Foot Locker Inc (FL) 2010 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the fourth-quarter 2010 earnings release 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 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.

Peter Brown, Senior Vice President, Chief Information Officer, and Investor Relations.

Mr.

Brown, you may begin.

Good morning.

We are pleased with our fourth-quarter results which represents the fourth consecutive quarter of sales and profit increases versus the corresponding periods in the prior year.

On a GAAP basis our net income was $0.36 per share for the fourth quarter of 2010 versus $0.14 per share last year.

Our results include net charges of $0.03 per share this year and $0.10 per share last year that we have excluded in the non-GAAP comparison that is included in yesterday's press release.

This non-GAAP shows an earnings increase of 63% to $0.39 per share this year versus $0.24 per share last year.

During our prepared comments this morning we will refer to our financial results on a non-GAAP adjusted basis to help facilitate your analysis of our financial results.

Bob McHugh, our Executive Vice President and Chief Financial Officer, will begin our prepared remarks with a review of our financial results, including the charges that we have included in our non-GAAP adjusted comparison.

Ken Hicks, our Chairman and Chief Executive Officer, will follow with an operational review and provide an update on our long-term strategic initiatives.

We will conclude the call with a question-and-answer session.

The highlights of our fourth-quarter performance include the following -- comp store sales increased 7.3%, gross margin rate improved by 210 basis points, and our SG&A expense rate improved by 50 basis points.

These factors contributed to our 63% increase in adjusted earnings per share.

I will now turn the call over to Bob McHugh.

Good morning.

As Peter mentioned, I will discuss our quarterly results for this year and last year on a non-GAAP basis, which includes the adjustments detailed in our press release.

The fourth-quarter adjusted results were higher than our expectations going into the quarter and slightly above the Wall Street consensus estimate due to three key factors.

Comp store sales remained strong throughout most of the quarter while softening in the US during the last half January, which coincides with the seasonal low point in terms of customer demand.

This sales trend change included the effect of our strategic decision not to anniversary two promotional events that we ran in late January last year in the US.

Overall, by month, comp store sales increased high-single digits in November and December and increased mid-single digits in January.

Ken will provide some additional color on our fourth-quarter sales results which included a strong acceleration of our US apparel business.

Two other key factors that contributed to the significantly improved results were our strong gross margin rate increase and effective operating expense management.

For the fourth-quarter comp store sales by region and segment were as follows -- our combined US store operation increased high mid-single digits, FootLocker.com generated a double-digit sales increase, Foot Locker Europe increased mid-single digits, Foot Locker Canada increased mid-single digits, and Foot Locker Asia-Pacific increased low-single digits.

Our fourth-quarter gross margin rate on a GAAP basis increased by 320 basis points versus last year.

On a non-GAAP basis, excluding the $14 million inventory write-down that we recorded last year, our gross margin rate increased by 210 basis points.

This gross margin rate increase reflected a 120 basis point improvement in our merchandise margin rate, including increases in both footwear and apparel, and a 90 basis point improvement in our buying and occupancy rate.

Our efforts to right-size the quantity and improve the quality of our inventory over the past several quarters have led to a meaningful increase in our sales and merchandise margin rate.

Improved inventory management has allowed us to take strategic steps, such as reducing our store promotional events and clearance activity, while also fostering programs that have resulted in lower inventory shrinkage.

Our fourth-quarter buying and occupancy expenses stated in constant currency dollars were essentially flat with last year.

Therefore, with our solid sales increase, we achieved 90 basis points of leverage in our gross margin rate.

Fourth-quarter SG&A expenses increased $8 million versus last year.

Increased incentive compensation accruals and planned additional marketing expenses contributed to our fourth-quarter expense increase.

Excluding the increased incentive compensation accruals and marketing costs, our SG&A expenses were approximately 2% lower than the fourth quarter of last year.

Our fourth-quarter SG&A expense rate improved by 50 basis points to 21.8% this year versus 22.3% last year.

Depreciation expense for the fourth quarter was $27 million, in line with both the fourth quarter of last year and each of the first three quarters of this year.

Net interest expense for the fourth quarter was $2 million, in line with last year and our quarterly trend for the year.

Our income tax rate for the fourth quarter on a non-GAAP adjusted basis was 37.8% this year versus 32.8% last year.

Included in our income tax provision this year was $4 million of expense to adjust income tax expense provisions associated with prior-year financial statements.

This additional expense increased our effective tax rate for the fourth quarter from 33.7% to 37.8% and reduced our earnings by $0.02 per share.

The income statement adjustments for the fourth quarter of 2010 that we have excluded from the non-GAAP comparison are as follows.

Other income of $2 million, reflecting the partial cash recovery related to our investment in the reserve money market fund that we were required to impair in 2008 when Lehman Brothers went bankrupt.

A non-cash impairment charge of $10 million related to our CCS business.

The income statement adjustments for the fourth quarter of 2009 that we have excluded from the non-GAAP comparison are as follows -- a $14 million inventory write-down, a $5 million restructuring charge related to our Lady Foot Locker organizational change, and costs associated with corporate staff reductions.

