Foot Locker Management Discusses Q2 2013 Results - Earnings Call Transcript

Foot Locker (FL)

Q2 2013 Earnings Call

August 17, 2012 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

Analysts

Camilo R. Lyon - Canaccord Genuity, Research Division

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

Michael Binetti - UBS Investment Bank, Research Division

Paul Trussell - Deutsche Bank AG, Research Division

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Joseph Parkhill - Morgan Stanley, Research Division

Kate McShane - Citigroup Inc, Research Division

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

John Zolidis - The Buckingham Research Group Incorporated

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

Bernard Sosnick - Gilford Securities Inc., Research Division

Samuel Lee - ISI Group Inc., Research Division

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Second 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 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. I'm pleased that everyone could join us this morning to discuss Foot Locker, Inc.'s second quarter 2012 results. In our press release earlier this morning, we reported a 59% increase in second quarter net income to $50 million or $0.39 per share on a GAAP basis. This profit level represents the highest level of earnings from continuing operations of any second quarter in the history of the company as Foot Locker, Inc. This result brings the year-to-date earnings to $187 million or $1.21 per share, an increase of 43%, also the highest profit level the company has earned in the first 6 months of any year.

Lauren Peters, Executive Vice President and Chief Financial Officer, will begin this morning's prepared remarks with a summary of our second quarter and year-to-date financial results. She will also update our outlook for the second half of the year. Ken Hicks, our Chairman and CEO, will then recap our progress on some of the major initiatives we outlined earlier in the year at our investor meeting, initiatives which we believe can continue to drive our performance to new heights. Ken will also discuss the current business environment in the major regions in which we do business. And we'll, of course, allow time for questions after our prepared remarks.

Good morning, Lauren.

Lauren B. Peters

Thank you, John, and good morning to you all. We were pleased to report earlier this morning that we sustained top line momentum in the second quarter, with a 9.8% comp gain, following the first quarter's 9.7% comp gain. And just as in the first quarter, we were able to flow those sales to the bottom line to produce record EPS results.

Our domestic stores comped up in the low-teens in the second quarter, with gains in every division except for Lady Foot Locker, which was essentially flat. Foot Locker Europe's comparable store sales were also essentially flat, down less than 0.5%. But total sales in Europe were actually up mid-single-digits, as we operated more than 30 additional stores in the second quarter of 2012 compared to a year ago. Our other international divisions posted mid-single-digit comp gains and our Direct-to-Customer segment posted an 18.1% gain, including a gain of almost 50% in our store banner Dot-Com sales. Coming on top of last year's Q2 comp gain of 11.8%, this year's overall comp gain marks the second consecutive quarter in which we have posted a 2-year stacked comp gain in excess of 20%. In fact, our 2-year stacked comp gain for the first half of 2012 is a strong 22.1%.

By month, we posted high single-digit comp gains in May and June, while July was up double-digits. The strongest division in the second quarter was Kids Foot Locker, which posted a comp gain in excess of 20%. Champs Sports continued its very strong performance with a comp gain in the teens, on top of last year's similar results for a 2-year stacked result of more than 30%. Foot Locker in the U.S. and Footaction also posted double-digit gains this quarter, on top of similar results a year ago.

CCS.com sales fell below last year by a low single-digit percentage, as it ran far fewer promotions this year compared to last, resulting in improved profit margins. Excluding CCS, the other parts of our Direct-to-Customer segment posted a gain in excess of 20% for a 2-year stacked gain of well over 40% for the second quarter in a row. Footwear and accessories both had high single-digit comp gains, while apparel lead the way with a low double-digit increase.

Within footwear, the kids' business was stronger not just at Kids Foot Locker, but in almost all of our divisions that sell kids' merchandise. Jordan product, Adidas classics such as the Samoa, padded collar Chucks from Converse and Slides all had very strong gains. In men's footwear, basketball was once again the key driver. There were several Jordan Retro launches that pushed really well during the quarter. In addition, we had tremendous results in marquee players shoes, led by LeBron, we were happy to see get a ring and a gold medal, but also Kobe, Rose and Durant. The broader basketball business was very strong as well, as we continue to build on our leadership position in our biggest category with Nike, Jordan and Adidas.

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