Foot Locker Earnings Call Nuggets: Lady Foot Locker and Consumer Environment

On Friday, Foot Locker Inc (NYSE:FL) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Lady Foot Locker

Paul Trussell – Deutsche Bank: Just to start off, can you just give a little bit more color Ken on what you’re seeing initially through the Lady Foot Locker remodels and if you can just give a little bit more color on SIX-02 and how it will differentiate from the remodel at Lady Foot Locker stores?

Ken C. Hicks – Chairman, President and CEO: The Lady Foot Locker stores are which more apparel presentation and apparel driven, more performance oriented, not as much on the classics and fashion shoes and we’ve got 14 of them up and they are performing better than the overall chain. But we’re still learning and we’ve got to make sure we keep them in stock on the apparel that we’ve got the right presentation of the performance that we tell the customers what’s there in the staff. So, while they are performing better than the chain some are performing much better and some are performing just at the chain, so we’re looking for more consistency as we have in our other remodels. With regard to SIX-02; SIX-02 is really taking that and putting it on steroids. It’s a much of stronger performance environment, very apparel driven, be more than 50% apparel in terms of presentation and it will be a much friendlier environment, it’s a bigger store so we’ll have more space to tell stories and communicate to that customer the full assortment of what we have.

Paul Trussell – Deutsche Bank: It was good to hear that merchandise margins were held flat in the U.S., but if you can just give us some color on expectations going forward and especially talk about Europe will we start to see some relief there from our merchandise margin standpoint, now that inventories are clean?

Lauren B. Peters – EVP and CFO: Yeah, well, as we’ve said, the expectation is that – the dynamics we saw in the third quarter will continue into certainly the fourth quarter and we’ll see about next year as we get closer but that dynamic is that when you lower IMU that we’re managing to offset at least domestically with a lower markdown, but in Europe, we have wanted to keep the inventory fresh and have had to take some additional markdowns to do that and so, we would hope that begins to mitigate and certainly as we see some strengths in basketball, which is an advantage for us, maybe that will help us there, but the dynamic of shipping revenue, I don’t see that abating, the customer loves free shipping.

Paul Trussell – Deutsche Bank: Just lastly, could you speak about the trends in footwear versus apparel margins this quarter?

Lauren B. Peters – EVP and CFO: I’ll tell you that we narrowed the gap, but we are still not declaring victory with apparel margins ahead of footwear margins.

Ken C. Hicks – Chairman, President and CEO: It’s about as close as you can get but I want to see it for a while before we say we’re there.

Consumer Environment

Omar Saad – ISI Group: Ken, we’d love to her a little bit more of your view on the – your personal view on the macro consumer environment heading into the holiday, heading into 2013. It seems like there’s a lot of reasons you’re talking whether it’s natural disasters or the fiscal cliff, tax changes, Europe crisis which is ongoing, you guys don’t seem to be really missing a step and I wonder if you’re seeing your consumer showing underlying strength that maybe kind of overcoming all of these things going on out there? (Indiscernible) you are seeing variation across regions, across consumer demographic?

Ken C. Hicks – Chairman, President and CEO: Well, we are not exempt from the rest of the world although the customer appears to be willing to spend the discretionary money they have on our products and part of that is, we’ve got something that they love and makes them feel good and part of that is, there is a lot of new and exciting things out there. We do see particularly in Europe, the more challenged countries are more challenging. Greece and Spain are more challenging. Germany, you know France happen to be stronger countries because their economic environment is so strong. If I knew how it would play out, I probably wouldn’t be on this call, but I’m assuming that that we will work through this. We have through the years and I should say the government and the economies will work through this. There will be some pain and we will suffer some of that, but I’m also assuming that because of actions we’ve taken and how we plan and the product that we have, we will fare better than others.

Omar Saad – ISI Group: Fair to say, I mean as you talk about kind of increasing the capital commitments over the next two years which is pretty exciting as you know and it’s not – I don’t know if it’s clear whether it’s more centered around remodels versus growth, it is growth, but you have to have a certain level of comfort with the ongoing economic environment given your willingness to really kind of ratchet it up the capital spend.

Ken C. Hicks – Chairman, President and CEO: As you look at our capital in the investment there are really four major things that we’re focusing on. One is digital which we look as an opportunity for sales growth and to drive traffic. Another is at shopping experience to make us more productive to drive higher sales which is one of the reasons quite frankly we’ve closed more stores and we will continue to close unproductive stores. Improving our overall productivity to improve our profitability with systems like what we’ve done with our time management system, but also warehouse management system and a better allocation system and in Europe, where we can increase share and position ourselves for the future because as you look at the business you got the near-term, intermediate-term and longer-term and near-term we feel good about where we are with the product, the promotions we have, the customer reaction to that, we feel very good about that. Intermediate-term we’re making sure that we set ourselves up with the renewals that we’re doing, the remodels, the product mix growth in our children’s business and apparel and making sure that we have a strong position there. Longer-term by looking at what we’re doing in digital, by making sure that we’re positioned properly in Europe when it comes back by being a player in team sports and with the new formats that we’re testing and looking at so that we are positioned strongly in the near-term. We make sure that we’re going to keep that going in the intermediate and we will be an important player in the longer-term.