Foot Locker, Inc.

By region, we saw broad-based momentum. In North America, our core Foot Locker banner was up over 13%, while Champs was down 10% as we repositioned that banner. Emea comps grew 14% with ongoing strength in key markets, and APAC grew nearly 6% given our investments in stores, our brand, and community experience. Our gross margins overall were down 290 basis points, given promotions were higher than the prior year, but in line with our plan. Our inventory up 30% with high quality product positions as well for 2023. And our non-gap EPS came in at 97 cents above our guidance for 45 to 53 cents. By category, footwear led the way of mid-single digits, but with apparel not far behind of low single digits. And we were above guidance in each month of the quarter, with particular strength in December, especially during those key shopping dates during the holidays. Again, our gross margins were down overall by 290 basis points, 310 basis points from planned promotions against the still favorable environment from a year before. And our comp increase helped us drive occupancy leverage at 20 basis points. SG&A leveraged by 10 basis points, with the early benefits from our cost optimization program being largely offset by inflation. So that's the quarter. We will spend the rest of the day looking forward. And so now, let me bring on our Chief Executive Officer, Mary Dillon.

Okay, good morning, everybody. Thank you so much for being here today in the room or on the webcast. We really appreciate your time. In the last six months or so since I joined Foot Locker, I've been spending my time learning about our business, the industry, our team, our brand partners, and really confirming many of the hypotheses that I had when I decided to join the company, which is that we have an exciting opportunity ahead. So today, along with some of my leaders, I'm excited to show you our direction for the future, which we call our Lice-Up Plan. So let's stop and let me just give some context at the top. Foot Locker as a company has many strong assets to leverage, and we will talk about those today. We also operate in an exciting growth category with strong tailwinds. And we have insights about the category and the consumer that provide clear pathways to position our banners for growth. And I believe that with the right focus, the right investments, and new capabilities, we will drive long-term profitable growth at Foot Locker. So let me talk about our strengths first. Foot Locker has a strong and unique place in the sneaker ecosystem. We are the OG. Foot Locker is the number one global brand synonymous with sneakers and sneaker culture. We have a 50-year authentic history around street basketball and youth culture. And we're truly a global iconic brand with over 90% brand awareness and social media engagement that's incredible. If you look at just Foot Locker alone, we have over 12 million followers, and that's five times the combined followership of our next four competitors. True brand engagement. Everybody knows and loves and grew up with Foot Locker. In fact, just a couple of weeks ago, the Foot Locker striper was a clue on Jeopardy. That tells you a lot. We're a favorite brand with teens, and we know teens are the ultimate arbiter of what's cool. We have tremendous brand partnerships with the number one wholesale partner for leading brands in the industry. And we have over 40,000 store associates who are truly trusted experts and provide exceptional service. I would also add, and this is something we're really proud about, Foot Locker is a true job creator, often a first job for young global people, young diverse people around the world, and we provide tremendous career possibilities. In fact, in the U.S., over 90% of our store teams are black or Hispanic. Now, let's talk about the sneaker category. Everybody here knows it's a large and growing category. Sneakers alone are $80 billion in sales in North America and Europe. And the category is projected to grow at a mid-single-digit rate. You know, it's a category with high engagement that's a lot like beauty. It's about individual expression, newness and innovation matter, physical and digital experiences matter. And there's plenty of factors that point to support for the continued growth of the category. So mass casualization. I think we all know that hybrid work is here to stay. And so whether it's that or sneakers with your tuxedo or your dress, we are not going back to less comfort in our lives. I can tell you that. Also, the second factor, performance is becoming mainstream. Traditional and new performance sneaker brands are becoming fashion statements. And third, the sneakerhead mindset is on the rise, with sneakers becoming a favorite avenue for individual expression, where newness and collectability truly fuel demand for more. And all this sneaker wearing and category participation is driving demand for a variety of brands. Consumers want choice, and we can give that to them. In fact, sneakers are becoming a larger share of the footwear market, and there's still lots of room for a sneaker wardrobe to grow in closets. And more brands are serving these customer needs than ever before. Of course, Nike, Adidas, New Balance, and Puma to newer brands like On