Foot Locker Inc (FL) 2016 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Foot Locker's first-quarter 2016 financial results conference call.

(Operator Instructions)

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

These forward-looking statements are based on many assumptions and factors including the effects of currency fluctuation, 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 recent filed Form 10-K or Form 10-Q for a complete description of these factors.

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

If you have not received today's release, it is available on the Internet at www.prnewswire.com or www.footlocker-inc.com.

Please note that this conference is being recorded.

I would now like to turn the call over to John Maurer, Vice President, Treasurer and Investor Relations.

Mr. Maurer, you may begin.

Thank you, Carlos.

And welcome, everyone, to Foot Locker, Inc.'s earnings conference call for the first quarter of 2016.

Thank you for joining us today for the first earnings call from our brand-new offices at 330 West 34th Street.

It's been an exciting transition the last few weeks.

We reported in this morning's press release that the Company achieved record net income of $191 million in the quarter, up from $184 million in the first quarter last year.

On a per share basis, Foot Locker earned $1.39 this year, an 8% increase compared to the $1.29 earned in the same period in 2015.

It was the highest quarterly net income and EPS result in the Company's history, a significant achievement, especially in today's challenging retail environment.

We achieved a comparable sales gain of 2.9% in the quarter.

Although this result was a shade below the range of our expectation going into the quarter for a mid single-digit it increase, these sales and profits do represent the 25th consecutive quarter of meaningful growth for Foot Locker.

In order to leave as much time as possible for your questions, let me hand the call straight away to Lauren Peters, Executive Vice President and Chief Financial Officer, to review the results of the quarter in more detail.

She'll be followed by Dick Johnson, President and Chief Executive Officer and newly elected Chairman of the Board, to provide product and trend highlights.

Lauren?

Thank you, John.

Good morning to all of you.

The first quarter was our best ever, so we are definitely proud of the very strong result the team produced.

That said, we had set the bar even higher than we achieved, so let's dig in to what worked well and where we fell a bit short.

First, the cadence of our comparable sales was fairly steady during the quarter, with the gain landing, as expected, in the mid single-digit range in February; while it was up low single digits in March and April, short of our mid single-digit planned gain.

The strong diversity of our assortments and the leadership positions we have in many product categories enabled us to post that 2.9% comp gain, despite basketball footwear being down mid single digits.

In fact, total Company footwear comps were up mid single digits in the quarter, with strength in lifestyle running and classic styles more than offsetting the decline in basketball shoe sales.

Apparel posted a low single-digit gain, while accessories were down high single digits, primarily the result of the challenging trend in socks.

Proving that with the right product, basketball still performs very well, our strongest division this quarter was Foot Locker Canada, with a comparable sales gain in the high teens.

This result was fueled by a strong double-digit gain in basketball footwear.

Although the gain was initially propelled by the All Star game in Toronto this year, Canada's strong double-digit performance was sustained throughout the quarter, and there were meaningful sales gains across the country, not just in Toronto.

Our next strongest store division was Foot Locker Europe, which turned in a high single-digit comparable sales gain on top of last year's double-digit gain.

On the other side of the ledger, Runners Point and Sidestep continued to face assortment challenges, with sales in both banners down double digits from a year ago.

To round out our international division, Foot Locker Asia-Pacific continued its high level of performance, turning in a strong mid single-digit sales gain on top of last year's gain in the teens.

Turning to our US store divisions, Champs sports led the way with a mid single-digit comparable sales increase.

Foot Locker, Kids Foot Locker, and our women's division, Lady Foot Locker SIX:02, were each up low single digits.

Footaction posted a comp loss in the high single digits.

There were two primary elements of Footaction's underperformance in the quarter.

First, it has a relatively high penetration of basketball compared to other banners.

And, second, it doesn't offer women's footwear, which has been quite a strong contributor to our other banners recently.

In fact, for the quarter, women's comparable footwear sales were up mid single digits, while our sales of Kids footwear across the banners that sell children's product was even stronger, up high single digits.

Sales of men's footwear were down slightly.

Our direct-to-customer segment turned in a solid performance with an overall comparable sales gain of 7.3%.

Sales of our store banner dot-com businesses, including both domestic and international banners, increased more than 20% on top of last year's almost 40% increase.

Eastbay, on the other hand, declined mid single digits.

The story at Eastbay, which caters to the elite high school athlete, remains similar to last quarter, with core performance shoes and apparel trending down relative to the casual assortments in which our store banner sites have a stronger position.

Our gross margin rate was flat in the quarter, with 30 basis points of merchandise margin improvement offset by slight occupancy deleverage and higher shipping and handling expense.

We noted on our previous call we need to comp at least in the low end of mid singles to leverage occupancy, and we fell just short of that this quarter.

The uptick in merchandise margin was fairly consistent across footwear, apparel, and accessories, driven by lower markdowns.

As expected, our SG&A rate delevered slightly to 18.2% of sales in the first quarter, largely due to incurring almost $4 million of expenses related to the move into our exciting new office space.

Without the move costs, our SG&A rate would have held flat at 18%, thanks to the excellent work of our expense management team.

Depreciation expense increased to $39 million from $35 million in Q1, reflecting the Company's ongoing investment in enhancing and aligning the customer experience across all of our channels -- stores, digital, mobile, and social media.

Our first-quarter tax rate was 36%, slightly below our expected run rate of 36.5%.

