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Demandware, Inc Customer Finish Line Suspends Its Website; Demandware Raises FourthQuarter Guidance

Demandware filed an 8‐K Friday morning, December 14, stating that customer Finish Line (FINL $17.88), which signed in the second quarter of this year and on November 16 launched a redesigned e‐commerce site on Demandware’s platform, suspended the new
site and moved back to its legacy platform: Oracle ATG (ORCL $32.07; Outperform). It is important to note that the issues were due to an aggressive implementation time frame (chosen by Finish Line and agreed to by Demandware) and not due to platform reliability or functionality issues. Both Demandware and Finish Line are working to resolve the implementation issues, and Finish Line is still under contract with Demandware.

We do not believe that management had factored much (if any) of a contribution from Finish Line into its fourth‐quarter results, as evidenced by the fact that as part of Friday’s 8‐K, Demandware raised its fourth‐quarter revenue guidance by $1.2 million. The company now expects total fourth‐quarter revenue of $23.5 million‐$24.5 million (26%‐ 32% growth), versus its prior expectation of $22.3 million‐$23.3 million (20%‐25% growth), and it expects subscription revenue of $20.5 million‐$21.5 million (26%‐32% growth; 41%‐48% excluding Neckermann), up from $19.4 million‐$20.4 million (19%‐ 25% growth; 34%‐41% excluding Neckermann). Management did not update its earnings guidance for fourth quarter or full year 2012.

What was the issue?

Finish Line, a large retailer of athletic shoes, apparel, and accessories with 2011 online gross merchandise value of about $115 million, pursued a rather aggressive implementation time frame and went live on Demandware a week before Black Friday.
Typically, retailers and brand owners go live during non‐peak periods of the year to allow consumers to get used to changes during seasonally slower times when there is not as much promotional activity. Rarely do retailers—especially large ones—launch so close to the holiday season, and we believe this aggressive time frame was the crux of the website issues. It is normal course that after retailers launch new e‐commerce sites, adjustments are made based on customer experience and feedback. But during the holiday season, when site traffic tends to spike, companies are reluctant to modify website designs since
any issues can have a large impact on a retailer’s bottom line. Thus, rather than attempt to modify the Demandware site, Finish Line opted to revert to its legacy e‐commerce platform for in all likelihood the remainder of this holiday season.
One reason the Finish Line e‐commerce team was comfortable with an aggressive schedule is that some of the team members were quite familiar with Demandware. One of the executives had used the solution at his previous employer. The team also includes a
former Demandware retail practice rep who remains actively involved in the implementation. Both of these individuals continue to work with Demandware on the implementation. The decision to revert to the ATG platform was made by an executive
above the e‐commerce team.

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