Foot Locker, Inc.
Q2 2015 Earnings Call Transcript

Published: 21 Aug 2015

[John Maurer:]

Thank you, Suzan and good morning to you all. Welcome to Foot Locker, Inc.'s Second Quarter earnings conference call. Extending the momentum with which the company started off the year, Foot Locker generated a 9.6% comparable sales gain in the second quarter and we were able to flow a very strong proportion of those sales to the bottom line producing record net income of a $119 million, a 29% increase over the second quarter last year. On a per share basis Q2 earnings were $0.84, a 33% improvement on last year's GAAP results of $0.63 and 31% above last year's non-GAAP earnings of $0.64 per share. For the first six months of the year the company has generated net income of 303 million, the most profitable first half results in our history. We have earned $2.14 per share so far in 2015, a 24% increase on a GAAP basis over the same period in 2014. Here this morning to provide you with the details of our second quarter performance is Lauren Peters, Executive Vice President and Chief Financial Officer, she’ll be followed by Dick Johnson, our President and Chief Executive Officer who will highlight the product trends, that drove our results this quarter and delve into the execution of the strategic priorities which are behind the record levels of success we have achieved so far this year. After Dick's prepared remarks, we'll open up the call to your questions. So, Lauren, begin.

[Lauren Peters:]

Thank you, John, and good morning everyone. We are encouraged by the continued strong execution of our business initiatives in the second quarter which led to this record financial performance. We had consistently robust operating results across our channels, geographies, banners, families of business and product categories leading to the strong gross margin rate, a low expense rate and improved inventory position. But it all starts with top line sales, so let's begin there. By segment our comparable sales gain in our stores was 8.6% while our direct-to-customer business again led our performance with an 18.8% sales increase. Within the direct-to-customer segment, the domestic store banner.com businesses collectively increased sales more than 40%. While Eastbay generated a mid-single digit increase. Overall, direct-to-customer sales increased to 11.3% of total sales, up from 10.5% a year ago. Within our store businesses our international divisions produced the strongest sales results with all regions Europe, Canada and Asia Pacific posting double-digit comparable sales increases. We had good performances in the U.S. as well with the Foot Locker and Footaction divisions both up high-single digit. Kids Foot Locker and Lady Foot Locker SIX

[Dick Johnson:]

