Foot Locker Inc (FL) 2014 Q4 法說會逐字稿

Good morning, ladies and gentlemen and welcome to Foot Locker's fourth-quarter and full-year financial results for 2014.

(Operator Instructions)

This conference call may contain forward-looking statements that reflect management's current views of future events and financial performance.

These forward-looking statements are based on many assumptions and factors, including the effects of currency fluctuation, customer preferences, economic and market conditions worldwide, and other risks and uncertainties described in the Company's press releases and SEC filings.

We refer you to Foot Locker, Inc.'s most recently filed Form 10-K or Form 10-Q for a complete description of these factors.

Any changes in such assumptions or factors could produce significantly different results, and actual results may differ materially from those contained in the forward-looking statements.

If you have not received 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.

And I will now turn it over to Mr. John Maurer, Vice President, Treasurer and Investor Relations.

You may begin, sir.

Thank you, Brandon, and good morning, everyone.

I'd like to welcome you to Foot Locker, Inc.'s fourth-quarter and 2014 full-year earnings conference call.

Thank you for joining us today.

As noted in this morning's press release we reported GAAP net income of $146 million in the fourth quarter, 21% more than the $121 million that the Company earned in the fourth quarter last year.

On a per share basis, we earned $1.01 this year on a GAAP basis, compared to $0.81 in the same period a year ago, a 25% increase.

For the full year, we topped $0.5 billion in net income for the first time in our history as an athletic company, reaching a total of $520 million.

This represents a 21% increase over the $429 million that the Company earned in 2013.

Earnings per share improved 25% to $3.56 from $2.85 per share.

As noted in our release, we had a one-time gain from the sale of a property, as well as a writedown of a trademark.

Excluding these items, fourth-quarter, non-GAAP EPS was an even $1, a 22% increase over the $0.82 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.

With me this morning are Dick Johnson, President and Chief Executive Officer, and Lauren Peters, Executive Vice President and Chief Financial Officer.

Lauren will lead off our call with a detailed look at our fourth-quarter financial performance, followed by Dick who will provide insight into some of the merchandise and industry trends that led to our strong results.

Lauren will wrap up our prepared remarks with an overview of our annual and quarterly expectations for 2015.

As we announced last month, we will be hosting an investor meeting here in our New York headquarters on March 16 at 2 PM, during which we will describe our long-term strategic priorities for growth and update our financial goals.

Therefore, during today's question-and-answer period, we ask that you focus your questions on our fourth-quarter results and near-term outlook for 2015.

Lauren?

Thank you, John.

And good morning to you all.

We really appreciate you joining us this morning as we review our 2014 results and take a first look at 2015.

What better place to start than describing our strong fourth-quarter results than with our comparable sales gain of 10.2%.

It is an enormous credit to our merchants and operations teams that we were able to drive such positives and, as you'll hear, broad-based and consistent results.

The direct-to-customer segment led the way, as it has all year, with a 21.9% sales gain for the quarter.

Within this segment, our Eastbay banner was up low, double digits, while our US store banner dot-com businesses were collectively up over 30%.

For the year our direct business had a comparable sales gain of 17.8%, with Eastbay up mid single digits while store banner dot-com sales were up almost 40%.

The store segment posted a strong 8.5% comparable sales gain for the quarter.

Several US banners produced double-digit gains lead by Footaction and Foot Locker with increases in the teens, followed by low, double-digit gains in Kids Foot Locker and, yes, Lady Foot Locker.

The gain at Lady Foot Locker was its third consecutive quarterly increase and its first double-digit gain in several years.

To quote Ken's reaction -- Hoorah, hoorah.

Champs Sports was up mid, single digits as were our European businesses.

Elsewhere internationally, Foot Locker Asia Pacific was up low, double digits, while Foot Locker Canada was up high, single digits.

So, very strong comparable sales gains across the board by channel, geography, and gender.

Our 10.2% comparable sales gain, which is calculated on a constant currency basis, was partially offset by FX and other factors, to bring our total sales gain to a still very healthy 6.7% in the quarter.

Almost all of the 350 basis point difference between our comp gain and the total sales increase was attributable to the stronger US dollar in Q4 this year compared to last year, with a lack of CCS sales this year and a net 50 store count reduction by the end of the quarter, smaller contributing factors.

Our monthly comp cadence was steady through the quarter.

We finished November with a low, double-digit comp gain, driven in part by strong product supporting our Week of Greatness marketing campaign.

The Week of Greatness was so great, in fact, it now extends more than a week, and we have successfully exported it to the other Foot Locker banners around the globe.

Our November performance was followed by a high single-digit gain in December and another low double-digit gain in January.

Although I'll say more about 2015 towards the end of our remarks, I'll mention now that we continue to have solid top-line momentum, having posted a mid single-digit comparable sales gain in February 2015, as well.

Moving down the P&L to gross margin, we produced a 40 basis point improvement to 32.9% of sales from 32.5%.

As has been the case all year, the primary driver was leveraging our relatively fixed occupancy and buyer's salary expenses in which we benefited 60 basis points.

Largely by lowering our markdown rate we offset ongoing initial markup pressure and produced a slight improvement in merchandise margin on a constant currency basis, while also maintaining our inventory aging standards.

However between FX and some other small margin elements such as shipping overall gross margins netted to a 40 basis point gain.

Our team did an excellent job managing expenses in the quarter as our selling, general and administrative expense rate decreased to 19.6% of sales from 20.4% of sales last year.

