Foot Locker, Inc. (FL)

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Foot Locker (FL)

Q4 2011 Earnings Call

March 02, 2012 9:00 am ET

Executives

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

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

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

Analysts

John Zolidis - Buckingham Research Group Incorporated

Rafe Jadrosich - BofA Merrill Lynch, Research Division

Kate McShane - Citigroup Inc, Research Division

Paul Trussell - Deutsche Bank AG, Research Division

Bernard Sosnick - Gilford Securities Inc., Research Division

Michelle Tan - Goldman Sachs Group Inc., Research Division

Vincent Esposito - Canaccord Genuity, Research Division

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

Michael Binetti - UBS Investment Bank, Research Division

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Presentation

Operator

Good morning, ladies and gentlemen,, and welcome to the Fourth 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, 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 John Maurer, Vice President, Treasurer and Investor Relations. Mr. Maurer, you may begin.

John A. Maurer

Thank you, and welcome to Foot Locker's Fourth Quarter 2011 Earnings Release Conference Call. The fourth quarter results we reported yesterday afternoon include net income of $81 million or $0.53 per share on a GAAP basis. This represents an increase of 47% over the $0.36 per share we earned in the fourth quarter of 2010. It also represents our eighth consecutive quarter of sales and profit increases over the comparable prior year period. Our fourth quarter results include net noncash charges of $0.02 per share in 2011 and $0.03 a share in 2010, both primarily related to non-amortizing intangible assets of our CCS business. We have excluded these charges in a non-GAAP comparison that was included in yesterday's press release. And during the course of the call, we intend to refer primarily to the non-GAAP results.

On this non-GAAP basis, we earned $0.55 per share in the fourth quarter of 2011 versus $0.39 per share a year ago, an increase of 41%. On a GAAP basis for the full year, we earned a record $278 million, equivalent to $1.80 per share, an increase of 68% over last year's earnings of $1.07 per share. On a non-GAAP basis, we earned $1.82 per share, 65% higher than 2010.

Lauren Peters, Executive Vice President and Chief Financial Officer, will start off our prepared remarks this morning with additional details about our fourth quarter financial results. Ken Hicks, our Chairman and CEO, will then discuss various aspects of the success we are having as we implement the key initiatives of our strategic plan.

Before we get to your questions at the end, we will provide some initial perspectives on the outlook for 2012. However, keep in mind that we are hosting an investor meeting at our New York offices on Tuesday at 9:00 a.m. During that meeting, which will also be webcast, we will provide an update to our long-range strategies and financial goals. So we ask that you please focus your question today primarily on our 2011 results for the near-term outlook.

With that, let me now turn the program over to Lauren Peters.

Lauren B. Peters

Thank you, John, and good morning to you all. We did indeed have another strong results in the fourth quarter, posting non-GAAP earnings of $0.55 per share. This result brought our non-GAAP full year earnings to $1.82 per share, a record for athletics business, and one which all our associates can be very proud of.

To review how we achieved these results, let's start as usual with sales. We achieved a 7.5% comparable sales increase in the fourth quarter on top of our 7.3% comp increase in Q4 2010. The 14.8% 2 years stack increase was similar to the mid-teens stacked comp we posted through the third quarter this year. For the full year, we posted a strong 9.8% comparable sales increase.

Total sales for the full year, which were helped by stronger foreign currencies but reduced by net store closures, were up 11.4%. Almost all of our divisions recorded comp sales increases in the fourth quarter. Our Direct-to-Customers segment led the way with a 16% gain. Excluding ccs.com, which was the only division with a comp loss, the rest of the segments, which includes Eastbay and our store banner dot-com sites, was up more than 20%, a level achieved in all 4 quarters of the year.

Among the store divisions, Champs Sports delivered a very strong year with a Q4 comp gain in the mid-teens, successfully comping against a similarly strong gain last year. Foot Locker in the U.S. was up high single digits, as were Foot Locker Canada and Foot Locker Asia-Pacific. Total sales in Foot Locker Europe were up mid single digits in the fourth quarter, although the comp gain was only slightly positive. European consumers, especially our target young customers, continued to be challenged by slow or negative economic growth and high unemployment.

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