Thanks, Lauren, and good morning. It’s great to have all of you with us this morning to hear about what drove our second quarter results. One of the things we try to do at Foot Locker, Inc. is to always keep looking forward at what we can do better and how we can build the future performance of the business to be even strong. But it is appropriate every so often to pause and acknowledge the successes the team has achieved. And with the quarter we just announced, now is one of those times because it really was an outstanding quarter and first half of the year. I want to express my sincere gratitude and appreciation to all of our associates in all of our divisions and support facilities around the world for the team work, innovation and excellence that are clearly evident in our results so far this year. In fact, I truly appreciate how firmly these and our other core values have been embraced by the entire team at Foot Locker, Inc. That said we realize retail is a game that never really ends. And for 2015, we’re just starting the second half, so we recognize the hard work still to be done to finish the year on top. Turning to the product highlights in the second quarter, there are quite some works from recent quarters. Lauren already mentioned that both Running and Basketball were up double digits. In terms of Running, lifestyle running continued to be a big driver of our Footwear business in all of our regions, led by Roshe, Huarache, and Air Max Styles from Nike, and ZX Flux from Adidas. Although those are the really big running platforms we are also working with other vendors to develop new lifestyle running offerings, including Puma, New Balance, Asics and Saucony. On the basketball side, Jordan continues to be tremendously strong brand around the globe. Jordan Retros and Classics in particular performed well. Meanwhile, the Marquee Player shoe business in the U.S. continued to grow with ongoing strength in Lebron, KB and Kobe coupled with stellar growth in the footwear sales of exciting new athletes, in particular Kyrie Irving with Nike and Stephen Curry with Under Armour. The softer part of our footwear business continued to be in casual. In particular, canvas and vulcanized shoes. On the other hand, the launch of the new Chuck Taylor IIs from Converse performed quite well recently, indicating that when there is some new or different casual product in our business, our customers know to come to us to find it. Although seasonally a small business, we brought in some of our boot assortment from Timberland and Nike earlier this year and the initial sell throughs were positive which bodes well for back to school in the fall of season. There were abundant signs of progress in our apparel business during the quarter. Apparel was up solidly at Foot Locker and Footaction in the U.S. where it was primarily a bottoms driven store with Nike and Jordan Shorts posting strong sales, as well as Tiro pants from Adidas. At Footaction, jogger bottoms from smaller lifestyle brands also sold well keeping that banner on the forefront of style for its core customer. Branded tech fleece pants and shorts sold well in Europe where our apparel business continued its rebound with a double digit comp gain. Europe’s private label and control brands gained ground in shorts and tees and our soccer business continued to develop into a more meaningful part of our apparel assortment there. Finally, while posting a top plus the apparel business at Champs Sports also improved sequentially, driven by the same branded bottoms trends as in our other U.S. divisions as well as its private label Champs Sports gear, mid shorts and jogger pants. The losses are still coming primarily from downsizing what has been a very sizeable licensed business. I’ll touch briefly now on our key strategic initiatives. First, clearly the core business remains strong with strong connections to the different core customers of the Footlocker, Champs Sports and Footaction banners. We are continuing to invest in the remodel programs and expect to have touched at least 30% of the Champs stores and our Foot Locker fleece in the U.S. by the end of 2015. And where we will begin to catch up at Footaction as we move into the rollout more with the Garden State Plaza design in that banner. We are continuing to develop and rollout our vendor partnership spaces such as House of Hoops of which we now have a 165 in the U.S. and another 25 internationally. Also at Footlocker we now have five PUMA Labs and at Footaction we have four Jordan Flight 23 shops with another one slated to open on State Street in Chicago next month. Our latest partnership the ARMOURY @ Champs Sports is just a couple of months old and the first store is doing well. It’s too early to say much about it other than the fact that we and Under Armour are both learning from that store and we’re discussing an expansion of the test at some point next year. Our Kids business remains robust, just as in the first quarter. The Kids Foot Locker division posted a mid-single digit comparable sales gain with the addition of 20 new KFL stores, total sales at KFL were up double-digits. We are continuing to rollout Fly Zones in partnership with Nike, we're up to almost 30 now. Meanwhile, Kids Footwear sales in the other banners were up double-digits and we continue to add Kids Foot Locker stores in other market outside the U.S. With so many strong performances, it's impossible for us to pick an MVP for the quarter. But Foot Locker Europe would certainly have been -- have to be the finals. That division posted outstanding sales and profit growth in Q2 with a comp gain in footwear in mid-teens and apparel up double-digits. Sales in all of these big six countries were up double-digits. Although it is one of our smallest markets with only four stores even Greece had a comparable sales gain for the quarter. Our banner segmentation work is continuing in Germany as we position the Runners Point and Sidestep banners to complement our position with Foot Locker banner in that country. It's still premature to draw firm conclusions from that work. We'll be able to give you a better idea of a potential banner expansion strategy towards the end of the year when we’ve gathered more experience executing in a multi banner offence in Germany and have developed our capital plans for 2016 and beyond. At the same time, we're reviewing expansion opportunities for the Foot Locker banner in Europe and may look to accelerate somewhat our store growth plans, especially in the markets we believe we’re most under penetrated in such as France and Spain. We’ve already covered a lot of the story behind our next growth pillar, apparel, which is definitely improving. However you also heard today that our growth in footwear is even faster. As a result apparel penetration is currently still falling a bit. But let's just say I’m not telling the footwear teams to slow down so that their apparel partners can catch up. As we've said gains in apparel penetration will take time, but apparel profitability can strengthen with comp increases and improving margins and that's what we're beginning to see. Our next strategic initiative to build a more powerful digital business remains firmly on track, with steady high-teens sales increases with strong margins our digital performance sometimes almost seems automatic, but having come from and led that business I know how much really hard work goes into producing such consistently strong results. It takes a lot of technology investments, product and marketing coordination with our store teams, analysis of massive amounts of data and outstanding customer service to be a leader in the omni-channel world. And we’ve continued to be just that. And since beginning given that omni-channel world, we've doubled the size of tests, of the Eastbay performance zones in Champs Sports. We now have eight Champs locations where we feature a select performance merchandize from Eastbay, previously a digital only banner. The assortments include both seasonal sports specific merchandize and an ongoing presentation of categories such as training that are in the performance zone all year along. Now, turning to our women's business, we recorded our fifth consecutive comparable sale gains at Lady Foot Locker SIX

[Operator:]

Thank you. [Operator Instructions] And the first question is from the line of Camilo Lyon with Canaccord Genuity. Please go ahead.