And income tax benefit of $7 million relating to the inventory write-down and restructuring charge partially offset by a $4 million tax expense related to the write-down of Canadian deferred tax benefits due to a Canadian tax law change.

Moving to our balance sheet.

Our merchandise inventory is well-positioned at the end of the fourth quarter and just 2.1% higher than at the same time last year.

Additionally, our merchandise inventory is current and within a more stringent aging standard that we adopted last year.

We generated positive cash flow for the year, even as we invested $98 million in capital expenses, paid $93 million in shareholder dividends, spent $50 million to repurchase our common stock, and contributed $32 million to our US and Canadian pension funds.

At year-end we had $696 million of cash and short-term investments and $137 million of long-term debt.

Our total cash position net of debt was $108 million favorable to the same time last year.

Given our strong financial position, last year's significantly improved financial performance, and our outlook for the future, we increased our quarterly dividend by 10% to $0.165 per share effective with our first-quarter 2011 payout.

As we begin 2011 there are encouraging signs that the US economy is stabilizing.

However, unemployment, while coming down slowly, remains high and there is risk that rising costs may continue to put downward pressure on overall consumer spending.

Therefore, we will remain conservative in our planning process.

Our current outlook for the full year of 2011 is to generate a double-digit earnings per share increase versus last year's adjusted results based upon the following.

Comp store sales increase low- to mid-single digits, our gross margin rate to improve 30 to 50 basis points, our SG&A expenses to increase 1% to 2% reflecting increased marketing costs and variable expenses that supports higher sales, offset in part by lower incentive compensation accruals.

Depreciation expense is expected to be $106 million to $110 million depending, as always, on foreign exchange rates.

Interest expense should be relatively flat with last year at approximately $10 million.

And our income tax rate is expected to be approximately 37%.

We expect the impact of translating our 2011 international operations earnings into US dollars at current foreign exchange rates versus 2010 to improve our earnings by $0.02 to $0.03 per share.

Obviously, that outlook could change as foreign exchange rates fluctuate during the course of the year.

By quarter it is certainly our objective to generate EPS increases in each quarter of 2011.

We are off to a positive start for the year with comp store sales in February above our plan in both the US and Europe.

As a result, we currently expect our first-quarter sales, gross margin, and expense comparisons versus the first period of last year to be somewhat more favorable than our expected full-year comparisons that I just provided.

In conclusion, we are making very meaningful progress towards the achievement of our long-term financial objectives.

For example, total sales increased 4% last year to $5 billion.

Our long-term objective is to reach $6 billion.

Sales per square foot increased from $323 to $360 compared to our objective of $400 per square foot.

Our 2010 adjusted EBIT margin improved from 2.8% to 5.4% tracking towards our 8% objective.

Our adjusted net income margin improved from 1.8% to 3.4% tracking towards our 5% objective.

And meaningful progress was made last year towards achieving our ROIC and inventory turnover objectives.

We are pleased with our success last year and very encouraged that we will capitalize on further opportunities as we are still in the early stages of executing our long-range plan.

I will now turn the program over to Ken Hicks.

Good morning.

Thank you, Bob.

Let me start off by reiterating Bob's final point.

We are very encouraged by our progress during the first year of our long-term strategic plan but believe we are just getting started.

Our senior management team developed our plan to enable our company to achieve our vision for the future to be the leading global retailer of athletically-inspired shoes and apparel, which we announced just one year ago.

Many meaningful opportunities have been identified and each is designed to leverage our competitive strengths to grow our company profitably.

As always, our objective is to increase shareholder value.

We made significant strides last year in implementing this strategic plan and our financial results reflected these efforts.

This progress is measured by both the increase in our sales and profits during each quarter of 2010 as well as our full-year results, which show that we took meaningful steps towards the achievement of our long-term financial objectives.

We believe that 2010 represents an inflection point for our company as we strive to create increased shareholder value over the long term.

I am very appreciative for the hard work of our associates worldwide who deserve the credit for our success in the first year of our long-term plan, and I want to thank all of them for their efforts in achieving this strong performance.

Our fourth-quarter financial results reflects strong sales and profit increases in both our domestic and international businesses.

Additionally, we generated strong comp store sales and profit increases in both our store and dot-com businesses.

Our merchandise margin rate improved significantly in both footwear and apparel, as Bob discussed.

Our expenses, including occupancy, SG&A, and depreciation, were managed effectively which promoted a strong flow through rate as 60% of our increased sales translated to increased pretax profits.

We ended the year with both the quantity and quality of our inventory positioned well for 2011 which will enhance our ability to flow new, exciting footwear and apparel assortments to our stores throughout the year.

For the fourth quarter our combined US store business generated a high mid-single digit comp store sales increase, which included a high single-digit increase in apparel and accessories.

More importantly, we generated strong profit increases in each of our store brand businesses.

Developing a compelling apparel assortment is one of our key long-term strategies.

Therefore, our strong fourth-quarter apparel increase is very encouraging as it represents our fourth consecutive improvement on a quarterly sequential basis.

We made very good progress in strengthening the merchandise margin rate of our apparel business, although our apparel margin still lags our footwear margin.

Over time we believe we have an opportunity to continue to increase our apparel margin and over the longer term for it to be stronger than footwear.