Relative to plan, our mix of income in the quarter came proportionately more from Europe where our tax rate is lower than in the US.

The record net income we reported for the quarter also led to strong cash flow.

We finished the quarter with $1.062 billion in cash.

The first quarter typically represents our peak cash position, with balances subsequently declining until we reach the year-end holiday selling period.

Over time, the proportion of our cash held overseas has grown relative to cash in the US.

And just this week, we closed on a new $400 million credit facility, up from $200 million before.

The new expanded facility allows us to maintain our liquidity in the US while continuing to invest in our US store fleet and our digital and mobile platforms, as well as actively repurchasing shares, funding our dividend program and being prepared for other opportunities or challenges.

During the first quarter, we repurchased 1.37 million shares for $87.8 million.

We spent approximately $65 million of capital as we continue to track towards our planned expenditures this year of $297 million.

An important part of our capital spending this year is to elevate two of our flagship stores here in midtown Manhattan.

Both the 34th Street store, below our former office, and the Foot Locker store in Times Square closed during the first quarter.

Our exciting new Times Square store will not open until the holiday.

The 34th Street store is slated to reopen for back-to-school, but it will be closed during all of Q2 and the lost sales from that high volume store are enough to reduce our overall comp a few ticks in the current quarter.

Inventory increased 2.1% at the end of Q1, slightly above our target, given the 3.9% sales increase on a constant currency basis.

Our inventory remains fresh and productive, with turns continuing to tick up towards our long-range goal.

Most importantly, we believe our inventory position supports the mid single-digit sales gain, with primarily full-price selling that we continue to plan for over the balance of the year.

We continue to believe we can achieve a mid single-digit comp for the full year as well as double-digit EPS growth, with 10 to 30 basis points of gross margin improvement.

We believe that this performance is also achievable in each of the remaining quarters, including this one.

As we expected, comp sales are running down month to date but we're once again on the negative side of a very significant launch shift.

One of the more powerful Jordan releases of this entire year is coming next weekend; whereas, last year, a similarly strong Jordan release had already happened by this time in the month.

Over such a short period as three weeks, the impact of this launch definitely has the potential to lift our May comp well into positive territory.

That said, Q2 is already the lowest volume quarter of the year and this year we have two of our very top stores closed, so SG&A leverage will again be a challenge in the quarter.

As always, we will manage the business tightly, not just SG&A, but also inventory and occupancy, to maximize our profits this quarter and position ourselves for a strong second half of the year.

Let me hand the call to Dick now to cover the product highlights in more depth and discuss how we see the industry and our business shaping up over the balance of the year.

Thank you, Lauren.

And good morning, everyone.

I want to start my remarks today by thanking everyone on the Foot Locker, Inc.

team for producing our best, most profitable quarter ever.

As you could tell from Lauren's remarks, there was a lot going on this quarter, with some fast moving product category shifts, big events like the All Star game in Toronto, the temporary closure of two of our biggest volume stores here in midtown Manhattan, and of course, packing everyone up and moving into our brand-new offices, although you may hear in the background that we brought some of the sirens with us.

With all that, we maintained our focus on execution and produced our strongest quarterly results ever and added another quarter to our streak of consecutive quarters of meaningful sales and profit increases.

My sincere thanks to all the associates at Foot Locker who made it possible.

It is only because of the diligent work of the last several years to build and strengthen the diversity of our business in terms of product categories, geographies, families of business and channels, that we were able to post a solid comparable sales gain for the quarter in the face of a mid single-digit decline in basketball.

Although we had planned basketball to be off, the category ended up a bit softer than we had expected, which is the primary reason our quarterly comp gain came in somewhat below our guidance.

The basketball business, like all our other categories, thrives on newness and innovation, and where that was apparent our basketball business remained strong.

The Jordan brand continues to innovate and produce excellent results, with the sportswear side of that brand giving the biggest dollar gains.

In fact, John here has finally put away his low profile Kobe's for a really cool pair of Jordan Horizons he brought back from our House of Hoops store in London.

The casual portion of basketball outside of Jordan was also strong, led by models such as Superstars by adi, as well as Foamposites and Air Force 1s from Nike.

It was the signature side of the basketball business that saw the biggest decline, although even here we saw important elements of excitement.

For example, the Stephen Curry shoes from Under Armour and the Kyrie Irving shoes from Nike both posted big gains.

Meanwhile, Kobe sales hung in pretty well in the quarter, likely influenced by the buzz around his retirement.

The primary losses came in LeBron and KB product, a challenge which we've been addressing with our partners at Nike.

Between Nike resetting the price/value relationship of many of its shoes and focusing their incredible innovation engine, along with the strength of Under Armour and potential momentum at adidas, we are confident that by the back half of the year there will be in place all the elements of a more he robust, diverse, signature basketball business.

In the meantime, our leadership positions in footwear categories other than signature basketball enabled us to successfully pivot much of our inventory position into these areas in Q1.

Lifestyle running footwear was an especially good business in the quarter, with the Roshe and Huarache styles from Nike and ZX Flux from adi continuing to be popular sellers.

Category heap and newness was driven by the nomad and boot products from adidas.

The Stan Smith shoe from adidas is another perfect example of a leadership position we have in an area other than basketball; in this case, classic court shoes.

This leading position can be seen in the depth of our buys and in the variety of different model executions we sell, quite a few of which are exclusive.

