Foot Locker, Inc. (FL)

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Foot Locker, Inc. (FL)

Q4 2009 Earnings Call

March 4, 2010 9:00 am ET

Executives

Peter Brown – SVP & IR

Ken Hicks – President & CEO

Robert McHugh – SVP & CFO

Analysts

John Zolidis - Buckingham Research Group

Robby Ohmes - BofA/Merrill Lynch

Chris Svezia - Susquehanna Financial

Bernard Sosnick – Gilford Securities

Sam Poser - Sterne Agee

Robert Samuels – Oppenheimer

Michael Vinetti - UBS

Bob Drbul - Barclays Capital

Tom Shaw – Stifel Nicolaus

Presentation

Operator

Good morning, ladies and gentlemen and welcome to the fourth quarter 2009 earnings release conference call. (Operator Instructions) This conference may contain forward-looking statements that reflect management’s current views on future events and financial performance.

These forward-looking statements are based on many assumptions and factors, including the effects of currency fluctuations, customer preferences, economic and market conditions worldwide, and other risks and uncertainties described in the company’s press releases and SEC filings.

We refer you to Foot Locker Inc. most recently filed Form 10-K or Form 10-Q for a complete description of these factors. Any changes in such assumptions or factors could produce significantly different results and actual results may differ materially from those contained in the forward-looking statements.

If you have not received yesterday’s release, it is available on the internet at www.prnewswire.com or www.footlocker-inc.com.

Please note that this conference is being recorded. I will now turn the call over to Mr. Peter Brown, Senior Vice President, Chief Information Officer, and Investor Relations. Mr. Brown, you may begin.

Peter Brown

Good morning. Overall our fourth quarter results were in line with our expectations going into the quarter which we discussed with you during our November conference call. They reflect some encouraging signs as we enter 2010.

On a GAAP basis our net income was $0.14 per share for the fourth quarter of 2009 versus a loss of $0.81 per share last year. Included in our results were charges of $0.10 per share this year and $1.06 last year that we highlighted in our press release and excluded in a non-GAAP comparison.

As this comparison shows on a non-GAAP basis we earned $0.24 per share this year versus $0.25 per share last year. During our prepared comments, we will refer to our financial results on a non-GAAP adjusted basis to help facilitate your analysis of our financial results.

Robert McHugh, our Executive Vice President and Chief Financial Officer, will begin our prepared remarks with a review of our financial results, including the charges that we have excluded in our non-GAAP adjusted comparison. Ken Hicks, our Chairman, and Chief Executive Officer, will follow with an operational review and provide some color on current business initiatives. We will conclude the program with a question-and-answer session.

Our pre-tax income from continuing operations increased $2 million versus the same period last year. The primarily factors that contributed to this improvement were as follows. Our total sales increased 0.6%. Our gross margin rate which includes our occupancy expenses improved by 10 basis points, and our SG&A expenses in constant currency dollars declined $6 million.

Our cash flow for both the quarter and full year was also very encouraging and as a result we ended the year with our total cash position net of debt $185 million favorable to last year. I will now turn the call over to Robert McHugh.

Robert McHugh

Good morning, our fourth quarter adjusted earnings were at the high end of the range of our expectations going into the quarter and in line with the Wall Street consensus estimate. As Peter mentioned I will discuss both our quarterly results for this and last year on a non-GAAP adjusted basis, which excludes the adjustments detailed in our press release.

I will discuss each of these adjustments separately. Besides achieving our EPS target for the quarter we also had a number of other positive developments that we believe bode well for 2010. Our comp store sales improved fairly meaningfully on a sequential basis throughout the quarter.

In fact during the month of January our comp store sales increased high single-digits at our international operations and were flat at our US operations. Our merchandise margin rate for the quarter improved by 20 basis points, reflecting a lower markdown rate than last year. We remain diligent with our expense management benefiting from reductions in both our occupancy costs and SG&A expenses.

And our depreciation expense was below last year reflecting a lower asset base. All these factors taken together contributed to our $2 million pre-tax profit increase for the quarter. We also began to implement some important strategic initiatives during the fourth quarter in line with our new strategic plan that we will communicate next week.

For the fourth quarter comparable store sales by region and segment were as follows. Our combined US store operation decreased mid double-digits. Footlocker.com generated a small increase, Europe increased mid single-digits, Foot Locker Canada had a small decrease, and Foot Lock Asia Pacific decreased high single-digits.

By month comp store sales declined high single-digits in November, declined low single-digits in December, and increased low single-digits in January. We are very encouraged by the significant improvement in our sales trend in each of our US and international regions as we progressed throughout the quarter.

The sequential improvement in our sales trend continued through February with our comp store sales results up mid single-digits in both domestic and international markets, as well as out dot com business for the month. Also of note is that February is our most difficult monthly comparison versus last year.

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