Foot Locker Inc (FL) 2019 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Foot Locker's First Quarter 2019 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.

Management undertakes no obligation to update these forward-looking statements, which are based on many assumptions and factors, including the effects of currency fluctuations, customer preferences, economic and market conditions worldwide and other risks and uncertainties described more fully in the company's press releases and in reports filed with the SEC, including the most recently filed Form 10-K or Form 10-Q.

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

Please note that this conference is being recorded.

I will now turn the call over to Jim Lance, Vice President, Corporate Finance and Investor Relations.

Mr. Lance, you may begin.

Thank you.

Welcome everyone to Foot Locker Inc.'s first quarter earnings conference call.

As reported in this morning's press release, the company reported net income of $172 million in the first quarter driven by 4.6% comparable sales gain and an improved gross margin rates.

This compares to net income of $165 million in the first quarter of last year.

Earnings per share came in at $1.52 compared to $1.38 per share in the first quarter of 2018.

Included in this year's results is an incremental $1 million charge related to the pension matter that we have spoken about in the past.

Last year, the results included a $12 million charge related to the same matter.

Excluding these items, on a non-GAAP basis, first quarter earnings were $1.53 per share, a 6% increase compared to $1.45 last year.

Unless otherwise noted the figures and rates mentioned during our call today will be based on non-GAAP results.

A reconciliation of GAAP to non-GAAP results is included in this morning's press release.

We will begin our prepared remarks with Lauren Peters, Foot Locker's, Executive Vice President and Chief Financial Officer, who will provide details on our first quarter financial results, along with our financial outlook for the balance of the year.

Dick Johnson, Chairman and Chief Executive Officer, will review the key drivers of our first quarter performance, then provide an update on the progress against our long-term strategic imperatives as well as some color around what we see as the current year progresses.

Lauren?

Thank you, Jim.

Good morning to all of you, and thank you for joining us today.

2019 has gotten off to a solid start.

Led by the mid-single-digit comparable sales gain, the top line came in where we expected and it reflects the ongoing work by our team to build even stronger connections with our customers.

Reviewing the results in detail, comparable sales increased 4.6% and overall sales rose 2.6%, including the impact of weaker foreign currencies compared to a year ago, which reduced sales by $42 million.

On a constant currency basis, total sales increased 4.7%, with gains in all of our regions and channels.

By month, February comparable sales were up mid-single digits.

March was also up mid-single digits despite the impact from the shift of Easter into April.

April benefited from the shift and was up high single digits.

Breaking out our comparable sales gains by channel, our stores were up 2.9%, while our direct-to-customer channel led our performance with a 14.8% sales increase.

As a percent of total sales, DTC rose to 15.4% for the quarter, up from 13.9% last year, reflecting our recent investments and initiatives to drive growth in this area.

Store traffic was down low single digits overall, while conversion improved.

Our digital touch points led by mobile saw overall traffic growth.

The drivers of the sales performance in the quarter were broad-based.

The North America Champs Sports led the way with a low double-digit comp gains.

Foot Locker U.S. and Foot Locker Canada were each up mid-single digit and each posted a low single-digit gain.

Internationally, all of our divisions posted comparable sales gains.

Foot Locker Pacific had the strongest performance with comparable sales up double digit.

Foot Locker Europe produced a mid-single digit increase, its third consecutive quarter with a comp gain.

The Runners Point and Sidestep returned to growth, each posting low single-digit comp gain.

On the other side of the ledger, Kids Foot Locker posted a low single-digit comps decline, due in part to limited quantities of high demand apparel.

Footaction was down high single digits due to softer demand in their men's footwear business.

Turning to the families of business, footwear was the strongest category with a mid-single-digit comp gains, while apparel was up low single digits.

In our accessories business, fashion bags were strong, but that impact was offset by the decline in socks and hats leading to a double-digit decline.

Within footwear, our women's business had an excellent result during the quarter, posting a low double-digit increase, children's footwear was up high single digits and men's increased mid-single digit.

Average selling prices in footwear were flat in the quarter, while units were up high single digits.

By category, men's classics posted strong double-digit gain and men's running was up high single digit.

Trends in men's basketball improved during the quarter with comp sales down slightly.

Overall, drivers were broad-based, with gains in Nike, PUMA, adidas, Fila, Vans and offerings from Jordan.

In a few minutes, Dick will provide additional color on some of the quarter's exciting concepts and collaborations.

Turning to apparel, I mentioned we were up low single digits for the quarter, also led by our men's business, which grew mid-single digits, while women's was down low single digits, and children's decreased low double digits.

Average selling prices in apparel were up high single digits in the quarter, while units were down mid-single digits, which reflects our focus on a more premium apparel strategy.