While much progress has been made, much remains to be done.

Developing a more compelling apparel assortment remains a key strategic priority for our company and one that we believe can be a significant sales and profit driver for our company over the long term.

On the US footwear side, as we implemented our strategic initiative of broadening our assortment we generated strong gains in the men's and kids categories led by player-endorsed marquee basketball, technical running, and lightweight running.

Our women's footwear sales were the soft spot in our business during the fourth quarter as the anniversaried against the strong sales of toning shoes during the same period last year.

Toning shoes sales will likely remain challenging through the spring season of this year.

While we no longer expect toning shoes to be a major growth opportunity, we do expect this category to remain an important part of our overall women's shoe business.

In total, we do not expect the changes in our toning business to have a meaningful effect on our overall comparable store sales results.

Our average footwear selling prices in the US increased high mid-single digits for the fourth quarter while our unit sales were relatively flat.

The increase in our average selling prices reflects our continuing mix shift towards higher priced footwear and a lower markdown rate.

Moving to our International business, our fourth-quarter comp store sales in Europe increased mid-single digits and our division profit rate was in the low teens.

Our European business generated solid sales increases in both men's and kids' footwear as well as a very strong increase in apparel.

Sales at Foot Locker Canada increased mid-single digits for the quarter with high single-digit increases in footwear as well as apparel and accessories.

Foot Locker Canada generated a solid profit increase for the quarter with a double-digit division margin rate.

Our Asia-Pacific division generated a low single-digit comp store sales increase for the quarter and a relatively flat profit comparison to last year.

I am very pleased to report that our stores, head office, support facilities, and, most importantly, our associates in Australia and New Zealand endured the very extreme conditions and the New Zealand earthquake over the past two months and are off to a good start in the new fiscal year.

Our dot-com business produced an outstanding fourth-quarter result from both a sales and profit standpoint.

Comp store sales of this division increased double digits and division profit margin reached the low teens.

The backbone of this division, Eastbay, continues to generate the largest percentage of its sales and profits.

We believe that the most significant sales and profit growth opportunity for the division is to increase the penetration of online sales that are aligned with our store banners, building on our success of last year when we enjoyed strong double-digit sales growth from all of our dot-com store banners.

This will continue to be a major focus for our company as we plan to capitalize more fully on our cross-channel strategy.

We also remain committed to our investment in CCS, even though it has been a soft spot in our portfolio of businesses.

As Bob said, we took a write-off to intangible assets during the fourth quarter but feel we will be better positioned for 2011 as we adjust our overall business strategy for this division.

We plan to devote additional time and resources to this business over the next 12 months and we strive to capitalize on this growth opportunity.

We ended the year with 3,426 owned stores.

During the year we opened 43 new stores, closed 117 stores, and remodeled or relocated 171 stores.

Due to our significantly improved sales and profit performance and landlord support we closed fewer stores than we had originally planned this year.

As we look towards 2011, we plan to open approximately 60 stores and close approximately 55 stores.

Therefore, we currently expect our store count at the end of 2011 to be flat to slightly higher than it is at the beginning of the year for the first time in several years as we begin to accelerate our store openings and make our existing store fleet more profitable.

Our capital expenditure plan for 2011 has been increased to a total of $160 million to fund this increase in store openings as well as other key merchandising and operational initiatives to support our strategic plan.

Again, we are encouraged with the significant progress we made in 2010 as validated by our significantly improved financial results.

We believe we are just getting started.

We expect that our financial performance will continue momentum over the long term as we continue to execute our six key strategic objectives.

As a reminder, these strategic priorities are -- be the power merchandiser of athletic shoes and apparel with clearly defined banners, develop a compelling apparel assortment, make our stores and Internet sites exciting places to shop and buy, aggressively pursue growth opportunities, increase the productivity of all of our assets, and build on our industry-leading retail team.

During 2010 we began to implement many initiatives associated with each of these strategies.

For example, we strengthened our position in the marketplace by offering a broader range of athletic footwear and, in particular, improving our running assortment.

Our merchants worked closely with the leading name brand suppliers and our private-label developers to build a stronger presentation of apparel directed to a consumer looking to purchase for fashion and/or function.

We enhanced our marketing programs, merchandise offering, and in-store presentations to better differentiate our store banners from one another as well as from the competition.

We increased our investment in our stores and Internet sites and more effectively connected our channels to make the shopping experience more seamless for our customers.

We began to accelerate our store growth in Europe and developed a plan to increase our direct-to-consumer business in this market in 2011.

We are also pursuing growth through the testing of new formats, including House of Hoops by Foot Locker, CCS, and RUN by Foot Locker.

We began to implement new technological initiatives designed to drive productivity gains across the business.

These initiatives include a new POS platform in Europe, labor management applications, and improved merchandising systems.

And we have made enhancements to our human resource management process to improve our associate development and career progression capabilities.

While we remain hard at work developing and executing our strategic plan, we also recognize the importance of operating our business every day under a set of core values.

Last month we formalized a communication of these core values to our associates worldwide.

In summary, our improved financial performance last year resulted from three key factors.

We developed and executed our annual business plan effectively.