For the full year our SG&A expense rate improved by 50 basis points from 20.4% to 19.9%, the first time we have ever had an expense rate below 20%.

The biggest factor in our full-year SG&A performance was the increased productivity of our store associates.

We have invested in systems and training to ensure we have the right associates on the sales floor at the right time, and that they are well prepared to provide excellent service to our customers.

As a result, we experienced improvement across the Company in sales per payroll hour while maintaining a strong in-store service level.

Depreciation expense decreased this quarter to $33 million from $36 million, partly due to the impact of the stronger US dollar.

On a constant currency basis, we expect depreciation to increase again next year as we sustain a strong level of investment in our stores, digital capabilities and system technologies.

Our capital expenditures reached just over $200 million in 2014 on an accrual basis, slightly below our most recent guidance.

FX played a role here, too, as spending in Europe translated into fewer US dollars, but the larger factor was the timing of certain technology projects such as a new order management system for our digital business, which has been extended into 2015.

Our earnings before interest and taxes reached a rate of 11.4% of sales, better than our long-range goal of 11%.

Our fourth-quarter tax rate was 34.8%, below our expected run rate of 36.5%, due largely to the expiration of statutes of limitations on foreign tax positions the Company had taken in prior years.

Last year's rate of 33% was particularly low due to the effective tax planning initiatives that received a boost from a favorable ruling on a foreign tax position during the quarter.

Taken altogether, it was another record quarter and another record year.

Net income in the quarter of $144 million, an even $1 per share, was 18% higher than last year and represented the first time in our history that we've produced two separate quarters of at least $1 per share in earnings, having also earned $1.11 in the first quarter.

The net impact of FX on earnings in the quarter was, as forecasted on our previous call, about $0.02 per share.

The effect on the bottom line would have been $0.03 but we had a one-time financial hedge in place to minimize the effect of the stronger dollar.

For the full year, net income was $522 million, a 21% increase.

Our net income margin was 7.3% in 2014, making it the third of our long-range goals that we have surpassed, along with EBIT margin and, at 15%, return on invested capital.

Clearly it was an outstanding performance by the entire team at Foot Locker that enabled us to achieve these significant milestones.

Full-year EPS was $3.58 compared to $2.87 last year.

The 25% improvement was 4% higher than the increase in net income, reflecting the significant return of cash to shareholders we executed throughout the year via our share repurchase program.

For the quarter, we repurchased a total of 2.34 million shares for approximately $131million, bringing our full-year total to 5.9 million shares at a cost of $305 million.

We also returned $127 million of cash to our shareholders in the form of dividends during 2014, which brought our total return to shareholders for the year to $432 million, more than 80% of net income.

As we announced in February, our Board both increased our quarterly dividend pay out rate to $0.25 per share and authorized a new $1 billion share repurchase program.

These initiatives demonstrate that we have enhanced returns to shareholders as our underlying business momentum has continued to build.

Before I hand it over to Dick to go over the merchandise highlights, let me touch on inventory.

At actual FX rates, inventory increased $30 million or 2.5%, less than half of our 6.7% sales increase.

Using constant currencies, inventory was up 6.6%, a little higher than our standard when compared to our 10.2% comparable sales gain.

However, we deliberately brought in a significant amount of inventory early before year end to ensure that we avoided any major West Coast port delay issues and were well positioned, particularly for NBA All-Star events.

That inventory strategy helped support the solid sales gain in February I mentioned before.

Let me now turn the call over to Dick.

Thanks, Lauren.

And good morning, everyone.

Wow, what a great list of accomplishments that you just ran through.

And for every high-level achievement that you mentioned, there were so many smaller individual and team wins that contributed to our success.

I can't thank the team at Foot Locker, Inc.

enough for all of their efforts.

Record-breaking results such as we delivered in 2014 could not have been produced without excellent leadership, teamwork, and customer service across every part of our Company.

We've now reached 20 consecutive quarters of significant sales and profit growth and, as Lauren mentioned, we're off to a good start in quarter 21.

The excitement around the NBA All-Star game has given our business a nice boost to begin the year.

I should call out here the diligent work of our logistics team.

They partnered very effectively with our vendors to ensure a minimum of delivery delays, both in Q4 and in the lead up to the All-Star game last month related to the West Coast port slowdown.

Yes, there was some impact and it will take some time to get fully back on schedule, but we do not expect the backlog to have a material impact on our business, either in Q1 or the full year.

Let's take a look now at the key drivers of our performance in our fourth quarter.

From a family of business perspective, footwear was once again the leader with comparable sales gain in the teens, while apparel was down low single digits.

Basketball and running footwear were both up double digits, with strong gains in both categories in all major regions.

Starting with basketball, I know this is the same story you've heard me tell all year but brand Jordan was very strong across all of our banners and geographies.

The retro business continued to build momentum, the sportswear collection performed very well, and the Jordan player shoes also saw increases.

Signature basketball was also very strong in the quarter.

Particularly encouraging was the emergence of Kyrie Irving with Nike whose new signature shoe sold very well.

At the same time that the shoes of the more established Nike players -- Lebron, Kobe and KD -- also continued to perform at a high level.

The ClutchFit shoe from Under Armour had solid results in the fourth quarter, and we're excited about the early performance of the Seth Curry signature shoe so far in Q1.

With Lillard, Rose and Wall, adidas also has a promising position in signature basketball.

As I believe we have continually demonstrated, strength in one category does not preclude strength in another.