[Camilo Lyon:]

The first question I had Lauren you talked about the IMU trend improving, I think you also said that last quarter. And could you just talk a little bit about what the -- if you peel back the layers, what’s going on there? Is it more of a mix benefit that you're seeing or are you seeing something different there that’s improving your positioning with respect to the vendors?

[Lauren Peters:]

Camilo, what I talked about was the fact that our merchandise margins improved during the quarter, they were up about 20 basis points, which was a combination of us further reducing markdowns and that offsetting a bit of continued IMU pressure. But the IMU pressure has progressively lessened and really where it comes from, the IMU pressure is the mix, it was really a mix situation, mix of vendor, mix of products category. But we remained focused on our opportunities to -- ever get the products allocated better the first time around that helps with the further lowering markdowns. And certainly as we continue to see progress in our apparels business and its profitability that as well.

[Camilo Lyon:]

And then my second question relates to inventory. You're clearly managing your inventory very well, it looks -- you're guiding to a mid-single-digit comp. It looks like you're being very cautious on how you're planning the business, which if we are looking at this from the perspective of your demand trends, does it feel like you're leaving some sales on the table by not being a little bit more aggressive on your inventory buys or you're feeling that you're capturing all of the demand that you're seeing walk through the door?

[Dick Johnson:]

Camilo, I don’t think we capture all of the demand that walks through the door, but I think that the team has done a great job of effectively managing the inventory. We do plan conservatively, but we chase aggressively. So when we have the opportunity and see the opportunity to move a little bit fast on the inventory front we work with our vendors to identify those opportunities, our team goes aggressively after that. So I think that one of the things that’s driven our productivity across the board is effective inventory management. I think getting the right product in the right store at the right time is the key, I think our team together with Lauren and her planning skills are getting that done.

[Camilo Lyon:]

So is that to say you’re able to get more product intra-quarter now than you were in the past, you're able to chase more successfully now than you have been in the past?

[Dick Johnson:]

We’re able to chase more successfully and we’re flowing inventory better. So the combination of those two I think really puts us in a position to capture the demand as it walks through the door. We’re also doing a better job of looking at our inventory in totality across stores, across channel, so we have the ability to satisfy the customer wherever they happen to be shopping today.

[Lauren Peters:]

We work very hard internally and with our vendor partners to be as nimble as possible on inventory flow.

[Camilo Lyon:]

And this is on the floor that systems initiatives come into play which should further the margin outlook and the full price sales outlook as those systems come online next year, correct?

[Dick Johnson:]

Well we’ve got the first phase of our merchandise planning system -- our merchandise allocation system in place. So it's a learning system. So as that system goes through season after season, it continues to learn more, we will continue to see more improvement. We’ll also get improvement as we get the second phase of that system in place starting later this year and rolling into 2016.

[Operator:]

The next question is from the line of Scott Krasik with Buckingham Research. Please go ahead.

[Scott Krasik:]

Just one clarification and then a bigger picture question. When you talked about casual, obviously there is laggard. Where do you guys put things like the Jordan Eclipse and Roche for example because I see a lot of people wearing that for casual wear? And then just bigger picture, it sounded to me like there might be a little bit more momentum coming from some of your secondary brands. And do you feel like this is sustainable and we can start to see really increased penetration from some of the brands that have lost share or were too small to matter in the past?

[Dick Johnson:]

Most of the shoes that we sell are technically used for casual use, we’ve talked about before, they’re not being -- every running shoe that we sell certainly doesn’t see the track or the road to run miles in. Every basketball shoe sold doesn’t see the court to play game of Hoops so when we refer to casual, we refer to vulcanized and canvas sort of products and that’s really where the challenge has been through the quarter. Roche by our definition is a running silhouette, it’s a casual lifestyle running silhouette, but certainly a running silhouette, the future, our Jordan product is generally categorized as basketball. So when we refer to casual it’s more of the vulcanized canvas shoe and while we’re experiencing some struggles the Chuck II that launched late in the quarter certainly has performed better than the rest of the category.