Running and Hoka. People are building a sneaker wardrobe and not just niche sneakerhead collectors. And we see it in our own data. Forty percent of our transactions have multiple brands, and the majority of our highest frequency shoppers buy multiple brands. So what I'd like to do next is dive a little deeper into demographics and psychographics, or mindset and motivation. Let me start with the demographics of our Foot Locker portfolio. We have a solid base across demographics relative to the category today. You can see the data up on the slide, with a skew towards younger and more diverse customers, which we believe is a strategic advantage. These are the fastest growing consumer segments in the US and are rapidly expanding in their purchase power. If you don't win with young, diverse consumers in this category, you don't win in the long run. But driving demand and growth is also not just about putting people in a demographic box. It's about unlocking growth by understanding and tapping into the mindset of shoppers in the category. So in other words, a sneakerhead is a mindset, but a sneakerhead can be somebody of any age, race, or income. That's why we're focused on unlocking the inner sneakerhead in all of us. So let me explain more. We just completed our most exhaustive consumer segmentation study yet, and we will leverage those insights to differentiate our banners and provide new pathways to growth. So let me just share some of the highlights. It's a lot to digest. There's a broad set of shopping occasions and motivations for consumers within the sneaker market, which is true for almost any consumer category. These diverse motivations can be translated into specific consumer segments which allow us to hone in on the mindset of shoppers and better meet their needs. So let me talk about the segments, and you might recognize yourself in one of these. There's a sneaker maven. This is the biggest segment in the marketplace, sneaker-obsessed shoppers who represent themselves through their shoes. Fashion-forward expressionists, they want to look and feel cool and fashionable, and sneakers play a big role in that. The active athlete prioritizes performance when shopping for shoes and often adds an apparel item to their shopping trip. Quality seekers. A quality seeker is a practically-minded shopper focused on well-fitting shoes and well-known brands. And the deal finder who focuses on price is their highest priority. And by the way, these segments are not completely discrete. So consumers might start in one segment and then grow their sneaker wardrobe by moving into another segment as well. So I, for example, have long been in the active athlete segment as a runner. But now I'm moving into the fashion forward expressionist segment and displacing a lot of heels in my closet in the process. Unfortunately, one of my daughters has my shoe size. She's got some damn nice heels now. But, you know, as evidenced by my Nike Air Max 97 golden bullet shoes today that I chose to match my jacket. So fashion forward expressionist and active athlete. The Foot Locker portfolio over-indexes with the Sneaker Maven and captures a strong business with the Fashion Forward Expressionists. Both of these segments skew younger and more diverse. And while they over-index in their love of Nike and Jordans, they also have other brands in their consideration set, like Adidas, Puma, New Balance, and Converse. And you may have guessed we have an incredibly strong relationship with that customer. They love the brands we carry, the energy that we bring to the category, and especially our in-store experience. And our portfolio today also attracts customers across the other segments, given our range of banners and the brands that we offer within them. So our LASA plan will create pathways for growth in both our areas of historic strength and our opportunity areas for the future. So we'll leverage our sneaker authority at the center of sneaker culture to grow in two ways. Expanding our wallet share with sneaker mavens and fashion forward expressionists and broaden our reach with the other segments. So we'll start with the sneaker maven and fashion forward expressionists. As we showed in the previous slide, we over indexed with sneaker mavens and have a strong business with the fashion forward expressionists already today. Our community stores really bring this relationship to life. So community stores are located in neighborhoods with a passion for sneakers, and those stores have an average order value that's over 20% higher than the balance of the chain. And we serve the full family needs in those stores. Our partnership with Crocs is just one example of how we build sneaker culture for our brand partners as well. So 70% of our Crocs sales are going to women and children. And the way that we're able to connect that brand with sneaker cultures and our customers has allowed that brand to both drive more productivity and create higher pricing power than before, especially with exclusive tie-ins like Crocs and General Mills. So as we walk through our lace-up plan today, you will see how our key actions, from a relaunch of the Foot Locker brand, to new store concepts, to exciting brand partnerships, to a relaunch of our loyalty, will all work