We enjoy a significant number of special makeup styles, not just in Stan Smiths, but also in Superstars, Puma suedes, and various other casual yet premium products.

In retrospect, demands for this special product outstrip supply, giving us confidence in the emphasis of our merchandise position over the next several months.

The very strong adi originals business is also an excellent example of the advantage of our global footprint, since the trend started in Europe, where our merchants recognized the excitement early and shared their initial success with our US teams before it exploded into a worldwide phenomenon.

Even with the partial shift out of signature basketball, our customers still expect to find and are finding premium sneakers in our stores and on our digital sites, sneakers for which they are willing to pay premium prices.

This led to higher footwear units and average selling prices in the quarter, with both up low single digits.

On the apparel side, ASPs were up even more, in the mid single-digit range, driven primarily by lower markdowns.

Although apparel units were down low single digits, for the most part I'd describe our men's apparel business as improving, especially in Europe.

Overall, profitability is up both in dollars and rate, which, as I said last quarter, is a great place to start.

We're still working on driving more apparel volume in each of our banners.

And the investment in our store remodel programs continues to be an important element of our strategy to elevate the story telling around the premium special products our vendors are beginning to deliver.

On the women's side, apparel comps were down as the Lady Foot Locker, and especially the SIX:02 customer, has almost completely shifted off athletic performance silhouettes into athletic lifestyle.

Adi, Nike and Puma all have some exciting celebrity-driven assortments, but the quantities weren't enough to offset the decline in the sales of performance products from a year ago.

Meanwhile, the overall women's business is being driven by footwear, where the Superstar, Stan Smith, and Nike casual running trends are even stronger for her than they are for the men.

Another clear indication of the ongoing strength of the sneaker trend is that traffic was positive in the quarter, up low single digits both in the US and overall.

Fortunately, kids still love to touch, feel and try on sneakers, and they love to compare and shop together for the latest and greatest athletic footwear and apparel.

Two exceptions to the good traffic trends, though, were Runners Point and Sidestep in Germany where traffic was down double digits.

Even for the Foot Locker banner in Europe, Germany was the most difficult of the large countries, and German retail in general has been a bit tough lately.

That said, we have plenty of opportunity to improve the performance in Runners Point and Sidestep, and it starts with driving more traffic through a combination of more elevated in-store experience, targeted marketing, and, most importantly, improved and better diversified product assortment.

We've done a lot of work to better define the core customers of these two banners and the results have helped us in the discussions with our vendors to create the sort of special, focused assortments that really motivate these customers.

At this point there hasn't been enough product depth to stem the comp declines but our inventory position remains sufficiently clean to enable us, we believe, to get these banners back on track as the year progresses.

Turning to our digital business, the growth in our store banners dot-com continues to be strong although not at the same pace as a year ago.

We continue to invest in the technological infrastructure behind our digital sites and enrich the content on the customer-facing side.

Perhaps most importantly, we're rethinking our approach to our channels.

As, Pawan Verma, our Chief Information Officer, recently described, the concept of a channel doesn't really exist for our customers, only the relationships they have with our brand.

Thus, our capital spending is now more consistently based on strengthening that relationship across all of our sales channels.

A good example of the return on that investment can be seen in our expanding BOSS sales -- buy online, ship from store.

Already available across our domestic banners, we rolled it out in the UK in the first quarter and plan to expand it onto the European continent in future quarters.

The softest part of our digital business right now is Eastbay, which, as Lauren described, is really focused on the serious high school athlete.

The shift to casual and lifestyle silhouettes, and a slightly declining rate of youth participation in certain sports, such as football, have hindered Eastbay's top line recently.

While Eastbay's merchants are shifting a portion of their assortments more in the direction of lifestyle, we intend to keep true to the performance heritage and identity of the East Bay banner.

We're working to enhance our current customer's digital experience and increase brand awareness at younger ages.

The goal is to expand the pipeline of Kids who know and love the Eastbay brand as they pursue their passion for sports.

Examples of success already include the growth in our training and girls volleyball businesses.

Before I turn the call over for your questions, I just want to reiterate how proud I am of the record-setting performance of our team this quarter.

We challenge ourselves every day to be a high-performing organization.

Sometimes circumstances don't allow us to clear the bar by as much as we'd like to.

But with the long-term trends toward casualization and active lifestyles firmly intact, the athletic footwear and apparel industry is an exciting space to be in.

We've got a great team of associates and a great lineup of vendor partners, and together, we have many tremendous opportunities to grow and improve Foot Locker's business as we work to achieve the long-term goals we outlined last year.

Carlos, let's please open up the call for questions now.

(Operator Instructions)

Michael Binetti from UBS is on the line with a question.

Good morning.

I was wondering if I could get a little help understanding the path to mid single-digit same-store sales in the second quarter, just to help us out with our model.

I know, Lauren -- thanks for the detail on the current quarter trends and the launches coming up.

But could you help us think a little bit about the composition of the launches through the quarter and the inventory you have on hand?

It sounds like some of the signature basketball areas have been struggling.

Is that inventory changing over as near term as it would seem like it would need to be to get you to that mid single digit confidently in the second quarter?

Michael, thanks for the question.

We're on the wrong side of the launch, as Lauren called out, with the big Jordan launch that happened last year, last weekend, coming up Memorial Day weekend this year.

Normally we wouldn't talk about that so much, except three weeks into the quarter it certainly makes a difference on the trend.

