek's Hot Growth list of the fastest-growing small companies. But Cohen and his buddies must find a second wind, as Finish Line's pace has flagged of late. For the fiscal year ending this February, the company is forecasting that sales at stores open at least a year will rise just 1% or so, compared with 8.6% the prior year. (Same-store sales would be flat or down slightly if Internet purchases were not included.) As for profits, they'll be flat, at around $61 million. Finish Line's stock is off 34% from March highs, to about 17.20 a share.
Like rival sport shoe chains, Finish Line has suffered from the lack of a hot new sneaker models to draw customers into stores. The popularity of fashion sneakers like Puma has also crimped sales because those sell at lower prices than basketball or running shoes and are sold through a variety of outlets, including department stores. Finish Line's outlook is also clouded by its impending launch of Paiva, a new chain that offers upscale athletic apparel for women, and its year-ago acquisition of the 49-store hip-hop apparel chain Man Alive. The move to urban apparel is outside Finish Line's expertise, says J.P. Morgan (JPM) analyst Robert Samuels, and "it adds more fashion risk to the business."
Cohen, however, contends that the new ventures will help power future earnings growth. He adds that he "fully expects to see a recovery," in the performance of the Finish Line outlets. It certainly won't be the first time this 58-year-old Indianapolis native has had to face down the skeptics. In 1976, fledgling lawyer Cohen teamed up with two friends, David Klapper and John Domant, who contributed $20,000 apiece for the rights to open Athlete's Foot franchises in Indiana. Their agreement covered only the Hoosier State, so in 1982, as they were running out of mall space for new Athlete's Foot stores in Indiana, the group came up with the idea for Finish Line, originally an outlet-type concept. Once their licensing deal with Athlete's Foot expired in 1986, they converted those franchises into Finish Line stores, too. Cohen and Klapper (Domant, a silent partner, was bought out by 1992) brought on two other friends as partners: Larry Sablosky to run store operations and David Fagin as buyer for apparel.
PICKING A CAPTAIN
Despite their solid track record with Athlete's Foot, Cohen says he initially had a hard time persuading mall developers to rent out space for Finish Line. Still, it steadily grew to about 100 stores around the country by the early 1990s. The $100 million public offering in 1992 was yet another test of the men's friendship. Until then, the four had run the venture pretty much as equals. But to gain credibility with investors, they realized Finish Line needed a clear corporate hierarchy, with Cohen calling the shots. Klapper and Sablosky both settled for the title of executive vice-president. Fagin eventually left. But all four remained close because, says Klapper, 57, everyone was good at "setting ego aside."
In spite of Finish Line's current travails, it remains a survivor in a crowded industry. Two of the four big players -- Athlete's Foot Group Inc. and Footstar Inc., parent of the FOOTACTION and Just for Feet chains -- have sought bankruptcy protection in recent years. Now, at 650 stores, Finish Line plays a strong No. 2 to 3,600-store Foot Locker by offering a broader array of merchandise. Finish Line's stores stock nearly twice as many sneaker styles -- about 700 to 800 per store -- and more athletic apparel. That makes major suppliers such as Nike Inc. (NKE) and adidas-Salomon happy. "They show a broader range of our products," says Erich Stamminger, CEO of adidas' North American operations. "It's a win for both of us."
Sneaker styles may come and go, but Cohen, Klapper, Sablosky, and Fagin still have their friendship. Cohen's wife, Linda, says the group has spent so much time together over the years they are far more than pals. "It feels more like a family relationship than any other friendships we have," she says.
By Robert Berner