Foot Locker, Inc. (FL)

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Foot Locker (FL)

Q4 2012 Earnings Call

March 08, 2013 9:00 am ET

Executives

John A. Maurer - Vice President, Treasurer And Head Of Investor Relations

Lauren B. Peters - Chief Financial Officer, Executive Vice President and Member of Retirement Plan Committee

Kenneth C. Hicks - Chairman, Chief Executive Officer, President, Chairman of Executive Committee and Member of Retirement Plan Committee

Richard A. Johnson - Chief Operating Officer and Executive Vice President

Analysts

Michael Binetti - UBS Investment Bank, Research Division

Kate McShane - Citigroup Inc, Research Division

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Taposh Bari - Goldman Sachs Group Inc., Research Division

Camilo R. Lyon - Canaccord Genuity, Research Division

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Sam Poser - Sterne Agee & Leach Inc., Research Division

Paul Trussell - Deutsche Bank AG, Research Division

John Zolidis - The Buckingham Research Group Incorporated

Seth Sigman - Crédit Suisse AG, Research Division

Omar Saad - ISI Group Inc., Research Division

Eric B. Tracy - Janney Montgomery Scott LLC, Research Division

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Fourth Quarter 2012 Earnings Release Conference Call. [Operator Instructions] This conference call may contain forward-looking statements that reflect management's current views of 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 release and SEC filings.

We refer you to Foot Locker, Inc.'s 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 John Maurer, Vice President, Treasurer and Investor Relations. Mr. Maurer, you may begin.

John A. Maurer

Thank you, and good morning. I'd like to welcome everyone to Foot Locker, Inc.'s Fourth Quarter and Full Year Earnings Conference Call. Here with me this morning are Lauren Peters, Executive Vice President and Chief Financial Officer; Dick Johnson, Executive Vice President and Chief Operating Officer; and Ken Hicks, Chairman and Chief Executive Officer. Lauren will first provide you with the details of our fourth quarter and full year results that we announced earlier this morning and then later, she will review some of our key financial assumptions going into 2013. In between, Ken and Dick will review some of our key accomplishments in the first year working towards our updated long-range plan and describe some of the exciting new store formats and other investments that are part of the increased capital expenditure program that we announced in February.

Let me start by setting the framework for today's discussion. Earlier this morning, we reported that Foot Locker produced earnings of $104 million in the fourth quarter or $0.68 per share, a 28% increase over the $0.53 per share that we earned in Q4 last year. As noted in the release, these GAAP results in 2012 included negative impact of $0.05 per share for an impairment charge related to our CCS business. On a non-GAAP basis, without that charge, our earnings per share were $0.73 in the fourth quarter.

The figures I just mentioned are based on a 14-week quarter in 2012 compared to the usual 13-week period, and the annual figures we reported are based on a 53-week year. The 53rd week added $14 million after-tax or $0.09 per share to our quarterly and annual results in 2012. The non-GAAP EPS figure of $0.64 that we included in our press release this morning excludes the 53rd week and the CCS impairment charges. This amount compares most closely to the non-GAAP results of $0.55 that we reported in Q4 last year, and both figures are based on 13 weeks and exclude onetime impairment charges.

Unless otherwise specified, ratios and margins that we discuss during this call will be based on the results excluding the 53rd week since this approach provides the best basis for comparison to both last year and the upcoming year. References to comp sales are for the 13- or 52-week period ended January 26, whereas references to total sales refers to the entire 14- or 53-week period ended February 2, 2013.

Before I turn the call over to Lauren, I'll call out our strong full year EPS results. On a GAAP basis, we earned a record $2.58 per share in 2012. On a non-GAAP basis, excluding the 53rd week, the CCS impairment and the onetime tax benefits we called out in previous quarters, we earned $2.47 per share. This was an increase of 36% over last year's record-breaking performance of $1.82 per share, calculated on a comparable non-GAAP basis. As we head it into and through 2013, it is against this non-GAAP EPS figure of $2.47 and the quarters which made it up that we will most frequently make comparisons.

Now here's Lauren to give you more of the details.

Lauren B. Peters

Thank you, John, and welcome to you all. I'm pleased you could join us this morning as we discuss Foot Locker's 2012 results and our outlook for 2013.

The fourth quarter of 2012 marked yet another very strong performance for Foot Locker. Starting with sales, we produced a strong comparable store sales gain of 7.9% in the fourth quarter, bringing our full year comp sales gain to 9.4% and our 2-year stacked comp gain to just under 20%. In total, sales have increased more than 20% over the last 2 years to $6.2 billion. We have now surpassed almost all of the long-term financial goals we laid out at the beginning of 2010. And we're making good progress towards the elevated goals we set for ourselves a year ago. The one original goal we're still working towards is inventory turns. We've improved turns substantially. We are not yet 2x or 3x turn.

Turning to the Q4 details. We had solid gains in all families of business, with both footwear and apparel up high-single digits. Men's footwear, the basketball business was exceptionally strong with a comp gain of more than 20%. We led off the quarter with a very strong Black Friday week, and I do mean week, since we delivered exciting new premium product in the days leading up to Thanksgiving, as well as the days afterward. It turns out that a lot of our customers wanted to wear their new kicks in events with family and friends on Thanksgiving Day itself.

The rest of the holiday season was also strong in basketball. Big gains in Jordan, marquee player shoes and classics. Meanwhile, our running business in the U.S. remains solid with a low-single-digit gain for the quarter. Lightweight running performed well, particularly the Free, Flex and Dual Fusion from Nike. Technical running, fueled by ASICS, Mizuno, Brooks and Nike, also posted solid gains. With basketball being the primary driver in the quarter, it is no surprise with our U.S. businesses that again led the way in top line performance. Our direct-to-customer segment was up 18.2%. Eastbay's comp sales up in the low teens and our store banner.com site up more than 40%.

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