Foot Locker, Inc.
Q4 2015 Earnings Call Transcript

Published: 26 Feb 2016

[Operator:]

Good morning, ladies and gentlemen, and welcome to the Foot Locker's Fourth Quarter 2015 and Full Year Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. 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 release and SEC filings. We refer you to Foot Locker'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 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 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, Carlos, and good morning, everyone. Welcome to Foot Locker, Inc.'s Fourth Quarter and Full Year 2015 Earnings Conference Call. Thank you very much for joining us today. As reported in this morning's press release, the company achieved GAAP net income of $158 million in the fourth quarter, up from $146 million in the fourth quarter last year. On a per-share basis, we earned $1.14 this year on a GAAP basis, compared to $1.01 in the same period a year ago, a 13% increase. As noted in our release, we had one-time items in both this – just completed quarter and last year's Q4. This year, the company recorded a pre-tax charge of $5 million, $4 million after-tax, to reflect the impairment of certain Runners Point Group assets, thus reducing earnings by $0.02 per share. A year ago, the fourth quarter included a gain from the sale of a property as well as a write-down of a trade name. Excluding these items, fourth quarter non-GAAP EPS was $1.16, a 16% increase over the $1 a share we earned on a non-GAAP basis last year. A reconciliation of our GAAP to non-GAAP results is included in our press release, and except as otherwise indicated, the numbers mentioned during our remarks this morning will be based on the non-GAAP results. The strong finish to the year brought our annual non-GAAP net income to $606 million, also 16% up from a year ago, and our fourth consecutive year achieving record annual earnings. On a per-share basis, earnings were $4.29 for the full year, an increase of 20% over last year's $3.58. Lauren Peters, Executive Vice President and Chief Financial Officer, will lead off our call this morning with a detailed look at our fourth quarter financial performance, followed by Dick Johnson, President and Chief Executive Officer, who will touch on product trends and our progress in year one, executing our current strategic initiatives as we work towards the long-term financial objectives outlined in last year's Investor Day. Lauren will complete our prepared remarks with an overview of our annual and quarterly expectations for 2016. Lauren?

[Lauren B. Peters:]

Thank you, John, and good morning to you all. We do appreciate you joining us as we review our 2015 results and take a first look at 2016. It was indeed an outstanding year for Foot Locker, and I'm pleased to report that in the fourth quarter, we were able to sustain the top-line momentum we had built throughout the year, posting a 7.9% comparable sales gain on top of last year's 10.2% increase. Our international division had an outstanding year. In fact total sales increased more than 10% in local currency in each of our regions. Our fourth quarter was led by Foot Locker Asia-Pacific with a mid-teens comparable sales gain on top of a double-digit increase in the fourth quarter last year. Close behind were Foot Locker Europe with an increase in the teens, and Foot Locker Canada, which was up double digits. Unfortunately, our Runners Point Group stores did not share in that success with both the Runners Point and Sidestep banners down mid single digits. This performance contributed to the impairment charge John mentioned, which had two components

[Richard A. Johnson:]

Thanks, Lauren, and good morning, everyone. My first earnings call as Chief Executive Officer came just about a year ago and I recall being very pleased then to be able to report the remarkable record-breaking achievements that the team produced during 2014. And today, I could not be more proud to report that the team was able to surpass in 2015 almost every financial and operational metric from 2014. Although we know that breaking records is what is expected of a high-performing team, I must first thank all the individual associates who made it happen. Their love of the game was apparent everywhere I visited this past year. From the store associates I watched engaging with customers to the various division headquarters teams working out how to win consistently with their core customer, to the support facility personnel teaming up with operations, I saw them making sure everything they do helps lead to a happy customer as he or she leaves the store or one of our websites with some exciting new sneakers or apparel. All along the way, I witnessed a lot of passion for winning with our customers. In a pattern that has developed in recent years, we achieved sales gains in all regions, channels and genders in the most banners and product categories. We believe this broad-based consistent performance reflects the leadership positions we have developed as a company across our merchant and operations teams, not to mention our equally talented support functions. I'm not going to spend a lot of time going over product highlights since most of the trends at the first part of the year carried over into the fourth quarter. I will say that we made substantial progress improving the sales and productivity of all four legs of our product category stool

[Lauren B. Peters:]