Overall, branded assortments continue to drive the business with gains in tees and fleece from Nike, Champion, Jordan and Fila.

Our men's shorts business also picked up, led by assortments from Nike and Champion.

Turning now to margin.

As we laid out at our recent Investor Day, to build upon our customer connections, we have and continue to make strategic investments in our company's digital capabilities, store fleet and infrastructure.

Even as we do this, we are focused on operating the business efficiently and effectively to improve the bottom line.

In the first quarter, we were able to lever on a mid-single-digit comp gain to improve our gross margin by 30 basis points to 33.2% of sales from 32.9% a year ago.

Our merchandise margin rate decreased 20 basis points, while leverage of our relatively fixed occupancy and buyers compensation expenses gave us 50 basis points of improvement.

The merchandise margin was impacted by the higher mix of DTC, which incurs higher freight expense.

Our SG&A rate in the quarter increased to 20% of sales from 19% in the same period a year ago.

The higher expense was largely due to the investments we are making in our digital capabilities and infrastructure as well as pressures related to higher minimum wages.

Another contributing factor, during the first quarter last year SG&A included a onetime benefit of approximately $5 million from insurance recoveries related to Hurricane Maria.

Depreciation expense decreased to $44 million from $45 million in the prior year.

Interest income increased to $4 million from $2 million last year due to the higher interest rates on our cash balances.

Our first quarter non-GAAP tax rate was 26.4%, below last year's Q1 rate and better than expected due primarily to an adjustment to a foreign tax credit valuation allowance.

Moving on to the balance sheet, we ended the quarter with $1,126 million of cash and cash equivalent, an increase of $97 million from the end of Q1 last year.

During the first quarter, we repurchased approximately 32,000 shares for $1.8 million.

Our repurchase activity was limited in the first quarter, during which we laid out our new strategic plan.

We do intend to continue to implement our previously announced $1.2 billion share repurchase program when appropriate.

Execution of the program is, of course, subject to various strategic, financial and legal parameters, which may vary from time to time.

That being said, we paid out $43 million, where recently increased $0.38 quarterly dividend, which represents a 10% increase over the previous dividend rate.

In terms of capital expenditures, we invested approximately $45 million into our business during the quarter, consistent with the objectives we outlined in March.

We expanded the opening of 14 new stores, including 2 Power Stores and our 6th store in Asia as a well as the remodeling or relocating of 13 stores.

We also closed 34 stores, leaving us with 3,201 company-owned stores at the end of the quarter.

Our inventory continued to be well positioned at the end of April with a year-over-year increase of just 0.1% compared to our 2.6% reported sales increase.

On a constant currency basis, inventory increased 1.7% compared to the 4.7% currency neutral total sales growth.

Our inventory remains fresh and productive and we are well positioned to continue flowing new product in Q2.

Turning now to our financial outlook for the remainder of 2019.

For the second quarter, but just a reminder, it's typically the lowest volume quarter of the year with no big call-to-action shopping event, we now expect a low to mid-single-digit comp gain.

Gross margin likely to be flat to down 20 basis points.

For the full year, we continue to expect to deliver a mid-single-digit comp gain with 20 to 40 basis points of gross margin improvement.

On the SG&A front, we expect the expense rate to increase 80 to 100 basis points in the second quarter with an expected improvement in SG&A deleverage through the back half of 2019, as I noted during our Investor Day.

For the full year, we expect to delever SG&A by 40 to 60 basis points, on track with our previous guidance.

Finally, we still expect depreciation to be approximately $185 million and our full year effective tax rate to be about 27.5%.

While that being said, the slower pace of share repurchase activity so far is putting pressure on our EPS growth rate, and we now expect full year earnings per share to increase high single digits.

I'm going to now turn the call over to Dick to provide you additional insights into our first quarter performance and how we're doing in executing against our updated strategic imperatives.

Thanks, Lauren, and good morning, everyone.

We kicked off the year with tremendous energy, starting with big events like the NBA All-Star Game in Charlotte, the opening of 2 more Power Stores, the initial launch of our new FLX membership program, ongoing expansion in Asia, exciting new product concepts and storytelling and the release of our strategic imperatives and updated financial objectives at our recent Investor Day.

Even with all of that happening, we remained focused on execution and produced a solid top line result in the first quarter with comparable sales up mid-single digits.

This encouraging performance reached across regions, most banners in our men's, women's and kids businesses.

To continue this momentum, we are managing the business with our 4 key strategic imperatives in mind.

First, elevating the customer experience; second, investing for long-term growth; third, driving productivity; and fourth, leveraging the power of our people.