[Scott Krasik:]

And they didn’t turn to the other brands, sorry?

[Dick Johnson:]

In terms of the momentum of the secondary brands, we work with a number of brands trying to development programs and platforms that are right for each of our banners. So you won’t necessarily see some of these secondary brands across all of the banners that we’ve got. But the Footaction team is working on some specific programs with some of them, the Footlocker team is working on programs with some of them, Champs is working on programs with some of them. So yes we think there is definitely a place for the secondary brands in our assortment and we continue to work with them to grow the opportunities.

[Scott Krasik:]

And then just did you actually give the RPG comps?

[Dick Johnson:]

No.

[Lauren Peters:]

We did not, since we’ve Anniversary the acquisition we really speak in terms of Euro regions.

[Scott Krasik:]

Is it meaningfully different, do you want to throw that out, or?

[Lauren Peters:]

We aren’t going to break that out, which sparingly estimate RPGs contribution to our results, it is accretive for us and we’re working through the segmentation in Germany and how that position Foot Locker, Runners Point and Sidestep to reach the broadest demographics that we can. And we feel very good about the progress that we’ve made in particular with the Runners Point which is really all things running and they’re positioning on Sidestep further behind that effort in Runners Point.

[Operator:]

The next question is from the line of Mark McClintock with Barclays Capital. Please go ahead.

[Matthew McClintock:]

I was just wondering if you could elaborate on your comments regarding 602. You talked about refining the formula, I know that there has been a lot of work regarding that over the last several years, while at the test it seems like now you’re starting to get to a point where you’re rolling that concept out more, you’re accelerating that. How do you think about refining that formula? And specifically, when we talk about additional brands, like Lorna Jane, et cetera, how do you think about allocation of space to those brands in the current prototype in terms of size of the stores, so the store should -- so should we be looking at bigger stores going forward? Thank you.

[Dick Johnson:]

Well, that’s part of the things that we’re evaluating, Matt. We started with slightly bigger stores in 602. We’re trying to strike the right balance of floor space and productivity. The secondary brands are key to the look and style with the core consumer wants there. So the mix of footwear and apparel, the mix of brands within footwear and apparel remain items that we continue to evaluate. And we were just out in Chicago in Woodfield Mall in Schaumburg, relatively new 602 there that looked good and we see the strength of the brand. Our real initiative is evaluating the performance metrics in the doors and growing the brand recognition in the marketplace at the same time.

[Lauren Peters:]

And actually that customer is clearly telling us she wants the specialty retail. We are working on the assortment to make sure that we deliver that to her.

[Operator:]

The next question is from the line of Jay Sole with Morgan Stanley. Please go ahead.

[Jay Sole:]

Dick you’re talking about apparels, seems like there has been some real progress in the quarter. Can you talk about why that’s happening now, some of the nuances behind that business that are causing the improvement that you’re seeing?

[Dick Johnson:]

The teams done a great job of narrowing the assortment identifying key items and driving them hard, we’re in a very bottoms driven assortment time in the U.S. and our team has done a really good job of identifying the key bottoms, the key fabrications, the key styles and they’re driving those silhouettes. In the Europe it’s been a combination of strong branded performance, their private label and their own so controlled brands have been strong and they've really reintroduced lifestyle of soccer into the program in Europe which has been a very much a positives. So, I think it's really been an assortment of or a combination, excuse me, of -- we're finding these assortment going after the key items in depth and moving on, we've got a better markdown cadence, we've got a better freshness ratio, so they've taken the bull by the horns on the apparel front and are really making some differences. The business of Champs across the branded and private label side of the business is improving. They're still trying to rationalize their licensed product business which over time had become a very big chunk of their apparel business and as they start the anniversary that process of lowering their percentage of licensed products we see the branded and private label in Champs taking over and them getting positive by the end of the year as well.

[Jay Sole:]

At the end of the statement, you were talking about some initiatives to continue to improving apparel, where do you stand on those and what's the next step of the next 90 days? What would you like to see happen in just terms of the operations to continue to drive strong apparel comps?

