Foot Locker, Inc.

to Foot Locker's third quarter 2020 financial results conference call. At this time, all participants are in a listen-only mode, and later we will conduct a question and answer session. 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 impact of COVID-19, 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 those contained in the forward-looking statements. Please note today's conference call is being recorded, and at this time I'd like to turn the conference call over to Jim Lance, Vice President, Corporate Finance and Investor Relations. Mr. Lance, you may begin.

Thanks, Operator. Welcome, everyone, to Foot Locker, Inc.' 's third quarter earnings conference call. I hope you and your families are healthy and safe. As reported in today's earnings release, we reported third quarter net income of $265 million compared to net income of $125 million for the third quarter of last year. On a per share basis, third quarter earnings were $2.52 compared to earnings per share of $1.16 last year. This year's quarter includes a pre-tax non-cash gain of $190 million related to a higher valuation for one of the company's minority investments, pre-tax charges of $3 million related to the wind down of the Runner's Point banner, and $1 million for costs incurred to social unrest. Excluding these items on a non-GAAP basis, third quarter earnings were $1.21 per share up 7% compared to earnings per share of $1.13 for the third quarter of 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 earnings release. We'll begin our prepared remarks with Dick Johnson, Chairman and Chief Executive Officer, who will provide highlights from our third quarter performance and an update on our strategic initiatives, including how the company is navigating the COVID-19 pandemic. Andy Gray, Executive Vice President and Chief Commercial Officer, will provide additional insights into the business drivers in the quarter. Lauren Peters, Executive Vice President and Chief Financial Officer, will then review our third quarter results and provide some directional color around the fourth quarter of 2020. Following our prepared remarks, Dick and Lauren will respond to your questions. With that, I'll now turn it over to Dick.