Our business-leading suppliers provided us with new, exciting assortments of athletic footwear and apparel that resonated well with our customer base.

And we began to benefit from many of the important longer-term initiatives contained in our strategic plan.

We are proud of last year's accomplishments but we are far from satisfied.

We are confident that we will build on the positive momentum from last year throughout 2011 and beyond, and therefore remain optimistic for our future.

Our ongoing focus will remain balanced between maximizing the efficiency of our existing businesses, pursuing new, meaningful growth opportunities, and redeploying excess cash to our stakeholders.

We would now be pleased to answer your questions.

(Operator Instructions) Bob Drbul, Barclays Capital.

Good morning.

I guess I just got a couple of questions.

First, on the sales mix.

You talked about merchandise margins both in footwear and the apparel side of it.

Can you maybe give us a break down in terms of where apparel margins are today, how much improvement you are seeing in the business?

And I guess just sort of that sales mix of footwear and apparel, where we are and where you think that can go as well?

Shoes continue to be the majority of our business and the margins are higher than apparel.

We had significantly more improvement in the apparel margins because they were significantly worse.

But we feel long term, as I said, that the apparel margins have the opportunity, and really should be, higher than our shoe margins because we have private-label capability in the apparel that we don't have in shoes.

Okay.

Then when you look closely at the basketball business right now can you talk a little bit about what you are most excited about in terms of the category?

It just seems like there is a lot of interest in the category these days with some of the -- especially with what is happening in the NBA.

Yes, I think there are a number of reasons why it's so exciting.

First, there is a lot of newness out there from all of the vendors.

Nike continues to come out with new product.

You have got the adidas and Reebok both with great shoes.

I think that -- so that is one, the great new product.

Two, that there is a lot more interest in a broader range of athletes.

Obviously Kobe, LeBron continue to be big names, but you have got Howard, Rose, Hall, and a whole bunch of other people who are bringing interest to the game and to the shoes they are wearing.

I think, three, the marquee shoes that have been developed have really been spot on and there is a lot of interest in what is happening with each of the marquee shoes.

And our launches that we have had have been much more successful this year, this past year than they were the prior year.

So there is a lot of interest, a lot of things going on between the product, the new product, the players, and the marquee.

Great, thank you very much.

Thank you.

Robby Ohmes, Bank of America Merrill Lynch.

Good morning, Ken.

Just a little more detail on a follow-up to Bob's question, sort of taking that over to the running side and where you are excited.

I guess a couple things I was hoping you might be able to comment on.

I would say, first, as you have had this strong start I guess in February.

If we look at your quarterly comps, the comparisons get tougher.

You have had strong ASP strength.

If you could sort of touch on why against the tougher comparisons the comps seem to be accelerating.

And then sort of a second thing that I was hoping you might touch on is I think as we look out there we are seeing Nike distribute for spring more of the -- some more higher-priced product into the family channel.

Famous Footwear and DFW especially with the free platform.

Just curious if you think that, say, incremental competitive pressure or if there is a strategy on what they are doing with their product that is going to help you out to offset that?

Then maybe related to that the women's business being weak.

I get the toning aspect.

If you just pull toning out, is there any moment in the core Nike or lightweight running aspect of your business in women's?

Sorry, it's a lot of things to touch on but one broad question.

You got a lot going on, Robby.

On running shoes, the running category is very exciting right now and it has got a number of things going on.

You have heard a lot about lightweight running.

It started out the barefoot running and really people aren't running barefoot.

It's lightweight running.

Nike has a very, very strong position with this with their Frees and Lunars and have done exceedingly well.

That said, we have got some terrific lightweight runners from some of the competitors.

You have got the Zig from Reebok; you have got [adi's] CLIMACOOL.

New Balance has come out with theirs.

ASICS and Brooks have introduced theirs this spring.

And we will continue to see growth in that lightweight running.

I think that -- have heard a remark by one of the vendors said that 64% of all running shoes were never purchased with the intent to run.

And if you haven't worn a pair of these lightweight running I suggest that you go out and buy a pair, because they are just great shoes.

And so we are selling those lightweight running both for runners but also for people who don't intend to run, and that has helped that category.

The second thing that we are seeing is our technical running shoes from ASICS, Nike, New Balance, people like Under Armour, they are performing well.

So there is a resurgence with physical fitness and more people are running and working out.

And we are seeing very good success there.

So the running category is one that we are excited about and it's one of the reasons why we feel -- to your comment about accelerating comps -- that we feel good about this spring.

Last year we were not positioned as well in running.

We are much better positioned with running than we were a year ago, both in terms of shoes and apparel, and that gives us an opportunity that we didn't have.

At the same time, to Bob's question, we see a strong basketball business.

So you put strong basketball with running and improvement in apparel; we have got a lot of legs to the stool that are working very well for us.

Nike's distribution of some of the faux lightweight -- the real lightweight are the products that we have.

They have expanded and at a different price point it's a different shoe.

We have competed well against those for a number of years and anticipate continuing to compete well against them, because our product is much superior and is actually a better value than just the lower price.

So we feel we are well-positioned.

The women's business, as I said, is challenging.

Obviously the toning category has slowed.