[Dick Johnson:]

More continuity of the same things they just really identified Jay, in terms of identifying those strong apparel trends and items, making sure that we maximize those, we create complimentary adjacencies for footwear and apparel, that we're always bringing apparels to the bench to try to add-on the sale, that we're creating exciting strong environments where apparel will be featured and can be talked about our associates on the floors. So the things that we just started and we're seeing nice bounce from the great work that they're doing, we're just going to get more ingrained in that. That’s the next step of the continuity.

[Operator:]

The next question is from the line of Sam Poser with Sterne Agee. Please go ahead.

[Sam Poser:]

What is -- what if you talked a little bit about the impact of the later Labor Day from the short term and I wondered if there was some other launch changes as well as regarding Nike, given the later Labor Day at Jordan, if you're seeing any of that?

[Dick Johnson:]

Well, Sam, we know that the launch calendar shifts and ebbs and flows based on the timing of the various launches, but right now the bigger impact is probably the later back to school -- with the late labor day and you have to remember too that we’ve got a lot of geography differences when it comes to Western Europe, their back to school cadence is significantly different than it is here in the U.S. So the back to school period is really getting to be more like the Christmas period and we have to look at it across the six or seven weeks where various regions of this country and various regions of our Western European business, our Canadian business do go back to school.

[Sam Poser:]

So, you haven't seen any change -- I mean you see no changes in the momentum of the categories or anything really -- I mean you consider you see the strength or are you seeing any changes in categories right now as we've moved into back to school?

[Dick Johnson:]

We probably outta, Sam, when we look at footwear especially, both running and basketball were up double-digits for the quarter. And across the major geographies so while basketball still has bigger percentage of the business here in U.S. certainly, running is -- the key still is running in Western Europe, but basketball is growing significantly, there while running is growing significantly here. So at this point no, the momentum is clearly there on the footwear side and in the progress we're seeing in apparel, we continue to see some tailwind in the sales right now.

[Sam Poser:]

And then, I know the question was answered, but can you give us a little bit of color -- can you give us any more color on what you're seeing from Runners Point group, Sidestep and so on, and sort of how you're looking at that? We were looking forward to hearing a little more color once it hit the comp and so just love to discuss as much as you can give us.

[Dick Johnson:]

The work that we’re doing -- Bart and his team working with Lou and his team over in Europe are really designed to give us a ready to run a multi banner offence across Western Europe, so solidifying the position with Runners Point as all things running and Sidestep being more on the lifestyle side of the equation, the complemented position that we've got with Foot Locker is ongoing work. When we took Timberland boots and Chuck Taylors out of Runners Points we fired some customers, so now we're rehiring customers with technical and lifestyle running and really creating an environment that is part of the Runners Point DNA, which is really where they started, as a technical specialty running shop. In Western Europe, that business is able to be successful both on the high streets and in the malls. So we've launched a lighthouse store in Cologne and we've got a second plan to expand the lighthouse bought into Vienna in Austria that would be the first country that we move into outside of Germany in a significant way. So the progress continues and the positioning continues, but it’s something that we’ll take some time to get the multi-banner offence up and running, but as Lauren said, Runner Points group business continues to be accretive to us and we’re pleased with the results at this point and are very happy that the acquisition is behind us and the integration continues.

[Sam Poser:]

And then lastly, could you just give us -- you said that the -- I mean on the scale of one to 10 like where are you with sort of the impact of the allocation system -- the new allocation system that’s been put in, I know you mentioned there was a learning system. Maybe you can provide a little more color there?

[Dick Johnson:]

Yes, as the first phase of the project, Sam, is completely installed. So the learning piece of it is out there and it’s helping us to allocate products into the stores today, we’ve changed the process that we used. So we hold a little more inventory back in the warehouse and then we replenish to the stores that have the best opportunity from the systems perspective, of course with human monitoring, the best opportunity to sell that product. The second phase were that knowledge is part of the order planning system, that’s the piece that we’ve rollout later this year. So we’ll continue to get better in the allocation and flow of product into the stores initially, we’ll continue to get better with the replenishment of the product into the right stores, which again helps us lower the markdowns and increase the opportunity to sell to the right customer in the store. And then we’ll get more informed order writing as we go onto ‘16 and ‘17. So the system will always learn, the first round of learning is probably the lengthiest as it goes through a full cycle with us. But it will continue to learn and we’ll be able to take continued advantage of the installation of the system.

