Finish Line to Close 25% of Stores and Replace CEO Glenn Lyon

Finish Line Inc. will close up to a quarter of its 600 name-brand stores and replace its chief executive, as the company retrenches after posting a deep quarterly loss and struggling to manage its inventory.

The athletic retailer blamed its problems on a new warehouse management system, introduced in September, which couldn’t process orders quickly enough and resulted in as much as $32 million in lost sales, or roughly ​8% of the company’s business for the period ended Nov. 28.

For the latest reporting quarter, the retailer posted a $21.8 million loss, a swing from a profit of $2.6 million a year earlier. Revenue decreased 3.5% to $382.1 million. And for the business year ending in February, Finish Line now expects adjusted earnings per share of between $1.18 and $1.23, well below analysts’ expectations of $1.74.

The company said comparable-store sales for the quarter fell 5.8%. Finish Line had to bring in third-party experts to fix the problems. It now expects to return to normalcy during the next quarter.

The impending closure of the roughly 150 stores over the next few years marks a reversal in Finish Line’s strategy, which in recent years has focused on expanding its footprint through store openings and acquisitions and improving productivity through a new supply chain system.

The architect of that vision, Chief Executive Glenn Lyon, 65, will be replaced by current President Sam Sato, 51, at the end of next month, the company’s board said on Thursday. Mr. Sato was at Nordstrom Inc. for more than 20 years before joining Finish Line in 2010. Mr. Lyon will be executive chairman through the end of 2016 and then serve as nonexecutive chairman.

Shares of Finish Line fell 11% in price in midday trading on Thursday, as the company also lowered earnings estimates for the year. Including Thursday’s slide, the stock has dropped by 33% in the past 12 months.

Finish Lines’ troubles come despite recent strong sales gains for its ​largest vendor Nike Inc., which is moving deeper into direct consumer sales through its own website, and for rival Foot Locker Inc., which is benefiting from its strength in basketball footwear.

Athletic-industry experts have long kept an eye on Finish Line and its position in an increasingly competitive landscape. Some have noted its core strategy of focusing on specialty running and building through store acquisitions is counter to other trends, including the popularity of casual athletic wear more widely available in other stores.

“One of the main underlying factors is that we are in a deep athleisure trend,” said Neil Schwartz, vice president of business development at industry tracker SportsOneSource. “They made a big bet the other way with performance. And now they have issues.”

​On a call with analysts on Thursday, Finish Line executives emphasized there is still strong demand for casual athletic shoes like the Nike Roshe and retro Jordan basketball shoes.

In September, Mr. Lyon said “transforming the supply chain” was one of the company’s five pillars. He praised a multiyear investment the company was making toward that effort, saying a new system for managing online and in-store inventory would elevate customer service and help the company better stock merchandise for the holiday season and afterward.

But starting in October, the new system couldn’t process orders fast enough, leaving stores with too little product to sell. “The problem was we weren’t getting enough of the best selling or key items,” Mr. Sato said on a conference call. ​