Let's start by reviewing some of our efforts to elevate the customer experience through the lens of our customer connected framework, our Five Cs.

First, our team did an excellent job this quarter leveraging our strong vendor partnerships and the internal talent to deliver compelling and unique concepts and collections.

With Nike, the next generations of our exclusive Home & Away platform were released in Dallas, Seattle and Philadelphia.

This release celebrated what makes those cities great.

We had a Nike Day collection with a customer highlight, a great medium to Air Max Month, while the Jordan Nostalgia pack included footwear and apparel assortments that connected today's customers to the brand's history.

With adidas, we partnered on the launch of 2 collaborations connected to youth culture, the Game of Thrones Ultra Boost collection leveraged the excitement of the show's final season, while the adidas Marvel collection celebrated the release of the latest Avengers movie, one of the top grossing movies of all time and included 2 AM4 styles made specifically through the SPEEDFACTORY partnership.

Champs Sports aligned with Fila and Nickelodeon to Channel 1990s Nostalgia with an exclusive Rugrats collection.

And with Vans, we collaborated on its Off the Waffles collection, which was created with popular restaurant Sweet Chick and launched exclusively with us.

At the release party, we organized a surprise performance of musicians Nas and Raekwon, delighting the lucky customers in attendance.

But offering the exciting products is not enough, we need great content to connect with our customers through compelling story telling.

To accomplish this, during the quarter, we used multiple channels to build excitement around the premium special products offered across our banners.

In March, we launched the Discover Your Air network with cable-inspired programming for the ultimate sneakerhead and Air Max fans across all ages.

The network featured shows, including the animated The Air Pair, fitness show Aerobics and sitcom Air It Out.

This programming was led by an impressive lineup of talents and influencers across style, pop culture, comedy, art and sports.

Our customers were able to access this content through Footlocker's Instagram, Facebook, Snapchat and YouTube channels.

To celebrate the impact of women in sneaker culture, we put our own twist on women's history month with a special celebration called Women's Kickstory Month.

Throughout the month, we held a series of events, including women-centric workshops, panel discussions with New York city-based women in sneaker culture, and our first-ever Kickstory Museum, featuring sneakers made for woman or by woman.

During Fashion Week in Europe, Foot Locker partnered with female influencers from the YouTube Collective MEVA in their search for the hottest styles captured in 3 Instagram takeovers from Paris, London and Milan.

As part of International Women's Day, we teamed up with 5 female creators.

We provided them with a platform to showcase their product or youth culture-related artwork on our social media channels, in-store and on our Foot Locker Europe websites.

Another key focus for us is building community.

We are doing this by developing innovative local experiences that tap into our customers' interests and passion.

At this year's NBA All-Star Weekend in Charlotte, our mobile House of Hoops courtside concept brought an action-packed lineup of Foot Locker events.

Not only did we bring great product cheap, but NBA fans and sneakerheads alike got access to workshops with their favorite players, including Jayson Tatum, Ben Simmons and Kyrie Irving.

In addition, Russell Westbrook and Paul George served on a panel and engaged with young fans regarding sneaker designs.

Aligning our global scale, this year, we brought the excitement of NBA All-Star Weekend to Australia.

Our Foot Locker Pacific team brought a House of Hoops truck to iconic Federation Square in the heart of Melbourne loaded with limited edition sneakers and jerseys, while customers also participated in a 3-Point Contest and watched games and highlights.

Back in the U.S., Eastbay presented the 89th AAU James E. Sullivan Award to Stanford volleyball player, Kathryn Plummer at the New York Athletic Club.

The award is presented annually to the most outstanding amateur athlete in the U.S.

In February, Champs Sports and Eastbay joined with New Balance and MLB star Francisco Lindor in a preseason visit to Puerto Rico.

While there, he surprised 400 kids with reopening of a baseball field at a local youth park that had been damaged severely by Hurricane Maria.

He then made a store appearance and met with fans during the launch of the New Balance 997H.

These are all great examples of how we are partnering with brands, local businesses and influencers that serve their communities.

They also reflect how our customers' connect with us through our stores, digital channels, social media and nomadic retail.

We are continuing to build this connectivity and leverage the data we get through a wide range of touch points in order to provide our customers with even more exciting avenues to engage with us.

One of the biggest near-term opportunities for us to leverage this data is the rollout of FLX, our new membership program.

FLX motivates our customers to stay within the Foot Locker Inc.

portfolio of banners by offering exciting and relevant experiences and benefits.

This program is now live at Lady Foot Locker in the U.S. and Foot Locker Netherlands with an expanded rollout expected later in 2019.

We are also working to make the retail customer experience more convenient, while continuing to deliver on every evolving customer expectation.