[Lauren Peters:]

We think it bears fruit for several years.

[Operator:]

The next question is from the line of Matthew Boss with JP Morgan. Please go ahead.

[Matthew Boss:]

So given your strong gross margin performance in the first-half of the year, any change to the flat to slightly positive full year outlook and then just the best way to think about second half headwinds and tailwinds?

[Lauren Peters:]

Yes, so we really have done a good job of flowing through the sales gains above the mid-single-digit plan and comp first-half 8-7 [ph] and when we’re able to do that, we’re really able to lever the fixed element of the margin and as I’ve already described we actually improved the merchandise margin. So as we look at the back half planning mid-single, but if we’re able to come in at the high end of that range there is no reason to think that we couldn’t continue to lever those fixed elements. So 40 to 50 leverage basis points in the back half is not out of question. And then we have the tailwinds, headwinds, we’ve talked a lot about product strength and what we’re seeing coming from products, we still got the FX that we’re dealing with as the headwind. Although that begins to get a bit better the further into the back half we go. As we look at third quarter, it should be less than 100 on the top-line, but I’d think about, 80 to 100. It’s probably about a nickel on the bottom-line for Q3. And then I guess it gets better than that in Q4.

[Matthew Boss:]

And then just touching back on that FX in the expense base, what’s the best way to think about expense dollar growth in the back half of the year. Can dollars continue to be down in SG&A and then going forward just any change to the lower single-digit comp leverage point or is that kind of the best way to think about it multi-year? Just any investments for us to consider as we think beyond this year?

[Lauren Peters:]

We continue to see that we can lever at low single-digit comps. But on the SG&A certainly we’ve got a benefit in the first-half from the FX as you look at the dollar impact that as I described lessens as you get further into the back half. But we did do some shifting of marketing expense into the back half to make sure that we were really telling our story during the peak of selling periods. So in terms of SG&A I would continue stick with the guidance that we gave earlier of about 50 basis points over the back half of improvement.

[Operator:]

Your next question is from the line of Matthew Plank with Jefferies. Please go ahead.

[Eddie Plank:]

It's Eddies by the way. I guess, Dick, on the Kids business it’s been strong for a several years now. How do you feel about the runway left there, how much is the global opportunity factor in, in just sustaining that strength at this point?

[Dick Johnson:]

The Kids business has really been one of the shining stars that we’ve had amongst many, Eddie. And the opportunity to grow that banner exists both in the U.S. where we continue to add some KFL stores and in our international market as well. So we see continued upside there. Obviously, as we open some partnership spaces, the fly-zones have been extraordinarily well received in this country. We’re looking at that partnership space in Canada and in Western Europe as well. So, we think there is still upside on the kids business. And that’s just the KFL banner, Eddie, when you think about our kids business across the other banners where we sell it that was up double digits in the quarter. So we continue to see opportunity on the kid side.

[Eddie Plank:]

And then just you touched on the Under Armour shop-in-shop concept at Champs. Maybe it’s early to ask this question, but do you see any -- are you talking about any scalability there to the other banners. You’ve got the shop-in-shops with the PUMA Lab and the Adidas shop-in-shops. I mean I guess how do we think about Under Armour as a factor in that going forward?

[Dick Johnson:]

We see Under Armour as a player across several of our banners. The partnership space right the Armoury is clearly focused on the Champs Sports customer and we have to figure out the scale with Under Armour, we have to figure out the scalability of it with the Champs banner. But several of our banners are working hard with Under Armour to continue to drive product opportunities. We think Under Armour will play a significant role in our women’s business, for example, they’ve got some great assets with Gisele, Misty Copeland, people that have real resonance with our female consumers. So we see them having a big impact in the business going forward across banners.

[Operator:]

Our next question is from the line of Erinn Murphy with Piper Jaffray. Please go ahead.

[Erinn Murphy:]

I was hoping you guys could talk a little bit more about Europe, I think you talked about accelerating your store growth plans there. Can you just elaborate what regions you’re going to really be focused on? And then I know JD Sports has been very aggressive in the store rollout plans there. So, just how are you viewing your move in terms of being defensive versus offensive at this point? Thanks.

