Foot Locker at Annual Retail Round Up Conference: Strategic Growth and Challenges

On Thursday, 03 April 2025, Foot Locker (NYSE: FL) took center stage at the Annual Retail Round Up Conference, presenting a mixed bag of strategic achievements and challenges. CEO Mary Dillon highlighted the company’s progress with positive comparable sales and digital growth, while also addressing concerns about sourcing and consumer sentiment. The conference underscored Foot Locker’s strategic focus on innovation and partnerships to navigate market uncertainties.

Key Takeaways

• Foot Locker reported three consecutive quarters of positive comparable sales, with a 2.6% increase in 2024.
• Digital sales surged by 12%, with a target of 25% digital penetration by 2026.
• The company plans extensive store refreshes and reimagining, with 300 more refreshes and 80 new reimagined stores in 2025.
• Foot Locker is managing potential tariff impacts and balancing Nike with non-Nike brand growth.
• Financial guidance for 2025 projects comparable sales growth between 1% and 2.5%.

Financial Results

• Positive Comp Sales: Foot Locker achieved three consecutive quarters of positive comparable store sales, with global comp sales up 2.6% in 2024.
• Digital Growth: Digital comparable sales increased by 12%, a significant contributor to overall growth.
• Free Cash Flow: The company generated over $100 million in free cash flow in 2024.
• Inventory Levels: Inventory levels rose 1% year-over-year, with improved cost turn metrics.
• 2025 Guidance: Foot Locker projects comp sales growth between 1% and 2.5%, reflecting both consumer uncertainty and recent performance trends.

Operational Updates

• Store Refreshes: 400 stores were refreshed last year, with plans for 300 more refreshes and 80 reimagined stores in 2025.
• Loyalty Program: The SLS Rewards program added over 3 million new customers last quarter, with European expansion slated for 2025.
• Partnerships: Collaborations with the NBA and Chicago Bulls are crucial for brand awareness and top-line results, including significant media impressions during NBA All-Star Weekend.
• Non-Nike Brands: Growth in non-Nike brands like New Balance, ON, HOKA, and ASICS is contributing to the company’s diversification strategy.

Future Outlook

• Consumer Sentiment: Foot Locker anticipates fluctuations in consumer spending but aims to capture key spending moments.
• Innovation and Personalization: The company is focused on integrating brand partner ideas into digital and in-store experiences.
• Inventory Management: Aiming for a three cost turn inventory strategy to improve efficiency.
• Gross Margin Recovery: Expected to recapture about half of the promotional pressure experienced in 2023 by 2025.
• Capital Allocation: Prioritizing investments in business enhancements, with plans to return capital to shareholders through dividends and share repurchases in the future.

Q&A Highlights

• Apparel Turnaround: Strategies include branded opportunities with Adidas and Nike, along with expanding private label offerings.
• Tariff Management: Foot Locker is mitigating tariff impacts through pricing strategies and promotional adjustments.
• Nike Balance: The company is balancing its relationship with Nike and non-Nike brands, focusing on key product categories and innovations.

Readers are encouraged to refer to the full transcript for a detailed understanding of Foot Locker’s strategic direction and financial outlook.

Full transcript - Annual Retail Round Up Conference:

Matt Hoss, Retailing department stores and affiliates offline: Okay. Great. It’s Matt Hoss, retailing department stores and affiliates offline. I’m pleased to hear at Timothy Morgan. Really happy to kick off day two with our retail roundup from Fort Wagner.

We have CEO, Mary Dillon, president Frank Bracken, an EVP, and CFO, Frank Bond. So with that, Mary, fireworks this morning, fireworks last night. I’ll kick it over to you for some opening remarks, and then we’ll we’ll move through q and a.

Mary Dillon, CEO, Foot Locker: Okay. Okay. Thank you for having us here today. So I’ll just overview. I’d say a few things.

One is that our latest plan is working. We feel really good about the progress that we made in 2024 against the strategies. We have three consecutive quarters of comp, positive comp, we returned to gross margin expansion to gain market share and generated free cash positive free cash flow. So we expect that progress will continue in 2025 as we continue to execute against the strategy. And we guided for that also, you know, reflecting the environment that that we’re in, which is also right.

But, you know, we’re we’re prioritizing the investments that we know are driving our momentum in the marketplace. So that’s kind of three big categories, store refresh. She will tell more about that today. But whether it’s a refresh or the reimagine stores, they are clearly driving positive comp momentum. It’s really about, a very elevated experience for consumers, for stripers, and our brand partners really like it a lot.

Digital, we’ve been really improving our overall digital experience through all aspects of the experience. And we launched a Foot Locker app mid towards the end of last year, and that’s really been helping to to drive our digital comp. And we’re taking that to Foot Locker to Foot Locker insurance next year. So loyalty so SLS Rewards rolled out in The US last year. We’ve reached our loyalty penetration goals, hopefully, nearly two years in advance of that, and then we’re also rolling out to Europe in 2025.