Thanks, Dick. We have indeed become a high-performing company and we believe our momentum should continue in 2016. As a result, we can once again provide the same high-level guidance for 2016 that we've given in recent years. We believe we can deliver a mid-single-digit comparable sales gain and a double-digit percentage earnings per share increase this year. We have planned the year with FX rates close to where they are now, with the euro around $1.10 and the Canadian dollars and Australian dollars around $0.70. The latter two currencies are weaker now than a year ago, so there will be a few cents of FX headwinds in 2016, but much, much less than the $0.23 of stronger dollar cost for EPS in 2015 relative to 2014 FX rates. We are planning for a slight improvement in our annual gross margin rate in the 10 basis point to 30 basis point range, mostly driven by leverage of our buyer and occupancy costs. We do believe that we have the ongoing opportunity with the benefit of our merchandise allocation system investment and other productivity initiatives to improve full-price selling and thus improve our merchandise margin as well. We intend to remain disciplined in managing expenses in 2016. We should also be able to lever on the fixed cost elements of SG&A to produce a modest 10 basis point to 30 basis point rate improvement. We do have a Q1 headwind due to our office relocation down the block in New York City, which will add about $4 million of expense due to paying rent on both locations, plus the cost of the move itself. Our lease here is up at the end of April, so after Q1, this expense will normalize. However, we could actually delever SG&A slightly in Q1. This annual SG&A guidance also incorporates all known minimum wage rate increases and changes in healthcare costs. Let's talk capital expenditures for a minute. As you've seen, we've announced a $297 million program for 2016, up from the $225 million we spent last year. We intend to continue our remodel and vendor partnership programs as we elevate the customer experience across our banners. Combined with approximately 90 new stores concentrated in Europe, Kids Foot Locker in the U.S., and Footaction, we expect to spend more than $200 million on improving our store fleet in 2016. This amount includes close to $10 million to transform two of our New York flagship stores, one here on 34th Street and the other up at Times Square. There are some other large non-recurring outlays included in this year's capital plan including more than $20 million to build out in our new headquarters location and a similar amount for our new online order management system and related customer experience initiatives. Although we believe 2016 will represent a peak in capital expenditures, we now project spending closer to $250 million in the couple of years after this, up from the annual $225 million we mentioned in our Investor Day a year ago. With this level of capital investment in the business, we expect depreciation and amortization expense to be in the range of $170 million to $175 million in 2016. In addition to opening approximately 90 stores, we plan to close about 100, which will leave our store count relatively flat year-over-year. The store closures will once again be concentrated in Lady Foot Locker and Foot Locker in the U.S. We are planning interest expense to be fairly flat to this year's $4 million, and we are continuing to plan our effective tax rate of 36.5% in 2016. Our guidance of a double-digit percentage increase in earnings per share also assumes a lower share count based on the continued execution of our share repurchase program. Although we are planning a mid-single-digit comp gain in each quarter, the profit flow-through challenge may be greatest in Q1, in turn creating a challenge to achieving double-digit EPS growth this quarter. With the income tax refund shift I mentioned and the difficult compare of last year's NBA All-Star game being in New York, we're expecting February's comp to be up low single digits. And we're expecting a solid mid-single-digit comp in the remainder of the quarter. That covers the highlights of 2016. We're looking forward to another very exciting year. Let me now ask Carlos to open up the call to your questions.

[Operator:]

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Our first question comes from the line of Eddie Plank. Please go ahead.

[Edward Felice Plank:]

Hey. Good morning, guys. Thanks for taking the question.

[Richard A. Johnson:]

Morning, Eddie.

[Edward Felice Plank:]

Morning. I guess, Lauren, you already – you talked about already achieving the 2020 operating margin target this year. How do we maybe think about that potential going forward? You talked about a little bit of gross margin improvement this year and SG&A improvement, but is there anything structural that would prevent you from taking that even higher over the course of the next three years to five years, let's say?

[Lauren B. Peters:]

We don't see a structural impediment to improving that rate. But again, I would reiterate the guidance that we gave you for 2016 around margin, 10 basis points to 30 basis points and SG&A – 10 basis point to 30 basis point improvement in each. So we still believe that there are opportunities for us to improve that merchandise margin, and we can lever the fixed costs. And the same would be true of SG&A, that we've got fixed elements within that lever. But we've got variable elements that we remain focused on, productivity improvements on, and have initiatives around. So we're not ready to come out with a new rate yet, but we don't see an impediment to it improving.