It's still a viable category.

But one of the things all the marketing did last year was it drove more women into the store and there was just increased traffic.

They might not buy a toning shoe but they would buy another shoe.

That has had an impact to some degree.

We are getting over that and we are seeing that the base of the women's business, the technical part of the women's business, both in terms of shoes and apparel is strengthening.

We are much sounder there.

And we think that long-term we are well positioned for a very solid women's business because of the strength that we have in offering that woman a good set of athletic shoes and apparel to go with it.

Great, you got all of them.

Thanks, Ken.

Thanks, Robby.

Eric Tracy, FBR Capital Markets.

Good morning and I will add my congrats as well.

So, Ken, maybe if I could focus on the unit growth now, sort of expectation for next year.

Obviously it changed over recent years.

Maybe just sort of speak to that, the level of I guess lease renegotiations are playing in that decision making as well as just the overall productivity of the base.

And then maybe talk about the different US versus international.

Well, in terms of -- when you first said unit growth I thought you were talking about the shoe units.

In terms of the storefronts, we do see growth.

The majority of that growth will be in Europe as we continue to expand and fill out the opportunity that we have there in strengthening the countries that we have got a good presence in, building our share in some of the countries that we have a foothold or smaller presence, and possibly expanding into some new countries in Europe because we are not positioned throughout all of Europe.

So we see that as a significant opportunity.

We will open some stores in the United States but our real growth is in -- is really going to be in Europe.

But there are some malls where we have opportunities to enter and we are taking advantage of those.

We continue to work hard on our lease terms and making sure that we have the best lease terms.

I will let Bob talk a little about what we are doing there and any specifics on the stores.

Yes, I think we are taking a very strategic approach to the real estate in the US.

We are looking at our penetration in the mall, looking at the demographics of the customer base of each mall, and as the stores come up for renewal what makes the most sense.

Again, as Ken said, we have done a fairly extensive market study and there are some areas we would like to go into that we are not in, although not many.

But it's really just trying to make sure we are getting the best out of each mall location on a total company basis.

Okay, okay.

Fair enough.

Maybe turning to the margin outlook for the business on the gross margin of 30 to 50 basis points for the year.

Maybe just sort of walk through the puts and takes to that.

Obviously a lot of levers, apparel being a big one from a mix perspective.

Relative to some of the product cost inflation that is out there, can your view on a moderate inflationary environment versus maybe something more severe.

Sort of just talk through that dynamic as we head into 2011.

Sure, I will talk to some of the external and business factors and let Bob hit on the financial.

We feel that while nobody likes cost increases that our business is less susceptible to them because they are not as promotional and not as price point driven.

Whether a pair of Frees is $88 or $92 is not as significant.

That said, there reaches a point where you start to push the customer where they might not buy it.

So we are sensitive to it but not that sensitive.

It actually can help our business some of the price increases.

We are not out there with $9.99 T-shirts and $29.99 sneakers.

Our customer is more interested in what is the overall value that I am getting for the product as opposed to I only have $30 to spend.

So I think that while we don't like cost increases, done thoughtfully we can manage it through that.

The thing I am more concerned about, quite frankly, is the impact of other cost increases on our customer base; the rising price of gas and food.

That concerns me and that is something that we are going to have to keep a close eye on as we go forward.

And so we are going to -- we will monitor that.

We know that we are a discretionary product and when they are paying $20, $25 a month more for gas or for food that puts a hurt on us.

But we also believe that we have got a broader customer base.

That is one of the things that we did over this past year-plus is expand our customer base so that we have a broader reach of customers to attract and bring into the store and sell to than we did in the past.

And so that while minimize some of that impact a little bit.

And from a financial perspective, we do see more opportunity in the merchandise margin rate.

As Ken mentioned, the margin rate on the apparel is lower than the shoes and it should be higher, so over time we would expect to get some benefit from that.

But also we expect leverage on the merchandise margin -- for the merchandise margin rate to improve from a leverage standpoint.

The sales grow and the occupancy and buyers is a relatively fixed cost, so we should get some leverage from that side.

Okay, thank you, guys.

I appreciate it.

Best of luck.

Michelle Tan, Goldman Sachs.

Great, thanks.

Ken, I think you mentioned cutting back a couple of promotional events specifically in January.

Can you help us think about how much more opportunity there is to cut back on the events that you are running and any key periods that those events are concentrated in?

Is it more about the clearance quarters or the clearance months?

Obviously last year we were very aggressive in reducing the number of events that we had.

We have less opportunity to do that this year but we still have some opportunity.

And there is a whole bunch of different levers -- the number of events, the depth of the markdown we do on the events, the breadth of the events.

What we had planned to do going forward is being more thoughtful in the markdowns we take and targeting specific items or slow movers or categories that will either drive traffic or help us keep our inventories current.

With regard to clearance, one of the things that we are looking at is how we use that more thoughtfully to drive sales and not just get rid of merchandise.

So we are going to look at different vehicles and try different vehicles, and that actually should help the margins because we move through the -- the expression is your first markdown is your best markdown.

We will be more thoughtful in that markdown.

But we also -- we find when we bring traffic in and people look at some of the promotional merchandise they have a tendency to buy some of the regular priced merchandise too.