So exciting set of initiatives, I think, called the laser plan that are working. And so Frank here is in his newly appointed role as president. He’ll be working closely with me to make sure that we just continue to accelerate our progress on the lease up plan and keep driving momentum and keep a keen eye on our investments and our returns on those investments.

Matt Hoss, Retailing department stores and affiliates offline: Great. So so hopefully, you have your coffee this morning. Yeah. Yeah.

Mary Dillon, CEO, Foot Locker: A little bit. But I have to ask the

Matt Hoss, Retailing department stores and affiliates offline: Derek question. Yeah. And I think it’s it’s really two parts. How is maybe the best way to size up any sourcing exposure that you might have, I’m sure, on the private label side relative to how are you thinking about the potential customer impact as as this unfolds and and evolve?

Mary Dillon, CEO, Foot Locker: Yeah. It’s it’s totally dynamic. And, you know, as as stated, I guess, yesterday, they would have meaningful impact. I’m watching it very closely, though, because we have been with our consumers, our customers, looking at, you know, what will be the impact on their overall ability to spend across categories, including discretionary categories of stars. So our direct exposure through our private label is pretty small It’s small percentage of the business, and we’re really, we’re working closely with our brand partners on our approach as we think about how to, you know, really drive for mutual profitability.

And, Mike, I’ll probably add a little more on that.

Mike, EVP, and CFO, Foot Locker: Sure. So, you know, Mary mentioned private label being a small percentage of the low single digit low single digit percentage of our overall business. And within there, about half of our sourcing is from from China, and the rest of it is really from Southeast Asia countries as well. So I think when we think about our vendor partners, our vendor partners have diversified their sourcing meaningfully over the last several years. You know, as we’re all aware, really, every source country is is going to be impacted.

So Mary mentioned, you know, we do anticipate a meaningful impact, but really yet to be determined on, you know, sort of where that shows up in the value chain and how much is absorbed more upstream versus what is ultimately passed along to the to the consumers. And, you know, we attempted to incorporate it as we put into our guidance as we came into the year, but, obviously, it’s a dynamic situation that we’re still evaluating.

Matt Hoss, Retailing department stores and affiliates offline: Great. So, Mary, four two comps up two to 3%. That was your third consecutive quarter of positive same store sales. As you reflect on progress against the lease up plan strategy, as you just cited, how would you rank into the order of the drivers supporting the positive comp and collection that you’re seeing? Yeah.

Mary Dillon, CEO, Foot Locker: Couple through those and and first, I started getting the store experience. So last year, we refreshed 400 stores, and we’ve we’ve been seeing reimagined stores. This year, we’re gonna continue on that. We’re gonna have 300 refresh and 80 reimagined. And, you know, it’s as I said, it’s a great experience for customers, for buying partners, and Stripe as a light.

And we’re seeing really strong productivity. We’re seeing stronger comps in those stores, and we’re also seeing strong cost margin. So very happy with that. We’re gonna continue that. By the end of twenty twenty six, we’ll have about 55% of our stores in those categories.

So we’re really making quick progress on that. Digital, you know, we’ve enhanced experience through all dimensions from search to how we merchandise the products, all the way through the cart. And that has really paid some dividends for us because and also our as I said, our new slot, our app, which we launched, it’s it’s been really working to help drive our digital comps, which were up 12%. And loyalty, so we added over 3,000,000 new rewards customers in the last quarter. We’re seeing strength across all the KPIs that we’re measuring measuring loyalty on.

So so all of those things I say together plus a great array of brands and team that have the highest customers are driving the top.

Matt Hoss, Retailing department stores and affiliates offline: Great. And then as we reflect, maybe on the consumer backdrop and and maybe this

Mike, EVP, and CFO, Foot Locker: is part of the the process that continues to evolve given

Matt Hoss, Retailing department stores and affiliates offline: some other news. But You cited on on your last earnings call, a more cautious and sensitive consumer through February that had weighed on the business quarter to date. I guess, what what do you believe is weighing on your poor consumer? And are there differences that you’ve seen by income here in the past before maybe the region?

Unidentified speaker: Mhmm. Yeah. It’s interesting.

Mary Dillon, CEO, Foot Locker: If you step back, you know, we had a strong holiday, but moving from coming out of holiday. But January was our strongest comp, which is great. In fact, you know, as we look at the whole year, up 2.6% globally, put locker kids put locker up 3.6%. North America was up 5.5%. So feel great about that.

In February, we saw uncertainty pick up. I I know others have talked about that as well. The traffic being slower. And, really, I guess, I’d say sports locker is the lower end of the household income. And recent data that we’re seeing, you know, some good patterns of consumer confidence.

That said, we are finding that people coming out of spending when the time is right. So All Star weekend was really terrific for us. Valentine’s Day, we have some Jordan launches that did really well. People started to get their tax refunds. You know, all those things we saw start to the business gets stronger and keep it shopping.

So I would say there’s uncertainties, no doubt. There’s peaks and valleys, but our job is to really be there when they’re out and ready to spend money, and then that’s how we’re coming from the year.

