Finish Line (FINL) could struggle to find a buyer for its specialty running business JackRabbit, industry analysts told the TheStreet Monday.
The Indianapolis-based athletic shoe retailer announced that it is exploring options for the company, which could include a sale, and that it will take up to a $44 million charge as it goes through this process.
Finish Line hired M&A investment banking advisory firm Peter J. Solomon Co. to explore a sale. The firm has worked on a number of high profile deals, recently, advising the sale of headphone-maker Skull Candy to Mill Road Capital for $165 million, as well as the failed $6.3 billion merger between Office Depot (ODP) and Staples (SPLS) .
"The challenges Finish Line faces in finding a buyer are multiple," Steve Goldberg of retail consultancy firm The Grayson Co. told TheStreet. "What JackRabbit is worth at the end of the day will dictate whether Finish Line can find a buyer. And JackRabbit is struggling."
Finish Line CEO Sam Sato named JackRabbit as one of the company's four key priorities during its second quarter earnings call in September. Then last week, the company announced that it was shopping the brand. Neither Finish Line or Peter J. Solomon were available for comment
Without speculating on specific companies, Goldberg told TheStreet that he believes JackRabbit could be a good fit with an established strategic retailer that could seamlessly plug JackRabbit's business into its operations. Another potential suitor Goldberg sees is an online retailer looking to expand with up to 70 of JackRabbit's established storefronts.
Finish Line first entered the specialty running business in 2011 when it bought an 18-store chain for $8.5 million. At the time, CEO Glenn Lyon said that the diversification was part of the company's strategic plan to drive growth outside of its core business. But specialty running shoes is "not a core competency," of the company, according to Susquehanna Financial Group analyst Sam Poser.
"The skill set to sell to that consumer is not something Finish Line has proven to poses," Poser told TheStreet in a phone interview. "In this environment, any retailer has to be firing on all cylinders before they can step out and try something new."
Poser downgraded Finish Line's stock to "neutral" Monday, saying that the fact that the company does not have a timetable for the sale of JackRabbit is leading to uncertainty surrounding the stock. Despite that, Poser anticipates the company either selling or shutting down JackRabbit by the end of the fiscal year in February.
Finish Line shares closed down 3.21% to $22.91 on Monday.