Foot Locker, Inc.

Good morning everyone and welcome to Foot Locker's first quarter 2022 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 releases and 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 is being recorded. At this time, I'd like to turn the floor over to Robert Higginbotham, Vice President, Investor Relations. Mr. Higginbotham, you may begin.

Thank you, Operator. Welcome, everyone, to Foot Locker, Inc.' 's first quarter earnings call. Today's call will reference certain non-GAAP measures. A reconciliation of GAAP to non-GAAP results is included in this morning's earnings release. Please note we have updated our definition of non-GAAP earnings to exclude all minority investment gains and losses. You can find the appropriate adjustments to our reported 2021 non-GAAP earnings in the footnotes of the release. Also note we have a slide presentation posted on our investor relations website with information that will be referenced during the call. Today, we'll begin our prepared remarks with Dick Johnson, Chairman and Chief Executive Officer. Frank Bracken, Executive Vice President and Chief Operating Officer, will provide more color on our operations and some of our strategic initiatives. Andrew Page, Executive Vice President and Chief Financial Officer, will then review our quarterly results and financial position in more detail and provide color on our updated 2022 guidance. Following our prepared remarks, Dick, Frank, 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. We're off to a great start in 2022, reporting a solid quarter against the tough comparisons of fiscal stimulus and historically low promotions from last year. Despite those headwinds, we grew our total sales by 1%, with comps down only 1.9%. and we delivered non-GAAP EPS of $1.60 per share, down from the record results in 2021, but up nicely from 2019, our last pre-COVID first quarter. Let me start by thanking our team for the hard work, dedication, and commitment that drove these results. I always say we have the best team in retail, and that is no more evident than this quarter as our team continues to execute exceptionally well in a volatile environment. Last quarter, we announced an acceleration in some of our key initiatives, and we are happy to report significant progress against our objectives to further diversify our merchandise and vendor mix, pivot our real estate off-mall and expand our key growth banners, and enhance our omni-channel offerings and capabilities. Our first quarter results continue to demonstrate our growing ability to expand our customer base and delight them with a broader and richer product offering as we diversify our business across brands, categories, and channels. With our overall comps down 1.9%, the majority of our top 20 vendors posted sales gains in the quarter, with strength from some of our biggest brands like Adidas and Puma, and even more outsized growth from brands like New Balance, Crocs, and Converse, all of which were up over 50%. Importantly, let me take a moment to congratulate Nike on its 50th anniversary, an incredible milestone for the brand that has had such an important impact on sport and sneaker culture. Nike has been a driving force in shaping the industry that we know and love today, and we look forward to the next 50 years working with them to continue to excite consumers, elevate the marketplace, and fuel sneaker culture. Our efforts to grow our apparel and accessories business continue to yield results with the categories well outpacing footwear once again, comping up over 10% despite difficult year-over-year comparisons. Private label continues to be an important driver of our apparel business with Locker and Cozy continuing to gain traction in their early days. And co-created brands like All City and Melody Asani performing well with new drops in March and April. I now want to spend some time walking through the opportunity we have with our brand diversification efforts, which have been successful to date and hold significant potential going forward. Our strategic direction to diversify our offering is supported by three key pillars. Number one, consumers want choice and value a multi-brand experience. Two, We are underpenetrated in virtually all of our brands outside of our top vendor. And three, we have superior brand equity in the marketplace that we can leverage to capture incremental share across our portfolio. Starting with choice. As we analyze the baskets of our identified customers, we see that nearly 40% of transactions that have more than one item actually contain multiple brands. meaning consumers mix and match their selections across brands, whether it's multiple footwear brands or a head-to-toe outfit of two or more brands. Also, 50% of footwear sales from our identified customers come from those who buy from us more than four times over a two-year period. 80% of those frequent shoppers are multi-brand consumers, and overall they purchase approximately three different footwear brands on average. So, we know that our customers want multiple options, and as a house of brands, we are in a strong position to serve those needs in the marketplace. But when we look at our brand mix historically, we have not been offering them enough choice, such that we have below our average market share in nearly all of our brands. According to the data from the NPD group, Our overall share of the U.S. active footwear wholesale market is approximately 16%. But outside of our top vendor, our share is only 5%, suggesting a significant opportunity to capture share of other brands. Our confidence and our ability to capture those sales is rooted in the superior brand equity we have built in the marketplace over nearly 50 years. Let me share with you a few metrics that illustrate our powerful brand positioning. The Foot Locker brand has over 12 million Instagram followers in the US. While a big number, what's more impressive is that it is over five times our top four competing third-party retail banners combined with the next closest having only 1 million followers. Broader measures of our brand health relative to our competition also show a meaningful advantage. Measuring metrics such as awareness, consideration, and purchasing, a recent third-party study shows that Foot Locker's brand health index stands more than 20% above the average of its peer set. Our iconic brand positioning and our strong customer base allow us to build scale for our vendors, enabling us to, in turn, broaden and deepen our relationships with them in order to expand our customer base further and capture incremental share. As a prime example, Foot Locker and Adidas recently announced a newly enhanced partnership that will take our decades-long relationship to new heights as we combine forces to develop and build product franchises, deliver more energy and hype launches, and create compelling experiences for consumers in a much more integrated way than we've ever done before. This enhanced relationship will establish Foot Locker as the lead partner for Adidas in the basketball category, as well as include the development and expansion of key franchises across women's, kids, and apparel. Including all of our banners across all of our geographies, this new effort will target over $2 billion in annual retail sales by 2025, nearly tripling levels from 2021. We are incredibly excited about what we can accomplish together under this closer relationship, designed to better serve the sport and sneaker community, give Adidas greater access to our customers, and expand our customer base even further. But that is not the end of our work to elevate and expand our product portfolio. We are continuing to develop new and enhanced partnerships with many other brands and vendors. Puma and New Balance continue to drive outpaced growth and are becoming a significantly bigger part of our current and future business. Key product allocation from New Balance continues to accelerate, and exclusive partnerships like LaMelo Ball drive the Puma business. According to the NPD Group, the performance-running footwear market in the U.S. and Canada generated a combined $4.5 billion in revenue for fiscal 2021. This is a category where Foot Locker has not yet fully participated. We are working with some of the fastest growing brands in that category to help them connect with a younger customer while also helping us extend our customer reach. Beginning this summer, we will be partnering with Decker's brands to launch footwear product from Hoka in our Foot Locker banner. Starting with FootLocker.com and select Foot Locker doors in the U.S., This will be an important step towards a longer-term strategic relationship between the brand and Foot Locker Incorporated. We are also continuing to develop our relationship with On Running, where we've nearly doubled the store count where we carry the brand and look to continue to grow further from here. As we develop new partnerships and add more choice and excitement to our portfolio, We are confident in our ability to both expand our share with existing customers and grow our customer base. We couldn't be more excited about the direction and potential of our business going forward. Lastly, while the macroeconomic environment has become more uncertain in many ways over the past few months, with interest rates and inflation increasing rapidly, our consumer has remained resilient. and we have not seen a material change in consumer behavior to indicate a softening in demand for our category. Now, I'll pass the call over to Frank to discuss our off-mall strategy, our banner growth, and omnichannel evolution.