Our team's done a really good job of shifting the inventory into some of the casual businesses that we talked about in our prepared remarks.

And the launch cadence for the rest of the quarter lines up really favorably for us.

So, certainly the mid single digits that Lauren talked about and I talked about in our comments are attainable in the quarter, Michael.

Okay.

And then can you just talk about some of the other businesses that you gave us an update on that were some of the potential for the margin opportunity as we look through the year: women's and apparel?

And maybe some updated thoughts on Runners Point, as far as how much those can contribute to what we would back into as a margin improvement to get to the double-digit earnings growth this year, and any trends you're seeing there, that would be helpful to that story.

Thanks.

I think we got off to the women's business a bit.

The apparel business there is shifting.

It's still very much an active lifestyle, athletically inspired lifestyle apparel.

She's a very discerning shopper.

She expects the performance characteristics to be built in, but she's also looking for it to be very fashionable.

We've seen success with some of the Rihanna product that's launched.

That asset-driven model with great looking product that she can use in the gym or in her active lifestyle is really helping drive that business.

And we're shifting.

We're up against big performance silhouettes from last year, bigger numbers.

So, as she changes and our inventory changes with her, that will certainly be a contributor.

Apparel in general, as I said, is getting better.

The Europe team is leading that effort.

Their apparel business was up nicely.

Apparel's getting better at Champs and the Kids Foot Locker and solidifying its position at Foot Locker.

So we've got certainly some upside on the apparel front.

The categories that we mentioned, some of the classic sneakers, some of the lifestyle running shoes, again, our inventory's shifting appropriately, so we see great opportunity there.

Our inventory's clean and fresh, so we'll be able to manage our markdowns through the quarters.

So, that really is what's going to improve sales and the margin opportunity, Michael.

As far as Runners Point, we've got a traffic issue there.

Retail in Germany's been a little bit tough for all of our banners including -- actually, all of the segments.

But I think, as I talked about, we've done the deep dive on our customers on the Runners Point and Sidestep doors.

We continue to shift the inventory there, get the inventory properly positioned.

It goes back to firing customers.

When we took out the vulcanized product in the boots and relaunching, if you will, a running-only shop on a high street with Runners Point, making sure we get all the inventory right.

The effort in the short term is to drive traffic.

Once they get in the store, we're able to convert them because we've got a great sales force and a great team on the store floor there.

But, again, we've got to get some traffic in the doors.

Thanks a lot.

Our next question comes from the line of Camilo Lyon with Canaccord Genuity.

Please go ahead.

Thanks, good morning.

I just wanted to get a little more into the commentary about the improvement, or the expected improvement in the back half of signature product.

Could you just talk a little bit about what you're seeing from the product that gives you that comfort that there will be a resurgence in demand, as opposed to just more of a continuation of the shift out of that particular style of basketball product?

Sure.

I thinks there's going to be a bit of a reset on the price/value equation with a couple of the big players.

The new KB shoe is out in a couple weeks, so we'll get a first pass at that.

The Curry shoe, the Kyrie shoe, they continue to be strong.

And we've got the Olympics, which drives innovation across a lot of things, that we'll see in the back half come -- to be commercialized in the back half.

Again, I think the consumer as we've shown in specific shoes, the consumer in Canada certainly didn't have any issues around signature basketball as it led into the All Star game.

So, when there's excitement around the product, when there's innovation around the product, and when the price/value relationship is right for the kid, the category's fine.

And we expect that in the back half with some of the things we've seen coming down the product pipeline.

Again, the kid is very discerning, and signature basketball is one of his choices.

But the strength that we've added to our portfolio across the casual sneakers, the Boost product from adidas, there's tremendous opportunity in all of our categories.

And that's why the work we've done over the last few years to really build this portfolio of businesses allows us to absorb a little bit of a body blow on the signature basketball side and still drive a successful, winning business.

That's great.

The follow-up to that is, your comment on more price-value, are we to infer that refers to lower ASPs?

And if that is the case, how do you combat that downward pressure on ASPs to continue to drive overall ASP growth?

We just did it in the first quarter.

We took a basketball category that was down mid single digits driven by a drop in signature basketball and our ASPs and units were both up.

ASPs are a very complex model across our portfolio of banners, categories, genders, et cetera.

We're very confident that we'll be able to continue to drive ASP growth even with a slight modification of pricing in signature basketball.

Great.

And then just a final question, just more of a longer-term question, in how you view Nike stepped-up focus on their own dot-com business and how that impacts your business over the longer term.

If you could you just articulate how that relationship is unfolding and those discussions are unfolding, from your perspective, with them.

I think we all win when there's an integrated marketplace.

They continue to invest in our businesses.

They continue to provide great product in our stores.

Their product engine continues to remain strong.

And the relationship continues to remain strong.

We know that they're going to sell DTC both digitally and through some stores.

At the same time, we're working hard with them to make sure that the consumer has all sorts of choices to shop for their product.

Our storytelling inside our stores is representative of how we want to represent their brand and how they'd like to see their brand represented.

As they grow their DTC, their brand grows in totality in the marketplaces, and, frankly, we see it as a positive.

The more integrated the marketplace is, the stronger we are, the stronger the brands are that we sell.

We look at their long-term goals and our long-term goals and they are not inconsistent.

They both support one another.

Exactly.

Got it.

Good luck.

All the best.