Matt Hoss, Retailing department stores and affiliates offline: Yeah. It’s a it’s a perfect segue into a into the next topic, which as you stated, these peaks and lows definitely been a theme in the business during ’24 and and as you said, into the first quarter. Is there anything that you are or can do differently, whether it’s a launch calendar, marketing activation, to maybe potentially smooth out that trend and and drive more consistency in demand?

Mary Dillon, CEO, Foot Locker: Yeah. I’d say, I mean, as soon as we have more levers and more tools in our toolkit to do that. So, certainly, we’re big and loud and strong, and then people are out at the key moments, the key piece. Our loyalty program is a really good way to start to really use it to target folks during, you know, the shoulder periods, I guess, I’d say, with exciting offers. We’ve got our our activation with the MBA.

We’re doing clinics around the country. So so for us, it’s really about taking the tools that we have and typing, you know, our our customers during those times and being, you know, very loud and proud when they’re out. But it’s easier we can get out of the corner.

Matt Hoss, Retailing department stores and affiliates offline: So, Frank, maybe specifically on loyalty. Could you speak to progress made on overall loyalty penetration following The US launch? And how you plan to further optimize loyalty to support financially accretive results.

Frank Bracken, President, Foot Locker: Yes. It’s it’s been a really great success story. So we launched, you know, new SLX platform back in late q two of of last year with the Foot Locker banner in North America. Instantly, saw an improvement in sort of the consumer metrics. And as we went into the fourth quarter, there’s very significant increase in penetration of over 30 points.

So as Mary stated, almost to our our endgame laser levels, so we’re gonna reset our thinking there of how high a hike can be. So now we’re in the process of rolling it out to Europe later this year and then ultimately into our Asia Pacific operating units as well. But we’re also thinking within the funnel how to take our FLX numbers and drive frequency. So we’ve instituted FLX number of events both from a promotional standpoint, but also offering exclusivity and member related events. We’re working upstream with our brand partners to offer exclusive product packages.

So that’s coming later this year as well. And then we’re also thinking about personalization and how to use our new technology suite that Gary referenced in terms of how to make offers, make the site experience, push alerts, etcetera, more customized, customized to consumer. So the KPI dashboard looks very good. We’re very confident that over time, the the benefit of frequency, which is the ultimate driver in this, is is gonna pay dividends to us. And so the early the early market looks good, we’re very committed.

I’d say the other thing is that we’ve integrated the FLX programming and messaging way better than we have historically into just our overall communication strategy. So now it’s literally part and parcel of everything we do rather than sort of a one off program, if you will. And I think that was a big learning from our previous program and something we worked really hard with all the banner teams to correct.

Matt Hoss, Retailing department stores and affiliates offline: And and then, Frank, maybe on digital. I think digital penetration increased roughly a hundred basis points. You finished last year at 18 to 19 of sales, and you had 12% digital comps in in the fourth quarter. Could you speak to changes that you’ve made at the Foot Locker digital experience that supports this growth? Maybe what’s next to come in ’25?

And is 25% digital penetration by ’26, is that still the right target for the business?

Frank Bracken, President, Foot Locker: Yeah. So I’ll I’ll start with talent. I think that’s where we started the process by taking some incredible hires, but had a lot of great experience and they built from that from there on the pyramid of their of their talent and capability. So that includes our digital team as well as our technology team. And then we took a much more sort of agile operating approach to to to how we look at digital.

We know the consumer behavior. 90% of consumers start their journey with us and in the industry digitally, and so we really honed in on mobile as sort of the the battleground where we wanted to win. So we put in a new cadence where we’re making constant site improvements to our our mobile application. That includes application, PDCs. We introduced a new search partner that allows for better search as well as merchandising of the site itself.

Then in fourth quarter, we introduced a new app, so we’re definitely seeing more app penetration in terms of visits where the consumer is going and also transacting with us. Instantly saw conversion improvements there. That app is now gonna roll out to kids’ locker and champs in in the next ninety days and then later this summer into Europe. So we’re super excited about that. Looking into the future, I think it’s it’s this idea of constantly looking at how do we personalize the experience for consumers, how do we include our big brand partner ideas in a more integrated fashion into our sites to continue to bring excitement.

And, you know, whether it’s the top of the page, whether it’s a a push notification through the app, whether it’s a a search that the consumer does and see something that’s that’s new and exciting, we’re gonna constantly work upstream with the brand partners to improve that sort of end to end journey for the consumer. And then, yeah, in terms of overall penetration, we’re we’re very bullish, and I think we’ve developed a a new sort of rhythm and capability internally where the teams are thinking omni in terms of if not stores versus digital and one at the expense of the others, where is the consumer, how do we get the right receipts, the right products, the right inventory in front of them, and let them ultimately make the choice.

Matt Hoss, Retailing department stores and affiliates offline: Mary, with partnerships, how do you see your current partnerships with the MGA or the Chicago Bulls? How do you see that amplifying top line results and brand awareness as as we look ahead for over the course of the year and multi year? Yeah.

