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spk02: 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.
spk01: 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.
spk00: 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.
spk06: Thanks, Chris, and good morning, everyone. As we expand sneaker culture, offering more choice to more customers, it's critical that we have a framework for how our banner portfolio serves consumers. In this section, Power Up the Portfolio, I'm going to share our new approach to leveraging the strength of our multi-banner portfolio. I'll begin by sharing that Foot Locker plays a critical role in the industry. We are much more than a place to buy shoes. We are the authentic destination for consumers to find curated assortments and compelling stories. As you can see, in North America alone, last year we served 23 million active customers and had over 1 billion visits to our stores, sites, and apps. Our customers look to us for what's new and hot, for the best presentation of global athletic sneaker brands and also for inspiration and compelling stories. In turn, the scale of our relationship with our customers and our emerging capability to harvest insights from that data is of great value to our brand partners. We will increasingly build that customer insight function and capability led through technology and a refreshed loyalty program in order to be of even greater value to our brand partners. This also allows us to work upstream with our partners to build more exclusive propositions, to create more relevant content and media plans, and ultimately to create more demand for our banners and our brand partners. Now one of the most important actions we've taken over the last two years is the simplification of our banner portfolio. Simply stated, we had too much overlap between our banners, and some of our smaller banners were adding complexity to our operating model and also diluting our profitability. In North America, we have closed the Lady Foot Locker banner, the Foot Action banner, and most recently, the EastBay.com banner. In Europe, we had previously shut down the Runners Point Group, and in January this year, we announced the wind-down of our sidestep banner, which we expect to be complete by the end of Q2 this year. And then lastly, in Asia, we've converted our business model from owned and operated to a licensed model. In fact, just today, we announced the transfer of our business operations in Singapore and Malaysia to MAP Active. We expect that transition to also be complete by the end of our fiscal Q2 this year. Moving forward in Asia Pacific, we will have owned and operated businesses in Australia, New Zealand, and South Korea. Now, as we position our banners for future growth and customer connection, we have a very deliberate purpose and role for each of those banners. If you recall, Mary introduced what we call our sneaker growth map. In this framework, we've identified the five consumer segments that we will focus on as a company. We've also identified the four major sneaker shopping occasions that drive the majority of customer purchase intent. We position each of our banners at the intersection of their core customer focus and the most compelling occasions that drives their sneaker buying behaviors. These positionings will drive everything we do, including real estate site selection, product merchandising, omni-marketing, and of course, great customer service. The Foot Locker banner will focus on the sneaker maven and fashion-forward consumer, while also broadening to serve more active athletes through the lens of basketball and running specifically. Kids Foot Locker will also target the sneaker maven and the fashion forward consumer, albeit younger ones, and will continue to be the number one destination for kids and their parents to find all things sneakers. Champ Sports will sharpen its position against the active athlete and quality seeker, which includes moving more of the assortment to performance and athleisure in both footwear and apparel. and we will further continue to differentiate Champ Sports from Foot Locker to drive incremental consumers in the fitness and lifestyle categories, the apparel category, and under $100 footwear. The WSS is very clearly positioned against the quality seeker and the deal finder, with an even sharper point of view on the Hispanic family. This is driven by our real estate, a more value-driven assortment, and the great connectivity to the Hispanic community. Finally, Atmos will play a key role in serving sneaker culture in their home market of Japan, while also pioneering new ideas and concepts that can inform the rest of our banner portfolio. I'm now going to transition into a few slides on each of the banners to go just a bit deeper on the strategy for each, starting with our lead brand, Foot Locker. Foot Locker is the undeniable leader of sneaker culture globally. As you look at the stats on the page, which I'm not going to read verbatim, you can see the strength and even the untapped potential of the brand. The brand has better consumer awareness than any other retail brand in the industry. Our stripers are trusted as advisors and members of their local communities, and our social engagement is simply unrivaled. That brand, Health, which we've built over the last 50 years, provides a great foundation for us to lead sneaker culture for the next 50 years. Our ambition for the global Foot Locker brand is to grow at a