[Edward Felice Plank:]

Okay. That's fair. Thanks for that. And then just real quick, I guess could you guys maybe talk a little bit about the product cycle ahead and maybe where you see some of the bigger opportunities this year? Is there anything coming down the pike around the Olympics, for instance, that you're excited about? Or anything to give us an outlook on how you view the product cycle at this point?

[Richard A. Johnson:]

Eddie, this is Dick. The Olympics certainly drive innovation every time that you go through an Olympic cycle. And we're excited about what the vendors have cooking for the Olympics. And as we've talked about in the past, sometimes it takes a little bit longer to commercialize that innovation. But based on the product engines that we've seen, the look ahead that we've got based on the ordering cycle in the year and in our business, we see good things coming down the pike from a product perspective, both on the footwear side of the business and the apparel side of the business.

[Edward Felice Plank:]

Great. That's helpful. Thanks for that, Dick, and best of luck going forward. Great job, guys.

[Richard A. Johnson:]

Thanks Eddie.

[Lauren B. Peters:]

Thank you.

[Operator:]

Our next question comes from the line of Paul Trussell. Please go ahead.

[Paul E. Trussell:]

Hi. Good morning, guys. How are you doing?

[Richard A. Johnson:]

Good, Paul.

[Paul E. Trussell:]

So, wanted to just keep the conversation going on revenue. You mentioned, for example, that February is expected to be up low single digits. And, obviously, you were facing strong results from a year ago. But, obviously, those tough compares will just continue and continue to add up, just given your success over the past few years. So if you can, maybe elaborate a little bit more on what gives you that confidence, not just for this year's mid-single-digit comp growth, but just as we go forward through the 2020 plan. Specifically, if you can touch on the basketball category, as well as overall ASPs that you're seeing in your stores. Thank you.

[Richard A. Johnson:]

Thanks, Paul. The confidence comes from having some vision into the pipeline, obviously, both in footwear and apparel. As I said, great product coming down the pike. February is a little bit of an anomaly, given the incredible All-Star game that we had last year in New York. We had a great All-Star game up in Toronto, but just based on the store coverage in the greater New York City area and the places that we had to activate with consumers, Toronto just doesn't have that sort of store base for us. So as we look at Q1 and on into Q2 when the Olympics will be really heating up, we've got the Euro championships going on as well, so a lot of excitement around sport, which elevates all of the product offerings and the excitement with the consumer. So the ability to drive those comp gains, Lauren talked a lot about the productivity tools that we've identified, the amount of money that we're reinvesting into our store fleet to make them more exciting places to shop and create more engagement with our consumers regardless of the channel that they want to engage with us on. All those things are just a continuation of great work that's been done in the past with new peaks coming along the way. We've remodeled about 30% of our domestic Foot Locker and Champs stores. We're getting after the Footaction remodels a bit this year. We've got remodel projects going on in Europe, Canada and Australia as well. So, the productivity gains that we're seeing, we believe, can continue. We also believe that the inventory management and expense management that our team does gives us the flow-through opportunities that Lauren talked about.

[Lauren B. Peters:]

I think all of those things add up to really make us the first place a customer will come to check us out for great product that they – product that they love.

[Paul E. Trussell:]

Absolutely. So just then turning to Europe, if you can just give a little more color on what you think is driving this trough that you're seeing throughout a number of countries there in Europe? And how do we get Sidestep going in the right direction?

[Richard A. Johnson:]

I think there's two different things going on Paul, one, the Foot Locker Europe business, with the strength of the categories, they had a nice rebound in apparel this year, which certainly helped on that comp line. We see exciting products, big product pillars that are driving the business in Western Europe for Foot Locker, certainly some excitement around the Kids business there as well. The segmentation work that we're doing with Runners Point and Sidestep, we started late in 2014. The initial results looked very promising. During 2015, we saw, as we repositioned Runners Point as all things running, we saw a couple of key running silhouettes soften dramatically, some really big silhouettes in the German runners' mind softened dramatically. So the team in Recklinghausen is working hard to get the assortment right. We've also got some build-out configuration things that we're testing in both Sidestep and Runners Point. So we remain confident that Runners Point and Sidestep doors are a big positive for the future. Even with the impairment that we talked about, they were accretive to our business this year. So the write-down of sp24.com, which was a heavy liquidation site, not really the way that we do business anymore. Runners Point, prior to the acquisition, drove a lot of business through there. We've done the look at the business and decided that that's not where we're going to operate that business. So, a lot of moving parts with it, but we remain committed and confident that Runners Point and Sidestep play a big role going forward for us.