[Dick Johnson:]

Well, we always play offense and I mean that’s the fun side of the game. So we look at Western Europe with over 600 Foot Locker stores, couple hundred stores in the Runners Point Group in Germany. And the multi-banner offering presents us great opportunities across the other countries, and that’s why the work that we’re doing with Runners Point and Sidestep is so critical in terms of complementing the Foot Locker business across the Western Europe Theater. So the places that we’ve talk specifically about, we feel like we’re a little bit under penetrated in a couple of the big six countries, France and Spain, specifically. So, we think there is an opportunity to expand our Foot Locker stores there. And as we get ready to roll out the multi-banner offence we see -- frankly most of the Western European countries that we’re doing business in has an opportunity to run that multi-banner offence.

[Erinn Murphy:]

And I guess with JD Sports in particular, are there any other competitors, other than them, that you’re seeing as pretty significant in terms of how they are kind of thinking about their store allocations, or store rollout plans?

[Dick Johnson:]

There is competitors Erinn in each country, JD’s is probably been the most aggressive going cross-country borders, moving more into under the continent from the UK. But there is competitors that have -- clearly have plans to expand in most of the countries that we do business in. So we look at Western Europe in totality, but the team over there really focuses on specific markets and identifies great opportunities to open stores. So, we look at it from an offensive point of view and that’s every country that we do business in.

[Lauren Peters:]

This is one of our real strengths that we’re very focused on the local customer and what their product preferences are and we’ve got a rich history in being able to do that. So, it is a competitive advantage for us.

[Erinn Murphy:]

When you talked earlier on in the call just about the strength you’re seeing in running, and you talked about some of the other brands like PUMA, New Balance, Asics, Saucony. I didn’t hear you talking about Under Armour from a running perspective. How is that brand doing within running, in particular?

[Dick Johnson:]

The running products is certainly advancing Erinn. And the call out that I made was more along the lifestyle side of running. But the shoes that Under Armour is bringing to bear on the running side of the house certainly have gotten better over the last couple of seasons and we see continued progress there. And we think that both on the running and basketball, and ultimately on the training side as well, that their footwear is improving.

[Erinn Murphy:]

And then just last question, just housekeeping on the model for the back half. You bought back a little bit less stock in the second quarter versus the first quarter. How are you thinking about buyback activity in the second half and just what’s included in your guidance? Thank you.

[Lauren Peters:]

We have 851 million still open in our operations program and we’re executing against that. I don’t have a formula that I can share with you. So we really look at our capital structure across for opportunities to invest in the business and return to shareholders, and I think we’ve done a good job of doing both.

[Operator:]

The next question is from the line of Kate McShane with Citigroup. Please go ahead.

[Kate McShane:]

My question was on apparel as well, you had mentioned that the profitability is improving despite the fact that the penetration is still declining a little bit just based on the strength of footwear, can you quantify at all, how the gap in profitability has improved for apparel over the last couple of quarters and what your expectation is for that gap, through year end?

[Lauren Peters:]

It's a case where we have been improving the margins in both footwear and apparel, happy to be able to say and as we work on flow in all the categories better. But we have narrowed the gap, it's still a case though where apparel is chasing footwear and we do think that -- we still continue to think that the point where we're really at our A game with apparel, that it's got margin potential above footwear margins that we still have that rates going on and happily apparel has picked up speed in the race.

[Kate McShane:]

Have you stated ideally where apparel margins should be, once you're at that point?

[Dick Johnson:]

We think that apparel margin should be better than footwear margins in the end. If we’re doing the right thing from buying and allocating point of view and running the lifecycle of the product appropriately with our markdown cadence. We see apparel margins being able to be equal to or better than footwear.

[Lauren Peters:]

Yeah, it should be meaningfully better.

[Kate McShane:]

And my last question is for Dick. guess it's almost nine months that you've been head of the company now and six months since the analyst day, just wondered if you had any kind of insight about what has surprised you during this time period, where do you think may be have a little bit more work to do then may be what you initially thought, any kind of insight into the first eight months on the job?

