Foot Locker, Inc.

Good morning, everyone, and welcome to Foot Locker's second 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 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 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 obtained contained in the forward-looking statements. Please also note today's conference call is being recorded. At this time, I would 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 second quarter earnings call. Today's call will reference certain non-GAAP measures. A reconciliation of GAAP and non-GAAP results is included in this morning's earnings release. To remind everyone, last quarter we updated our definition of non-GAAP earnings to exclude all minority investment gains and losses, and our second quarter and year-to-date non-GAAP results for 2021 have been recast to reflect that. 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. Before we dive into the discussion of our second quarter results, I'd like to speak briefly about the other news we announced this morning, my planned retirement and the appointment of Mary Dillon as Foot Locker's next CEO. The changes we announced today are the culmination of a thorough and thoughtful succession planning process that the rest of the board and I have worked on together. We have made significant progress against our strategic objectives in recent years, which has allowed us to broaden our customer base while deepening our connection to the sport and sneaker communities. With the ongoing momentum we have built in our business, The board and I believe now is the right time to complete the CEO transition. We are thrilled that Mary will join the Foot Locker team and are confident she is the ideal person to lead the company into the future. I know Mary is familiar to all of you. She has established a remarkable track record over a career spanning more than three decades that has included leadership roles at companies including Ulta, McDonald's, and PepsiCo. Mary has a passion for serving customers, and her expertise in developing attractive brand portfolios and delivering a superior experience is deeply aligned with Foot Locker's priorities and strategy. She is an inspiring leader who has not only been responsible for growing businesses, but has also shown a commitment to fostering inclusive and collaborative cultures that are impactful for organizations and customers alike. We expect a smooth transition with a continued focus on our strategic imperatives and business goals. I'll be staying with the company through January 31st, 2023 as executive chair of the board, and then as a senior advisor until early April of next year. In connection with the leadership transition, the board will be separating the chair and CEO roles, and our current lead independent director, Donna Young, will serve as non-executive chair, effective February 1st next year. I've had the privilege of spending the largest part of my career, the last 30 years, as part of the Foot Locker family, in nearly eight rewarding years as CEO. It has been an honor to lead this remarkable team and be part of building Foot Locker into the global leader it is today, sitting right at the heart of sport and sneaker communities. Over the years, we have turned a brick-and-mortar company into a broad house of brands with an increasingly engaged and interactive online retail community. We have a tremendous foundation, and I'm excited to see Mary take the business to its next level. I'll certainly be cheering Foot Locker on in its future successes, and as the team continues to advance the company's core purpose of inspiring and empowering youth culture. I appreciate the support of the analyst and investor community and look forward to the opportunity to connect with many of you ahead of my retirement. And with that, I'll turn now to discuss our financial results. As we turn to our Q2 results, let me thank our team for their solid execution in an increasingly difficult macroeconomic environment. The consumer is undoubtedly under pressure, especially at the lower-end income range, which we began to see in our business as we progressed through the quarter. Despite those headwinds, our team's hard work and dedication drove very strong results, with total sales down 9.2% versus the record year last year, but up 16.4% versus 2019. And our non-GAAP EPS of $1.10 for the quarter takes the overall first half to more than 20% above 2019 levels. Our strategies are working. We are further diversifying our merchandise and vendor mix. We're pivoting our real estate off mall and expanding our key growth banners. And we're enhancing our omnichannel offerings and capabilities. And we're executing our strategy in spite of the tough macro backdrop. I will focus on our merchandising and vendor mix, and then Frank will update you on our real estate, key banner growth, and our omnichannel capabilities. To remind you, our strategic direction of expanding our customer base through our diversified product offering is supported by three key pillars. First, consumers want choice, and they value a multi-brand experience. Second, we are under-penetrated in virtually all of our brands outside of our top vendor. And third, We have superior brand equity in the marketplace that we are leveraging to capture new customers across our portfolio of banners. Our second quarter results continue to validate those three pillars and demonstrate that our increasing ability to grow our customer base by bringing the consumer a broader and richer product offering across our brands, categories, and channels is yielding positive results. While our overall comps were down 10.3%, our non-Nike sales and our core banners were actually up high single digits, with many of our top 20 vendors posting strong gains. For example, we continue to see outsized gains in brands like Converse and Vans, which were both up over 20%, and