And as strong as basketball was in the quarter, running was even stronger.

The gains were driven by lifestyle running silhouettes including the Roshe, Huarache, and various elements of the Max Air platform from Nike.

Other brands are performing well, too.

In particular, adidas with its popular Zed-X Flux shoe.

Puma, New Balance and Asics are also developing encouraging lifestyle running footwear offerings.

Speaking of lifestyle, the shift towards boots as a fashion item, led by Timberland and Nike, contributed significantly to strong Q4 results in casual footwear.

As I mentioned briefly before, apparel was more challenging for us, as it has been all year.

We had good results in several banners but the two banners with the highest apparel penetration, Champs Sports and Foot Locker Europe, still face significant challenges.

In the US, apparel at Foot Locker was up just shy of double digits, while Foot Action apparel sales were up in the teens.

Our ongoing banner differentiation efforts have positioned these two banners well to attract their unique customers, with the Foot Locker customer preferring a performance inspired look while the Foot Action customer is squarely in the lifestyle camp.

The team at Foot Action has done an excellent job in mixing lifestyle items from the major athletic brands alongside more niche brands such as Asphalt Yacht Club, American Stitch and Fair Play.

That said, margins in apparel continued to trail footwear so we have a lot of opportunity to get even stronger in this part of our business.

Lady Foot Locker also had an excellent apparel gain, well into the double digits, with a higher margin rate, as well.

We are successfully transitioning our women's apparel mix to reflect a more premium offering from our key vendor partners such as Nike, Under Armour and adidas.

It is still a work in progress but we feel very well aligned with our vendors on a shared strategy of emphasizing and growing the women's athletic apparel business.

On the flip side, apparel sales decreased double digits in Foot Locker Europe where the down trends in certain branded lifestyle programs, as well as private label, continued to challenge us.

While sales were down, the European business does retain some of the highest apparel margins in the Company.

Apparel sales were down mid single digits at Champs Sports.

There was some bright spots, led by fleece tops and bottoms, which performed very well at good margins.

However, these could not offset the continued decline in licensed apparel and some of the same lifestyle programs that challenged Foot Locker Europe.

We continue to work with our vendor partners to develop new or updated styles that we believe will begin to rebuild the apparel businesses at both Champs Sports and Foot Locker Europe in 2015.

Turning to real estate, we ended the year with 3,423 owned stores, a decrease of 51 from the end of the third quarter and 50 from the beginning of the year.

The decrease is larger than the 25 stores we mentioned on the third quarter call as we had the opportunity to close several more under-performing stores than previously anticipated, the majority of which were Lady Foot Locker doors.

Despite the decreased store count, gross square footage ended the year slightly higher than a year ago.

The stores we are opening tend to be larger than the stores we are closing.

We also typically require extra space when we add our various vendor shop-in-shops in remodeled stores.

These real estate projects continue to produce positive results for our business, hence our announcement last month of our $220 million capital spending program for 2015.

Between these exciting, fresh store environments and powerful marketing programs, we were successful in driving an increase in traffic during the quarter.

We continue to see higher average selling prices with footwear units increasing, as well.

All-in-all it was a very strong year for Foot Locker.

Lauren mentioned three of our long-range goals that we have already reached -- ROIC, EBIT margin, and net income margin.

We have made good progress towards our other key objectives -- sales, sales per square foot, and inventory turns.

Over the past few years, we have developed into a high-performance Company that has reached record heights of financial and operational success.

The teamwork, innovation and passion that I've seen in our people have been incredible.

I want to again thank the entire team of associates for their outstanding accomplishments.

Looking ahead, we intend to seize our opportunities to once again raise the bar and achieve our next set of financial milestones which the senior management team and I look forward to sharing with you on the 16th of this month in New York.

For now, let me turn the call back over to Lauren to give you some specific guidance on 2015.

Thanks, Dick.

We have indeed built a good deal of momentum in our business overall and we do not see that fundamentally changing in the near term.

We have opportunities to grow the base business this year, domestically and internationally.

On the other hand the stronger dollar is expected to be a significant headwind to our reported results in 2015.

That said, I'm happy to be in a position to repeat the high-level guidance for 2015 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.

However the strong US dollar means that a double-digit increase in 2015 will be more tempered than the 20%-plus gains of recent years.

If exchange rates stay around where they are now our 2015 EPS results will be $0.16 to $0.18 lower than they would have been at 2014 exchange rates.

The remainder of my remarks on FX will also assume that exchange rates stay close to where they are now, with the euro around $1.10 and the Canadian and Australian dollars around $0.80.

For sales, we expect the weaker foreign currencies will mean that our mid single-digit comparable sales gain would translate into a low single-digit total sales increase.

For merchandise margins the offsetting dynamics of lower initial markups and lower markdowns will likely continue in 2015.

On a constant currency basis we believe we can achieve slightly higher merchandise margins.

But the fact that our international divisions have a higher gross margin rates than our domestic divisions means that our overall rate will be pressured down, due to FX.

Although we should continue to lever our fixed buying and occupancy costs, the net impact of all these factors is that we expect gross margin to be flat to up slightly in 2015.

On the other hand, we believe SG&A expense will benefit from the weaker exchange rates.

While our international divisions have higher than average gross margins, they also have higher SG&A expenses.

With a mid single-digit comp for the Company overall, we should expect to achieve an SG&A rate improvement of 50 to 60 basis points.