together to drive even more loyalty and growth with these key segments. So secondly, while the active athletes, the quality seekers, the deal finders have different motivation than those first two segments, sneakers are a part of their everyday lives, and increasingly so over time. So given our current share in those segments, we have opportunity to broaden our reach and better invite them into our portfolio. And we've already started to do just that. So, for example, in 2022, we acquired over 10 million new customers in the U.S. with brands like On Running and Hoka driving 2X the acquisition of other brands. And 60% of those new consumers are women. So brand partnerships like these are helping us to bring in new customers into our franchise, as well as helping them expand to a younger and more diverse customer set that they may have today. So in addition to new brand offerings, new store formats and locations will also be a key strategy for us to reach those key segments. Example, our power store, a new power store in Dallas-Fort Worth, has a focus on running and basketball and our best expression of sneakers. And it's attracting an older and higher income shopper. In fact, the household median income of the Dallas-Fort Worth store is 30% higher than our average fleet in the fleet. So these are just a couple of examples of early wins that we're seeing in our ability to both expand wallet share and broaden our customer reach, which gives us great confidence in our growth plans. So with this category segmentation as a backdrop, we've created a sneaker growth plan, positioning our banners to play each a distinct role. So you'll see as we go through our strategic priorities today, we'll bring these distinctions to light by providing the right offerings and experiences for each banner and segment, combined with a powerful new set of demand creation tools and loyalty in CRM, and a much improved e-commerce experience. So Foot Locker will continue to focus on the sneaker maven while we broaden Foot Locker's reach to new segments. Kids Foot Locker, as the number one kids-focused sneaker retailer, we believe in this brand's ability to broaden and serve more kids in more occasions. Champs will reposition to go after the more suburban active athlete, serving their footwear and apparel needs. WSS has a distinct focus on Hispanic families and more price-sensitive consumers. And then Atmos, which serves the premium customer with a focus on Japan and Japanese culture. So bringing it all together, Our vision is that by leveraging our sneaker culture, passion, authority, and expertise in that of our store teams, we will position our banners to deliver all things sneakers and unlock the inner sneaker head in all of us. Anyway, so what we're going to do next is walk through the key strategic pillars of our plan, but I'd like to provide an overview on each first. So the first strategic pillar is all about expanding sneaker culture. So as a pioneer in the space, Foot Locker has been committed to developing sneaker culture over the last 50 years. We will leverage the passion and the commitment that we have for sneakers to serve more sneaker occasions, provide more choice, and drive greater distinction. Of course, our strong relationships with our brand partners in the industry is where it all starts. In fact, our relationships with our brand partners have been a top priority for me and my team as I joined the company. And I've met with the top leaders of all of our largest brand partners to begin to share our vision for Foot Locker and our growth plans with them. Of course, Nike is our largest brand partner and the leader in the industry. From day one, I've been welcomed to the industry by John and Heidi and their team. And my team and I have spent a great deal of time with Nike revitalizing our partnership, developing a shared vision of the future marketplace, aligning on growth plans in key strategic areas like basketball, kids, and sneaker culture. We've reestablished joint planning as well as data and insight sharing so that we can better serve customers. And the fruits of our renewed commitment to one another will begin to show up and holiday this year as we build increasing momentum to 2024 in the 50th anniversary of Foot Locker. So I'd like to thank John and Heidi and their entire leadership team for helping us revitalize the partnership and chart a path forward towards consumer-led ideas and growth. Now, of course, there are so many other wonderful brands that our customers love today or are beginning to love. New Balance, Puma, Adidas, Vans, Hoka, On Running, Crocs, UGG, Brooks, Asics, the list goes on. And I look forward to building collaborative partnerships and plans with all of our key partners as we strengthen our position at the center of sneaker culture. So Chris Santella, our chief merchandising officer, will cover the first strategic imperative. The second imperative we call powering up our portfolio. Frank Bracken, our chief commercial officer, and Tony Aversa, our SVP of store development, will together walk through how we'll reshape our Banner portfolio with focus, intent, and innovation. We are so excited about a major relaunch of the Foot Locker and Kids Foot Locker brands and creating clear