Foot Locker, Inc.

Good morning, ladies and gentlemen, and welcome to Foot Locker's fourth quarter 2021 financial results conference call. At this time, all participants are in 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 reports filed at the SEC, including the most recently filled Form 10-K or Form 10-Q. Any changes to assumptions or factors could produce significantly different results. and actual results may differ materially from those contained in the forward-looking statement. Please note this is being recorded. I'd like to turn the call over to Robert Higginbotham, Vice President, Investor Relations. Mr. Higginbotham, you may begin.

Thank you, Operator. Welcome, everyone, to Foot Locker, Inc.' 's fourth quarter earnings call. As described in today's earnings release, we reported fourth quarter net income of $103 million. inclusive of the recent purchase of both WSS and Atmos, compared to net income of $123 million in the fourth quarter of the prior year. On a per share basis, fourth quarter earnings were $1.02, compared with $1.17 the prior year. During the fourth quarter of 2021, the company recorded $72 million of pre-tax adjustments to earnings, primarily including store impairments, store closing costs, the write-down of minority investments, and acquisition-related expenses. On a non-GAAP basis, earnings per share were $1.67, including a 20-cent gain in our retailers' limited investment, compared to $1.55 for the fourth quarter of 2020. Unless otherwise noted, the figures and rates mentioned during our call today will be based on non-GAAP results. The reconciliation of GAAP to non-GAAP results is included in this morning's earnings release. Additionally, we have a slide presentation posted on our investor relations website with highlights on the quarter, including some sales details typically cited on our earnings call. We'll begin our prepared remarks with Dick Johnson, Chairman and Chief Executive Officer. Andrew Page, Executive Vice President and Chief Financial Officer. We'll then review our fourth quarter results and financial position in more detail and provide color on the 2022 guidance we issued in our press release this morning. Following our prepared remarks, Dick and Andrew will respond to your questions. With that, I'll now turn it over to Dick.