Depreciation and amortization expense benefited from some one-time adjustments in 2014 to land at $139 million.

With our $220 million capital expenditure program approved for 2015, we expect depreciation expense to increase to a range of $150 million to $155 million.

In the capital program for this year, we plan to open just over 100 stores and close about 80.

The new stores will be concentrated in kids, Europe, and 602.

We'll provide more detail on store opening plans on the 16th.

In the meantime, we believe we can continue to improve the productivity of our existing square footage through the investments we are making in our store fleet.

We are planning interest expense to be fairly flat to this year's $5 million and we are continuing to plan our effective tax rate at 36.5% in 2015.

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 new $1 billion, share repurchase program.

There are no really big variances by quarter to the guidance I just gave you.

We are planning mid single-digit comp gains in each quarter.

That said, the FX impact on sales margin and SG&A are naturally greater in quarters with lower sales volumes, thus the second quarter, which saw the euro still pushing $1.40 last year, will be especially difficult to achieve a double-digit EPS increase this year.

Our current expectation is a mid single-digit percentage EPS increase in Q2.

Of course difficult FX comparisons ease as we get into the back half of 2015 and especially in Q4.

I think that covers the highlights of 2015, so I'll end there and ask Brandon to open up the call to your questions.

(Operator Instructions)

From Citigroup we have Kate McShane on the line.

Thank you, good morning.

This is Corinna Van der Ghinst on for Kate.

I was wondering if you guys could talk a little bit more about the promotional environment that you saw across the competitive landscape in Q4, and how that might have impacted your business during the quarter.

And then just as a follow-up to your comments on the inventory build up ahead of the port disruption, you mentioned that you're not expecting a material impact on your results, but how do you think the port disruptions might be impacting the selling environment across the industry in the first half?

This is Dick.

From a promotional point of view, our focus is really selling premium footwear and apparel.

We know what our cadence is.

As Lauren talked about, our markdowns were lower, so going into the holiday period our promotional cadence was where it needed to be to manage our inventory and to drive sales.

We finished up with our inventory on standards, better than standards and with markdowns down.

So we worry about what we have to do from a selling point of view.

The cadence around the industry we monitor, we know what goes on.

But, again, the kids are coming for us for innovation, exciting new products and they're willing to pay for those.

As far as the inventory build up and the port delay, again, our team did a tremendous job of getting out in front of it so that we were well positioned going into Q4.

We gave a little bit of relief on our ending inventory number, as Lauren talked about, to make sure that we were positioned going into February.

And we continue to monitor it.

Obviously there's catch up going on.

As we talked about there will be awhile while everything gets reset but we feel good about where we sit in the industry.

Okay, great.

And then just as a quick follow-up, do you have any guidance on how many shop-in-shop rollouts you're planning to do this year across the Fly Zone, [Kick Zone], Jordan 23, et cetera?

We'll go into a lot more detail on that when we talk on the 16th.

But those would be part of remodeled programs and new store openings.

And our remods will be at a level fairly consistent with what we experienced and what we accomplished in 2014.

Okay, great.

Thanks so much.

From UBS we have Michael Binetti online.

Hi guys, good morning, and congrats on a great quarter.

Can you talk a little bit about -- and I apologize if I missed this -- can you talk about what ASP was versus traffic in fourth quarter?

And then maybe just how that dynamic looks directionally as we think about 2015?

ASPs continued strong, as they have been all year.

Traffic was up slightly in the quarter.

Very strong traffic in our international divisions.

In the US, it was a bit more mixed with some divisions up slightly and some divisions down slightly.

And directionally in 2015, Lauren?

I wouldn't see ASP direction to change.

Traffic, we continue to drive in excess of the mall, we believe, because very strong product offerings, great marketing efforts.

That's the reason why we're making sure we keep those store environments so fresh and exciting.

That helps with the traffic.

And our vendors continue to bring innovative and fresh product, and the customers clearly are responding positively to that.

So, I agree with Lauren that I think ASPs will continue to be where they're at or up slightly.

Where I was going with that is that you guys were thinking ahead on the gross margin for next year here a little bit.

I know you guys tested some new allocation software last year, and you commented that that would further help merchandise margins with improved markdown rates.

But you also just commented on ongoing IMU pressure.

You've had a lot of pricing power here that's been helping on ASPs, and the products are obviously resonating.

I'm curious how far we should look ahead to IMU continuing to be a pressure, considering the consumer seems to be accepting these price increases?

Again the IMU that we saw this year, that pressure was really driven by a mix of vendor offering and mix of category.

So, it wasn't about the price we paid for the product.

I would see IMU tempering somewhat, that delta year over year, but we still think that's a factor.

So, we control what we can control.

We work very closely with the vendors to improve product flow.

That helps with the margins.

And, as you pointed out, we're in the midst of the installation of the allocation system, which will help us get that much smarter at getting the right product to the right place, therefore supporting lower markdowns, more full-price selling.

And using more cross-channel initiatives, as well.

Our inventory is visible to all of our customers regardless of where they're shopping, which gives the inventory at the end more value and allows us to use fewer markdowns.

And we really are at the top of our game in apparel.

That should help, as well.

But we've got what we described, we think that on a constant currency basis, merchandise margins improved slightly in 2015.

We lever the fixed but we've got to navigate the FX, which, when you factor that in, means that we're going to be flat to up slightly when it's all finished.

Okay, thanks a lot.

From Janney Capital Markets we have Eric Tracy on the line.

