Foot Locker, Inc.

Good morning, ladies and gentlemen, and welcome to Foot Locker's third quarter 2021 financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. This conference 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 release and in the 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 statement. Please note that this conference is being recorded. I would now like to turn the 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 call. As described in today's earnings release, we reported third quarter net income of $158 million inclusive of the recently announced closure of our acquisition of WSS compared to net income of $265 million for the third quarter of last year and net income of $125 million for the third quarter of 2019. On a per share basis, third quarter earnings were $1.52 compared with $2.52 last year and $1.16 for the third quarter of 2019. During the third quarter of 2021, the company recorded pre-tax adjustments to earnings, including a $30 million impairment in one of the company's minority investments, $13 million of costs related to the wind-down of the foot action banner, and $14 million of acquisition and integration costs related to WSS. As a reminder, last year's third quarter included a pre-tax non-cash gain of $190 million related to the higher valuation of GOAT. On a non-GAAP basis, earnings per share were $1.93 compared to $1.21 for the third quarter of last year, and $1.13 for the third quarter of 2019. 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. Andy Gray, Executive Vice President and Chief Commercial Officer, will then provide color on the key product and customer engagement highlights from the quarter. Andrew Page, Executive Vice President and Chief Financial Officer, will then review our third quarter results and provide guidance for the current fiscal year. Following our prepared remarks, Dick and Andrew 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 today. We are pleased to report that the third quarter was another great performance for our company, as we comped a strong back-to-school season from last year, battled supply chain challenges, and delivered impressive bottom-line results. We also successfully completed the WSS acquisition during the quarter, and subsequent to the quarter end, closed the Atmos transaction as well, bringing both of these great companies into the Foot Locker family of brands. As we begin the fourth quarter and the all-important holiday season, we continue to see three macro trends working in our favor. Number one is the democratization of sneaker culture, with more brands and more consumers participating in the ecosystem of sneaker culture. With our position as a multi-branded retailer through Foot Locker, Kids Foot Locker, Champ Sports Times East Bay, and now WSS and Atmos, We have an incredible connection to the marketplace and consumers. Second is the growing emphasis on fitness and self-care, as people look to offset stress and work-from-home conditions by getting up and staying active to maintain their physical and mental wellness. Whether it's home fitness, running, training, hiking, or any number of other sport fitness categories, we see consumers are turning to and returning to Foot Locker to meet their fitness needs. And we see this trend increasing. And third is the overall athleisure trend and further casualization of society. Some of this is aided by the continued work from home environment, some of it by the new return to work hybrid model. But overall, people want to be more comfortable, and that certainly plays into our strengths, especially around footwear, but also in our apparel business which has been performing extremely well this year. All of this to say, consumer demand remains strong, driven by megatrends in consumer adoption and demand that favors the brands and the categories we sell. Spending continues to be fueled by people wanting to look good as they venture out again. In terms of the global supply chain, we're all aware of the challenges. It's a fluid situation that we are making every effort to manage, and we do have a few advantages. First, we are a truly multi-branded retailer with a diversified product mix serving a broad range of consumer needs across price points. We like our position in terms of our assortment of brands, and we benefit from the very strong partnerships we have built with them over many decades. In times like these, our partnerships are mutually beneficial, enabling us to look together as far into the future as possible to plan, collaborate, and be solution-oriented. Second, carrier capacity is something we always keep a close eye on. We are in a much better position this year than in the past with FedEx, UPS, and our pool carriers, and with the U.S. Postal Service as another alternative. We've got better visibility than we've ever had on where their hotspots are so we can manage customer expectations appropriately. Third, we feel good about our distribution center staffing and capacity levels. We are building in some additional flex capacity for the fourth quarter to ensure we are doing everything we can to effectively mitigate any macro pressures. And fourth, we are focused on leveraging the advantage that having approximately 3,000 stores globally offers us to serve our customers and deliver the types of diversified product offerings, inclusive of apparel, accessories, and complementary products that our customers come to us for. In the third quarter, we successfully launched our controlled brands. We are especially excited about this offense. Our teams have been working hard to bring it to life in a big way, and we are poised to push these brands meaningfully forward in the coming seasons. At the same time, we are expanding our range of brand partners using programs like our innovative greenhouse incubator and lead initiative to invest in up-and-coming designers, new concepts, exclusive collaborations, and curated partnerships, all of which will ultimately help us provide a broader range of product offerings to our consumers. And finally, but perhaps most importantly, we are benefiting from great connectivity with our consumers. Elevating the customer experience has long been one of our strategic pillars. We have great brand awareness, and consumers continue to come to Foot Locker first. I believe we have the best team in retail, the best partners in the business, and we feel very good about where