Thank you.

Our next question comes from the line of Christopher Svezia with Susquehanna Financial Group.

Please go ahead.

Thanks for taking my question.

Good morning.

I was just wondering, maybe you can clarify just for May what impact the New York store closings are having.

And, more explicitly, are you trending down low single digits in May?

And are you expecting it to be up low single digits when everything is said and done, once you get the Jordan, the Retro 12 into the comp number for May?

We won't dig into the specifics of the two stores in midtown Manhattan.

Obviously that's pretty proprietary information, Chris.

But they certainly are having an impact.

We're looking forward to the opening of two significant flagships here in midtown Manhattan, and we'll manage the business through their closures, obviously.

As Lauren called out in her comments, we are running down for the month, as we expected, but we'll shift to be in comp positive certainly as we get through the launch over Memorial Day.

The nuances of low-mid singles, mid-mid singles, up mid singles you'll have to make your model work.

We can't give you a lot more detail than that, Chris.

Okay.

And, Lauren, for you, just more specifically, as you think about gross margin and SG&A as we go through the year, just any nuances between them as we think about the quarterlies?

And I think gross margin you said up 10 to 30 on the year.

Any thoughts about the SG&A leverage as we think about the year?

Again, we still think that SG&A for full year and a 10 to 30 of basis point range with mid single-digit comp is achievable.

That's the range.

As we called out, first quarter we have the uniqueness of the headquarter move, and the comp came in at the low single digits.

This quarter, with it being a relatively lower volume quarter, it makes the leverage a bit challenging on SG&A this quarter.

But, again, 10 to 30 for full year.

Okay.

And final question, just as it relates to basketball, is it fair to say that as you go through the second quarter you probably face potentially the easiest comparison as you go through in non-signature basketball?

And so, LeBron, KD, Nike branded basketball relative to last year?

It seemed like last year it started to decline pretty precipitously.

Does the comparison start to ease as the product and price/value starts to improve as you go through the year?

Is that a fair characterization?

That's what the industry numbers would tell you, Chris, and we're reflective of that.

The signatures, again, I always hate to focus on one segment of our business, but you're right, the comparisons get a bit easier as we go through the middle part of the year.

And we'll see some of the changes that we talked about positively impacting the signature product during that time period.

So, yes.

Okay.

Thank you.

All the best to you.

Thanks.

Our next question comes from the line of Matthew Boss, JPMorgan.

Please go ahead.

Thanks.

So, double-digit earnings on mid single digit same-store sales reiterated for the year.

Dick, my question -- is double-digit earnings possible at a low single-digit comp if that were the backdrop multi-year?

Just any color on P&L flexibility would be helpful.

Our team does a really good job of managing expenses.

I think the leverage that we get obviously changes with low single digits.

But over time I don't think there's a limit.

Certainly we have to gain, but I'd defer a little bit to Lauren.

Again, on the occupancy side of it, we need low end of mid single.

We've been investing in some significant properties and with that comes some higher rent.

But over the long term, those drive some really significant volumes, which lets you get that leverage again.

But for our near term, low end of mid singles is where we get the lever.

Okay.

And then if we built your full-year mid single-digit comp bottoms up, it sounds like the best way to think about it is basketball improves from the first quarter trend.

But just what's the best way to think about basketball versus running versus what we saw in the first quarter?

And then, Lauren, just any help on the quarterly cadence of total Company comps in 2Q versus the back half, I think would really help for our models.

As I just said, I think basketball Q1 was probably the toughest compare for the year, and gets marginally better as we go through the middle part and back half.

Again, the money has shifted.

Our category managers have done a good job of moving money into casual product and lifestyle running.

They manage an entire portfolio and they're able to move out of basketball what they should move out of basketball and into other categories.

Again, I think basketball does improve from Q1 going forward.

There's a lot of excitement that's going to come in the back half of the year.

The cadence of comps, we haven't really gotten into specific quarters.

I want to make sure I understand the question.

Are you asking for us to further define mid?

Is 2Q a low single-digit comp and the back half is high single?

Or is it mid single-digit comps all three quarters of the year?

Okay.

I will reiterate what we said.

Mid single digit by quarter, including this quarter.

Okay.

Great.

Best of luck.

Tom Nikic, Wells Fargo, has the next question.

Please go ahead.

Hello.

Thanks for taking my question.

Not to harp on Q2 too much, but you gave a little detail about being negative thus far but there's the timing shift that helped May.

Is there anything we should think about from the launch calendar perspective in June and July that would really help the business get back on the mid single-digit trend, and maybe into August as we think about the call three months from today?

As I said, Tom, once we get to the launch on Memorial Day, we like the launch cadence for the rest of the quarter.

We align up well.

They're not always day for day matches but across the rest of the quarter we like the launch position that we've got.

Again, launch is only one part of the business, so I hate to fixate too much on it.

The only reason we really bring it up is that 3 weeks into a quarter a significant launch looks different than it does 13 weeks into the quarter.

I'm comfortable with where the launch calendar is and our launch sequencing for the remainder of the second quarter and as we get into back-to-school season.

Okay.

Great.

Just a quick follow-up.

Obviously basketball's been weighing on the business, but you've done a lot of work over the last couple of years to diversify the assortment, and not being a, quote-unquote, one-legged stool.

Is there any color you can provide as far as the size of basketball relative to your total footwear business?