Okay, great.

And then just on -- sorry if I missed this in your last response, but as you look at the IMU for the year what kind of expectation are you baking into that gross margin guidance for IMU?

I think a very small increase in IMU.

As I said, we think more of it is from the mix of the goods as well as Ken just mentioned the other promotions and how we run that.

Again, getting leverage out of the occupancy and buyers' salaries.

So not as much out of the IMU.

All right, perfect.

Thanks, guys.

Thank you very much, Michelle.

Sam Poser, Sterne Agee.

Good morning.

Your turn goal for 2014 was set at three times.

Just where do you stand now, because my numbers weren't quite adding up?

Where do you stand now towards that goal at the end of the year?

We had an improvement on the way we look at it internally that was a couple of clicks, but that we still have an opportunity to make progress on.

Can you tell us what the turn is on your measurement right now?

Sam, we are still finalizing the numbers for this year.

As Ken said, there is a major -- it was a nice improvement that we had in it, as you can look at the sales numbers.

But we are not prepared to give you an exact number today.

Ken, it looks like you are making good progress towards your objectives, but the one that seems to be lagging still [would be] the top line, even though you have seen some acceleration.

Does this mean that you think you can probably hit some of the other metrics by 2014, the EBIT margin and so on by 2014 and maybe not hit that $6 billion target at that time?

Because it seems -- the stuff below seems to be improving faster than the top.

Well, we obviously did have a good bottom-line improvement.

And quite frankly, I would expect the bottom line for any company to grow faster than the top line because you have got the leverage of the top line and other management of expenses in between.

That said, one of the biggest things that will impact that is, as we stop closing stores, one of the things you have to look at is our comp store sales has been faster than our total sales.

That is not natural.

This next year, as we said, 2011 we are positioned where we get that about equal and then going forward we would see be opening more stores than closing.

That is the real key, because when you get the total sales leverage that will drive it.

When you look at the comp store sales I think they held up very favorably to the rest of the industry and to retail in the current environment.

So we feel pretty good about the top line.

Would we have liked to have had a bigger number?

We would always like to have a bigger number but I think our comp store sales held up fairly well.

The challenge that we have is the closing.

And as we get those -- as we move beyond that I think we will be in a position where we can achieve our goal of $6 billion.

I hate to bounce ahead, but just to follow up on that.

When we look ahead in 2011, you say you are going to open 60 and close 50.

When we look ahead beyond that what kind of spread do you think we are looking at regardless of what the openings are?

I mean is this going to be like a 4-to-1 spread instead of 6-to-5?

First of all, we said this 55.

Oh, sorry.

So 60 and 55.

It will be -- and depending on the opportunities, it could be about flat.

That is what we said.

Depending on opportunities though -- we closed less stores this past year than originally planned because of the performance.

As we go forward we have laid out some numbers with the majority being in international and there will be a spread.

I think, Sam, from that standpoint is maybe numbers-wise we are 6-to-5, but when you look at the productivity of the stores you are going to be opening stores that are, sales-wise, more productive than the stores you are closing.

So I think just focusing on the net store count can be deceiving.

Yes, you are closing stores that are well below the average and you are opening stores, particularly in Europe, that are well above the average.

Got you, okay.

And then lastly, there was a lot of buzz last week, and you have mentioned that your February sales were running ahead of what your guidance was, but there was a lot of buzz last week regarding that incremental Jordan launch or launches last week.

Wanted to know if you could comment on that.

And talk about when you look ahead into the year of what you know so far, how many incremental launches do you have sort of versus 2010 just looking ahead right now?

Well, we are pleased with what Nike has done with those Jordan shoes and look forward to more launches.

We don't release our plans and, quite frankly, we haven't finalized them all for the year; we are still working on them.

But I wouldn't want the other guys to know when and what all the launches we have coming up.

But we are working to make sure that all the launches are as successful and as timely as what we did this past week.

Lastly, but I am not asking for timing.

I am just saying the one last week was incremental.

When you are looking ahead into 2011 are there going to be more incremental launches regardless of when they are?

Because there is a lot been -- so many launches out there to find an incremental one is sometimes difficult.

It is but we cut back last year from the prior year because, particularly in the fall season, because the prior year there were a lot of weak launches.

We think that having fewer, more effective launches obviously is better for both of us.

Then we are not trying to figure out what to do with the shoes.

But we anticipate some incremental launches in the year, throughout the year.

Thank you very much.

Good luck.

Thank you.

Chris Svezia, Susquehanna Financial.

Good morning, everyone, and congratulations.

I guess just on apparel I just want to go back to that for a second.

The strength that you saw and just kind of the learning experiences you have gained coming through last year as you think about spring and then summer, just kind of your thoughts between private label and branded.

What you see in the pipeline, what gets you excited.

And maybe in the fourth quarter a little more specifics about either ASP trends, whether private label was stronger versus branded, just some thoughts around that as well.

I am actually very excited about the apparel for a number of reasons.

First, all of our major vendors have gotten much more aggressive and thoughtful about the apparel.

We have got a terrific program with adidas with adicolor and what we are doing there.

