[Please refer to Appendix. The Finish Line, Inc. (FINL) 2Q Preview ESTIMATE CHANGE. - Important Disclosures and Analyst Certification] Active/Outdoor

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1 September 24, 2013 Baird Equity Research Active/Outdoor The Finish Line, Inc. (FINL) 2Q Preview Maintaining our Neutral rating. Athletic footwear retail trends improved over the course of FINL s 2Q, which leads us to believe that Street comp estimates are attainable. We re also encouraged that FINL s performance should improve over the balance of the year, as comparisons become much easier. But heavy investment and expenses associated with a multitude of initiatives limit visibility into bottom-line improvement over the near term. Our 2Q $0.45 EPS estimate is in line with consensus. We are modeling a -1. comp, essentially in line with consensus (-1.3%). Macy s performance (both top-line contribution and earnings impact) could prove to be a wild card, given that this new business is more difficult to predict. Athletic footwear trends improved through 2Q, but still below 1Q levels. FINL already reported June comp of -msd% but anticipated improvement over the balance of 2Q on a more favorable calendar for Jordan basketball launches. - According to Sportscan, athletic footwear sales did improve over the July/August period from June levels, including for both running and basketball, which suggests FINL s 2Q comp was better than its June -msd% comp. - But Sportscan data also points to overall 2Q athletic sales growing at a slower rate than 1Q, which suggests FINL s 2Q comp was below its +2.4% 1Q level. Moreover, FINL is up against a tougher compare in 2Q than 1Q (+12.3% vs. +8.). - In short, the aforementioned data points suggest that FINL likely comped between -lsd% and +lsd%, and we believe comp was at the lower end of this range. Continued margin pressure. Modeling 2Q OM -220bp vs. 1Q s -180bp. Initial Macy s ramp-up expenses are behind, but ongoing Macy s expenses and omni-channel investments have likely continued in 2Q. Product margin pressure has likely also persisted in 2Q. Additionally, occupancy deleverage was likely more pronounced in 2Q than 1Q, assuming a weaker comp for 2Q than 1Q. Modeling comp improvement for 3Q. Although early, according to Sportscan, the first two weeks of September are tracking slightly ahead of 2Q as a whole, with running and basketball contributing to this improvement. More importantly, FINL is up against a much easier comparison in 3Q (+3.6%) than 2Q (+12.3%), so we re comfortable modeling a +3% comp for the quarter. ESTIMATE CHANGE 1-Year Price Chart O-12 N-12 D-12 Stock Data J F-13 M-13 Rating: Neutral Suitability: Higher Risk Price Target: $25 Price (9/23/13): $22.51 Market Cap (mil): $1,096 Shares Out (mil): 48.7 Average Daily Vol (mil): 0.55 Dividend Yield: 1.2% NTM P/E: 13.4x EV/EBITDA(FY14E): 5.7x Estimates FY Feb 2013A 2014E 2015E Q A 0.20 A Q A 0.45 E Q A (0.01) E Q A 0.93 E Fiscal EPS 1.48 A 1.57 E 1.80 E Fiscal P/E 15.2x 14.3x 12.5x Chart/Table Sources: Bloomberg and Baird Data A-13 M-13 J-13 J-13 A-13 S Finish Line is a premium retailer of athletic footwear, apparel and accessories, operating mall-based stores in the U.S. [Please refer to Appendix - Important Disclosures and Analyst Certification] Mitch Kummetz, CFA mkummetz@rwbaird.com Corbin N. Weyer, CPA cweyer@rwbaird.com

2 Details 14% 6% 4% 2% Quarterly Sales/Comp Comparison FINL (1-year, Left) Sportscan (1-year, Left) FINL (2-year stacked, Right) Sportscan (2-year Stacked, Right) Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 Source: Company Reports, SportsONESource Footwear Retail Sales Growth by Category - Quarterly 2 27% 29% Athletic Footwear Running 24% 21% 13% 11% 11% 9% 9% 7% 6% 7% 2% 3% 1% -3% -2% - 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 Source: SportsONESource Athletic Footwear Retail Sales Growth - Monthly 16% 14% 6% 4% 2% -2% -4% 11% -2% 1% 14% 9% 7% 1 6% 1 4% 7% Source: SportsONESource 2