And if basketball should remain weakish, do you feel like you have levers to pull in running and casual to keep hitting the mid single-digit guide for the year?

Thanks.

We won't break out the percentage of basketball to the total but, yes, we believe we have levers to pull in casual, in running, lifestyle, et cetera.

And I'm going to reiterate, we did that in Q1, mid single-digit footwear comps.

Great.

Thanks very much.

And best of luck the rest of the year.

The next question comes from the line of Jay Sole, Morgan Stanley.

Please go ahead.

Hi, good morning.

You mentioned rapidly shifting product category preferences.

Can you talk about, of these shifts which do you see as permanent and which are more temporary?

With our core consumer, Jay, I wouldn't call any of them permanent.

Our consumer's going to buy the coolest shoe they can find.

They're going to buy the shoe that sends the message that they want to send.

Again, to think that there is a permanent shift from one category to another category, we certainly don't look at the business like that.

Our team is constantly evaluating where we believe the consumer will be.

We're working with our vendor partners to create great product.

There just is nothing in our Business that's permanent.

So, I think you need to understand the flexibility that our consumer has and that they're ultimately in control of the product decision.

But I would say, what is enduring is that they're well above sneaker.

We certainly saw it in the traffic, and their appetite for some really great looking styles across the categories.

Maybe I can follow up with this -- do the NBA playoffs matter?

You mentioned LeBron James and Kevin Durant are some signature shoes that haven't done as well.

Those players are still in the playoffs playing at the top of their game.

If those players continue to be successful, maybe win the NBA championship, does that matter?

What matters is that there's excitement around things that drive sneakers, whether Kyrie and LeBron win or Steph Curry wins, certainly the more positive news about that -- or Russell Westbrook and KD in Oklahoma City.

I don't know that there's a direct correlation to them winning the championship and us selling more sneakers, other than it creates great momentum and great energy around whatever the sneaker is that's selling next.

It matters, just like the Olympics matter, in that there's excitement around sport, athletics.

People's consciousness around sport goes up.

They attach that sometimes with sneakers and we win.

But we root for them all equally, Jay, just to be clear.

Understood.

And then maybe one last one, just in terms of the shifts that consumers are undergoing, you didn't mention channel shifts.

You talked about it within your business.

But there's been a lot of talk in retail about the shift toward big online pure-play competitors.

Is that something that's impacting your business in any way?

Can you just talk about that aspect of it?

I don't necessarily think the big pure plays so much.

The product that we have is unique.

The consumer, as they displayed in Q1, loves to come into our stores.

They like to feel the shoe, see the shoes, talk about the shoes with our associates.

And we want to be able to service the customer regardless of where they want to shop today or where they want to engage with us.

I think Pawan did a great job with an op ed piece for Shoptalk that really talked about the channels not existing, only the relationship.

And we're trying to deepen that relationship with our consumer across all of the channels so that the first thing they think about when they think about sneakers is Foot Locker.

And they interact with our brand across all the channels, all the opportunities to access our brand.

So, that's what we're focused on is giving them a great, consistent experience across all of those channels.

Okay, got it.

Thank you so much.

Our next question comes from the line of Erinn Murphy with Piper Jaffray.

Please go ahead.

Hey, good morning.

This is Christof Fischer on for Erinn.

I was wondering, with the closing of a number or sports retailers in the US, what type of opportunity does this give you this year, or maybe longer term, to pursue some market share?

And is there any benefit that you could reap from any channel inventory that's being sold at off-price?

Thanks.

The direct impact is probably less apparent to us than it is to some of the other sporting goods big box guys with the people that are closing down.

They will likely see some benefits once they get through some of this sale product and some of the liquidation that's going on.

I think there's great opportunity for our Eastbay brand.

As these destinations for team sports products and cleated products and baseball bats and gloves, et cetera, dry up a little bit in the marketplace, that plays right into our direct connection with that consumer through Eastbay.

Most of the product that's being liquidated would not mirror a product that's in our store.

It's in a different distribution level, it's a different segmentation level from most of our vendors.

So, while we will see some pickup, undoubtedly, of people that are looking for sneakers, I think there's probably more of an impact other places in the broader sporting goods industry.

Okay.

Great.

Thanks.

And then as a quick follow-up, with the new overtime ruling, does this impact you guys?

And is this something that you guys have talked about internally yet?

Sure, we've talked about it since the draft rule started to be circulated.

I think it will impact everybody that runs a business.

So, we have to make some decisions.

We have to look at our workforce in depth and figure out what the right way to handle these new rules are.

We'll manage this change in rules just the way we managed them all.

We've got a team that's focused on it and working on it.

The only surprise is that it's going to happen a little bit sooner than we may have expected, but our team will react to that and respond accordingly.

Got it.

Thank you very much.

Our next question comes from the line of Robbie Ohmes with Bank of America-Merrill Lynch.

Please go ahead.

Thanks for taking my question.

Dick, actually it's going to be three questions.

The first, obviously you guys keep calling out the Steph Curry shoe.

Is there any other initiatives with Under Armour maybe on the apparel side, even as you head into back-to-school and fall?

Is there anything you can do to build on that momentum, or is it still just isolated to it being a signature shoe phenomenon?

And second question would be Olympics -- anything launching with Nike or anything that could drive some momentum in the back-to-school?

And the third is just multiple pair purchases, can you give us an update on trending of multiple pair purchases?

