Foot Locker, Inc. (FL)

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Foot Locker (FL)

Q1 2013 Earnings Call

May 24, 2013 9:00 am ET

Executives

John A. Maurer - Vice President of Investor Relations and Treasurer

Lauren B. Peters - Chief Financial Officer and Executive Vice President

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

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

Analysts

Matthew McClintock - Barclays Capital, Research Division

Paul Trussell - Deutsche Bank AG, Research Division

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Kate McShane - Citigroup Inc, Research Division

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

Omar Saad - ISI Group Inc., Research Division

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

Camilo R. Lyon - Canaccord Genuity, Research Division

Taposh Bari - Goldman Sachs Group Inc., Research Division

Michael Binetti - UBS Investment Bank, Research Division

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Foot Locker's First Quarter 2013 Financial Results 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 releases 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 on 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 today'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 would now like to turn the call over to John Maurer, Vice President, Treasurer and Investor Relations. Mr. Maurer, you may begin.

John A. Maurer

Thank you, and welcome to Foot Locker, Inc.'s First Quarter 2013 Earnings Conference Call. Earlier this morning, we reported first quarter net income of $138 million or $0.90 per share. These results include approximately $1 million of transaction costs related to our pending acquisition of Runners Point Group, which we announced earlier in the month. Our first quarter EPS on a non GAAP basis, excluding this cost, was $0.91 per share. This resulted in an increase of almost 10% over the $0.83 per share that Foot Locker earned in the first quarter of 2012 and represents the highest quarterly profit the company has ever achieved as Foot Locker Inc.

Our prepared remarks will begin this morning with Lauren Peters, Executive Vice President and Chief Financial Officer, who will review our first quarter financial results in more detail. After Lauren, Dick Johnson, our Executive Vice President and Chief Operating Officer, will provide an update on several of our key initiatives and comments on the pending Runners Point Group acquisition. Ken Hicks, our Chairman and CEO, will then provide additional insight into our business strategies and major trends we're seeing in the athletic industry.

In order to have plenty of time for your questions after our prepared remarks, let me turn the call right over to you, Lauren.

Lauren B. Peters

Thank you, John, and good morning to you all. We are quite pleased with the strong start to 2013 that we reported this morning. Our non GAAP earnings of $0.91 per share represents a solid improvement over the first quarter result we posted in 2012, especially in light of the relatively slow start in February we told you about on our previous call and the sales shift related to the 53rd week last year, both of which challenged our leverage opportunity.

Reviewing the results in detail, we reported a 5.2% comparable sales increase in the first quarter, with a 3.8% comp increase in our stores and an increase in our Direct to Customer segment of 18.2%. Our total reported sales increased 3.8%. We operated slightly fewer stores this year compared to last, but the primary driver of the 1.4% difference between our comp results of plus 5.2% and the total sales increase of 3.8% is that 53rd week sales shift I just mentioned. This difference equates to the $20 million shift in Q1 that I mentioned during our call in March.

Recall also that our sales, both comp and total, are impacted as we temporarily shut stores for some of the major remodels we are currently undertaking. Dick will touch on this during his remarks. We noted on our previous call that February's comp gain was in the low single digits. Largest comp gain rose to mid single digits despite losing a full day of sales compared to 2012 because of the Easter shift. And April came in at high single digits. The April result was encouraging, given that all of the Easter selling shifted into March and the weather remains stubbornly cold in many of our markets here and abroad during the first quarter.

Our domestic store divisions posted a mid single digit comp sales gain, led by Kids Foot Locker, which was up almost 20%. Also with the net overall comp sales gain was a high single digit comp decline at Lady Foot Locker, which Dick will address during his remarks. Foot Locker Europe and Foot Locker Canada posted low single digit comp gains, while Foot Locker Asia Pacific came in with a mid single digit comp gain. Within the 18.2% comp gain in our Direct to Customer business, Eastbay was up low double digits. Our store banner.com businesses continued their very strong performance with sales up almost 50%, while CCS.com was down high single digits.

Turning to families of business. Footwear had a solid mid single digit comp gain, with children's footwear up double digits and men's footwear up high single digits, while women's footwear was down mid single digits. Apparel was up in the quarter as well, although not as much overall as footwear.

In the U.S., we continued our momentum in building our apparel business with a mid single digit increase, led by especially strong digital sales. In that channel, apparel was up double digits in men's, women's and kids. Internationally, however, apparel sales were down, although I should add that our international apparel margins were higher compared to the year before, especially in Europe. As we mentioned at this time last year, some of those sales in Europe a year ago were markdown driven, strategically executed to keep our inventory fresh.

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