In Europe, we rolled out our launch reservation app in our first 2 markets.

The app creates a more seamless and convenient customer experience during hot product launches, removing the need for our customers to stand in line for hours and freeing up our associates to be more productive.

Turning to our second strategic imperative, investing for long-term growth, we are focusing on opportunities that drive connections with our customers give us new capabilities and expand our geographic reach.

During the quarter, we opened our third North American Power Store in Philadelphia.

We also opened a Power Store in Milan, our first on the European continent.

Both stores are designed to connect with and celebrate their local communities with special activation spaces, localized product, dedicated women's and kids spaces and more.

We still expect to open more than a dozen Power Stores in 2019, with additional locations in New York, Los Angeles, Frankfurt and Melbourne.

We also continued our expansion in Asia with the opening of our store in Singapore's Jewel Mall at Changi Airport.

The store is our fourth in Singapore and has 2 floors with full family shopping and designated men's, women's and kids areas.

For the remainder of 2019, we are on track to open 15 stores in Asia.

Moving on to our third strategic imperative, driving productivity, we're focused on this at every level of our company.

Effective inventory management is one of the key levers we have to drive productivity across our portfolio.

With that in mind, we are currently rolling out RFID technology on our Foot Locker Europe stores.

We believe this technology has the potential to improve our operations and overall customer experience in a number of ways.

First, more accurate inventory tracking can drive sales growth by providing associates and customers the ability to find every piece of merchandise down to the last unit available, whether it's for an in-store customer or an online order.

Second, it has the potential to free our associates to focus more on serving our customers and less on organizing backrooms and restocking floor inventory.

And third, RFID can help limit theft and make the audit process faster and more efficient.

Another key area of investment to drive productivity has been the rollout of our new point-of-sale software solution.

It's been installed in nearly all of our U.S. store fleet.

We are now focused on making significant progress across our international markets, with approximately 40% of our European stores already live.

This new solution gives us additional capabilities to better serve our customers, including data capture, FLX enrollment and redemption, e-mail receipts and improved order tracking, which brings me to our fourth strategic imperative, to leverage the power of our people.

In order to drive productivity, invest for long-term growth and elevate the customer experience, we are tapping the expertise and talent across our global workforce.

Our associates are in the front lines making sure that our customers have a great experience, no matter where or how they interact with us.

They are the key to making sure that the new systems are effective and installed in a timely manner, the customers events and footwear launches are successful and that our customers leave our stores happy and looking forward to returning soon.

We continued to invest in the development of our associates and reap their collective insights to do what we do better.

As we look to the rest of 2019, we are optimistic, the product pipeline is compelling with new concepts and collaborations coming soon.

For example, this includes the Nike Summer Blockbuster platform featuring lifestyle shoes that tell a story of NBA stars Jayson Tatum, Devin Booker and De'Aaron Fox as well as the release of the new Giannis signature shoes, new iterations of the printed and unvaulted concept with adidas as well as limited run releases through our partnership with the SPEEDFACTORY.

With Champion, we recently announced our new e-gaming collaboration.

We're looking forward to a number of other initiatives with them over the next few months.

And lastly, we see an ongoing opportunity in brand Jordan during the year, led by great product, great storytelling and an exclusive concept.

Before we open the call for your questions, I want to take a moment to thank all of our associates for the passion they bring to the business.

With their hard work and dedication, combined with a focus on achieving our 4 strategic imperatives, we are providing great experiences for our customers and building and delivering value for our shareholders.

Operator, we're now ready to start the Q&A session.

(Operator Instructions) Jonathan Komp from Baird.

First, Lauren, just to clarify, I know you said sales in the quarter were pretty close to what you expected, can you comment on margin performance, gross margin and then the level of investment within G&A, how that ended up versus what you originally had expected?

And any areas of variance that you saw?

Well, again, our margin performance, we improved 30 basis points with 50 basis points of leverage on our fixed cost margins affected by the strength in DTC and with the increases of rate of penetration, that's one of the dynamics.

Of course, low sales carry a higher freight, but again, we remain agnostic about how that customer shops across the channels because the finish margins allow us to be agnostic in that regard.

The SG&A has several components in it.

As we described in Investor Day, bit more challenge there on the front half versus the back half.

They are the big elements within SG&A on the delever or the technology investments, as we described, that's yielding benefits to the business in the near term and the long term, but in the near term seems to leverage on that.

So that was the biggest element there.

We have the ongoing increases in minimum wage, so we're very focused on our productivity improvements to minimize our spend on the backside of the house and maximize the effectiveness on the customer experience.

And then the third element is the marketing, right?

So we have many initiatives around the marketing and it is a bit variable with the DTC.