[Paul E. Trussell:]

Thank you. Good luck.

[Richard A. Johnson:]

Thanks, Paul.

[Lauren B. Peters:]

Thanks, Paul.

[Operator:]

Our next question comes from the line of John Kernan. Please go ahead.

[John Kernan:]

Hey. Good morning. Thanks for taking my question. Congrats on the great results.

[Richard A. Johnson:]

Thanks, John.

[John Kernan:]

I wondered if you could shed some light on ASP growth. Obviously, some of your key vendors have been pushing price higher, particularly in basketball. Can you talk about the sustainability of that and if you've seen any elasticity towards higher prices in some of the key basketball re-launches lately?

[Richard A. Johnson:]

Well, ASPs are a function – it's a price-value relationship for our customer. And as long as they bring – as our vendors bring innovation and excitement to the silhouettes, the customer doesn't really seem to have a lot of price resistance. The Flyknit Air Force 1 is a great example. It's $175 because that Flyknit upper changes the complexity of the shoe and in the consumers' mind, changes the price-value relationship. So the upper level of signature basketball got a little bit formulaic with everything bunching up in price points. So, as we look forward, when you look at a Steph Curry shoe or you look at a Kyrie Irving shoe, you start to see a little more variance in those prices. And I expect that's what we'll see along the way. Our vendors do a great job of introducing a silhouette at a price level and then continuing to lever that up a bit as they add more excitement, whether it be finishes, whether it be textures, whatever, that the consumer is willing to pay a little bit more for. So we continue to see upside on ASPs as we mix it across our entire portfolio.

[John Kernan:]

Okay. Thanks.

[Lauren B. Peters:]

I'm just adding (41

[John Kernan:]

Okay. That's helpful. Thanks. You talked a little bit about the product cycle for this year, and certainly Nike is a big part of that, but it seems like some of the other smaller vendors to you are also having a lot of success. Can you talk about efforts with Under Armour and adidas this year, particularly on the Footwear side of things?

[Richard A. Johnson:]

We've got a small group of very good partners, right? There's not a ton of people that we can do business with that have the authentic athletic heritage that our consumer wants to see drive the business. So certainly, Nike is the leader in the marketplace, but we've had great success with adidas. We've got some success starting with Under Armour on the Footwear side of things. They've created – they've leveraged a great asset and they've got a good portfolio of assets that they'll leverage going into 2016. We've got a store build-out, the ARMOURY at Champs Sports that we're testing a dedicated space in. We've got some build-outs with adidas, wall units and build-outs that we're testing across the fleet. adidas's penetration in Europe continues to be significant. They have some silhouettes that are really resonating with the European consumer. One of the strengths of our business is that we're able to see those things that happen in Europe and our U.S. team is able to react to them quickly to be first-to-market with things here in the U.S. So, secondary vendors are critical to our success and we spend a lot of time working with all of them, trying to bring innovative fresh product to the consumer.

[John Kernan:]

Okay. Thanks. That's helpful. If I can just sneak one more. Is there any way to quantify the comp store lift you're getting from some of – from the remodels that you've been in the process of for the past several years?

[Richard A. Johnson:]

Yeah, we haven't gotten specific. The fact that we're committed to continuing tells you that they continue to meet all of our internal hurdles and payback on the investments that we're making. But we haven't gotten into the specific – it varies so much by geography, by banner, by build-out that the thing that you can remain confident of is that they're meeting our internal hurdles or we would not be as proactive with the campaigns.

[John Kernan:]

Okay. Thank you.

[Operator:]

Our next question comes from the line of Kate McShane. Please go ahead.

[Corinna Gayle Van der Ghinst:]

Hi. Good morning. It's Corinna Van der Ghinst on for Kate. I was wondering if you could talk about the release schedule for the Jordan brand and how it might be different in 2016. It seemed that there were fewer total releases around the Week of Greatness and the All-Star break. Do you guys agree with that? And if so, what kind of impact did it have on your business?