[Dick Johnson:]

Look Kate, the continuity of the role has been probably one of the smoother things, Ken handled his exit in the beginning of the transition as the professional -- Ken's been professional that he is and Ken and I have worked hand in hand for a long time, so the new plan was a continuation plan the team continues to execute at a high level. So from the business point of view, we continue to make great progress and I don't see necessarily any surprises there Kate, the bigger surprise that I've had so far is the CEO roll doesn't come with 26 hours in a day and there is a lot of things that -- when Ken and I were working together, Ken handled some, I handled some and now I'm trying to be a good leader across the business and could use a couple of more hours in the day, but I'll have to figure it out.

[Lauren Peters:]

Teammates trying to help him, pick up some of those hours.

[Dick Johnson:]

Teammates trying help, absolutely.

[Operator:]

The next question is from the line of Paul Trussell with Deutsche Bank. Please go ahead.

[Paul Trussell:]

Wanted to just ask about the price points, in a few different manners, one as we look forward to the fall and turn it around the corner into early '16 launches, any reason to see the pace of ASP gains slow or alter from recent results? Second, is are you able to speak to your current merchandizing mix as well as recent performance across various price points, perhaps below a 100 -- between a 100 and 150 and the more premium product above 150, be interested if there have been any standout performances between price points. And then third and lastly, there has been recently a big double-digit percentage increase in the price point of Kevin Durant basketball sneaker and it looks like there's going to be a double-digit percentage increase in the price of the retro Jordan sneaker to come, how do you we think about the elasticity of some of these products with that type of pricing change, what is embedded in the assumption for how units perform following such a deep increase?

[Dick Johnson:]

You got a bunch of questions, so let me try to go back to the first one, we don't see price point growth slowing down in the back half certainly, I mean I think the customer, as long as there's great value in the product, they've proven that they're willing to pay the price and that's across various buckets that you talked about. If you're talking under $100, the consumer there has to see the right value associated with the price from a 100 to 150, really sort of the wheel house of getting towards that beginning of the premium, premium end. There has to be value for the price and when you get up to the higher price points the people that create those shoes do a great job of limiting distribution and the number of pairs in the marketplace. So there is a scarcity model that exist, that the consumer that gets those shoes feels really fortunate that they got them and they clear to this point have shown that they are willing to pay the price. And our team does a nice job, follow up with each launch, with each product that they look at, they look at the cadence of other products before, the products that are coming after from a launch perspective. And they seem to be like more times than that with the qualities that we put into the marketplace. So, the real opportunity lies in maximizing the value for the customer across all of those price points. And our vendors were doing that.

[Lauren Peters:]

And that’s what we really focus on and our merchants are making sure that they’re compelling product across the price point. So that we’re don’t leaving anybody behind.

[Paul Trussell:]

So congrats again on the great quarter and please save me a pair of Yeezys tomorrow.

[Dick Johnson:]

You know we can’t do that Paul, but I have a feeling that you're already in line somewhere for them.

[Operator:]

The next question is from the line of Bernard Sosnick with Gilford Securities. Please go ahead.

[Bernard Sosnick:]

I like to say that when you move to new headquarters during conference calls I think I am going to miss the line of emergency vehicles, unless you pipe that in [Multiple Speakers] I know it's very early since the release of Compton and Dr. Dre’s album. But I am wondering if you're seeing any inkling of a change in demand with regard to styling toward hip-hop and so when styling changes like that will it have any influence on what you're prepared for the holiday season and how quickly might you be able to adjust?

[Dick Johnson:]

The footwear choices of all of the artists and athletes certainly have a bearing on what our customer chooses to wear. And with social media as active it is today they know what -- whoever is performing tonight, whatever he’s wearing. So the fact the Yeezys shoe got some press today in the Wall Street Journal tells you that things are shifting. But our consumer is really driven by the moving and our vendors do a great job of helping manage those moments by bringing great products to bear in the marketplace. Sometimes with fewer pairs than we like to see, sometimes with more pairs than we like to see, but they manage that pretty well. So I think as the athletes and the artists continue to change their footwear choices, our customer react to that and certainly our buying team reacts to that as well.

[Bernard Sosnick:]

Well, thank you and keep surprising us on the upside.

[John Maurer:]

I think that’s all we have time for. We appreciate your participation on our call today. We look forward to having you join us on our next call, which we expect will take place at 9

[Operator:]

Ladies and gentlemen that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.