Very strong programs with Nike as they continue to develop both performance apparel, the Jordan apparel, and things like T-shirt programs with them.

So those are working.

Reebok has some new training apparel.

We have really strengthened our program with Under Armour and we are very excited about their new Charged Cotton that they have got coming.

So there is a lot of really good things happening in the branded apparel and we have benefited from that.

Most of what I just said, though, occurs this year when you think about Under Armour Charged Cotton, the Reebok apparel, and the things we are doing with both Nike and adi.

All of those are really coming this year.

We just saw a taste of them last year, so that is good.

We really restarted our private-label program.

We were focused on basics, low-margin, high-volume type apparel.

We moved that -- we haven't given that up entirely but we have moved more of it into performance, and we are seeing some good results there.

We continue to see opportunities as we move into more performance, better quality private-label apparel that will complement the great brands that we have.

Not compete but complement.

We were not very good last spring.

We got better in the fall with the branded, but still lagged with private-label.

We are improving the private-label this spring and continuing to build on the programs that we have got with the branded.

So that said, I think it sounds like a pretty good apparel forecast out there.

Okay, thanks.

And then just I want to talk about this pricing inflation dynamic and I know on the private-label side to some degree maybe somewhat of a headwind.

But I guess I want to talk more conceptually about, as you think about footwear and you speak to the vendors and they are obviously ticking up pricing to some degree, I am curious in terms of what you are seeing and how you are thinking about units.

Because it would seem like if we are in this good cycle and if there is support to the business, pricing could potentially be an incremental positive barring we don't have gas prices at $5 a gallon, etc.

Just curious your thoughts about that.

I agree.

No, I think there is an opportunity as long as we do it thoughtfully.

We don't just slap a standard X percent increase across all shoes.

There are some shoes that we can get more out of that are not price sensitive.

A major launch shoe, whether that shoe is $140 or $150 may not have as big an impact.

A shoe that has a more comparable shoe out there at $80 may be have to be more thoughtful in what you do with that.

So there will be some more merchandising of the price increases.

I agree that there is an opportunity for us with the product that we have, because of the desirability, because of the other elements of value that we have.

One of the things that we are seeing, the vendors are doing a phenomenal job in merchandising more value into it.

So as the price goes up the customer says, yes, that is worth the $5 more or the $4 more for that.

It doesn't cost them, obviously, that much to put the improvement in but you are able to market some of the increase.

There is no question that there is pricing pressure out there.

What we are working very, very closely -- literally right now -- we have got the merchants are working with the vendors on how to merchandise those costing pressures so that we benefit from the increases as opposed to being penalized from them.

Okay.

So it's fair to say you are not planning units down significantly in footwear (multiple speakers)?

No, we are not.

We are thinking units will be -- and, by the way, we are doing some things to improve the units.

We are looking at units being flat to up slightly.

But things that we are working on with like conversion, our better allocation of merchandise will help us get units that we might have walked in the past.

So having better sales training for our associates, having a better in-stock program, having better flow of merchandise so that we have got the right shoe in the right store at the right time in the right size will help us benefit in terms of unit sales.

We could have walked a person in the past, now we will sell it.

That plus on unit sales, regardless of what the price of the shoe is.

Okay, helpful.

And last thing I have just quickly, just on the SG&A.

Bob, I don't know if -- well, you said you are going to delever a little bit there by a couple points.

I am just curious, at the upper end of your thought process if you do a mid single-digit comp is there an opportunity to leverage that and where are you investing it?

Just as a point of clarification, Chris, we were talking about the total dollars increasing.

We still expect to lever and again to our next question is we still think a low single-digit [comp] we can lever.

We were just talking about the dollars.

Okay, my mistake.

Great, thank you very much.

Best of luck.

Thank you.

Kate McShane, Citi Investment.

Thank you, good morning.

Not that I want to bring up the weather, because I think this is the first conference call we haven't heard one thing about weather impacting sales, but I would imagine that you did see some softening in the back half because of the back half of January because of the weather.

And I wondered if you had any insight into what your comps could have been overall ex this factor.

And can you talk about any kind of comp store sales lift that you are getting as you open House of Hoops within your stores?

With regard to weather, Kate, I don't let them use it as an excuse so I can't use it as an excuse.

We feel weather shifts more and, quite frankly, we have benefited.

We had a pretty good boot year because of the weather, so there was a plus there.

But, yes, there were times when customers couldn't get to stores, that had an impact.

It delayed some of the sales and, quite frankly, I think that one of the reasons why February was a bit of a better month because people who wanted news makers or ruined their seekers because of the weather needed to come in.

And so it helped us a bit in February.

I am -- we have got to work around the weather because it's always going to happen.

You know it's a beautiful day in New York right now and so I am not going to run downstairs and expect sales to have increased significantly just because it was a nice day.

But I think there was a shift and it probably helped February a little bit; it hurt the latter part of January.

The thing that impacted January much more than the weather for us, I can't speak for other retailers, but for us was two-fold.

One, we dropped a couple of significant events.

You look back on things and you say, jeez, was it smart the last part of the year to drop a couple of events?

Actually it turned out to be a pretty good deal.