mid-single-digit CAGR, delivering over $6 billion of sales by 2026. We will accomplish that goal with four clear global strategies. First, we'll introduce a refreshed brand platform. Next, we'll intentionally broaden our assortment with key brand partners. Third, we'll unleash the power of our store fleet and our new retail concepts. And lastly, we will double down on stripers as the most authentic sneaker experts in the world. So let me take a minute to talk about each of these strategies. As the global leader of sneaker culture, we are very excited to introduce a new brand platform and campaign later this year. The objective of the platform is very clear. It's to invite more consumers than ever before to participate in sneaker culture. From the sneaker maven to the fashion forward and all the way to the active athlete, if it's the best of sneakers that consumers want, we will unleash their inner sneaker head. Upon launch... You will see the Foot Locker brand come to life through our unmistakable stripers and our iconic brand equities. You will see more brands and more sneakers featured than ever before, and our media plans will engage a wider audience than we have over the last decade, including men and women as part of the core brief. We'll launch our first campaign at holiday this year, and we've got a great roadmap that extends into 2024 that'll enable us to celebrate our 50th anniversary as a brand. And as Chris said earlier, we have the full support of all of our key brand partners to make this more than just a commemorative moment, but a truly commercial moment. Chris did a great job walking through the overall broadening strategies for Foot, Inc. for the Foot Locker banner will continue to diversify and dimensionalize basketball culture through new signature athletes, exclusive concepts and stories, and the best offering of basketball classics in the world. We plan our basketball leadership to grow to be a multi-billion dollar business by 2026. And as Mary and Chris alluded to earlier, we're very excited by the innovation of the Nike and Jordan brands and what they're bringing to market, particularly this holiday, and how that will fuel our exclusive position in House of Hoops. Next to that, we will reignite our commitment to serving runners and the lifestyle running category through expanded assortments and digital and community activations. The door count and assortment of Hoka and On Running are two great examples of newer brand partners thriving in the Foot Locker retail environment. Finally, Foot Locker will continue to build our assortment of casual sneaker and seasonal footwear, which further supports our brand diversification efforts and also helps us connect with more female consumers who want to participate in sneaker culture. So think of brands like UGG, Timberland, Crocs, and Hey Dude as brands that have a clear role in sneaker culture with our Foot Locker consumer. Now to give our world-class assortment the best experience that we can, we've also kicked off our Store of the Future project. Our objective is to deliver a globally scalable technology and striper-powered Foot Locker experience that brings to life our leadership of all things sneakers. The core tenets of this experience will be the following. Clear sneaker leadership demonstrated through our brand selection, expanded assortments, and crisp storytelling. Dedicated men's and women's and kids' spaces so that we are more inclusive of all sneaker shoppers and can provide exceptional choice in merchandising variety. A digitally connected retail environment with stripers who can access a seamless omnichannel experience, including access to inventory across our entire store fleet. And finally, deliberate design choices that optimize our front of house sales productivity while also maximizing our back of house operational productivity. Our first pilot store will open here in New York City in Q1 of 2024, with other pilots planned next year in Italy and the UK. And those pilots will inform a broader rollout of the store concept beginning in 2025. Now the last topic I want to touch on for Foot Locker is our stripers. Plainly stated, our stripers are the backbone of our company, and we couldn't be more proud of their iconic status in our industry. and we will continue to invest and leverage their sneaker expertise as a key differentiator and part of our brand's value proposition. We will double down on product training, leveraging our Lace Up app, which is available to all of our stripers. We will continue to equip stripers with handheld technology and integrated POS systems that unlock inventory across the entire system and also help us better acknowledge and serve our FLX members. And as great ambassadors for our brand, they will continue to be present in the communities that we serve and also play a starring role in our social media and coming brand campaigns. So that's our plan for Global Foot Locker. Now I'd like to turn to our Kids Foot Locker banner. As the only kids-focused retailer with a full range of sneaker brands, KFL is a truly unique asset and value proposition in the marketplace, and a banner that we will continue to invest in. As this slide illustrates, KFL is by far the favorite place for customers to shop for kids' sneakers. Almost 50% of those surveyed said that we were their favorite brand, more than 15 points over the next highest retailer. Kids Foot Locker is also the leader in market share with nearly 2x the closest