differentiation for the rest of our portfolio, as well as transforming our real estate to support our growth ambitions. The next imperative is deepening our relationships with customers. Frank will then come back to cover the critical topic of investing in all things digital, specifically reinventing our loyalty program and building our CRM capabilities to create deeper relationships with new and current customers. And then our last imperative is all about being best-in-class Omni. So after a break, Peter Scaturro, our SVP of Strategic Planning and Growth, and Elliot Rogers, our new Chief Operations Officer, will describe how we'll accelerate and enable our Omni offense, increasing our digital mix by removing friction and having better connectivity between channels to drive a greater penetration of digital in our business. So together, all these strategic priorities will create value for all of our stakeholders, our customers, our communities, our team members, and our investors alike. So there is work to do, but we know what it takes, and we're ready to do that. First, it's about simplifying our organization, closing underperforming businesses to reinvest those resources and focus on the banners and the geographies that'll drive profitable growth. We like to say it's getting focused on all things sneakers. Investing into technology and capabilities that will allow us to have a more targeted and personalized demand engine over time. changing our mindset as an organization to becoming truly customer-led. And finally, creating a culture that leads through the lenses of functional expertise, enterprise thinking, and collaboration, and putting our customers and our stripers in the center of everything we do. Doesn't happen overnight. So we've already begun, though. We've already begun simplifying our organization with the closure of team sales, East Bay, foot action, sidestep, and transitioning most of Asia to a licensed model. 2023 is a year where we will reset the business. Our relationship with our brands, our banner repositioning, and store optimization will begin to execute on our cost savings, while at the same time, investing in technology and new capabilities and our global brand platform so that in 2024 and beyond, our core banner focus, new concepts, and better digital and loyalty capabilities will drive sustainable growth. I couldn't be prouder of the team that's taken the field with me. We have an amazing mix of veteran knowledge and fresh perspectives. I'd like to mention two of our newest members who are joining us here today. Adrian Butler, our chief technology officer, who recently joined us from Casey's General Stores, bringing incredible experience as a technology leader across restaurant and retail. and Kim Waldman, who is joining us officially next Monday, but we've announced this today. She's joining us, and she's most recently the Chief Digital and Marketing Officer of Athleta, and prior to that, the General Manager of e-commerce at Sephora. And she'll be our Chief Customer Officer. So let me wrap this section up by just highlighting our targets and aspirations. And we'll walk through all of this today. I believe that our LASA plan to simplify, invest, and grow, and execute across the strategic pillars I just gave you an overview on, will truly create value for all stakeholders and set us on a path to exceed $10 billion in revenue over time and to exceed a 10% EBIT margin. Now let me bring up our Chief Merchandising Officer, Chris Santella, to begin walking you through our strategic imperatives.

All right. Thanks, Mary, and good morning, everyone. Sneaker culture has been the driving force behind Foot Locker for the last 49 years and will be the driving force behind the next 50. The last few years has created a lot of change in the industry and one of the most positive changes has been the evolution of the consumer. I will take you through the first strategic imperative on expanding sneaker culture and how Foot Locker continues to evolve with the consumer. As Mary touched on, sneaker culture continues to evolve and be much more inclusive. More people are wearing sneakers on more occasions than ever before. No longer are sneakers only for sport and for weekends. They are part of every aspect of life for many people. The broadening consumer base continues to keep sneakers top of mind. The sneaker maven is looking for a pair of Nike Panda Dunks. The fashion forward expressionist is looking for the hunting the New Balance 9060. The active athlete is looking for performance innovation from brands like On and Hoka. The quality seeker and deal finder are looking for authentic brands and great price value in their sneaker shopping occasion. Sneaker culture was built on accessibility and inclusivity. If you had passion for sneakers, whether it's for style, comfort or performance, there was something for everyone. That inclusivity was a great foundation for the future broadening consumer base. Foot Locker was there from the beginning, providing access to a world of consumers through our global store fleet and our passionate striper community. The broadening consumer base has created a broader brand portfolio as more consumers are seeking more brands to satisfy their footwear occasions. Foot Locker