3 Valuation Our price target is $25 is based on 5.5x our FY15 EBITDA forecast of nearly $180 million. This EV/EBITDA multiple is above FINL s five-year average multiple (4.5x), but the company s peer group is also trading at a multiple (6x) ahead of its five-year average (5.5x). Investment Thesis Participation in current athletic cycle. Performance athletic footwear has trended well in recent years, driven by technical innovation. The trend had been in running, which supported strong comps for FINL, given its market leading position in running (comps +6%, +9%, +6% in FY11-FY13, respectively). But the trend has more recently shifted to basketball, which is a shift that doesn t favor FINL (company guiding to FY14 comp of slightly positive ). The company is adjusting its assortments to reflect this shift, and their focus on higher-priced Jordan product is a plus with regard to ASPs. Prototype and digital are potential growth drivers. FINL has a decent runway ahead of it on outlet stores (opportunity for another stores over time), but the company is also counting on its new store prototype and revamped e-commerce site to be growth drivers. Both of these initiatives should eventually pay dividends, but the company is currently experiencing some challenges. Running Company and Macy s provide alternative growth streams. Beyond its Finish Line banner, the company is thinking outside the box to layer on additional growth, and we believe these two businesses target consumers in a way that should mostly be additive to the existing business. For the Running Company, FINL believes the business can ultimately reach $250 million in sales, and is targeting $150 million by FY16 ($80.2 million in FY13). For Macy s, FINL believes the agreement can result in annual sales of $250-$350 million. Margin pressure near term, expansion opportunity long term. Margins are coming off of peak levels (9.9% OM in FY12), and near-term investments, coupled with decelerating comps, will likely result in further contraction through at least FY14. Beyond, FINL believes it can further expand margins on leveraging digital and infrastructure investments in the out years (FY15 and FY16). Returning cash to shareholders. Since FY10, FINL has returned approximately $213 million to shareholders in the form of share repurchases ($176 million) and dividends ($38 million). Risks & Caveats Consumer tastes/preferences. Demand for FINL s products is based on a variety of factors, including consumer sentiment and discretionary income, as well as the demand for similar products at competing retailers. Vendor concentration. In FY13, FINL purchased approximately 8 of its merchandise from its top five vendors and approximately 69% from its top vendor, Nike. Notably on Nike, any inability of Nike to develop/manufacture product that appeal to FINL s target customers would negatively impact FINL s business. Product cost inflation. If FINL is unable to successfully pass through cost increases to consumers, product cost inflation could impact margin rates. Managing growth. As FINL continues to expand both the Finish Line and Running Company store bases, the company must find suitable locations in new and existing markets. New store performance is dependent upon FINL s ability to effectively integrate new stores into existing operations. Acquisitions. Management plans to partly grow the Running Company through bolt-on acquisitions. The inability of FINL to acquire stores and integrate into existing operations could hurt financial results and divert management attention from the core business. 3

4 Company Description The Finish Line, Inc. is a premium retailer of athletic footwear, apparel and accessories operating under the Finish Line brand name and Running Company. The Finish Line consists of 645 mall-based stores (47 states), an e-commerce site, as well as mobile commerce; Footwear accounts for ~86% of concept sales, with apparel/accessories accounting for the balance; the company considers itself the leader in specialty running footwear. Running Company consists of 27 stores (10 states) and the run.com website; stores carry men s and women s performance running shoes (footwear ~5 of net sales), as well as an assortment of performance apparel and accessories. 4