competitor when you include both KFL and Foot Locker Kids sales. And we are differentiated by our premium product positioning versus most others in the marketplace who are focused on the low end of the category. So much like Foot Locker is the leading brand in the adult space, so is Kids the clear leader for sneakers with kids. And importantly, Beyond its direct value as a business, KFL also has significant strategic value to our larger portfolio and our long-term growth strategies. As you can see from our lifetime value data, customers who are acquired through KFL are approximately 20% more valuable than those acquired through other banners. Additionally, the lifetime value from Kids Foot Locker customers, nearly half of that value is captured by other banners in the portfolio. IN OTHER WORDS, CUSTOMERS ACQUIRED THROUGH KFL ARE A STRONG PIPELINE OF BUSINESS FOR OUR ADULT-BASED BANNERS, AS OFTEN TIMES PARENTS WILL SHOP FOR THEMSELVES AT A FOOTLOCKER, AND AS GRADE SCHOOL-AGE KIDS BECOME TEENS AND WEAR ADULT SIZES, WE'RE ABLE TO GRADUATE THEM INTO THE FOOTLOCKER BANNER AS WELL. SO HAVING KFL AS A CUSTOMER ACQUISITION AND RECRUITMENT VEHICLE IS NOT ONLY GOOD BUSINESS IN THE SHORT TERM, IT ALSO PROVIDES COMPELLING LONG-TERM BENEFITS TO OUR PORTFOLIO. And while we are the clear leader in the kids category, what gives us further confidence that there's still plenty of room to grow for KFL is presented on the page here. Our brand awareness of 74%, while strong, is still below that of Foot Locker's 90%, demonstrating that we still have consumers who aren't thinking of KFL as their first sneaker destination. Next to that, When surveying consumers who don't shop at KFL and asking them why they did not shop there, 22% of them cited a lack of physical availability as the top barrier to purchase. And finally, when our market planning team looked at the demand potential in our top 15 existing KFL markets alone, we modeled the potential to double our KFL sales in those markets. So clearly, there is more demand and more opportunity for the KFL banner. So then, how do we take KFL to the next level? Our path to making KFL a $1 billion banner requires us to deliver a high single digit to low double digit CAGR over the next four years. Our KFL merchants will continue to take a kids-first approach to building the most compelling assortments in the marketplace and also drive exclusive content. This is something they've done very successfully over the last couple of years, including ideas like LOL Surprise with Puma and the Crocs General Mills collaboration. To help accelerate sales, our net KFL square footage will grow high single digits per year through 2026. And our new House of Play concept, which is delivering great four-wall results, will be a big part of those plans. Lastly, the team has shown that our digital acquisition And inclusion of KFL in our loyalty program is a winning combination to acquire and retain more households, something we tested last back to school and continue to invest in this year. So there is a high level of confidence that we can continue to grow our KFL banner. The next banner I'll cover is Champs Sports. For over a decade, Champs has been a billion-dollar-plus banner for us in North America, and it's easy to understand why when you look at the stats on this page. There's very strong consumer awareness of the Champs Sports brand, particularly when compared to other sporting goods retailers. The Champs banner is also strongest in the markets that matter the most, those with high populations and high concentrations of consumers who are spending against their fitness and wellness needs. Finally, the Champs consumer is highly engaged in social media, with an impressive digital footprint in the marketplace. As a destination in the mall for great sport lifestyle and sneakers, Champs Sports has been a strong number two banner next to Foot Locker. But with our reset, we see an opportunity to be even sharper with the Champs banner in the future. As Foot Locker and Kuds Foot Locker lead with the sneaker maven and the fashion forward, there's a large and highly engaged consumer segment the champs can serve within our portfolio. It starts with widening their current focus from the teen and high school athlete to a broader segment of consumers that we call the active athlete. As a segment, these are consumers who are highly connected to sport, they're inspired by what's worn by the best in the game, and they seek elevated, authentic shopping experiences. Next to that, they prefer one-stop shopping for both their footwear and apparel needs. the active athlete represents 21% of the sneaker growth map, which makes it the second biggest consumer segment along with the fashion forward. And the category itself is forecasted to grow in the mid single digits over the next four years, making it an attractive segment to position champs within. To reposition and reset this business, we are taking key decisions to strengthen the core of Champ Sports so that we can stabilize the banner as a billion-dollar business. First, we are closing approximately 125 underperforming stores this year, focused on exiting non-priority markets and older format stores that are not the current expression of the brand, nor do they receive the best assortments and allocations. Moving forward, we are then prioritizing four key geographic markets where Champs has historical strength, and there are also very favorable consumer demographics and demand. That's