Mary Dillon, CEO, Foot Locker: I mean, it’s a really key for us. And when we see Foot Locker really in people’s minds, you think basketball, and we love the fact that now we’re partnering with the NBA, you know, the the Chicago Bulls. Our all star weekend that we just had in San Francisco was was pretty traffic. It was, you know, a multi day. We had people lined up around block for four days straight to have access to whether it’s athletes, activations, launches.

It’s very exciting. We have tons of tons of social. We have about 5,000,000,000 media impressions, 20,000 visitors, and our brand partners were through. We have great brand storytelling. Like I said, a lot of great social, lot of chatter.

And we have top NBA talent there. So Anthony Edwards, Sabrina Inescu, Jason Tatum, and some of them actually led the clinic with the kids that were, you know, coming to the event locally. So I would say for us, it’s like, the partners are really supportive of the fact that we’re we’re working with the NBA like that. And, you know, if you look at consumer data, we lead in association with that as well. So it’s a perfect fit, perfect match for us.

Matt Hoss, Retailing department stores and affiliates offline: And then, Mary, just as we think about overall category backdrop, Nike is currently at just roughly 60% a sub target. I know they’re in the midst of product portfolio and inventory rebalancing. How are you seeing Nike’s actions directly impact your own business as you look at product allocation and promotional activity today? Yeah.

Mary Dillon, CEO, Foot Locker: I mean, we’ll step back and maybe, you know, tag team for a little bit, you know, are really proud about our partnership with Nike. And, you know, we really focus on the things that are really specifically for us, which is basketball, future culture, and kids. You know, what’s happening right now in terms of rebalancing their their portfolio, think, is right for them, right for the category. And we’re working closely. I mean, our allocations were up in the fourth quarter last year.

So I think we’re in a great position to to move it all together.

Frank Bracken, President, Foot Locker: Yeah. I would just say we we’ve sort of been through the reset with them on the allocation basis. We’ve aligned on the key pillars of basketball, sneaker culture,

Matt Hoss, Retailing department stores and affiliates offline: and kids. Those are sort

Frank Bracken, President, Foot Locker: of the the three on ramps for the partnership and working very closely with them on both upstream. So things like product engagement where our merchants are providing feedback, insights, both analytical as well as, you know, some of our experience in collective wisdom to influence the line in future years in terms of innovation, color materials, and how it connects past with Larry Fitzgerald so we can improve the storytelling. I’m also working very closely with them on both a multiyear as well as in season plans to make sure that, you know, inventory flow is right, the launch calendar and some of the specialness that you were asking about earlier that we’ve got the right cadence to the consumer to keep a constant sense of energy, excitement, and newness. And so I’d say the partnership is working really well. We’re both working really hard in challenging sort of macro environment to be talking.

Matt Hoss, Retailing department stores and affiliates offline: Frank, maybe even to elaborate on that a little further. As as you look ahead to fall of twenty five or spring of twenty six, sir, can you speak to any particular innovation or launches from Nike that you’re particularly excited about for the for

Frank Bracken, President, Foot Locker: the proper core customer demographic? Yeah. Sure. So I’ll I’ll start with basketball, and there’s a lot actually to be excited about. If you look at Signature Basketball, John Morant, Kevin Bieber, Sabrina, AJ Wilson just launched a new signature shoe.

So all of those refreshes coming to the next NBA season in fall are super exciting. Seeing the product, the team is really behind it. You think about the classics, which is going to be a bit of a reset, we love what they’re doing with Air Force One and the journey that they’re they’re doing to reinvigorate that and and bring some heat and some energy to Air Force. Jordan retro business has gotten very healthy now. We’re seeing very strong sell throughs at full price on on on Jordan.

The calendar into holiday looks incredibly strong. That’s what we’re feeling very good about. And also at at Allstar previewed a a new shoe called the GC Future, which has an ode to HomePositive, which has always been sort of an icon of our industry, and they’ve modernized that. So we’ll have a great position there, which we’re excited about. Onto running.

Lifestyle running already in the market. We’re seeing things like shocks and Romero and t six thousand perform really well, most of which is FB Price, which which is Cycliffe, of course. And then their performance running constructs. So think about Pegasus, Camaro, and structure of the three pillars of that construct. Newness that just launched this first quarter, and then their their capacity and ramp up throughout the year is gonna continue to scale.

So we’ll be a big part of that in the back half of the year.

Matt Hoss, Retailing department stores and affiliates offline: Great. Frank, maybe just on the balance of the of the portfolio as we think about non Nike brands driven double digit growth, what proportion of the fleet of these non Nike brands such as New Balance, ON, HOKA, K versus where do

Frank Bracken, President, Foot Locker: you see the opportunity? I see lots of opportunity. And it’s it’s not just relegated to door count, although I can I certainly address that? For New Balance, which is done in Guadalajal the last few years, we continue to see opportunities to do store expansion, but also category expansion across men’s, women’s, kids. And we we just introduced apparel really in the last twelve months, and Champs is, like, instantly become their number one apparel account in in The US almost overnight.