So if you have strength on that, you see the marketing dollars go up.

But with our data, technology and FLX opportunities, we're seeing the ability for that marketing to become ever more effective that we will get evermore able to see how that dollar of marketing drives a dollar of sales and margin.

So those are the big elements that work there.

And again, I would reiterate more pressured on the front half than what we see coming in the back half.

But Jonathan, I would add that they were generally in line with our plan, just like sales were the mid-single-digit comp and the improvement in margin and the deleverage on SG&A were generally in line with what we expected.

Okay.

Great.

And then maybe as a follow up, my bigger question on the outlook for the year.

I know you adjusted the earnings based on the share repurchase assumption.

I guess, when you look at what's needed to hit the new range, especially in the back half of better sales against pretty tough comparisons on the surface and then better margin flow through, like how much of that is based on expectations for better mall traffic trends in general versus how much do you specifically have line of sight to whether it's product launches or all the initiatives that you highlighted?

Yes, at this point, Jonathan, we've got a pretty good line of sight in terms of deliveries and launches and what product has shifted and moved that may be different from our original plan, but we've got good line of sight in the back half.

So we believe the things that I listed in my comments, we've got a lot of great heat coming with our great vendor partners and we know that when there is heat in the stores and online, the consumers find us.

And as Lauren mentioned in her comments, the second quarter is just sort of not a very exciting period in retail, but when you get into the third quarter, you get into the heat of back to school and back to sports for our banners and then you get into the holiday season.

So certainly, we're up against tougher comps.

But we've got good line of sight to the product and the flow of product at this point and we're confident about the guidance that we've given.

We talked about a bit on Investor Day the mall traffic, just traffic in general, and I think as an industry, we're all going to get much conversant in traffic across the channels, how digital traffic is influencing the ultimate sale on the store.

So we also describe that conversion was up in the stores.

Those factors blend, they influence each other, it's not simply a matter of foot traffic into the store.

Susan Anderson from B. Riley FBR.

I was wondering if you could talk about little bit of a slowdown in the men's footwear business in the first quarter from the fourth quarter, particularly with, I guess, basketball being better.

And then maybe also if you could give a little bit more color on just second quarter, so a bit of a slowdown in the guide there from the mid-single digits.

Just kind of maybe what you're seeing and are there any shifts in launches going on in second quarter that would cause that?

Susan, yes, the men's -- none of our quarters actually line up linearly, right?

So we had a really positive men's quarter in the fourth quarter based on some of the launch and some of the heat product that was there.

We continued to have a very positive quarter in the first quarter, again with puts and takes on launches with the flow of product, so we're pleased with the men's business.

Certainly, we've seen, in aggregate, the basketball business from casual and lifestyle to on-court and off-court, we've started to see that improve.

So again, as the heat comes back there, we see that as a positive.

And certainly, some of the guide in Q2 is related to products that we now know have shifted out of that quarter based -- different than what we would have guided to in the fourth quarter or even at our Investor Day as we have normal ebbs and flows and shifts of launches across periods all the time.

So again, a couple of things have shifted out of Q2 that end up being positives for us elsewhere, and that's the reflection of the guidance.

We've seen good response to the concept and collaboration work that our team has been delivering both fourth quarter and Q1 and that's common and we are excited about potential for that.

Great.

That's helpful.

And then maybe just one follow-up on the kids apparel business, which looked like had a pretty big step change also this quarter.

It sounded like maybe just not enough product there.

So I guess maybe just if you could give some color or some thoughts on when you'll kind of get back in stock and just improvement there?

We had some delivery issues with some late season fleeces quite honestly, Susan.

And as soon as we found out about the cancellations and the delivery issues, we tried to accelerate some of the shorts and T-shirt business that we know is coming, but with the later Easter and not really cooperative weather across most of the country, we didn't get the benefit from the shorts and tees business that we expect to get as we get further into summer.

So it really is sort of just a snapshot moment in time, and obviously, we sell the majority of our kids apparel through our Kids Foot Locker banner.

And I think the team did a great job there of trying to react, but some of the cancellations and the delays in shipments happened late in the game.

Paul Trussell from Deutsche Bank.

Talk a little bit more, I know you just answered the question, but just for further clarity, just is the 2Q revision solely due to a shift in product launch dates?

Or are there other categories or banners that maybe aren't responding the way you thought?

Maybe just dig in a little bit deeper for us.

Just given both on the comps and on the gross margins, I think the prior outlook was for there to be relatively consistent cadence throughout the year?

Well, we talked about certainly a mid-single-digit comp for the year.

The quarters never line up perfectly.

So the biggest shift in the second quarter is related to products that we now know are shifting out of the quarter.