specifically in the states of California, Texas, Florida, Georgia, and the tri-state area. And we're using Champs as our lead banner for apparel, driving more head-to-toe connectivity for the consumers shopping for their performance and athleisure needs. In summary, our ability to use CHAMPS to further extend our consumer footprint and serve incremental occasions is what makes the totality of our North America banner portfolio even stronger moving forward. Now, in October of 2021, we acquired WSS, which was then a private company. In the time since, we've grown in our conviction that not only is WSS the next billion-dollar business for Foot, Inc., But the WSS is a highly differentiated and incredibly well positioned in its core consumer focus on the quality seeker and the deal finder segments, two consumer segments that Foot Locker previously did not directly serve. Now, as I said, WSS is a banner that's very unique in our portfolio and in the marketplace, and it's nearly entirely complementary and incremental to our existing banner portfolio and well-positioned for growth in the coming years. It is the number one Hispanic-focused retailer in athletic footwear with a special connection to the communities that it serves. It is a 100% off-mole concept, offering a fully bilingual shopping experience and hosting over 300 community events per year. WSS has a full family offering with more than 50% of its sales coming from kids and women, and the concept carries all of the globally relevant brands that the consumer wants, but at more accessible price points, as well as having a strong and growing private label business. It has an incredibly effective loyalty program as well, with nearly 4 million members that represent 85% of its sales and who spend 20% more per visit. And with a focus on the Hispanic family, we have very favorable demographic trends and spending habits to anchor our growth over the next several years. The Hispanic population is expected to grow over 30% in the next 20 years, adding 10 million people to the U.S. population in the next decade alone. and ultimately represent 25% of the total U.S. population in the medium term. Importantly, Hispanic consumers tend to shop more in stores and spend more than other consumer segments on the footwear category. And as we position to capture that growing population and spending power, we see the opportunity for over 300 WSS stores over time. Our desire to scale the WSS brand into new markets and also fill in opportunity trade zones within existing markets is backed up by strong four-wall economics. An average WSS store requires a net investment of approximately $1.7 million. With year three planned revenues of nearly $5 million per store and a 15% four-wall operating profit, these stores generate a 40% ROI and take less than three years to pay back. And what gives us confidence in the growth trajectory is how successfully this concept has traveled from the home market of California to new markets like Phoenix, Dallas, Houston, and San Antonio. And our newest market, Miami, is coincidentally opening tomorrow. And we'll have five stores open in the Miami market by the end of Q2 this year. With a strong and unique value proposition, a tremendous amount of white space, a growing market segment, and strong unit economics, we see a clear runway for profitable growth. This year, we will open at least 25 new doors, and we will accelerate that growth beyond to 40 stores a year in 2024 to 2026 to get to at least 280 stores by the end of that period. And by 2026, we forecast our revenues for WSS to be $1.3 billion, a 20% CAGR, over the next four years. The second acquisition we made in October of 2021 was the Atmos banner. In Atmos, we gained a brand that has a very strong market position in Japan, the third largest sneaker market in the world. and Atmos as a brand is incredibly well respected by the sneaker mavens across the world, and it's also sought after as a product collaborator for exclusive footwear drops and retail experiences. We bought a business that has a great omni-channel composition and is also quite profitable. Atmos has the highest digital penetration of any of the banners in the globe at 50%, and it also delivers strong double-digit profitability. Our objective with Atmos is to grow the banner at a high single-digit to low double-digit CAGR to over $250 million annually, while maintaining the strong profitability that it delivers today. That growth will largely come from comp growth in the home market of Japan, as well as strategic investments in North America. Meanwhile, Atmos plays a strategic role in our portfolio that's enabled due to its relative size and agility, and we'll continue to use Atmos to test new store and digital experiences. We'll also look to Atmos to pioneer new product ideas at the highest level of sneaker culture, and that includes collabs and exclusive concepts, as well as a premium private label brand, the Atmos label, which brings a unique Japanese streetwear aesthetic. So that takes you through our banner portfolio and how we've architected our retail banners to serve more consumers with more sneaker choice, while having very distinct roles for each of those banners with consumers, minimal real estate overlap, and a path to total revenue of over $9.5 billion by 2026. So to take you through even more detail on our real estate and store plans, I'd like to introduce Tony Aversa, our Senior Vice President of Store Development.