Is that still on the rise as part of this shift towards nontechnical?

And I'll repeat them if you forgot some of them, but thanks.

Thanks, Robbie.

Certainly we've got strong Steph Curry business, as we called out.

I'm excited to relay the fact that we've opened our second UA Armory at Champs Sports down at the Galleria in Dallas.

So, as we continue to develop our relationships with Under Armour, obviously we want to be better in the apparel business with them, they want to be better in the apparel business in the mall.

So we continue to work at that.

There are constant initiatives that we're working on, both on the footwear side and the apparel side with them.

We have a great deal of optimism around the brand.

And the brand is more than Steph Curry.

That gets all of the highlights and all the press right now, but there's certainly more depth to it than that.

On the Olympics front, there certainly is some technology that we'll see in the Olympics that will be commercialized later in year.

There's launches that coincide with that from the athletes and the players.

There's benefit across all sorts of categories, from our track and field business up at Eastbay to signature basketball that will have some Olympic silhouettes that certainly get launched, through to some apparel technologies that we'll see from a lot of the brands that come out.

I'm going to turn to Lauren on the multi-pair question.

She was able to take a quick look.

The dynamic really remains that average ticket is going up.

We had more transactions, average unit retail going up.

But units per transaction, not an increase.

Got it.

That's very helpful.

Thanks so much.

The next question comes from the line of Kate McShane from Citigroup.

Please go ahead.

Hi.

Good morning.

Thanks for taking my questions.

With regards to the women's business, I think you sounded a little bit more positive on footwear versus apparel.

Is that due to just the mix of product?

And when do you expect apparel to improve or inflect for women?

Certainly at this moment, Kate, and certainly across Q1, our women's business was led by footwear, certainly.

Part of the excitement around our two new flagship stores in midtown is that each of those will have a SIX:02 space in it, so we'll really get a chance to test and push some limits on the apparel front.

As we move from pure performance silhouettes into more active lifestyle silhouettes, I see the apparel position in those silhouettes improving as we get later in Q2 and into the back half.

But probably the most exciting thing in our women's business is the two new flagships that will be close to us.

We'll be able to really take some leadership positions in some key apparel opportunities.

Okay.

And then my second question is the ticket and traffic trends that you cited sound very encouraged.

I wondered if you could give any more detail on how much ticket pressure there was from basketball, and if it was offset by other categories, or if the pressure maybe wasn't as big necessarily in basketball as some people feared.

It's probably not a ticket question as much as it is an ASP question, Kate, on basketball.

Clearly, we drove a lift in ASPs.

So there's a mix that happened with premium signature basketball down mid single digits, able to be offset from an ASP point of view on the other categories.

Including these Jordan Horizons.

They were not cheap.

These are premium shoes that are at the same relative price point as a signature basketball shoe.

I can't compliment our team enough in the way that they're able to manage a very complex ASP and add-on sales environment.

Again, I think the question's more around ASP than multi-unit sales on a ticket.

Okay.

Great.

Thank you.

The next question comes from the line of Scott Krasik from Buckingham Research.

Please go ahead.

Hi.

Thanks for taking my question.

A couple.

First, a comment around the revolver, Lauren.

Are you suggesting that you'll actually be dipping into it and we should plan for that over the course of the year relative to last year?

And then just all the moving parts collectively, how much was your international comp up all together?

And then just lastly, Dick, thoughts around allocations for the launch product, is it getting to be too much?

Would you rather have more of a scarcity factor, sellouts to drive demand?

Thanks.

On the credit facility, no, no intention to dip into it.

The former facility was in place through the beginning of next year, but we saw the opportunity to get into the new facility a little bit earlier, and with that we took the opportunity to expand the amount.

It just gives us flexibility and the time was right to do it.

Our international comps were up mid single digits in the quarter, Scott.

And then in terms of the allocations, we absolutely believe in the asset-led scarcity model.

The brands do a good job, I believe, in controlling the quantities that enter the marketplace, and we work with them to get the right quantities.

There's a lot of excitement around sneakers.

And some of the heritage sneakers, some of the OG colorways, et cetera, really drive heat in the marketplace.

And it's an important piece of the business.

But, again, we work close with our vendors to make sure the scarcity model continues to contribute to our success.

And then just the Memorial Day launch calendar, is the Curry playoff shoe, is that as meaningful as the Jordan, or is that as meaningful relative to other launches?

Thanks.

All the launches have some meaning, Scott.

I think when you get a shoe like the flu game shoe that launches, it doesn't happen often.

It's special.

Yes, it is special.

I don't think Lauren's going to buy a pair, but it is special.

Just like the Curry launch is special: the MVP, the championship, whatever units they launch across the year.

So, I'm not going to really compare the relative strength.

That's for the consumer to ultimately decide.

But both of those launches are important to us.

Okay.

Thanks.

Good luck.

The next question comes from the line of Sam Poser from Sterne Agee CRT.

Please go ahead.

Good morning.

Thank you so much for taking my questions.

I've just got a couple.

Number one, is this a basketball problem with the signature basketball, or is this just a specific item problem where those shoes that happen to be signature basketball shoes aren't as sought after as they were some time ago, while the Roshe and the tubular and various other things are just more sought after than they were a year ago?

I think as I said in my comments, Sam, we saw great uptake in the Kyrie Irving shoe and the Steph Curry shoe, big, significant signature product.