5 The Finish Line, Inc. ($ in 000, except per share amounts) (6,881) 21,761 12,399 16,535 19,258 15,261 63,454 4% FY2010A FY2011A FY2012A 1QA 2QA 3QA 4QA FY2013A 1QA 2QE 3QE 4QE FY2014E FY2015E May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-13 Net Sales $ 1,169,793 $ 1,229,002 $ 1,369,259 $ 319,049 $ 385,011 $ 296,623 $ 442,682 $ 1,443,365 $ 351,054 $ 430,213 $ 357,928 $ 511,302 $ 1,650,496 $ 1,818,602 Cost of Sales 793, , , , , , , , , , , ,716 1,099,904 1,206,962 Gross Profit 376, , , , ,550 89, , , , , , , , ,639 SG&A Expense 300, , ,820 84,941 95,036 91,448 95, ,581 97, , , , , ,737 Operating Income 76, , ,309 19,718 39,514 (1,658) 60, ,863 15,413 34,904 (927) 71, , ,902 Interest and Other Income Pre-Tax Income 76, , ,756 19,789 39,572 (1,620) 60, ,061 15,428 34,904 (927) 71, , ,902 Taxes 29,697 41,740 50,349 7,708 15,136 (811) 23,457 45,490 6,062 13,438 (357) 27,400 46,543 53,477 Income Cont Operations 46,832 69,629 85,407 12,081 24,436 (809) 36,863 72,571 9,366 21,466 (570) 43,768 74,030 85,425 Loss Discont Operations (15,161) (30) Income to Noncontrolling Interest (197) (537) (702) (856) (2,292) (561) (300) (300) (300) (1,461) 500 Net Income $ 31,671 $ 69,599 $ 85,407 $ 12,278 $ 24,973 $ (107) $ 37,719 $ 74,863 $ 9,927 $ 21,766 $ (270) $ 44,068 $ 75,491 $ 84,925 EPS $ 0.86 $ 1.29 $ 1.62 $ 0.24 $ 0.49 $ (0.00) $ 0.76 $ 1.47 $ 0.20 $ 0.45 $ (0.01) $ 0.93 $ 1.57 $ 1.80 GAAP EPS $ 0.64 $ 1.27 $ 1.59 $ 0.24 $ 0.49 $ (0.00) $ 0.69 $ 1.40 $ 0.10 Applicable Shares 54,597 53,775 52,818 51,403 50,866 49,949 49,034 50,491 48,732 48,332 47,332 47,532 48,132 47,157 Margin Analysis Gross Profit SG&A Expense Operating Income (0.6) (0.3) Pre-Tax Income (0.5) (0.3) Net Income (0.3) (0.2) Tax Rate YOY % Changes Sales (3.3) (3.0) Gross Profit (1.3) (8.3) SG&A Expense (5.7) (6.7) Operating Income (25.8) 17.3 (121.9) (10.7) (12.9) (21.8) (11.7) (44.1) Pretax Income (25.9) 17.0 (121.1) (10.7) (13.0) (22.0) (11.8) (42.8) Net Income (26.4) 16.8 (114.6) (13.3) (15.0) (22.5) (12.2) (29.5) EPS (21.5) 24.7 (102.0) (7.0) (9.1) (14.7) (8.3) Source: Company Reports and Robert W Baird Estimates Please refer to Appendix - Important Disclosures and Analyst Certification Mitch J. Kummetz, CFA Director, Senior Research Analyst Robert W. Baird (303)

6 The Finish Line, Inc. Date Printed: 9/23/13 Mitch Kummetz, CFA Fiscal Year: JANUARY Corbin Weyer, CPA Balance Sheet FY2011A FY2012A FY2013A 1Q13A 1Q14A Cash Flows FY2011A FY2012A FY2013A FY2014E Cash and Equivalents $299,323 $307,494 $226,982 $261,958 $195,906 Net Income $ 68,834 $ 84,804 $ 69,181 $ 70,079 Accounts Receivable 10,552 9,041 14,768 7,063 12,770 Depreciation & Amortization 26,959 27,027 31,182 36,935 Inventories 193, , , , ,551 Net Change in Working Capital 5,976 (29,634) (34,403) (2,226) Other Current Assets 6,304 15,808 6,174 17,067 6,804 Other 6,805 12,543 15,533 4,682 Total Current Assets $509,684 $552,748 $491,694 $522,633 $508,031 Cash From Operating Activities $ 108,574 $ 94,740 $ 81,493 $ 109,470 Capital Expenditures (19,088) (29,131) (81,586) (82,942) Property and Equipment, net 126, , , , ,593 Free Cash Flow $ 89,486 $ 65,609 $ (93) $ 26,528 Deferred Income Taxes 23,795 16,888 12,018 16,674 13,512 Other Assets 4,856 5,810 7,671 5,941 8,008 Operating Cash Flow Per Share $ 2.02 $ 1.79 $ 1.61 $ 2.27 Total Assets $664,845 $711,496 $706,422 $692,050 $735,238 Free Cash Flow Per Share $ 1.66 $ 1.24 $ (0.00) $ 0.55 Free Cash Flow Yield (MV) 9.7% % Accounts Payable 72,780 67,246 75,641 87, ,476 Deferred Income Taxes 3,170 7,068 7,239 6,554 6,661 Profitability Ratios FY2011A FY2012A FY2013A FY2014E Other Liabilities/Accured Expenses 50,470 64,369 51,157 38,203 41,525 Net Margins (N/S) Total Current Liabilities $126,420 $138,683 $134,037 $132,402 $162,662 Assets Turnover (S/A) Leverage (A/E) Deferred Credits from Landlords 34,653 27,737 27,215 30,150 27,618 Return on Equity Other Long-Term Liabilities 13,527 15,539 16,638 13,583 17,441 Return on Assets Total Long-Term Liabilities $48,180 $43,276 $43,853 $43,733 $45,059 Return on Invested Capital ROIC - Operating Lease Adjusted Redeemable Noncontrolling Interest 0 0 3,669 5,795 3,097 Valuation Measures FY2011A FY2012A FY2013A FY2014E Total Stockholders' Equity $490,245 $529,537 $524,863 $510,120 $524,420 Price -high $19.48 $24.48 $26.16 $ low $11.37 $16.42 $16.87 $17.64 Total Liabilities and Equity $664,845 $711,496 $706,422 $692,050 $735,238 -close $17.46 $22.93 $18.12 $22.51 Balance Sheet Analysis FY2011A FY2012A FY2013A 1Q13A 1Q14A Historical P/E -high Current Ratio low Inventory Turns Days Sales Outstanding Enterprise Value Days Inventory Outstanding Market Value of Equity 926,602 1,190, ,745 1,108,392 Days Payable Outstanding ST+LT Debt Cash Conversion Days Cash & Equivalents 299, , , ,831 Work Cap/Assets 12.6% % Enterprise Value 627, , , ,562 Net Cash/Share $5.81 $5.92 $4.57 $5.04 $3.98 EBITDA 137, , , ,493 Source: Company Reports and Robert W Baird Estimates EV/EBITDA Please refer to Appendix - Important Disclosures and Analyst Certification 6