Good morning, everyone, and I'll add my congrats to the entire team.

Great job.

If I could go to DTC, just continued strength, particularly in the banners.

Maybe just a bit of an update there in terms of where you feel like that channel has evolved, what still needs to be done in terms of infrastructure buildout to support, and any just updated thoughts around the consumer migration that you all see.

I'll start with the consumer, Eric.

We see a multi-channel consumer worth more than a single-channel consumer.

While we drive excitement in the stores we also have great programs online that attract the consumer.

We want them to be able to shop our stores and our banners wherever they are, whenever they are.

We've been in the digital or dot-com Internet business for a long time, so the infrastructure has been in place.

We continue to make improvements.

Lauren mentioned an order management system that we'll put in place starting in 2015 just to make it a little bit more effective on the back end and make it a little more streamlined for the customer on the front end.

But we continue to make investments, both in the stores and the digital space, to make it more clear for the customer that wherever they are, whenever they want to shop they have access to our banners and to our product.

And as you think about, just as a follow-up on that in terms of the vendors, Nike coming out with their sneaker app, again just that balance of working with the vendors to segment the product across the space, any issues, challenges as this channel evolves?

No, I think that we have a great relationship with our vendors.

The strength that we bring to the table is that our consumer can see the best of all the vendors.

We're able to create meaningful assortments across vendor brands.

We're going to both co-exist in the space, obviously, but our marketing programs drive consumers to our sites.

The product attracts them to our sites and our stores.

And I think that it will continue to drive success in the multi-channel environment.

And then just lastly, if I could, as it relates to Europe on a constant currency basis, so beyond FX, the assumptions being made for 2015, it sounds like traffic is holding up pretty well but maybe just speak to, again, the underlying demand within Europe that you guys see.

We continue to see the economic recovery is a little bit bumpy in Europe, different North and South, different country to country.

But we're in 19 different countries.

And the sneaker culture continues to be strong.

The running silhouette is king there but the team over in Europe is doing a great job of making basketball relevant to that consumer.

Our vendor partners are strong in Europe, as well.

As Ken has called out in previous calls, that the two real emerging markets from a sales perspective are the US and Western Europe,.

We're positioned well.

We continue to invest there.

Lauren talked about the store openings being driven there.

And the team over there is also doing a nice job with their digital efforts.

We feel good about where we're at in Europe.

Perfect, thanks so much.

See you all in a few weeks.

From Susquehanna Financial we have Chris Svezia.

Congratulations.

Good start Dick, keep it up.

First just on apparel, fourth quarter better than maybe the trend line we've seen throughout the year, but still some work to do.

So, your thoughts about where the opportunity is, maybe where the issue is, private label versus branded.

What can you do really to start to see some improving trend line, given the drag that's been across the business?

And I'm just curious, in Champs remodeled stores, was there a dramatic difference versus those Champs stores that were not remodeled on apparel?

We see a difference in the remodeled stores, absolutely.

We talked about it in the comments earlier, Chris, that in Europe, it's a little bit of a case of some branded assortment items that have not resonated as well with the consumer, along with some private label hiccups.

At Champs there is some branded issues with a couple of programs, and then the license side of the business at Champs is on a pretty steady decline.

So, it's a matter of getting those things balanced, working with the brands to make sure we've got strong assortments.

Part of the remodeled program is to do a better job of storytelling from head to toe and across the brand.

The remodels, a small percentage we're not done with the remodeled program, by any stretch of the imagination.

I think that the work that we've seen done at Foot Locker and the things they've done at Footaction tell us that there are some upsides and the work that the team at Lady Foot Locker and 602 is doing on the apparel front tell us that we can get there.

It's just that the two banners that have the highest penetration, Champs and Foot Locker Europe, have struggled a bit.

Okay.

I don't know if you'll break this out, but in your assumption, your mid single-digit comp on the year, you're not really assuming the apparel business turns.

I assume you're still a negative number?

We don't break out that guidance by product category but rest assured we're working very hard on apparel.

Okay, fair enough.

Just last two things here.

One, just on the remodels for Foot Locker and Champs, I think you're at 30% on Champs, 20% on Foot Locker.

Any thoughts about what that looks like this year as you continue to remodel those, any percentages?

And Lady 602, are you at a point now where you can more aggressively roll that out or is that something you'll touch more on the 16th?

Yes, we'll talk lots more about 602 and our women's business in totality on the 16th.

But on the status of the remods, we ended the year with Foot Locker at about 20% through its remod and Champs about 25%.

And we are at about the same remod level in 2015 as 2014, which is what the plan is, that they would both end up, Foot Locker and Champs, in the low 30% completion at the end of 2015 on remods.

Okay, thank you very much.

All the best, see you soon.

From Sterne Agee we have Sam Poser online.

Good morning.

Thanks for taking my question.

I just wanted some clarification.

You said that you expect in reported numbers the D&A to be $150 million.

Is that correct?

Or can you just clarify that for me?

Yes, we should be about $150 million to $155 million in reported next year.

And then even with that you're expecting you reported currency-affected earnings to be up double digits, as well -- correct?

Yes.

But as I described, the double digits is, because of FX, more tempered than what we have been achieving the last few years, which has been double digits and a 20-something increase.

We're expecting something more tempered than that because we've got FX pressure of about $0.16 to $0.18.

Does that help?

Yes, thank you very much.

And then as far as the product mix goes and where you are with the allocation, where are you, Dick, with the allocation system and the implementation there?