we're headed for the upcoming holiday season and beyond. Turning to our recent acquisition of WSS, It's been a great start with their back to school and overall Q3 results. Some of the early progress includes setting up our team addition offense for WSS, which we believe is a big operational opportunity to get speed to market to support their apparel business. We have also looked at our supply chain, technology, and other operating contracts, and we've been able to secure some wins here as well. All that to say, the early integration work is off to a good start. We are very bullish on WSS, driven in part by their strong connection to the Hispanic consumer and because it's very complementary to our existing portfolio from a consumer perspective, a merchandise assortment and pricing approach, and a geography and real estate standpoint. We are encouraged to see new WSS stores perform above their budgets giving us confidence to continue to expand the store base in the coming year. Texas is our next WSS growth market. Plans are well underway for Dallas and Houston, and we also see some fill-in market opportunities. We continue to open stores in Northern California. Turning now to Atmos, we are excited to have closed the acquisition earlier this month. This premium, globally recognized, digitally-led brand sits at the center of sneaker culture. We are thrilled to have Homi Osan and his talented team officially on board. Similar to WSS, we are bullish on this high-growth business and are well underway with the integration process. Turning to Champ Sports Times East Bay. It's been about 18 months since we combined these operating units, and in late January, we will be opening our first home field store in South Florida. which is the new concept where these two banners come together, bringing the best of what they do individually to one singular location. Our first home field store will be the largest format we have in our global fleet at about 35,000 gross square feet. We'll have several features that draw upon the equity and the DNA of Champ Sports and East Bay, inclusive of the best global brands and sport lifestyle performance. We'll also have a dedicated zone for East Bay training and performance footwear and apparel. It will feature an athlete fuel station for guests with protein shakes and smoothies, nutrition bars, and post-recovery workout-type supplements that consumers can enjoy in the space itself or buy products to take home with them. There will be several digital and interactive parts of the store, including an activation space where we will hold coaching clinics, training sessions, and skill development or yoga workouts. We will be live and interactive in bringing sport into the space, and we are excited to be able to connect with the community through those experiences. We'll also be able to leverage our East Bay team sports division through existing and new relationships with key schools. In fact, there are 12 high schools within a 10-mile radius of the home field locations. We will look to expand the relationships with those schools, building bridges and opportunities with the athletic directors, coaches, and athletes themselves. We are very excited to see this experience come together as we pilot this new concept. Turning to foot action. Our team has done an incredible job executing on the wind down and transitioning some of the locations to other banners. To date, we've converted 18 locations. and there are another nine under construction, with over half of them rebranding as Foot Locker, about 40% as Champ Sports, and the remaining 10% as Kids Foot Locker. Without exception, we have seen encouraging productivity gains with these stores performing above expectations and well above their previous results. We have negotiated or worked with our lease flexibility to close about 85% of the total fleet by year-end. We are continuing our negotiations with landlords for the approximately 35 stores that will remain open into fiscal 22. We've had a great partnership with our vendors and are pleased with the vendor community's reception to the foot action transition. We've been able to transfer not only inventory, but also access to some brands and concepts that will bode well for some of our go-forward banners, especially Champ Sports and East Bay. Yesterday, we announced some exciting organizational enhancements to advance Foot Locker's long-term growth and omni-channel objectives. Frank Bracken, Executive Vice President and Chief Executive Officer, North America, has been named Chief Operating Officer, effective immediately. In his new role, Frank will oversee the company's global operating divisions, the omni-customer experience, inclusive of global technology services and supply chain, and our global franchise JV partnerships. Susie Kuhn, Senior Vice President, General Manager of Foot Locker Europe, has been named as President of EMEA and General Manager of Foot Locker Europe, also effective immediately. Andy Gray, Chief Commercial Officer, will expand his responsibility by leading our global commercial unit, including product, the powering up of our controlled brands, omni-marketing, membership, and commercial development and the LEAD initiative. Together, the announced leadership appointments and organizational enhancements underscore our focus on aligning our commercial, operations, and finance functions to drive organizational productivity. With a more agile operational structure, we will be in an even stronger position to expand our customer base and grow our connectivity with sneaker culture and the communities we serve. Overall, our financial position remains strong. Our vendor relationships are very strategic in nature, and we continue to obsess around our customers, whether it's through our digital channels, social media, FLX, or an in-store customer experience. Our solid Q3 performance is why we remain optimistic about the strength of our portfolio, the power of our assortments, and the loyalty of our customers. We are confident that this positive momentum will continue into 2022 and beyond. Before I turn the call over, I want to express my sincere thanks to every team member at Foot Locker. It is their dedication and hard work that made these outstanding results possible and will enable us to continue to drive our business forward and fulfill our purpose to inspire and empower youth culture. With that, I will now turn the call over to Andy.