The challenge that we faced was really around the two athletes, LeBron and KD, where the kid just didn't see the price/value relationship in those offerings in the quarter that they've seen in the past.

I think the kid is multi-faceted.

Our core consumer changes their preferences sometimes multiple times during a day.

I think that they certainly are after things like the Roshe and the Boost product and the Huarache, the Presto from Nike, and all sorts of great products.

It's a price/value relationship around a couple of key athletes' shoes that I think is being addressed appropriately going forward.

Okay.

Thank you.

And then, secondly, given the progress, or what progress you're making, with SIX:02, and I'll ask the same thing about the Runners Point and Sidestep businesses, do you foresee that you're going to be rolling those out next year?

How do you foresee the store opening plans for both as we look ahead based on the progress you're making right now?

As we talked about, Sam, SIX:02, we took a little bit of a slower track this year, just because we've got these two big flagship stores that will be very important to the SIX:02 brand, as well as relaunching and updating the six:02.com site, which is really important when you only have 30 doors.

It's important that your dot-com or your digital site really represents that brand well.

So, that's what 2016 is about, and we expect to continue to accelerate the rollout as we get into 2017 with SIX:02.

Runners Point and Sidestep, we detailed a little bit about where the challenges are.

The rollout there will probably take a little bit slower track until we're confident that we've got the assortment right, and that running stores specifically around Runners Point are the right formula on the high street in Western Europe.

We opened in Vienna last year.

So, as we take Runners Point slowly out of Germany, we'll measure the results there.

Sidestep we've got some work going on in terms of store format.

We just have to get those things right.

We take a pretty pragmatic approach to build a prototype, see the results of the prototype, test it, tweak it, evaluate it again before we go into a full-blown roll-out.

That hasn't changed nor will it change as we go forward.

We going to spend $297 million this year, so we want to be confident that we're going to get the right ROIC on those investments.

Thank you very much.

Good luck.

Our last question comes from the line of Paul Trussell with Deutsche Bank Research.

Please go ahead.

Thanks.

Good morning, guys.

You all have certainly emphasized the diversification of the mix today, with the footwear business still being up mid single digits despite basketball being down.

But perhaps you can just give us a little bit of color on overall demand, if your outlook has changed at all on the sneaker business, just given that trend line did decelerate a bit from what you produced last year, and whether there were any other factors in the quarter that you think impacted those results.

Or was it just specifically the deceleration in signature basketball?

I'll take the question, Paul.

I think you might have directed it to Lauren.

We're as optimistic, if not more optimistic, about the sneaker culture, the casualization of the world, than we've ever been.

We manage through -- if we would have been on this call 18 months ago and had a business where signature basketball was down -- or basketball was down -- mid single digits, we would not have had positive results.

Our business wasn't as strong on the other legs of the stool.

But the team has strengthened across all of those legs and were able to drive a comp gain in a very difficult retail environment with the bears out there saying that we're simply a basketball brand and we can't survive if basketball struggles.

I think we've proved that wrong in this quarter.

That's testimony to how close our organization is to their customer, to understand their product preferences and make sure that we're really bringing them the cool stuff.

I would point to the fact that we had traffic growth in the quarter as indicating how strong that customer is feeling about the category.

And then just lastly, I think that it would be helpful if you can give some context on how you think the basketball category trend line may be as we exit 2016 and maybe get through some of these near-term hurdles.

And then on the other side, from a category standpoint, do you get similar exclusives from Nike on the running and casual side as you do in basketball?

And then is adidas and Under Armour putting out enough inventory in the marketplace to keep up with demand on their new launches?

That's a whole bunch of questions in one there, Paul.

We think that the basketball trend line improves.

But we also think that the customer is very flexible in their foot covering choices, their sneaker choices these days.

So, wherever this a cool sneaker they're going to find it at Foot Locker and they're going to choose the category.

It's a little bit like them not thinking about channels.

They don't really think about categories that much.

They think about coolness.

And if the sneaker's got the cool factor for whatever they want to do, that's the sneaker that they'll buy.

Again, we see strength.

We have a certain level of exclusives across all categories.

But one of the real advantages we've got -- and we called it out in our prepared remarks -- is that we see things happening all around the globe.

So, our European business may be on something quicker than our US business, or quicker than our vendor partners bring it to the US marketplace.

It's one of the things that happened with this great turn that we've seen with adidas.

Our European team called it out.

Our US team was able to get on some of the sneakers sooner than we probably would have had we not had that European business.

Again, the strength of the portfolio goes across categories, it goes across geographies, it goes across contact points with the consumer.

Your last question on is there enough of the hot product if the marketplace, there's never enough of the hot product in the marketplace, and that's what the scarcity model is all about.

You all saw the adidas results.

You see the Under Armour results.

You know they're having success.

Would we want some more of their key products?

Absolutely.

But, again, the scarcity model is what fuels our sneaker industry.

Again, my hat's off to all of our suppliers as they manage the marketplaces that we do business in.

Thanks and good luck.

Thanks, everybody, for your great questions today.

If we didn't get to your question or you have a follow-up I'll be back at my desk in a few minutes.

Meanwhile, thanks again for your participation.

Please join us on our next call, which we anticipate will take place at 9 on Friday, August 19, following the release of our second-quarter results earlier that morning.

Thanks again and good-bye.

Ladies and gentlemen, this concludes today's call.

Thank you for participating.

You may now disconnect.