[Richard A. Johnson:]

Well, releases are a part of our business, but again, they're just a part of the business. We don't get into the specifics of quantities and number of releases. We're impacted by timing of releases. As you know, we've got a big release tomorrow that a year ago would have been last Saturday. So we're certainly impacted by the shift of the dates of the launch. But we work closely with Nike obviously to try to minimize those shifts, but Nike, Jordan, adidas, Under Armour, they set their launch calendar, they set the amount of product that they want to put into the marketplace, and we work closely with them obviously to maximize our position in – across all of the launches. So again, it's – a lot of people focus on launch and it's an important part of the business, but you have to remember the strength of our business is really a four-legged stool with Basketball being significant, Running being significant, Casual being significant, and Apparel certainly starting to become significant.

[Corinna Gayle Van der Ghinst:]

Okay. Thank you. And then I'm not sure if you guys stated this earlier, but what percentage of stores are you targeting for remodels to be completed by the end of this year and how many ARMOURY shops are you planning to open this year?

[Lauren B. Peters:]

With the capital program that we described, we should be at about 35% of the Foot Locker U.S. fleet touched, about 40% of Champs, approximately 30% of Footaction, and Foot Locker Europe, about 30%.

[Richard A. Johnson:]

The Under Armour shops, we've got five more in the plan for this year. And part of it is dependent on us getting the right real estate to test these shops in. But the next ones will come up in the Texas market.

[Corinna Gayle Van der Ghinst:]

And just a follow-up on that ARMOURY shop-in-shop. How is that performing relative to expectations? Are you getting the quantity and level of product that you are looking for, for those shops?

[Richard A. Johnson:]

The customer continues to find great product in the ARMOURY. So, obviously, we've got a very pragmatic approach of building prototypes, tweaking them a little bit, rolling out a little bit further tests. So that's where we're at with the ARMOURY. We'll roll the expansion out to five more doors this year. We'll make sure that the product engine is robust enough to keep the hot, great innovative product in those doors flowing. And we'll make sure that the customer reacts as positively in other geographies as they have in the greater Baltimore area. So we're very bullish on the format and working closely with Under Armour to make sure that the private engine is robust enough to support those great shop-in-shop spaces.

[Corinna Gayle Van der Ghinst:]

Great. Thank you, and good luck.

[Richard A. Johnson:]

Thank you.

[Operator:]

The next question comes from the line of Robby Ohmes. Please go ahead.

[Robert F. Ohmes:]

Oh, thanks for taking my question.

[Richard A. Johnson:]

Hey, Robby.

[Robert F. Ohmes:]

Actually. Hey, how are you? A couple questions. The first one is, I just wanted to follow up on the first quarter. Can you just walk us through your – so the first quarter started out low-single-digit? Can you just walk us through where the confidence in getting the acceleration to mid-single-digit comes from? And then maybe tie into that – and this is my second question. Can you just help us understand how the ASP and blend of slowing basketball versus strong casual and running works? Meaning how do you keep the momentum and the average selling price growth in casual and running moving forward as basketball slows? Thanks.

[Richard A. Johnson:]

I think Q1, Robby, is a function of – we talked about some of the slowdown in February being driven by a tax situation and a really robust All-Star game from last year. Those things will both neutralize going into the rest of the quarter. We've seen, obviously seen the product flow and we understand what the product engines are going to deliver over the remainder of the first quarter. So there is – I'm very confident that mid single digits is where we'll drive the quarter. We'll reaccelerate to the pace that we were at, I believe, before we came across the All-Star game comp, specifically. So – and as it relates to ASPs, again, ASPs are influenced by a lot of things. Part of it is the manufacturer-suggested retail price. Part of it is our ability to sell full-price goods by having them in the right store at the right time in the right size so that the customer is happy. Part of it is driven by our ability to leverage our cross-channel efforts to make sure that we have the ability to sell the last unit that's available in our entire fleet. And those efforts all contribute to an ASP build. I mentioned in the prepared remarks, we talked about our Timberland business, for example. Timberland 6-Inch Week Boot is exactly the same cost as some of the marquee basketball shoes. The Air Force 1 Flyknit shoe is in the same range as some of the signature basketball shoes. As we continue to model the portfolio from the full range of price points and values that the customer sees, we're confident that ASPs will continue to grow. It's really – if you take one specific segment, one specific category launch of signature basketball, you don't get a true model of what the portfolio looks like. But when you start to take $100 shoes that become $110 shoes, that also has a positive impact on our ASPs. You take a look at not having to mark down a bunch of shoes that historically we may have had to mark down prior to the good inventory work that the team's done and the productivity gains that we've seen. So, with all of the variables in the pricing model, we're confident that ASPs will continue to rise as our vendor partners continue to bring great innovative products into the marketplace.