New Balance and Crocs, which were both up over 50% this quarter. with Crocs continuing to benefit from successful projects like Crocs and SZA and the Crocs General Mills collection. Also, our partnership with PUMA, including exclusive access to LaMelo Ball products, continues to drive new heat to the basketball category, with the MB01 remaining one of our best-selling shoes. We continue to see success in growing our apparel and accessories business with the categories out-comping footwear by 800 basis points. Part of that strength is coming from our controlled brands, which grew over 40% as we fill in gaps in the branded assortment to round out our offering to consumers with unique product, including our partnerships with Don C and Melody Asami. Given our strong heritage, brand equity, and our knowledgeable sales force, We operate as a validator of trends and brands in the sneaker community, which is an important part of our value proposition to both consumers and to brands. One great example of that is the performance running footwear category, where we are working with some of the fastest growing brands to help them connect with the younger consumer while also helping us extend our consumer reach. As we announced last quarter, This summer, we began rolling out HOKA to select stores and online at FootLocker.com, and we are extremely pleased with the reception so far in the early days. We just added On Running to our first European FootLocker stores and now have the brand in 95 doors globally and continue to grow the presence of that exciting brand with strong results. In both Brooks and Asics, grew 40% or more this past quarter, despite the tough environment. Our elevated partnership with Adidas is still in the early days, but it is off to a great start with the brand being given stronger positioning in most of the fleet, enhanced presentation starting to be rolled out, and more collaborative marketing plans being developed. The work on our global partnership continues, and we remain optimistic about where the enhanced relationship will take us. As we develop new partnerships and add more choice and excitement to our portfolio, we are confident in our ability to both deepen our relationships with existing customers and grow our customer base. Now let me touch on the current environment and recent trends. After a strong start in May, we saw trends slow in June, which continued through mid-July. As trends soften, the promotional environment has become more intense, especially in apparel but also in footwear. In the back half of July, trends started to pick up meaningfully, especially in our earliest back-to-school markets. So as we look to the third quarter, we are excited about back-to-school and the strong start so far, as well as the energy we are bringing to the market this fall and holiday seasons with upcoming releases like LaMelo Balls, MBO2, the Trae Young 2, as well as new introductions from New Balance and key launches from Jordan and Yeezy. One of our strengths is the ability to win in key buying periods, like back to school and holiday, when there is a real call to action. Our view is that the back to school season will be strong, but we do see increased uncertainty from then until the holiday season begins. given the more challenging macroeconomic environment. Andrew will update you on our outlook shortly. Despite a tougher backdrop, we remain enthusiastic about our business, both near-term and long-term. Our strategies are working and are all the more relevant. Providing more choice to consumers is important as they make their more challenging decisions on how to allocate their dollars. Our ability to connect with consumers in a more personalized way through our community stores is a unique offering in the marketplace. And our broad offering across price points, including the value that WSS provides, gives our customers more options to engage with us, depending on their spending power. Our categories continue to have very persistent secular tailwinds that will help drive growth. The trend towards casualization is alive and well, And even as people return to the office, we see sneakers as a permanent part of the work uniform across vocations. Also, we believe the growing emphasis on fitness and self-care will continue to drive demand for workout gear, including sneakers and activewear. We have a number of strategic assets at our disposal, including strong vendor relationships, which we can use to manage our order flow, and a flexible real estate portfolio to allow us to adjust our banner fleet. Finally, I want to update you on some of our ESG efforts ahead of the release of our fiscal year 2021 impact report next week. Earlier this year, we made our strongest environmental pledge to date by issuing a net zero greenhouse gas emissions ambition by 2050 or sooner in alignment with climate scientists' recommendations. We have also recently passed the second anniversary of our lead commitment to support the Black community, including a pledge to invest $200 million over five years. So far through this effort, we have invested over $50 million to support Black-owned brands and creators, venture capital firms, and efforts to create pathways for over 70 persons of color to work in our corporate offices through an internship program. ESG is not just a program at Foot Locker. It is embedded in how we strive towards positive outcomes for our team members, the communities we serve, our customers, suppliers, shareholders, and the planet. And I'm especially proud of our accomplishments in these areas. With our strategies working in a category that remains vibrant, we couldn't be more excited about the direction and potential of our business going forward. Now I'll pass the call over to Frank to discuss our Banner's growth, recent changes to our portfolio, our loyalty program, and our omni-channel evolution.