So a remarkable fee there. But we’re also excited about things like HOKA, which are only in about a third of our global doors. Introducing things like sneakers and sandals and slides as well. You think about ASICs and Spokane, other lifestyle brands that are having an incredible moment, and we’re working really hard on screens to increase store count, innovation, and connectivity as well to the consumer. So I I would say, you know, I’ve been doing this fifteen years.

This is the most diverse, robust set of brand partners we’ve ever had at Foot Locker, which is really exciting. Not just from a brand diversity, but also their focus on

Mike, EVP, and CFO, Foot Locker: the men’s, the women’s, and

Frank Bracken, President, Foot Locker: the the kids consumer all simultaneously.

Matt Hoss, Retailing department stores and affiliates offline: And so

Frank Bracken, President, Foot Locker: that’s embedded in our latest strategies, of course, but it’s also very exciting to have all those partners. Absolutely. Mary, even on

Matt Hoss, Retailing department stores and affiliates offline: store, could you elaborate on initial results that you’ve seen from your new brand standard store format? You can see now that you’ve spent over 40% of the store footage. Could you give us opportunities to potentially accelerate the pace of reimagined door openings or conversions going forward? Yeah. Sure.

I mean, it’s it’s definitely one of our

Mary Dillon, CEO, Foot Locker: most exciting initiatives. As I said, we are we did eight reimagined. Last year, we’re doing 80 this year. So we are we are accelerating, and we’ve set that kind of state at that pace. We haven’t determined the total, you know, future number.

And so as a refresher, we started the refreshes a while ago as a way to just begin to more immediately, you know, improve the experience in the stores. Right? And so we still have 300 more that we’re gonna do this year, and then that pays for the full time. We don’t need to continue to do that. And I I just think it’s we see it across all dimensions, you know, sales productivity and sales lift, gross margin productivity.

So it’s really you know, people are coming. I think part of it is, you know, just it’s an even easier way to see everything we have to offer. It sounds kind of like the obvious. Right? But when you see, you know, you know, 40% or more of our transactions are multiple brands.

And so when you come into the store, I’d say the way finding for the the customer is much easier. You’re definitely gonna see things when you first walk in an area called the drop zone, which is, you know, highlighting what’s new and hot right then. So there’s a lot happening in there that I think really is driving a great strong customer experience, you know, great returns, and we’re gonna continue on the path that we’re on.

Matt Hoss, Retailing department stores and affiliates offline: Right. So, Mike, maybe if we put pieces together on the on the top line, what what’s the range of scenarios that you contemplated in in your ’25 comparable sales outlook?

Mike, EVP, and CFO, Foot Locker: So from a comp sales perspective, you guided, you

Matt Hoss, Retailing department stores and affiliates offline: know, from plus one to plus two and

Mike, EVP, and CFO, Foot Locker: a half percent on the on the top line. And, you know, really, the the high end of that guide is in line with where we’ve been operating over the last few quarters. So that, you know, mid two and a half percent range and really feel, you know, that that was the trajectory of the business and and where we’ve been operating. And I think with the social technology, there’s been a a more a very stable or a, you know, similar macro background. I think the 1% in the lower end of the range really, you know, contemplates some additional uncertainty within the consumer impacting the overall business this year.

You know, I think, you know, Mary talked about this a little bit earlier, but a lot of initiatives that we were incorporating into the business throughout 2024 that were really back half loaded that will anniversary and and support the business in 2025. So a lot of our store investments were back half loaded within the year from a refresh and a reimagine perspective. You know, 75% of the refreshes we completed were in the the third and fourth quarter. And then as we go into 2025 on the the store front, we also have about 85% of the stores that we’re gonna touch in 2025 happening within the

Frank Bracken, President, Foot Locker: first three quarters of the year.

Mike, EVP, and CFO, Foot Locker: So that’ll sort of you know, we we do expect comps to build throughout the year when we think about our profile and, you know, our our comp range to be sort of at the lower end of the range in the first half of the year and at the higher end of the range in the second half of the year. So that’s really, you know, the store investment build for us throughout this time period. On the on the digital side, Frank also talked about it earlier, our app launch happened in the fourth quarter within The US. We’ll take that to the Champs and Kids banner in the first quarter of this year. And then bridging into a very successful loyalty launch on our new Methylx program in North America for the partial year benefits coming into 2025 and then taking that to our main business midyear as well.

Matt Hoss, Retailing department stores and affiliates offline: And and, Mike, could you elaborate on health and composition of your current inventory and any pockets of inventory at all that you need to clear excess inventory?

Mike, EVP, and CFO, Foot Locker: So inventory, we just feel good about our positioning. We’re up 1% year over year at the end of the year. That was following four consecutive quarters of being down six to down 10% year over year as we really completed the repasting of a a healthier overall inventory position. That plus 1%, you know, we had expected to see, you know, around flat year over year. That 1% was really us just from a timing perspective, making sure we have the right receipts in place as we transition across our fiscal years.