Where are you with the implementation of the allocation system right now?

And when do you expect that to be completely in place?

Phase 1 of the implementation is ongoing across the US division.

Europe was our leader in that and has most of their divisions up, and they will be 100% on board with the allocation system later this quarter.

The US will trail that a bit but will also be, by the mid point of the year, will have all of their departments on the allocation system, and that will be Phase 1. Phase 2 will be piloted in Q4.

We don't really wrap up until 2016 before we get to the last division, the last product category.

So then, just to understand it, you should steadily get some benefit from this as it rolls in, but arguably as it gains its own history and does all the stuff, this year will be good, next year will be better and 2017 would be full effect.

You're absolutely right that we continue to get benefit for multiple periods because, as you describe, it is a learning system, the more it learns the better.

There are also humans running it so the more we learn the better.

But, as we have an opportunity then to apply those learnings to our purchases, and we purchase many months in advance, we'll start to apply those learning to the purchases and then we'll get benefits.

So, yes, it's a multi-year build.

Okay.

And then, lastly, what is the share count that you're assuming, the average share count for the full year that you're assuming in the guidance?

We're not going to go that far but, as we said, with executing the share repurchase program, the new $1 billion program, we expect average share count to decline in the year.

Would you expect it to decline more than it did last year as a percentage basis?

I can't do that for you.

Oh, come on.

Anyway, all right.

It will depend on multiple factors.

Thank you, I appreciate that.

Good luck guys, thank you.

From Bank of America we have Robbie Ohmes on the line.

Good morning.

Thanks for taking my questions.

Just a couple of quick ones.

One is just to follow-up on Michael Binetti's ASP question.

Can you give us color on, was the ASP strength in the fourth quarter, was it across basketball and running?

Was it a similar type of average selling price or was one way ahead of the other?

We saw increases across our footwear categories, Robbie.

But was basketball a lot stronger than running or was running ASPs up similarly to basketball?

They were both up.

Okay, thanks.

And then the technical running business, I think you called out the casual running business, but any commentary on the health of the technical running business -- the Free and the Lunar.

And I think you mentioned Asics getting into casual running, but how about their technical running business, how is the outlook for that in 2015?

It varies banner by banner for us, of course, Robbie.

I think when you look at Brooks and Asics and some of the platforms that you mentioned from Nike on our women's business, there's still strength.

We've got a certain number of doors that have good programs with all of those technical shoes in our Foot Locker banner, both in the US and in Europe.

We think that the running silhouette continues to gain strength.

Whether the shoes are technical or lifestyle, most of them don't get run in anyway.

So, the point is that the vendors continue to bring great looks in a silhouette that has meaning for our consumer.

Got it.

And then last question, I know you guys saw the Wal-Mart and TJX announcements about wages.

Can you remind us where Foot Locker is in wages and if we should expect any changes or pressures given what's going on across retail?

Our compensation for our store associates is base plus commission.

So they have the ability through their sales strength to set their compensation.

As a result, the majority of our associates earn significantly more than minimum wage.

We watch those developments very closely because we are committed to paying competitive wages.

But our hour associates, certainly compensation dollar-wise is important to them, but there are also other things they enjoy about working at Foot Locker, not least of which is being in stores surrounded by sneakers, which they have a personal passion for.

The discount that they get on that product is also important to them.

But, yes, I would say we continue to watch that very closely and we'll remain competitive.

Great, thanks very much.

And congrats on a terrific quarter, guys.

From Gilford Securities we have Bernard Sosnick on the line.

Yes, thank you.

I'm wondering about eBay posting a pretty nice gain.

Is there something going on there that's invigorating that business?

I think that as they manage, as our team out in Wausau, manages our store dot-com banner and the Eastbay banner, there are puts and takes sometimes, Bernie.

But they've done a really good job of communicating with that high school athlete, which is really their target.

They've got great relationships with our vendor partners.

They published a really nice-looking adidas catalog and really nice-looking Jordan catalog.

They continue to use the catalog, the Eastbay catalog as a marketing tool.

I just think that the consumer really responded to some of their marketing efforts in Q4.

And could you flush out a little bit the reasons for success at Footaction?

I think that the footwear speaks for itself.

They've got a great assortment of footwear that really attracts the consumer.

But the thing that we really called out, Bernie, was their really good work around apparel where they've been able to take key lifestyle silhouettes from our major athletic vendors and blend them in with some of the faster fashion vendors that consumer that really shops Foot Action is after -- Asphalt, Yacht Club, American Stitch, et cetera.

And they've got the ability to move a little bit quicker in adjusting to some of those styles.

So, I think they finally have a nice rhythm as it relates to that mix.

And obviously when you talk about things like Timberland boots becoming a fashion item, Footaction certainly benefits from that sort of mixture.

Great.

Sounds like you have a lot of good things going on and I'm sure we'll hear more about Lady plans on the 16th.

Thanks very much.

From Credit Suisse, we have Seth Sigman is on the line.

Great, thanks a lot and congrats, guys, on a great quarter.

I wanted to follow-up on the Lady business and the double-digit comps that you're seeing there.

Is there a way to quantify if there's a benefit you're seeing from some of the store closings that you've done there?

Or is there a benefit from maybe opening some bigger stores?

I'm trying to dig in a little bit more on to that level, that low double-digit comp that you're seeing and what's driving that improvement.

It's a combination of a lot of things.