So as we guided even as late as our Investor Day, certainly, some things have shifted.

And it's not abnormal, it's very normal course of business that we have puts and takes.

Normally, there are some things that flowback in the quarter when things flow out, and as we see the second quarter right now, there has been a couple of shifts out that we have not seen opportunities to flow things back in.

So clearly, the merchant team is still working against that.

And while we'll fill in whatever gaps we can, that's just what we see today as we offer this guidance.

And we did talk about fairly level comps throughout the quarters, but again that's with what we knew at the time we guided and we're trying to update that, so you all can update your models as we learn more.

Again, we'll reiterate with second quarter being a relatively lower volume quarter that impacts the leverage point both within margin and SG&A.

Got it.

And then maybe just talk a little bit more about expectations around ASP both in the footwear business and then also in the apparel business?

Paul, we've seen a nice trajectory of ASPs, right?

We've been able to continue with our vendor partners to expand ASPs and you know that our overall ASP is a pretty complex model.

It's really dependent on mix, but as our merchant team works with our strategic partners, and we do more collections and collaborations as opposed to things that are more generic, if you will, we're able to continue to drive those price points up, and I look at a lot of things that we do, whether it be the Max 720s, the Max 270s, some of the SPEEDFACTORY things with adidas.

Even when you think about the Fila Disruptors, we're not selling at normal in-land prices.

We're relishing those.

We're doing special things with them and able to raise the ASP from a normal MSRP sort of point of view.

So again, as we continue to focus on a more premium apparel mix, as we continue to get our accessory sorted out and as we continue to drive heat in the footwear business, we see the ability to continue to expand ASPs.

And again, as our merchants look across the assortment, they're very thoughtful about what we're bringing across the price points, so that we're making sure that we've got cool stuff across price points.

We don't want to price out customers.

And lastly, and very quickly, just on the basketball category, still negative, but slight improvement sequentially.

Just curious of what you're seeing on that front in terms of customer responses to player shoes as well as other Nike product.

Yes, I extend basketball way beyond on player shoes, Paul, you know that, that there's a whole lifestyle piece of it from the AJ 1s and the Air Force 1s that are certainly basketball silhouettes and historically significant basketball products to the new platform that's out there right now with the lifestyle shoes from the NBA guys that I talked about, Jayson Tatum, Devin Booker and De'Aaron Fox, really strong reception to that.

And we've got the Giannis shoe that's coming out.

LeBron continues to sell great footwear.

Kyrie's shoe has got some excitement around it.

So there continues to be great energy around basketball.

And, of course, Jordan is much more than just retro when you think about the AJ 1, when you think about the 6 Rings, you think about the Spizike.

Those are all models that heat up at various times in the cycle.

So again, I feel good about where the basketball product is, but I think it's as important, Paul, to the product is that we're doing things like the House of Hoops courtside, we're taking basketball product to where the consumers are through the House of Hoops trucks.

So we're trying to bring a lot of energy back into the basketball category with our vendor partners.

Sam Poser from Susquehanna.

I just want to understand the buyback here, that you bought back less in the quarter.

Can you give us what the average share count is going to be for the full year right now?

And sort of how you're -- why not just make up the buyback that you missed in the first quarter in future quarters?

So we published the share count, I'm not going to predict average share count rate for the balance of the year.

Like...

What's the share count for the year that you are thinking about now?

We have incorporated our thoughts around that in our updated guidance.

And then can you talk about the buyback, you brought back 32,000 shares.

If you clearly play the buyback more, that was enough to move the needle.

Why not make that -- what is -- why not just make up the buyback that you didn't do, you just got the big authorization?

We previously described, Sam, that share repurchase program is opportunistic, it's not formulaic.

We have a $1.2 billion 3-year authorization.

Execution of the program is subject to various strategic, financial and legal parameter which vary from time to time.

We do intend to continue to implement that program when appropriate.

Okay.

And then, Dick, when you think about the back half of the year and the trajectory of the same-store sales, I mean do you foresee sort of Q2 is the low point, Q3 is the high point and Q4 is somewhere in the middle.

Is that a fair way to think about it?

Well as you talked about, shifts out of Q2, we fairly called out that we expect a little more pressure in Q2, we're up against bigger comp improvement in Q3 and Q4, but feel good about the back half based on the product flow.

I wish that was a good enough prognosticator, Sam, to think [big littles] in between, but we see the product flow and again, the mid-single digits for the year.

Third quarter is shaping up nicely with the back-to-school season and holiday.

I believe there is going to be a lot of heat in the marketplace.

So again, the shifts out of Q2 are the only thing that we've really changed our thought process around and we'll clearly wiggle out of the quarter.