Beyond that, you know, we have had a tougher overall apparel business within our trends. We’ve had inventory within apparel down after the low sales trends have been. So the team’s been doing a really nice job managing to be making sure we don’t have any inventory risk tied within the apparel business. Beyond that, we’re able to turn our business at a 2.8 cost turn after the year, which is about a 5% improvement versus 2023. We believe over time, we will be progressing towards a a three cost turn or just a two step, and we expect to able to make progress towards that in 2025.

Matt Hoss, Retailing department stores and affiliates offline: And then, Mike, on on gross margin. So next quarter, maybe could you elaborate on expectations for gross margin as you think about merchandise margins versus occupancy deleverage? And then over the course of the year, maybe the cadence, how do you

Mike, EVP, and CFO, Foot Locker: see merchandise margins progressing as the year From a from a margin perspective, we do expect the the first half to not have the same level of growth as we expect in the second half from a rate perspective. We’re coming out of the holiday time period where we did end up promoting more than we anticipated initially going into the holiday time period. We’re really acknowledging that, you know, some of that will come into the first part of this year as, you know, we navigate some specific marketplace dynamics. But as our initiatives continue to build as we move into the back half of the year and and marketplace normalizes, we do expect to be able to have a higher gross margin recovery in the back half of the year. I think from an occupancy standpoint, while there are some puts and takes for the entire quarter, we do expect some slight occupancy leverage, you know, throughout the throughout the full fiscal year.

The majority of it from an overall gross margin rate improvement perspective is first margin driven. And in the next month of

Matt Hoss, Retailing department stores and affiliates offline: the year, gross margin finished 24 to 300 basis points below 2019. Just thinking, are there any structural constraints that you see the return in your pandemic gross margins, which I think were in the low 30?

Mike, EVP, and CFO, Foot Locker: Within there, you know, our merch margin profile in 2019, we do expect to be able to get back close to those levels, not all the way back to where we were in 2019. So we we don’t think there are structural hindrances from us being able to get back into the the low thirties from an overall gross margin perspective. You know, we would expect continue to be a part of that as we we grow the top line. I do see us being able to recapture up here where we were from 2019, which market perspective, if not all the way. As we look at our 2025 guidance, our 2025 guidance has us recapturing about half of the promotional pressure that we had in 2023.

So there’s still about a 50 basis point opportunity. We don’t think it’s structural to the marketplace long term that we can recapture into the future to support that.

Matt Hoss, Retailing department stores and affiliates offline: And then maybe to switch gears to operating expenses. Could you speak to some of the adjustments that you’re making within your expense and capital priorities here in ’25?

Mike, EVP, and CFO, Foot Locker: So we are adjusting both capital and operating as we as we look into the year. If I start on the the capital side, we did make some adjustments to, you know, change the investment profile from our technology spend. We’re really leaning into the consumer facing investments both in stores and and in digital. From a from a store side, Mary was talking about reimagine and refresh. So, you know, our ability to get some brand standard, we’re leaning into those and maintaining those investments given the return profile.

So on reimagine, we have stores that are, you know, four to 5,000,000 top line, 20% EBITDA, getting about a a two year payback on the refresh, you know, low single digit sales lift, mid single digit margin dollar lift, getting a two to three year payback. So as we’ve brought down our overall level of capital investments, we’ve been maintaining the investment in good stores for that, these two initiatives. And when the real thing we’ve adjusted is sort of the cadence of our technology investments that is not customer facing. So, you know, things that are more back of house that will have longer term paybacks. But, you know, given our our current investment profile, our early needs is the consumer facing investments with more near term paybacks.

On the on the operating expense side, you know, we we did guide to slight leverage this year, absent some incentive normalization. And, you know, that’s really something that we’ll be focused on going forward as we continue to drive operating expenses down for SG and A leverage.

Matt Hoss, Retailing department stores and affiliates offline: And, Mike, to that point, so if we look so as we look through the incentive comp normalization headwinds this year and then and into ’26, is it kind of 3% comp? Is that what we should think about as the requirement of the SG and A leverage?

Mike, EVP, and CFO, Foot Locker: That’s still in the the right range. You know, absent some you know, we do have some initiatives that we did focus on that can drive some additional leverage beyond that. You know, one is we’ve been very focused on a workforce management tool that we’ve implemented throughout this year that’s helping us with our our wage investments in our stores. It’s obviously one of the biggest line items we have given the the 2,400 stores globally. It’s allowing us to drive wage leverage, And it was something that we rolled out in North America in 2024, so a partial year benefit here.

It’s something that is just starting to roll out into May at the beginning part of this year and into APAC at the beginning part of 2026.

Matt Hoss, Retailing department stores and affiliates offline: And then longer term, as you think about operating margins,

Mike, EVP, and CFO, Foot Locker: I think

Matt Hoss, Retailing department stores and affiliates offline: you have a target eight and a half to 9%. What’s the timeline that you that you believe is is reasonable for achieving that target?