The merchandise assortment is improved, they've done a nice job positioning apparel even in the smaller Lady Foot Locker stores, they shifted that consumer over a little bit in that base.

Clearly, Lauren called out that we closed some under-performing stores so that will continue to benefit us.

The footwear mix is strong.

And obviously we've got the 15 602 doors that factor into that mix, as well, which are, in fact, a bit bigger stores.

Is there a way to think about how big of a delta there was between your better performing Lady Foot Locker stores and then some of the ones that you closed?

We haven't really gotten into discussing how good the good are and how bad the bad are.

It blended out to a double-digit comp gain for the quarter.

Got you.

And then as we think about capital allocation, it's been great to see the increase in buyback.

There's been a little bit of an evolution in the thought process, it seems like.

How do you think about the right ratio or the right level of repurchase on an annual basis?

I know you gave a three-year view with the authorization but what's the right way to think about the annual target there?

It's not a formula.

We've taken into consideration what our capital plans are.

We've described those as $220 million for next year.

We factor in the other uses for the cash.

And between that and the dividend we're making sure that we've got really meaningful returns to the shareholders.

I don't know if that helps you.

As John said earlier, the amount of repurchases is driven by a lot of factors, and Lauren just called out many of them.

We don't have an annual target.

Okay, understood.

And then just one more and I'll hop off.

In terms of store growth it looks like you're going to be a net opener in 2015 for the first time in awhile.

And I know we'll get a lot more color in a couple weeks but I'm just wondering, are you accelerating the openings of some of the banners or are you just closing less of others?

How should we be thinking about that at this point?

We called out in the comments, Seth, that the openings are going to be around Kids in Europe and in 602.

I think that our goal is always to close fewer, quite honestly.

We'd prefer to get them more productive and keep them open.

But when we have opportunistic chances to close stores, we will take those opportunities if it makes sense.

I think that, regardless of net opener or not, our square footage continues to increase based on some of the shop-in-shops that we talked about.

And the productivity of our square footage continues to increase which is really what drives the business.

Got it.

All right, thanks, guys.

From Jefferies we have Eddie Plank on the line.

Good morning, everyone.

Thanks for taking the question and I'll also add my congrats on a great job.

I wonder if you guys could dig into the Runners Point Group a little bit more.

At this point what have you learned about that consumer, how does it affect your thinking about the growth opportunity there?

And then as a second point, how is their online business helping you guys to think about your own dot-com business in Europe?

Thanks.

From a runner's point perspective, from a group perspective, we're working on the consumer segmentation work that we've talked about in the past.

We've got the Runners Point Stores now really defined as all things running, from lifestyle to performance, they've got mens and women's.

The assortments are there, the high-touch selling is there, the treadmills are there to really create that running destination in the mall and the high streets of Germany right now.

Once we get that model proven and completed we'll be ready to test that model outside of Germany.

The work is not quite as far along as the Sidestep banner.

That's a more lifestyle-driven banner.

So, as we look to position Sidestep, Foot Locker and Runners Point in the same mall or the same high street in Europe, we've got a little work to do around profiling the Sidestep assortment in the way that the store looks, and figuring out exactly who their newest customer is, and making sure that we speak to that consumer.

I think we're making good progress.

Clearly, the Runners Point is ahead from a segmentation point of view, at this point.

From a dot-com perspective, the Tredex business that's part of the Runners Point group, is helping inform the Foot Locker Europe team.

And we've got our center of dot-com business, our center of excellence, in Wausau.

We're trying to share global best practices between the team that's over in Europe and the team that's in Wausau, and I continue to see progress being made there, as well.

Great, that's really helpful.

Thanks and good luck in 2015.

From JPMorgan we have Matthew Boss on the line.

Hi guys, great quarter.

There's been a lot of debate lately about the athletic cycle, what inning we're in.

I'm just curious what you guys are seeing in terms of lead indicators, product pipeline.

You talked about customer demand for the more premium price shoes.

But, just in general, what's the best way to think about -- not just here but also abroad -- the athletic cycle and the pipeline?

We continue to see good product in the pipeline.

I think, Matthew, the vendors continue to bring innovation, whether it be technical innovation, whether it be fabrications, colors, new platforms that they're operating on.

So, we continue to see a pretty robust pipeline of product across the categories and around the geographies.

I think it's somewhat of an athletic cycle but it's also a casualization cycle where people are very comfortable wearing sneakers these days.

I get a lot of stares on the train when I've got my suit on with my sneakers but it doesn't bother me at all.

And our core consumers certainly are very comfortable wearing sneakers.

There's ebbs and flows across categories that I expect we'll continue to see, but I feel good about where the athletic trend is and certainly where the pipeline is.

Great.

And then on the margin side, can you just talk about where the European margins stand today versus maybe prior peak?

And, more so, how to think about the opportunity on a go-forward basis.

The merchandise margins is your question or finished margins?

As much detail as you're willing to provide.

Okay.

Let's talk about it in terms of finished margin, which my comment about that would be we have done just so much on productivity, really across the geographies.

Margins, no matter what part of the globe you're in, are strong.

But historically our international margins finished have benefited from the fact that it's just less promotional in many of the European markets with legislated promotional periods.

The Europe countries recovering from trough periods and, as Dick described, that's been a little uneven.

So, as that comes back, opportunity to further increase those finished margins internationally.

And the initiatives, though, that we're working on, they apply across the geographies.

That doesn't matter what you're talking about.

The allocation systems and the time and attendance systems, scheduling systems that we've put in, all of those are global initiatives.