So that's a negative in Q2, but some real positives elsewhere.

And then I mean I don't think you guided to it, but can you give us -- I mean you are -- I mean I guess we're getting back into it.

You haven't changed your gross margin and your other calculations, so you're planning on making back a lot of what you -- a lot of your -- given what's been happening in Q2, you're planning on making it back lot in the third and fourth quarter.

Is that fair?

We reiterated our guidance for the full year.

So 20 to 40 improvement within gross margin and 40 to 60 delever in SG&A.

So you got the first quarter, we've explained the second quarter in detail, that should help you with the back half.

Okay.

And then lastly, Dick, have you seen any change -- have you seen any major evolution or change in the way, again the continuous way people are shopping for products and vis-a-vis what your plans were as recently as the Investor Day?

Have there been even further changes that might be worth noting that now you have to adjust to that wasn't there a few months ago?

I really don't think so, Sam.

I mean our consumer is very digitally connected, and I think Lauren did a nice job explaining that we think about total traffic.

And the consumer is very much driven to investigate and connect with us and create -- our job is to create engagement with them through the digital channels.

In how they choose to shop and buy, we haven't seen a significant change.

But as Lauren pointed out, conversion in the stores is up.

So kids are coming in having done their research, they know the products in the store, they come in, they buy and we close that.

I think the thing that we will see going forward is an opportunity with our FLX program as we cross our portfolio of banners with that, then I believe we will be able to understand the consumers behavior even better, but there is nothing different today, Sam, certainly than we would have talked about at our Investor Day.

The consumer continues to move fast.

They are digitally led.

They are very digitally connected, and I think our team is doing a great job of connecting with them digitally through the storytelling and the content that we're driving.

And that's what's helping us drive a mid-single-digit comp in the first quarter.

Cristina Fernández.

I wanted to ask about the level of promotional activity.

What did you see in the quarter?

And with a lot of retailers in the mall talking about first quarter sales store full and the second quarter going to -- getting off to a slow start.

As you look through the year, do you see the environment be more the same or less promotional?

Thanks for the question, Cristina.

In order to -- our markdowns continued to run at, as we've talked about before, at almost record lows.

And I think there was some promotion in the marketplace, but our team's effort around collections and great content and creating premium executions on things really create a buying opportunity and our consumer continues to be driven by selling -- or by buying premium products.

I guess the place still would be a little bit different, it's still pretty promotional across the European market.

Our team has -- they have shifted the assortment.

We're back to a more premium position in there as well.

So there is a lot of promotion in the marketplace, I would agree with you 100%.

But our team has done a great job of bringing excitement and heat to the stores and we have not had certainly clear products, but we have not had to get into a deep discounting, deep markdown cadence regardless of what is going on in the marketplace.

So one of the reasons why we are so focused on the quality of our inventory, its freshness and how it turns because -- and due to that, that you have to continue to be that premium full price selling environment?

And then, can you update us on some of the strategic investments you've made as far as Super Heroic Rockets of Awesome GOAT, when would -- should we expect to see that on the stores?

And then as it relates to the FLX program, any feedback that you've been getting, early reads on Lady Foot Locker, and when the timing of the rollout across the broader chain is?

Well, Cristina, I'll start with FLX, right?

I think the team has done a great job of getting Lady Foot Locker.

We've launched it in a relatively small banner for specific reasons to try to see where the breakpoints might be, to see where there is friction points that we've been anticipating to understand any unintended consequences, et cetera.

But the response from our Lady Foot Locker consumer and our footlocker consumer in the Netherlands has been very positive.

We've seen points aggregation, we've seen benefit redemption and the benefit center is really the place that we have the greatest amount of learnings yet, understanding what motivates our consumer to take those points that they have accumulated and use them for something that they plan really exciting.

So good learning so far.

I'm not going to commit to dates.

We see further rollout throughout the back half of the year as we bring more banners into the fold, but as we've committed all along, we're going to crawl with this one before we walk and ultimately have a multi-portfolio or multi-banner approach to it that it leverages our entire portfolio.

On the investments, we continue to be inspired and enthused with the people that we've invested in and the companies that we've invested in.

We've had a couple of great events with Super Heroic and Jayson and his team at some of the Power Stores that we've opened.

Katie and her team of Carbon38 continue to do great things.

D'Wayne and the PENSOLE team, we continue to work with them by identifying more opportunities to create really unique product opportunities for our Footlocker family and Rachel and the team at Rockets of Awesome, we're continuing to understand what their subscription business means and what the real digital-only-led sales opportunity presents.

And then we're working hard with Eddy and Daishin at GOAT to figure out what the right implementation with them means along the way.

So we continue to make progress.