[Lauren B. Peters:]

No matter what the category, that that same price-value relationship exists in casual that it does in basketball.

[Robert F. Ohmes:]

That's very helpful. And just to understand the quarter, does that – if you do mid-single-digit for the quarter, does that mean you could see some high-single-digit comps potentially in March and April?

[Richard A. Johnson:]

Well, we've talked, as Lauren said in her commentary, the belief that we can drive mid-single-digit comps for Q1 is very real and we're very confident that we'll be able to do that.

[Robert F. Ohmes:]

Got it. Thanks very much, guys.

[Richard A. Johnson:]

You bet, Robby.

[Operator:]

Our next question comes from the line of Matthew Boss, please go ahead.

[Matthew Robert Boss:]

Hey. Good morning. So as we break down gross margin from here, what's the best way to rank the merchandise margin drivers, both domestically and international, and what comp today is needed to lever the buying and occupancy?

[Lauren B. Peters:]

So, there are a number of things around the merchandise margin. Certainly, the technology investments that we've made that help us get the right product to the right place at the right time, so that allocation tool that we've put in, as we've described before, is really a multi-year project that continues to deliver dividends as that learning system learns (53

[Matthew Robert Boss:]

Great. And then just a follow-up, as we think about the domestic store fleet, so 100 closings this year, do you feel comfortable with the size of the chain today and just what's the evaluation process of the fleet going forward?

[Richard A. Johnson:]

We evaluate the fleet and the entire portfolio door by door, mall by mall, street location by street location. I don't know what the magic number is in terms of door count. We continue to work to elevate the doors that we have by opening vendor shop-in-shops with various vendor partners, working with the developers to get better locations inside the malls. So we'll continue to do our due diligence against each project and make sure that, whether renewing a lease make sense; does upgrading the store with a remodel make sense; does a vendor shop make sense? We're still firm believers that stores are a critical part of our strategy going forward in all of our geographies. We know that our consumer still enjoys being together, being in the mall, touching, feeling product, checking each week to see what's changed, to see what the hot releases are. They may start their adventure with their digital device in hand, but we still do a tremendous amount of volume through our doors and as Lauren talked about, our sales per square foot topped $500 for the first time in our history. So, we know that we're being more productive and we know that we're building exciting spaces for our customers to come and visit.

[Lauren B. Peters:]

Let's just remain riveted on productivity of the unit and let the customer decide how they want to shop, where they want to shop.

[Matthew Robert Boss:]

Great. Best of luck.

[Richard A. Johnson:]

Thanks, Matt.

[Operator:]

Next question comes from the line of Eric Tracy from Brean Capital. Please go ahead.

[Eric Tracy:]

Hey, guys. Good morning, and I'll add my congrats. Just a great quarter in a tough environment.

[Richard A. Johnson:]

Thanks, Eric. Thank you.

[Eric Tracy:]

I guess just to follow on that last question in terms of the optimal size of the fleet. Dick, philosophically, obviously a lot of just concerns out there in terms of the consumer continuing to migrate online via third-party online retailers or vendors direct. Maybe just speak to, again, what's defendable within the Foot Locker model, be it your own DTC growth, the willingness of vendors to invest behind you all with shop-in-shops, superior allocation. Just speak to what you've sort of seen over the last few years and what the expectation is in that evolution of the consumer?

[Richard A. Johnson:]