7 Appendix - Important Disclosures and Analyst Certification Rating and Price Target History for: The Finish Line, Inc. (FINL) as of /05/13 I:N:$21 06/28/13 N:$ Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q Created by BlueMatrix 1 Incorporated makes a market in the securities of FINL. Incorporated and/or its affiliates expect to receive or intend to seek investment banking related compensation from the company or companies mentioned in this report within the next three months. Incorporated may not be licensed to execute transactions in all foreign listed securities directly. Transactions in foreign listed securities may be prohibited for residents of the United States. Please contact a Baird representative for more information. Investment Ratings: Outperform (O) - Expected to outperform on a total return, risk-adjusted basis the broader U.S. equity market over the next 12 months. Neutral (N) - Expected to perform in line with the broader U.S. equity market over the next 12 months. Underperform (U) - Expected to underperform on a total return, risk-adjusted basis the broader U.S. equity market over the next 12 months. Risk Ratings: L - Lower Risk - Higher-quality companies for investors seeking capital appreciation or income with an emphasis on safety. Company characteristics may include: stable earnings, conservative balance sheets, and an established history of revenue and earnings. A - Average Risk - Growth situations for investors seeking capital appreciation with an emphasis on safety. Company characteristics may include: moderate volatility, modest balance-sheet leverage, and stable patterns of revenue and earnings. H - Higher Risk - Higher-growth situations appropriate for investors seeking capital appreciation with the acceptance of risk. Company characteristics may include: higher balance-sheet leverage, dynamic business environments, and higher levels of earnings and price volatility. S - Speculative Risk - High-growth situations appropriate only for investors willing to accept a high degree of volatility and risk. Company characteristics may include: unpredictable earnings, small capitalization, aggressive growth strategies, rapidly changing market dynamics, high leverage, extreme price volatility and unknown competitive challenges. Valuation, Ratings and Risks. The recommendation and price target contained within this report are based on a time horizon of 12 months but there is no guarantee the objective will be achieved within the specified time horizon. Price targets are determined by a subjective review of fundamental and/or quantitative factors of the issuer, its industry, and the security type. A variety of methods may be used to determine the value of a security including, but not limited to, discounted cash flow, earnings multiples, peer group comparisons, and sum of the parts. Overall market risk, interest rate risk, and general economic risks impact all securities. Specific information regarding the price target and recommendation is provided in the text of our most recent research report. Distribution of Investment Ratings. As of August 30, 2013, Baird U.S. EquityResearch covered 702 companies, with 5 rated Outperform/Buy, 4 ratedneutral/hold and 2% rated Underperform/Sell. Within these rating categories,16% of Outperform/Buy-rated and 9% of Neutral/Hold-rated companies havecompensated Baird for investment banking services in the past 12 months and/orbaird managed or co-managed a public offering of securities for these companiesin the past 12 months. Analyst Compensation. Analyst compensation is based on: 1) The correlation between the analyst's recommendations and stock price performance; 2) Ratings and direct feedback from our investing clients, our institutional and retail sales force (as applicable) and from independent rating services; 3) The analyst's productivity, including the quality of the analyst's research and the analyst's contribution to the growth and development of our overall research effort and 4) Compliance with all of Robert W. Baird s internal policies and procedures. This compensation criteria and actual compensation is reviewed and approved on an annual basis by Baird's Research Oversight Committee. Analyst compensation is derived from all revenue sources of the firm, including revenues from investment banking. Baird does not compensate research analysts based on specific investment banking transactions. A complete listing of all companies covered by Baird U.S. Equity Research and applicable research disclosures can be accessed at 7

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