You will hear and see more about that as we go forward, Cristina.

Erinn Murphy from Piper Jaffray.

It's Eric on for Erinn today.

I was just curious with 4 of ASPs being flat in the quarter.

It seems like the first time it hasn't grown in a number of quarters or years.

Is that just a reflection of markdown optimization?

And if so, is there any room or opportunity to continue to improve that with RFID, better use of omnichannel, et cetera?

Well, as we've talked about earlier, Eric, I see continued opportunity to expand our ASPs.

We did have a flat quarter in footwear, but overall, ASPs were up as we shifted to a more premium apparel presentation.

But I would say that on the footwear, you can't lose sight of the fact that when we say footwear is flat, it's mixed across genders and naturally with high-single-digit costs.

And kids, those are lower price points.

We also had very strong women's low double-digit comp growth, men's with mid-single.

So you got to mix all of that out and that what yields a flattish footwear.

Okay, understood.

And then on the remodel activity, a little bit slower pace in Q1 than we've seen for a number of years.

Is that a reflection of more priority on tech IT Power Stores?

Or is your fleet in a pretty good position from a refreshment standpoint?

A lot of the remodels are tied to lease expiries and potential to relocate and things like that, Eric.

So there is not a -- it's not a linear sort of progression as leases are assigned and expire at various points.

So we opened some big properties.

We did open a couple of Power Stores, we opened up the store at Jewel in Shanghai -- or in Singapore.

So again, some great opportunities on the big size and remodels will continue because of the refreshment of the fleet is a continuous sort of opportunity for us to improve.

Michael Binetti from Crédit Suisse.

I just want to -- Lauren, I just want to dig in, I think there is a little confusion around the share buyback and I'm trying not to ask the same question again, but I mean the buying back earlier in the year obviously adds the most firepower to the EPS for the year and you guys had a lot of spending you wanted to do for the year.

So you know the expenses will be tight.

It seems like -- maybe just explain that it seems like your opportunity to buy shares in the first quarter must have been fairly restrictive around the timing of the earnings call and the Analyst Day.

I also actually think you would put more of that share repurchase to work to the extent that you had discretion to it.

Any way you can add a little bit of color to the thinking there?

I don't know how to add more color than we've described.

It's an opportunistic program, it's not formulaic and it is subject to various strategic, financial and legal parameters, which vary from time to time.

Were those restrictions somehow elevated in the first quarter, I suppose?

I'm not going to elaborate.

Okay.

And let me add, I think what we're also wrestling with is how to think through the very good holiday you had last year with a 9 comp, and how to hurdle that this year?

I mean we're subject to trying to forecast these things using traditional metrics like same-store sales to your comps -- through your comps, sequential changes in the business, sales per foot.

We don't have the benefit of seeing the merchandise plan that you guys have.

And I know that -- I've covered you long enough to know that you guys deliver upside to your targets way more than downside, but I think we're just wrestling with how to piece together some of the confidence you have given the restrictions that we have in forecasting your business against a really great holiday last year as we look at the fourth quarter this year.

I think it will be a discussion here for the next few quarters.

So I'm just wondering if you have anything -- I'm not trying to pin you down on any single quarter, I know you don't want to get into that, but as you think about a big quarter like this, anything you can help us as how you think when you see a big comp like that coming and plan your business to help get over big hurdles on 1-year basis like that, that we could maybe use to help us seeing as we can't really do a lot with fashion or launch volumes in our models?

Well, I can't build your model, Michael.

Unfortunately, you are filling in more of the blanks in your model than we try to help you with.

And our team understands that we live in a comp world.

So no matter what we did last year, our objective is to get over that hill.

And they work with our vendor partners, they work through product assortments, they work through launch dates, et cetera, to do just that.

And we're generally, to your point, able to deliver against that.

When we see a high comp in Q4 from last year, our team gets their game face on, goes after it to try to figure out how to get over that hurdle.

And I think we've shared some of the product heat that we see coming.

We've talked about some of the puts and takes on launches, et cetera, and our team is focused on delivering against the mid-single-digit comp for the year.

And we don't -- unfortunately, I don't -- we don't live as much quarter-to-quarter as you all do.

We look at a longer-term point of view and make the investments that are right for us from a product perspective, and the flow may be quarter-to-quarter and will align with your model and it may not be and that is just the nature of retail.

I would like to turn the call back to Mr. Lance for closing remarks.

Okay.

Thank you for joining us today.

Please join us again for next earnings call, which we anticipate will take place at 9:00 a.m.

on Friday August 23.

The call will follow the release of our second quarter results earlier that morning.

Thanks again, and goodbye.

Enjoy the long weekend all.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may now disconnect.