Thank you, Rob. Good morning, everyone, and thank you for joining us. This morning, we will review our fourth quarter and full year results, including the progress we've made against our key strategic objectives, as well as talk to some changes in our business and the strategies we are accelerating that are well underway. We closed out a record year by delivering solid four-quarter results that reflect the ongoing momentum we have built in our business. Our total sales grew by 6.9% this quarter and almost 19% in 2021 to approximately $9 billion, the highest in Foot Locker's history. We remain committed to our purpose to inspire and empower youth culture and further our connection to the sport and sneaker community. Throughout 2021, we made great strides to do just that by diversifying our product mix across brands and categories. We also extended our distribution across channels and banners by enhancing our omni-channel offerings. And we broadened our customer base through acquisitions of scalable new banners to strengthen our portfolio of retail brands. Starting with product, we know that our consumer demands choice across a variety of brands and categories. So we continue to work to broaden our selection, including leaning into brands where we are underpenetrated, a bigger focus on apparel, and the introduction of new third-party brands, as well as our own private labels. In the fourth quarter, we saw great vendor diversity, with the majority of our top 20 vendors posting games and driving excitement in their respective categories. Not only were we excited by the amount of brands that showed improvement, resulting in non-Nike comp growth of greater than 30%, we also remain encouraged by the size of the business we are building with our major partners, which has grown consistently over the years. The momentum of brands like Adidas, Puma, New Balance, Timberland, UGG, and Crocs during 2021 showcased the expanding breadth of our consumer sneaker closet. covering athletic, outdoor, and seasonal. Also, our push into apparel continues to yield strong results, with the category growing 30% in the fourth quarter and reaching $1.4 billion in annual sales for the first time in the company's history. And within our controlled brand strategy, following up on our successful menswear launch of Locker in the third quarter, in December we launched Cozy, our newest women's wear private brand, which is off to a great start. In addition to our own labels, we continue to develop exclusive partnerships to create energy and connect with new consumers. We launched All City by Just On, an exclusive lifestyle basketball brand that is inspired by the spirit of community that has immediately resonated with the next generation of streetwear enthusiasts. We continue to have Curated Drops by Melody Asami, our creative director of our women's business, as we expand our offerings and make streetwear more accessible to younger female consumers. In Omnichannel, we continue to enhance our consumer experience with new features like payment options and launch capabilities. And outside the U.S., we hit significant milestones in transitioning to our new e-commerce platform, completing the rollout across Foot Locker Europe. We also continue to expand our dropship program where we added more vendors during the fourth quarter to expand our assortment and availability online. Our integrated FLX reward program continues to build momentum. In Europe, we continue to roll out the program across the region, adding Italy, Spain, and Germany in Q4 with five more countries planned for 2022. Overall, on an annual basis, we saw over 50% growth in active members. The difference between member and non-member spend has increased year over year. And the sales capture rate increased from 50% last year to nearly 70% this year. On the M&A front, we added two tremendous brands and high-growth companies, WSS and Atmos, to the Foot Locker family. These strategic acquisitions expand our customer base and geographic reach, strengthen our store footprint, and further diversify our product mix across consumers and price points. WSS gives us a strong off-wall presence in fast-growing markets with a full family offering and a special connection to the Hispanic community, while Atmos provides us with a foothold in Japan and a key launching point into the rest of Asia. While not yet in the company's overall consolidated comp base, both businesses comped up double digits in the fourth quarter. Looking ahead, our customer-centric framework demands that we adapt and mold the business to where the customer is headed. Gen Z, in particular, craves uniqueness to project their individualism, which we are well equipped to serve with our multi-brand model. While we seek to provide more variety, our largest vendor is accelerating its DTC strategy. We expect their concentration to decline meaningfully in the fourth quarter this year to a level that will continue into 2023. We continue to have a strong relationship with Nike, and they remain an important partner for our business, especially in basketball, kids, and sneaker culture, where we have an unrivaled connection with our consumers. As we remix our business, 2022 will reflect an acceleration of pre-existing strategies that are well underway and have already been yielding success. On the product front, we will continue to work to further diversify our merchandise and vendor mix, including new brands and elevating brands and categories where we are under-penetrated. We continue to strengthen our consumer concept offense to deliver exclusive product storytelling driven by our extensive consumer insights. These will include big global programs from Adidas in Stripe Life and a Trepoil State of Mind, exciting storytelling with New Balance around our 574 Life concept, and exciting third-party partnerships with the likes of Pokemon and Puma and Carrots and Crocs, among others. We will build on our basketball leadership position with the continuation of our exclusive lamella ball program with Puma, our new exclusive partnership with Reebok featuring the iconic Iverson and Shaq franchises, and our Nike exclusive basketball concepts in Got Next, Legacy, and the Tunnel Walk. We will also be continuing to grow our exclusive control brands to enrich and add dimension to our apparel offerings to connect with consumers and add uniqueness to our assortments. Another area is our shift to bigger box, off-mall formats and our rollout of key growth banners, both of which we are accelerating in 2022. Based on the success of our first 50 global community and power stores, we will be growing these formats to approximately 300 locations over the next three years. Our community and power stores enhance both our off-ball presence as well as our connection with communities by bringing life to a wider and richer, more locally relevant product assortment. These stores help us build authentic relationships with our customer at the hyper-local level by incorporating local elements into the physical designs, partnering with local businesses and organizations, and engaging local artists, athletes, and influencers. Product from local designers is given special activation, and stores are staffed with local personnel to deepen the ties to the community. Additionally, WSS is now expected to reach $1 billion in sales by 2024, supported by accelerated store openings and strong same-store sales growth. The company also expects to grow Atmos by approximately 50% to nearly $300 million over the next three years by scaling in existing markets and expanding internationally. And we are excited to soon be opening our first home field store in South Florida. Our new off-mall large format concept store provides a one-stop shop across sport lifestyle, sport performance, and nutrition and wellness. including rich interactive experiences with energy stations, a focus on wellness, dedicated training zones, coaching clinics, training sessions, and more. We have four pilot stores planned for this year and believe this presents another exciting opportunity to further diversify our consumer base and product assortments. We will also be accelerating our omni-channel evolution efforts. As part of our investment in GOAT Group, the companies are in active discussions to create programs aimed at enhancing the value proposition and consumer experience of both platforms, including creating a more intentional connection between the two companies, prioritizing loyalty and membership benefits. While details are still coming together, we are incredibly excited to be working with our partners at GOAT on finding the best ways the two platforms can create value together. We will keep you updated on our progress. Separately, the company will be accelerating its rollout of dropship across vendors, banners, and regions through 2022, which allows us to add to our assortment and availability, effectively creating an endless aisle for the consumer while not increasing our working capital needs. As part of our efforts to drive productivity another of our key strategic imperatives, we are announcing a new cost savings program. This new cost savings initiative is expected to generate savings of approximately $200 million on an annualized basis and is designed to better align the company's cost structure to its needs to remain nimble and able to invest appropriately as the consumer landscape evolves. Andrew will provide more detail on this program in a moment. As we look forward beyond 2022, we are confident that the remixing of our business aligns us well with the consumer's desire for a variety of both product and experiences. Our strengths remain our unique affinity with our customers across our portfolio of retail brands and our growing ability for them to engage with us in multiple ways. Our balance sheet remains strong, and we have made tremendous progress in reducing our mall exposure as we shift stores off-mall, which Andrew will detail in a moment. Full Locker is one of the truly iconic retail brands in the industry, with a special place in the market as a destination for great selection and product discovery. We will meet our customers where they need us and want us to be, with the multi-brand, omni-channel experience that is more relevant than ever as we continue to foster connectivity with the communities that we serve. Finally, before I turn the call over to Andrew, I want to extend a heartfelt thanks to our entire team who did a great job throughout the quarter and our record year. Their commitment and great effort made our tremendous results possible. I'd also like to welcome Rob Higginbotham to Foot Locker as our new Vice President of Investor Relations. Rob joined us last month and looks forward to getting to know all of We thank Jim Lance for leading our IR effort over the past several years, and Jim remains an integral part of our finance team. Let me now pass the call over to Andrew.