And the second was we -- remember last year we took a lot of markdowns to get our aging online and we didn't have that big clearance bucket or quite as big a clearance bucket because we were much cleaner than the prior year.

So those were a couple of things that impacted us.

With regard to House of Hoops, we are very, very pleased with the partnership we have with Nike on House of Hoops.

It has worked very well.

We have put out -- the ones that are open are doing well and have added to the stores.

We have learned some things and have made them part of the store.

I was in the one yesterday in Florida Mall and looked terrific and it has helped that store by bringing in more traffic.

And the people are shopping both sides.

We plan to open a number this year and we continue to see opportunities as we develop the whole House of Hoops concept.

Both Nike and us are very pleased.

We will have one right up the street from us on 34th Street opening later this month I believe.

Okay, great.

And if I could sneak in one more question on CCS, I know that was a store concept that you a year ago had spoken about fairly encouragingly.

I just wondered if you could quickly take us through maybe some of the issues the store has had over the last 12 months and what you are doing to fix it.

We have not done well at CCS, quite frankly.

You look at the business and some of the best-performing people out there are in that space.

Zumiez has reported some very good numbers.

So we think that that space is good.

We have done a number of things wrong.

We probably were not targeting the right customer.

We probably were not -- as we didn't have the right vendor structure in place.

We didn't have the right mix of merchandise.

We were not as broad in the selection in our stores.

There were a whole bunch of things that we were just not on track on.

We have, over the last several weeks and, quite frankly, months, really spent a lot of time focusing on it.

Unfortunately, it will take a little bit of time to get into the stores, but we feel with these changes that we are making starting late summer we should start to see some benefit from the efforts that we have in place.

Another thing that we learned, quite frankly, was some of the stores that we opened were not in the right places for skates, for boarders.

We had -- there were a couple of the malls we opened you couldn't bring skateboards into the mall.

It's tough on boarders to come in if they can't bring their board.

They got to check it at the door.

So we have learned some things and we will continue to learn which malls, where to be located within the mall, the merchandise mix, and the pricing to improve our performance there.

Okay, thank you.

Okay, I think we have time for one more question.

John Zolidis, Buckingham Research.

Congratulations on a great year.

A question on the footwear assortment, if we can kind of dive into that a little bit.

I think if we rewind about six quarters the assortment was heavily concentrated in basketball and marquee, and some of the things that were talked about over the last year were moving into a greater balance with running and also to bring in more of an assortment at the mid-price point area.

So I just wondered if you could talk about whether that has, in fact, occurred and what has been the result, particularly in the product that maybe is priced a little bit lower price point initially.

Well, the first thing with regard to the balance.

We have done a much better job in running and I feel very good about the progress we have made, but we know we have more to do.

Getting exactly the right shoes in the right stores; which stores for example should have Brooks, what level of ASICS we should go to in a store.

With Nike which are the best running shoes to put in, how many stores to have Lunar.

So we are still learning some of that, but the balance is much better and we are really benefiting from our success there.

That said, the second part of your question about the value shoes, we really haven't taken -- in fact our AUR is up and part of that is we haven't taken the pricing down.

Our opening price shoes in the past run, in the men's, for example, in the $50 range.

We used to use markdown shoes to fill that part of our customer segment and, quite frankly, the reason we were marking them down was because they were barking.

They were dogs and we have got a -- they weren't working at $80; they weren't working at $50.

We now have some really strong shoes and we have worked with our vendors to have really strong shoes at those opening price points for us, which are, by the way, well over the high end of some of the family shoe stores core price points.

And so it hasn't had an impact on our AUR.

It has had an impact on our sales though, because we have now been able to develop a reasonable business.

It's not a big growing part of the business but it's a good, solid part of the business at that $50, $60 price point.

Great.

Thanks very much and continued success.

Thank you very much, John.

Okay.

Ken, is just going to wrap up with one final --

I wanted to take this opportunity before I finish the call to inform you about a change in management responsibilities that we are undertaking at Foot Locker.

We are in the process of transitioning the Investor Relations responsibilities from Peter Brown to our Vice President and Treasurer John Maurer.

Peter has been our primary Investor Relations Officer for the past 12 years, formally with dual responsibilities of Treasurer and Investor Relations, and for the past four years Chief Information Officer and Investor Relations.

This change will allow Peter to focus all of his time on directing the implementation of the many important technological initiatives that we have identified that support our strategic plan.

You know and we have talked about the importance of the IS for our future and this allows Peter to focus on it.

We are, as a company, very appreciative and thankful for the great job that Peter has done over the past 12 years.

I know the relationship he has developed with our analysts and investors and we really do appreciate and thank him for that.

The Investor Relations responsibilities will be transitioned during the first quarter to John who has 12 years of experience with the Company and a strong background in corporate finance, and I know will do a terrific job.

Obviously, he has worked on the debt side of the house and now he is moving to the equity side.

So he will work and we will have a very good transition.

We are confident we will continue to communicate effectively with our external shareholders and stakeholders in the years ahead.

John looks forward to speaking with you over the weeks ahead and I want to thank you for your support, participating today.

We look forward, as a company, to continued success in 2011.

Thank you very, very much.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may now disconnect.