has evolved our brand portfolio to include a much broader brand representation. In the last few years, Vans, Crocs, UGG, On Running, and Hoka have all been added to our brand portfolio, in addition to our long-standing partnerships with premium athletic brands such as Nike, Adidas, Puma, New Balance, and Under Armour, just to name a few. There are more consumers seeking more brands to support their desire to wear sneakers on more occasions. As more consumers are wearing sneakers for more occasions, Foot Locker has evolved our merchandise strategies to focus on these areas. The first is broadening our footwear assortment to satisfy more footwear occasions. The sneaker maven and fashion forward expressionists will continue to drive our core business through premium lifestyle product. This could be a Jordan Retro, Adidas Superstar, or UGG Mini Classic. Premium lifestyle footwear will continue to be the sharp point for Foot Locker. In addition to style, we will expand our assortment to the active athlete focused on performance innovation in their sneaker shopping occasion. This could be running innovation from On Running or Hoka, or the next performance basketball model, such as the upcoming Jason Tatum launch from Brand Jordan. The second focus area is broadening our brand portfolio. Our highest value customers purchase three footwear brands per year. They crave a multi-branded environment for their sneaker shopping occasion. Providing choice, both from a brand and category perspective, are critical to satisfying the evolving consumer appetite and providing our customer the best premium multi-brand experience in the marketplace. The third focus is on sneaker distinction. Our customer craves scarcity and a differentiated marketplace. Foot Locker will utilize our global sneaker community to elevate our exclusive product opportunities and create a more differentiated marketplace in the future. Foot Locker will continue to lead in basketball exclusivity in addition to developing exclusive product concepts in other categories. These principles drive customer loyalty in addition to broadening our reach and diversifying our brand portfolio. In addition to more consumers and more brands driving the future of sneaker culture, There are also more shopping occasions that are providing Foot Locker opportunity to expand our reach and increase wallet share from our existing customers. The global pandemic and new hybrid work environment has created an increased desire for performance footwear, both from a style and performance perspective. Comfort and versatility is driving the customer along with a desire to stay fit through a changing hybrid lifestyle. Sneaker innovation is deeply rooted in Foot Locker's DNA, both from a style and performance perspective. And delivering new performance innovation has been a big part of Foot Locker's 50-year journey. We have accelerated this opportunity and performance product with the development of new brands, such as On and Hoka, along with aggressive growth plans with Asics, Brooks, and Nike. Foot Locker is well-positioned to capitalize on the performance opportunity. The second footwear opportunity is the casual business. The broadening customer base has looked for comfort and style as they increase their sneaker wearing occasions. Foot Locker has deep heritage with premium athletic brands and has now expanded our brand portfolio to include many premium casual brands. Over the last five years, Foot Locker has added Vans, Crocs and UGG in addition to long-standing meaningful business with Timberland and Converse. This segment is critical to our growth opportunity in women and kids as the casual business has a deeper customer connection with her than the male consumer. The third opportunity is under 100. Foot Locker will continue to focus on the premium segment of the marketplace. But through WSS and Champs, we have the opportunity to expand our reach more aggressively in the under-100 marketplace. We have strong relationships with our brand partners, such as Vans, Converse, and Crocs, in addition to developing opportunities with our premium athletic brands. Our acquisition of WSS has allowed us to better understand the under-100 marketplace and where we can play authentically in this opportunity. Performance, casual, and under 100 all provide meaningful incremental growth and allow Foot Locker to authentically evolve our footwear category portfolio. In addition to category opportunity, we continue to develop our brand partnerships. Nike will continue to be the largest brand partner, and we've revitalized our Nike relationship, and both companies are committed to growth. THE PARTNERSHIP IS FOCUSED ON CREATING A STRATEGY THAT IS COMPLEMENTARY TO THE NIKE DIRECTED CONSUMER STRATEGY. THE FOCUS IS ON CONSUMER SHARP POINTS ALONG WITH AN INTEGRATED MARKETPLACE. THE CONSUMER STRATEGY IS ROOTED IN FOOTLOCKER STRENGTHS AND HERITAGE IN SNEAKER CULTURE. BASKETBALL CULTURE AND HOUSE OF HOOPS WILL LEAD OUR PARTNERSHIP. as our shared passion to elevate the next generation of basketball icons, such as Jason Tatum and Devin Booker, is critical to our customer and the continued development of the sneaker industry. Our second aligned focus is kids. And through Kids Foot Locker and Foot Locker