Thank you, Jim. Good morning, everyone, and thank you for joining us. This third quarter was unlike any we've seen before. COVID-related uncertainty around the timing of school reopenings and team sports participation delayed and elongated the back-to-school selling season. Yet despite kicking in later than usual, momentum built as the quarter progressed. We delivered a strong top and bottom line performance, demonstrating the resilience of the Foot Locker portfolio of brands. These results not only reflect our deep connections with our customers and the strategic relationships we have with our vendor partners, but also speak to the tremendous teamwork of our store teams, DCs, and customer contact centers. They continue to go above and beyond to create seamless and safe shopping experiences for our customers. I remain incredibly proud of their focus and dedication. With the majority of our stores open throughout the quarter, we were able to utilize all of our omnichannel tools to enhance the customer experience, including buy online, ship from store, and buy online, pick up in store. As we all know, COVID remains a fluid situation. with cases surging around the world. Over 10% of our global store fleet is temporarily closed to comply with government mandated lockdowns and restrictions. And this may just be the beginning of a broader wave of store closures over the coming weeks, as further proactive measures are taken to contain the spread of the virus. In the meantime, we've continued to adapt our strategies to reflect safety and social distancing protocols. For example, we stretched the grand opening of our community-based store in Compton, California over seven days. This worked to our benefit, enabling us to engage with the community for a longer period of time as we celebrated local brands and drove hype through media and influencers. Turning back to our performance, our results were driven by the strength of our product assortments, with momentum in basketball continuing to lead the footwear category globally. Seasonal brands such as Timberland, UGG, and North Face also contributed to very strong trends during the late back to school period. Lastly, apparel momentum accelerated as the stay-at-home comfort trend increased demand in all apparel categories. Once again, our digital business led the way, delivering very strong growth of over 50%. This was especially impressive in September and October when digital continued to outperform even as we saw double-digit store comps in those months. We're frequently asked how sustainable these digital trends are. What I will tell you is that while we expect the penetration level to moderate, we don't expect to go back to pre-COVID percentages. Over the last few years, we have invested in and significantly strengthened our digital foundation, This drove sustained digital traffic growth through Q3 with strong upticks across all banners and geographies. At the same time, we've been evolving our organization to be digitally led. We're committed to great digital product storytelling, and our customers have noticed how much their experience has improved. As we signaled last quarter, promotional activity remained elevated in Q3. A large part of our markdowns were due to a temporary decrease in the amount of product we returned to our vendors in light of COVID-related supply chain complexities. As such, our team aggressively cleared through these goods in order to support our inventory objectives. Lauren will provide more detail on this, but we ended the quarter with healthy inventory levels and a better composition with fresh receipt. And that means we expect promotional activity to be lower in Q4 than the past two quarters. Andy will provide more detail around product highlights in the quarter and what we see in the pipeline for Q4. But suffice it to say, we're encouraged by the enthusiasm and loyalty of our customers and the energy we are seeing in our product assortments. One point before I provide an update on our strategic initiatives. We completed the previously announced shutdown of our Runners Point banner in Europe during the quarter, closing the remaining stores and consolidating the digital team into our other European operations. This was a difficult decision and we thank the Runners Point team for their hard work over the years. Now let's turn to the progress we've made with our strategic initiatives and digital and technology capabilities. Beginning with loyalty, we continue to make great strides with FLX, having surpassed 11 million members in the US in Q3. Encouragingly, members are spending an average of 40% more than non-members. They also tend to shop more frequently, with the number of orders per customer more than 50% higher on average than non-members. We are also encouraged by the increase in cross-banner shopping across our portfolio, which is an important metric in the program. These trends are even more pronounced among our most highly engaged members. While still in early days, FLX is also being well received in Europe, with member enrollment and engagement trending positively. We will continue to refine FLX globally and look forward to sharing more with you as the program continues to scale. Moving to our technology initiatives, We continue to make good progress toward evolving as a fully integrated omni-channel company. I'll highlight a few of the notable achievements in Q3. First, we made additional investments in our BOPUS program, making several improvements to drive convenience for our increasingly omni-channel customer. For example, we added BOPUS functionality to our native apps, which enables us to capitalize on our physical footprint with flexible fulfillment options. We also established dedicated areas in more than 700 stores for customers to pick up their online orders, simplifying the pickup process while helping to maintain social distancing protocols. Second, we launched Klarna on all North American sites, and it's already become a top three payment option for us with over 2,000 orders a day. For those not familiar with Klarna, it's a buy now, pay later service that gives customers the opportunity to get the exciting product they want, when they want it. This complements Afterpay, which is operational in Australia and the UK, and additional options are on the horizon, which are all built on the foundational payment platform work completed in Q2. Finally, we continued to enhance our store POS systems. For example, more countries and languages are supported. Processing returns and web orders is simpler for our associates, and we can accept e-wallet payments, such as WeChat and Alipay, in certain geographies. Turning to our social responsibility initiatives, our tremendous efforts have really come to life over the past several months. With respect to our $200 million commitment to uplift team members and consumers within the Black community, known as our LEAD initiative, We've made great strides in developing a plan that drives upward mobility and defines our commitment to supporting education and economic development. In addition, our back to school giveaway in partnership with Souls for Souls donated $1.5 million of footwear globally, roughly 19,000 pairs of sneakers to help youth communities most affected by the pandemic. And then we have our global collaborate product initiative. This was launched to aid communities through exclusive collaborations with industry-leading designers and brands. We released weekly launches, donating $250,000 to Souls for Souls to further facilitate our shoe donation to kids in need. Let me now take a few minutes to update you on some of the latest developments with our portfolio of investment partners. First off, I'd like to congratulate the team at GOAT for closing $100 million Series E round of funding. This latest influx of external investment demonstrates the market's confidence in the broader sneaker category and will allow GOAT to address global opportunities across sneakers and new categories. As an investor and a partner, we are excited by GOAT's continued success. and we continue to work with them on innovative new ways to connect with our sneaker-obsessed consumer. Turning to Network, this small but fast-growing video commerce platform continues to put wins on the board in terms of their consumer connectivity, diversifying their revenue streams, and testing new ideas. Through our partnership with Network, we've had several successful product pre-launches across our banners and created unique and engaging content for our consumers. Another partner I'd like to highlight is Dwayne Edwards at Pencil. Our commitment to Pencil's core mission and track record for success has only increased this year, and we're proud to share that they will be leading two major programs across Foot Locker Incorporated for the next generation of black footwear and apparel designers. This work directly ties to our lead initiative. Finally, we continue to view Carbon 38 as an emerging leader in the women's space. Our efforts to share capabilities across everything from digital marketing and loyalty to sourcing and vendor management is resulting in new learnings and efficiencies for our two companies. Now I'd like to discuss our exciting plans for the upcoming holiday season. We fully expect that our high heat launches, exclusive collabs, concepts, and associated marketing campaigns will create significant energy throughout the selling season. Compelling new product drops for the season are in the works. From the introduction of Hype Bay and other exclusive apparel launches to Foot Locker North America's 12 Days of Greatness basketball-inspired campaign and product launch collection, which kicks off today, and Foot Locker Europe's Shoes Don't Change the World, You Do, Give Back campaign. From a tactical standpoint, we are taking proactive actions to manage capacity and throughput, both in stores and digitally. We want to ensure the safety of our associates and customers while delivering an outstanding customer experience through the holiday peaks. These initiatives include implementing mobile checkout devices in our highest volume stores, as well as doors that have limited open registers due to social distancing. installing cash wrap extensions to over 250 stores to create six feet of social distancing space between POS stations, and establishing a virtual line queue app that will allow customers to see their place in line when a store reaches capacity. We will also continue to partner closely with our strategic vendors, market by market, while keeping a close eye on customer and demand fluctuations given the uncertainty of COVID and the likelihood of further restrictions. All in, even against this backdrop, we are well prepared to anticipate, react to, and capitalize on evolving customer shopping behaviors. Our financial position remains strong, and we are poised to continue advancing our long-term strategies as we build value for our stakeholders. I want to take a moment to express my sincere gratitude to each and every associate at Foot Locker, Inc. It is through their relentless dedication and hard work that we were able to achieve the results we did this quarter. I'm confident we will continue to manage through the uncertainties ahead with compassion and purpose as we drive our business forward and fulfill our mission to inspire and empower youth culture. I'll now pass it over to Andy.