Mike, EVP, and CFO, Foot Locker: So, you know, first, we we do think it’s the right structural target, and it’s the it’s eight and a half to 9% is what we are working towards. And I think as we talked a little bit earlier on the the margin side, you know, supportive of that, we do think our rich margins can progress you know, to where we were from a 2019 level standpoint as we we recapture some of those promotional pressures that that we’ve been facing over the last couple of years. I also want to acknowledge from an s g and a standpoint that our 24% is not supportive of of us getting to to that range, and we’re we’re very focused on continuing to make progress there over the next few years to drive that down, not all the way back to where we were in 2019 because we will have a structurally higher investment level in technology. So I’ll take a close catch up.

Matt Hoss, Retailing department stores and affiliates offline: And then, Mike, on that operating investment target between now and achievement, is it a linear path or is there a cadence to think about from a multiyear perspective in terms

Mike, EVP, and CFO, Foot Locker: of getting there? We we do think it’s relatively linear in terms of how we ultimately get there. Obviously, you know, this year, a little bit lower than what the linear would suggest. I think as we still, you know, navigate some of the marketplace dynamics and, you know, we were our our margin guidance, you know, is a little bit slower than that pace, but we do think a relatively even path over the next couple of years is how we can do it.

Matt Hoss, Retailing department stores and affiliates offline: Okay. And then, Mike, maybe just to close out before we open it up for any q and a is, how would you rank all of your capital allocation priorities from here?

Mike, EVP, and CFO, Foot Locker: So from a prioritization standpoint, before we get into the allocation, we were very pleased with the ability to generate free cash flow in in 2024. So we generated over a hundred million dollars of free cash flow focused on delivering free cash flow again in 2025 in a meaningful way. From an allocation standpoint, the you know, our first priority is to invest in the in the business. We’re seeing great returns in our in our store investments. We’re seeing good returns in our digital investments, and that’s obviously a priority for us.

You know, beyond that, you know, we we as we’re looking for, you know, the ability to get back to shareholder returns through dividends and share repurchases, you know, we are looking for us to be in the top line, looking for margin recovery, looking for the generation of free cash flow, all things that we’ve delivered. As we came into fiscal twenty twenty five, you know, we with the with more dynamic consumer environment, you know, we are erring on the side of not being too aggressive or too early in terms of returning to that, but still with the very meaningful focus of delivering free cash flow and, you know, the the shareholder returns is something that we obviously have very regular dialogue with our our board now. K. Thank you.

Matt Hoss, Retailing department stores and affiliates offline: With that, we’ll open it up if there’s any questions in the room.

Mike, EVP, and CFO, Foot Locker: Happy to kick off. I’m on apparel. I

Matt Hoss, Retailing department stores and affiliates offline: was definitely just on on apparel. I know that’s kind of the point over the past few years. Just curious, like, how we

Frank Bracken, President, Foot Locker: think about how we can turn

Mike, EVP, and CFO, Foot Locker: that business around. I know you

Matt Hoss, Retailing department stores and affiliates offline: guys have suggested more private label and then also maybe some some Nike extension in there. So I just wanted give

Mike, EVP, and CFO, Foot Locker: you some framework of how

Matt Hoss, Retailing department stores and affiliates offline: we’re thinking about that going forward. Is this your turning point for you need to provide color there on on, Carol?

Frank Bracken, President, Foot Locker: Yeah. I’ll I’ll I definitely wanna get back on offense with apparel. It has been a rough couple of years just overall as an industry and the innovation cycle and competitive nature of it is is sort of weighing down on our Thompson business. We do see on the branded side some opportunities. You know, I just got back from Missouri from from LA and the Adidas World Cup ideas that they have around the concerts, also more importantly, culture of

Mike, EVP, and CFO, Foot Locker: the fall look of the

Frank Bracken, President, Foot Locker: fall off pitch, which here in North America is significant for our chance in the VSS banner, but also in Europe, we think it’s gonna be a a big tailwind. On the Nike side, I think Elevation, they’re getting back to their geo express lane where that’s shorter term product creation. And the two benefits there is, one, exclusivity and two, connectivity of apparel to footwear, and that’s always been a hallmark of our merchandising and go to market strategy when we’re able to take and tell stories and collections at scale in our stores and on our site. So I’m bullish about that. And then just working more upstream with our partners to encourage innovation around the lens of silhouette, materialization, and then, again, color blocking connectivity back to sneakers and getting back to some of those basic innovation and merchandising principles.

And then the last thing I’ll mention is private label, just controlling our own best name. We’re we’re very bullish and see the opportunity both in in tops, bottoms, and all the accessories to get more aggressive in private label. We did go back based on some recent holiday in early spring and actually add or order post back to school and holiday for our private label assortment, both some packages as well as some depth of things that we really believe in. And that’s something we’re gonna continue to to extrapolate into twenty second forward.

Matt Hoss, Retailing department stores and affiliates offline: But, Frank, let me I know we talked about your inventories. Maybe overall inventories in the channel, both here in The US and in and in Europe. Maybe what are you seeing from promotional activity?