Globally, we will partner with Nike to develop the next generation of sneaker enthusiasts. Similar to developing the next generation in basketball, Developing the next generation of sneakerheads is critical to Foot Locker and Nike's long-term growth. The third partnership strategy is sneaker culture. Foot Locker and Nike's relationship is close to 50 years old, and the celebration of sneaker culture has been a key consumer connection throughout the journey. The global Tuned Air franchise anchors our position outside of basketball, and we have some big plans to celebrate the 25-year anniversary of that model later this year. Beyond the consumer sharp points, we are partnering across planning and loyalty to develop an integrated marketplace. The revitalized alignment has positioned Nike and Foot Locker to return to growth in 2024. In addition to growth, the partnership is committed to developing unrivaled experiences for our consumers. We will reset House of Hoops with elevated product positions, along with reimagining the overall experience. Starting holiday 23, Foot Locker will have elevated access in LeBron and KD Retro models, LeBron Signature, and Global Air Force One models. Kids Foot Locker will continue to lead to be the Nike Kids leader as the only retail partner 100% focused on kids. KFL will outpace the market in kids growth from Nike. The Nike and Foot Locker partnership has always been deeply rooted in celebrating sneaker moments. As the partnership evolves, sneaker moments will continue to play an important role 2023 is the 25-year anniversary of the exclusive Tuned Air franchise. Nike and Foot Locker will have a global celebration of that anniversary in holiday 23. Following that, in 2024, Foot Locker and Nike will partner on an exclusive product concept celebrating Foot Locker's 50-year anniversary. The concept will include some of the most iconic models in the industry, along with an elevated go-to-market strategy celebrating our 50-year partnership. In addition to Nike, we have focused on expanding our brand portfolio to reach more consumers on more occasions. Foot Locker's market share in non-Nike brands continues to be in the high single-digit range, but much lower ...than the mid-teen market share Foot Locker has in total. We have significant opportunity across brands like Adidas, New Balance, and Puma... ...just to mention a few. The growth opportunity is rooted in long-range planning... ...elevated go-to-market strategies... ...and co-created product franchises. One example is our Puma Mellow Ball franchise... ...where we collaborated on a multi-year journey... with elevated go-to-market strategies such as Rick and Morty launched last month during NBA All-Star weekend. Foot Locker will also partner with Puma on a leadership position with the recently announced Rihanna and Fenty collaboration, planned for later this year. We are excited about the energy Rihanna can bring to an already very strong women's footwear market. In addition to Puma, Foot Locker has accelerated growth plans with running brands such as New Balance, On, and Hoka. We have also seen record growth in casual brands such as Crocs and UGG. And our brand portfolio in footwear is stronger and broader than ever. Foot Locker is well positioned to capture more consumer occasions in the future. As we broaden our brand and category portfolio, driving marketplace distinction and scarcity play an important role to make Foot Locker the must-shop destination. Our customer craves scarcity, and by utilizing our global leadership position, we have the ability to develop and create more exclusive product opportunities for our customer. That competitive advantage will increase our exclusive product mix from 15% to 25% of our product assortment. I mentioned Nike Tuned Air and Puma Lamella Ball franchises earlier as two current examples of exclusive leadership. In 2023, Foot Locker will launch a signature basketball model from Anthony Edwards with Adidas, along with exclusive color positions with Nike LeBron 21 and Puma Scoot Henderson. In addition to signature athlete positions, we have partnered with several brands on exclusive third-party collaborations. Puma LOL Surprise and Crocs Cinnamon Toast are two of the best examples. Elevating exclusivity is critical in developing a differentiated marketplace for a consumer who craves scarcity and a marketplace that needs differentiated retail. As Mary stated, our aspirations are clear. Broaden and expand sneaker culture through more consumers and more occasions. Revitalize the Nike relationship and diversify our brand portfolio. Nike will continue to lead our brand portfolio and be 55 to 60% of our mix. Accelerate growth plans of our non-Nike partners at two times the average growth plans. Foot Locker's brand portfolio is the strongest in the industry and positioned well to serve more consumers and more sneaker occasions. Lastly, increase our exclusive mix to 25%. Basketball will continue to be the sharp point for exclusivity, along with elevating other opportunities across all categories and brands. Foot Locker is well positioned with all of our brand partners to deliver against these aspirations as we move forward to the next 50 years. Thank you, and I will turn it over to Frank Bracken.