Well, I think I've mentioned it last call, but I love when you answer your own question. So, yeah, it's all of those things, right. Our DTC, we're continuing to invest across all channels. So, certainly our online and digital business, we engage with our consumer there; we tell great stories. We want them to start their morning and end their night with one of our brand banners on their digital device. We also know that the consumer likes to still touch product and see product and have an immediacy of being able to get that great newly released product. So the stores become realistically the only place that you can have it now when it releases. So as we continue to invest with our vendor partners to create more exciting places to shop in the malls, as we continue to find better location in malls, as we continue to right-size properties and drive productivity, those things, we believe, are all defensible. Our service model we think is defensible. We've got the best fleet of people across our portfolio to take care of customers. They're the resident experts. People come in, then look to our Stripers in the Foot Locker doors as the sneaker expert. Our customers come in and want to talk about releases. They want to talk about what happened in the game last night and do you think the Kobe shoe will be retro'd, and all of those things. So, that, we believe, both from a physical engagement in the store and a digital engagement, we think those things are all defensible. And, obviously, the wholesale part of our vendors business is still the much bigger chunk of our vendors business. So the fact that they are willing to continue to invest with us, jointly invest with us, walk out and say loudly we opened up 40 plus properties last year that we partnered with our vendors on. We continue to see that opportunity going forward. So, the consumer likes choice and I know that on the digital device, choice is only a click away. But they sometimes like to look at that wall and say, hey, that's really cool. That's really cool. And we've got some exclusive product that's only available within the Foot Locker family. So those things all create defensible positions I think, Eric.

[Eric Tracy:]

That's great. And then just a follow-on to that. There is some rationalization going on in this space, be it one of your bigger competitors, 25% of their fleet going away, a bigger sporting goods player out there potentially going into bankruptcy. How do you think about, one, just the near term, if there are any liquidation impacts throughout the channel? And then, two, the benefits, the opportunities for share grabs as you guys are decently positioned?

[Richard A. Johnson:]

Yeah, I think our leadership position, Eric, is clear across all of the categories that we talk about and then in the markets where these guys are going to be closing down doors. So you have to remember that we've rationalized a lot of space over the last few years. We've closed in North America alone well over 600 doors over the past half dozen years or so. So we believe the right-sizing of the fleet is an ongoing thing. We believe there's market share to be captured anytime. We don't necessarily need a competitor to close their door. We think we're going to capture market share based on our assortment, based on our people, based on the storytelling and the engagement that we've got with our consumers, and based on the passion that our customers have for the product. So will we be active in the markets where doors close? Absolutely. But we're active in every market. We want to win every single market regardless of who the competitor happens to be in that market.

[Eric Tracy:]

That's great. And if I can just sneak one last in on the women's business. Mentioned Lady Foot Locker and SIX

[Richard A. Johnson:]

I think you're over reading fashion a little bit. I mean, our Muse Grace (1

[Eric Tracy:]

That's great. Thanks so much, guys. Best of luck.

[Richard A. Johnson:]

Thanks, Eric.

[Operator:]

We have time for one last question. Our last question comes from the line of Matthew McClintock. Please go ahead.

[Matthew J. McClintock:]

Hi. Yeah, good morning, everyone. Actually my question is just a follow-up to Eric's question on SIX

[Richard A. Johnson:]

Well, we'd like it to be an aha moment, quite honestly. So I think the two flagship locations are going to be, as I said, the face of the brand for the industry and for a lot of people that look at us. A tremendous number of customers are going to walk through those doors and be introduced to SIX

[Matthew J. McClintock:]

If I could follow up on that, could you maybe talk a little bit more about the collaborations with your vendor partners for SIX

[Richard A. Johnson:]

It's a couple of things, it's speed to market, certainly it's excitement in the industry, the connectivity between Puma and Rihanna has sort of changed the model on the women's side. In most cases, our vendor partners have looked at female athletes as that role model whereas that model, if you will, very similar to the men's side of the business. But as we see the success with Rihanna, we see some success with Stella McCartney from the adidas brand, there are designers and celebrities, if you will, that connect with this core consumer. So our ability to work with our vendor partners to bring exciting product to the marketplace quicker, to your point, speed to market is important with her because once it's seen, she wants it and it's not dissimilar to what you saw in the New York Fashion Week, where a couple of people in fashion weeks are making their product directly available for sale right after fashion week rather than saying this is the fall lineup you can buy it next fall, they're saying here's this product and you can have it today. That's the sort of environment our consumer lives in and we'll continue to work with our vendor partners to accelerate the speed to market.

[Matthew J. McClintock:]

That's a great opportunity. Best of luck.

[Richard A. Johnson:]

Thanks, Matt.

[Richard A. Johnson:]

We're going to have to stop there. We're sorry that we couldn't get to all of your questions. I'll be back at my desk to field additional questions in a few minutes. Meanwhile, thanks again for your participation on today's call. Please join us on our next earnings call which we anticipate will take place at 9

[Operator:]

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.