Frank Bracken, President, Foot Locker: Yeah. So I would say potentially better than they were. Twenty five is looking better than ’24 was. I think it’s it’s it’s less an industry sort of epidemic as as much as I’d say on account by account basis. And I think we feel really good about the position that we’re in.

We’ve been very disciplined about our open buy where we place bets so that we can drive that term. We also have the ability of when things are working, whether private label example that I said that we can chase into. There’s some some new footwear innovation that we really like. So we’re air freighting it in from overseas to get it to market faster and having the open time and flexibility to do things like that is is really, really important. So I continue to think that apparel on on the whole is still gonna go through a little bit of of turbulence here in the front half of the year and and summer.

And then back to back to school, I think, the holiday will be better. And then it’s not where I think it’s honestly more on a branded franchise basis than it’s a sort of just kind of issue at this point. How do you guys understanding all the tariff stuff is very, you know, influenced. So just kind

Mike, EVP, and CFO, Foot Locker: of philosophically, how all your branded partners or vendors are gonna be facing fee tariffs, if it takes all those sort of caveats. But how do you guys anticipate managing this kind of pricing to the consumer assuming, you know, we’re gonna have an element of just a lot higher costs going to on the consumer? Thanks.

Mary Dillon, CEO, Foot Locker: Yeah. Well, I’ll start and

Matt Hoss, Retailing department stores and affiliates offline: I’m afraid

Mary Dillon, CEO, Foot Locker: just feel free to add that, you know, it’s it is you know, we’re working we’re gonna work through brand by brand. And, you know, partnering together to assure that we both have come out of this, you know, mutual profitability as a whole. So we’ve done this before. I think it’s a combination, like I said, of, you know, what what do they take? What what does the consumer take?

We’re gonna, you know, also leverage our other tools to create demand and give, you know, our customers, like, through our loyalty part, was a great way to, you know, continue to build value from the customer experience.

Frank Bracken, President, Foot Locker: Yeah. So so one of the things we try

Mike, EVP, and CFO, Foot Locker: to do is take a head in terms

Frank Bracken, President, Foot Locker: of the pricing architecture and one of the, know, key price points that we wanted to hit both, you know, free and then potentially with the impact of tariffs. And so we did have a little bit of influence on our overall assortment into 2025. That’s think Mary’s right. We’re gonna look at our promotional levers and think about how do we place things, you know, whether it’s based on an aging curve or on some holidays or promotional events that we wanna drive some demand and make sure that we’re connecting with the consumer. Then the other thing is, you

Matt Hoss, Retailing department stores and affiliates offline: know, to the extent that

Frank Bracken, President, Foot Locker: we on the apparel side control things through private label, which is at a price point value to our consumers. So that’s another reason we’re sort of leaning into that, particularly in the back half of the year. So it’s it’s definitely fluid. I mean, we’re in constant communications now that we have a sense of what your initial tariffs are by by source country and and working working with our partners or anything like that. Turn the microphone on for me.

Matt Hoss, Retailing department stores and affiliates offline: Oh, sorry.

Unidentified speaker: Thank you. So you talked about some of the Nike models that you’re quite excited about, but you also talked about nine Nike brands that say you’re adding too. So I’m just curious, like, how do you balance making room for Nike open to buy versus, like, some of these other brands that you said are growing by double digits? And at what point do you think the Nike classic issue sort of will be in the rear rear view here?

Frank Bracken, President, Foot Locker: Yeah. So it’s, you know, I think the high class on the half have diversity of vendor partners to choose somewhere you got innovation from after all to running the classic to casual. One one of the things that we do very carefully now is just capacity planning and looking at our store layout and the the panels and the fixtures and what’s used we can merchandise to that. And so we plan very carefully in totality, but also by family of business and then ultimately by vendor partners. So we have overall decreased our SKU count as a sort of a an overall statement across both footwear and apparel.

And what we’ve done is the things that we believe in. We’re buying more depth and and flowing more replenishment into those ideas to make sure that we’re in stock, which helps turn, helps put price realization, etcetera. So we’re very pleased with that. And second part

Mike, EVP, and CFO, Foot Locker: of your question, I’m sorry, was

Frank Bracken, President, Foot Locker: oh, thank you. Yeah. Sorry. Thank you. Classics.

Yeah. I think we’re already seeing some of the benefits of that. I’m I’m very happy with the work I’ve seen on Air Force and AJ one and how they’re thinking about both innovation and the consumer journey, how that’s gonna help balance supply and demand. Air Force, which is a a a big monster franchise for us, where we’ve seen some stuff incredibly exciting. I think there was just some Kobe Air Force One that Vanessa Bryant sort of leaked out this week.

So so some of those ideas and connectivity to again, apparel is is coming in the back half of year that we’re excited about. And then just from an overall supply and demand, you know, we talked about our position in that as basketball leaders with Nike and Jordan. I think we see that we’re gonna

Mike, EVP, and CFO, Foot Locker: be a net benefactor of that.

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