Great best of luck on a go-forward basis.

From Deutsche Bank we have Paul Trussell on the line.

John, Lauren, Dick, congrats on a great finish to 2014.

There's already been a lot of focus on AUR on this call and I'll just try to ask in a bit of a different way.

You all are seeing sneaker strength beyond the very highly priced premium Jordan and Lebron product.

You mentioned boots and other casual and running silhouettes.

Some of the younger hoopers like Steph and Kyrie are also seeing success.

Are you concerned at all that there will be a share shift towards some of these lower-priced -- relatively lower-priced products -- that could have a negative impact to your overall comp?

Or is the unit volume from these assortments enough to make up for it?

We know that our kids are going to go to wherever the coolest shoes are, right?

We certainly trade, as you called out, up at the higher end with the Jordan and the Lebron and some of those key sneakers.

But a lot of the business is also built on the Lebron Soldier, for example, which is not up at that high price point.

That's more in the Kyrie and the Seth Curry price range.

I think we've got strength, Paul, across the range of price points.

We see kids buying the Roshe's which are great casual sneakers.

They may have two or three pairs because of the colors that are there and what they want to hook up with.

The same with the Zed-X Flux from adi, not a high-end basketball sort of price point.

But certainly we do volume because the shoe is so flexible for the kid to wear in multiple iterations.

I think we continue to see a good strong mix of price points.

And I think we work very hard to make sure that we have a strong offering across the price points.

That is helpful.

Thank you.

I appreciate that.

And then just touching on margins, obviously there's a lot of noise regarding FX this year.

But just in general taking a step back, how should we think about the comp thresholds to leverage fixed occupancy and expenses on a go-forward basis?

Has that changed at all as we look back over the past year or two?

No, we are still able to lever at low single digits.

Part of that is making sure that you really plan your expenses tight in line with sales and you react to ups and downs.

And I think as we demonstrated last year with where we finished with our margins and our SG&A rate, we have a finely developed muscle there.

Thank you, best of luck.

From Morgan Stanley we have Jay Sole online.

Hi, good morning.

Questions about the basketball trend.

Under Armour has made a lot of improvement in basketball recently.

And when that happens, do you see overall interest level from a consumer standpoint increase or do you think one brand's benefit really just comes at the expense of another brand?

I think that we end up expanding the market in totality, Jay.

I think that there's kids that are comfortable with the Under Armour brand, there's kids that will try the Under Armour brand because of some of the things that they're doing.

But I think that in the end we end up expanding the market a bit.

It's a new price point, it's a new vendor, there's new excitement around it.

The Curry shoe obviously having him win the three-point shootout in his new shoe didn't hurt us starting this quarter out, around the All-Star game.

I don't necessarily think it's a share shift.

I think that we end up growing the market a bit.

Got it.

And then just on that All-Star game, can you just talk about how you were able to leverage that event and turn it into a big sales driver?

The All-Star game is important for us every year, regardless of where it's played.

Obviously with us being in New York and the league being here in New York, there's a lot of excitement around it.

One of the differences this year was the fact that it was held in two locations.

We've seen many markets where the All-Star game has brought the town, the city to a virtual halt.

New York, of course, is so big that it can absorb all of that.

It's a good boost to the start of our year regardless of where the All-Star game is held.

Got it.

Thanks so much.

It's ultimately driven by great product.

Great product and we had some exciting things going on in special shops.

Thanks so much.

From Canaccord Genuity, we have Camilo Lyon online.

Thanks, guys, nice job.

Apologize for the voice.

Just one question here looking out to 2015.

In thinking about the mid single-digit comp here, you've had five years of mid to high single-digit comps, outstanding performance.

Can you help us prioritize the building blocks that will drive another mid single-digit comps this year, whether it's categories, remodels, e-com, international?

Any sort of prioritization and maybe quantification will be greatly appreciated.

Look, Camilo, I think we've got the ability to walk and chew gum with all of those categories.

I think that there is strength across our banners, there's strength across our categories, there's strength across our channels, and there's strength across our geography.

We obviously have internal plans that we work off of but I think our guys, our teams are all driven to find success.

Retail is sort of a perpetual game.

It's not like we can't repeat.

It's more difficult in some of the team sports to repeat but our team certainly believes that they can repeat.

And I don't think it makes any difference what banner they represent, what channel they represent, or what geography they represent.

I think there's a nice strength across our business.

All of those levers that you enumerate, all of those levers are what make us excited about the future and give us confidence.

And we'll be talking a lot more about that excitement on the 16th.

No change in demand profile for any of the categories nor the opportunities to continue to drive sell through for them?

Our categories are always ebb and flow, Camilo.

Our buyers and our merchant teams do a great job of identifying hot categories and shifting ultimate buy dollars to be in the right place.

We work closely with our vendor partners to have a view of the future but we don't get into where we see categories going up and down dramatically.

I just think that we have a strength across all of the pillars that you mentioned, and that really, to Lauren's point, is what has us excited about 2015 and certainly beyond.

Great.

I can't ask anymore questions, I don't have anymore voice.

Thanks.

Feel better.

Thanks again for participating on today' call.

We hope to see many of you here on the 16th.

And please join us on our next earnings call which we anticipate will take place at 9 AM on Friday, May 22, following the release of our first-quarter results earlier that morning.

Thanks again and goodbye.

Ladies and gentlemen, this concludes today's conference.

Thank you for joining.

You may now disconnect.