Foot Locker, Inc. (FL)

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Foot Locker (FL)

Q3 2011 Earnings Call

November 18, 2011 9:00 am ET

Executives

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

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

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

Analysts

Michelle Tan - Goldman Sachs Group Inc., Research Division

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Camilo R. Lyon - Canaccord Genuity, Research Division

Kate McShane - Citigroup Inc, Research Division

John Zolidis - Buckingham Research Group, Inc.

Robert S. Drbul - Barclays Capital, Research Division

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

Michael Binetti - UBS Investment Bank, Research Division

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Taposh Bari - Jefferies & Company, Inc., Research Division

Bernard Sosnick - Gilford Securities Inc., Research Division

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Third Quarter 2011 Earnings Release Conference Call. [Operator Instructions] This conference call may contain forward-looking statements that reflect the 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, the 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 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. John Maurer, Vice President, Treasurer and Investor Relations. Mr. Maurer, you may begin.

John A. Maurer

Thank you, and good morning. Welcome to Foot Locker's Third Quarter 2011 Earnings Release Conference Call. As we highlighted in our press release yesterday afternoon, we earned $66 million or $0.43 per share in the third quarter this year, up 30% compared to the $0.33 we earned in the same period last year. Our third quarter comp sales increased 7.4% relative to last year. These results represent the seventh consecutive quarter of sales and profit increases over the comparable prior-year periods. Year-to-date, we have earned $1.27 per share compared to $0.71 in the first 9 months of 2010, an increase of 79%. These improved earnings have been driven primarily by our year-to-date comp sales gain of 10.6% and strong margin expansion.

Lauren Peters, Executive Vice President and Chief Financial Officer, will begin our prepared comments with additional details about our third quarter financial results and how we are planning the fourth quarter. Ken Hicks, our Chairman and CEO, will then discuss the success we are having as we implement the key initiatives of our strategic plan. Ken will also focus on some of the opportunities and challenges we face in the athletic industry as we head into the key holiday shopping season and into 2012. And as always, we will have time to answer your questions after we wrap up our prepared remarks. Good morning, Lauren.

Lauren B. Peters

Thank you, John, and good morning to you all. As John mentioned, we had another excellent quarter, earning $0.43 per share versus $0.33 last year, a 30% increase. We produced strong overall sales gains and a robust gross margin gain of 220 basis points during the quarter.

Starting with the top line, we achieved a 7.4% comp sales increase, continuing the strong sales results that we produced in the first half of the year. Total sales increased 8.9% when factoring in the impact of foreign currencies and increased 7.3% on a constant currency basis.

We posted that 7.4% comp increase for the quarter on top of an 8.1% gain in the third quarter of 2010. Therefore, on a 2-year stacked basis, we have gained 15.5% in Q3, following a stacked 14.3% gain in Q2 and a 17.5% 2-year gain in the first quarter. In other words, although we did not produce another double-digit comp gain in the third quarter, our overall sales momentum clearly continues to be quite strong.

In addition, on a very positive note, our comp gains accelerated by month during the quarter. As mentioned on our previous call, we started the quarter with a mid-single digit comp gain in August. This was followed by an upper single-digit gain in September and a gain of just below double digit in October.

We have sustained this acceleration into November, with comps this month through yesterday up high single digits, with solid growth both domestically and in all of our international divisions. This start to the quarter is an encouraging sign, especially given that November represents our toughest monthly comparison of the fourth quarter. But of course, we know the big days of the quarter still lie ahead of us. That said, we continue to plan fourth quarter comp sales in the range of a mid-single-digit increase. Recall that we posted a strong 7.3% comp store gain in the fourth quarter last year, so on a 2-year stacked basis, our planned Q4 comp gain will be roughly in line with our results for the first 3 quarters of the year. Almost all parts of our business continue to perform well in the third quarter, leading to the strong overall sales results.

Just as was the case in the first half of the year, the strongest sales gains in the third quarter came from our U.S. businesses. Sales of our Direct-to-Customer business, which are included in our overall comp result, once again produced the biggest gains. The Footlocker.com/Eastbay division led the way, moving up over 20% for the third consecutive quarter.

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