spk05: All right. Thank you, Frank, and good morning, everybody. So as Frank noted, I'll be taking you through the second part of powering up our portfolio, which is transforming our real estate. The way we'll do this is three key strategies. First, we'll be scaling new concepts with bigger footprints to offer more engaging experiences with a broader product assortment. Second, we'll be strengthening our portfolio off-mall while also optimizing risk and rationalizing underperforming stores. And third, we will optimize our international portfolio with key focus on European markets and transitioning Asia to a licensed model. So let's start with scaling new concepts. We'll expand our new formats to deliver uniqueness and reach in the marketplace. The first of those formats are community stores. Community stores are a 15,000 on average, square foot, best in class expression of our Foot Locker brand. They offer tailored assortments and experiences relevant to the local communities and neighborhoods that we serve. Great examples of these community stores would be Compton in the Los Angeles market, 69th Street, Upper Darby, in the Philadelphia market. Our newest addition, Mondamin, in Baltimore City. And from an international flavor, we have Saint Denis in Paris, France. These are meaningful expressions in our communities, and our activations truly inspire and engage. And as Mary noted early on, these community stores also offer first-time job opportunities for much of the community, which is extremely important. The second concept that will scale will be power stores. 10,000 square feet on average, but a similar positive and powerful expression of our Foot Locker brand. You'll find these in shopping centers, high streets internationally, and A&B malls across North America. They offer a full family assortment with broader reach, and it allows us the ability to expand our product assortment. This concept unlocks our ability to be more things to more people. Examples such as American Dream in northern New Jersey, Arden Fair in northern California, and most recently, our larger square footage power store in the Dallas-Fort Worth market. These stores are seeing a significant increase in suburban consumers with increasingly higher household incomes. This is showing that we can have a broader reach at Foot Locker. Our last concept to scale is House of Play, a larger format kids Foot Locker at approximately 7,500 square feet. This design offers elevated storytelling and product presentations. Engaging experiences have already proven to be a hit with our kids and their parents as we recruit our next generation of Foot Locker families. We are extremely excited by these concepts, not only because they're achieving top and bottom line plans, but because they're driving higher net promoter score and overall customer satisfaction. These new concepts allow us to stay focused on our core consumer while also acquiring new, as both Mary and Frank noted. Currently, these formats represent approximately 120 stores in our portfolio, and we will grow them to 400 plus by 2026 by opening up 300 new concept stores in the future. So next, I'll talk about strengthening our portfolio. As we lean into the newer formats, as I discussed, to drive demand and connect with new customers, we will also rationalize our store base, closing a meaningful amount of underperforming mall stores in North America. From now through 2026, we will close approximately 400 stores, including nearly 200 C and D malls and 200 of our lower performing A and B malls across North America. We will also look to reduce our term in those C&D malls to one and a half years, offering us flexibility and optionality with our partners. These 400 stores represent nearly 10% of our total sales, but they also average 800 basis points less in profit than the rest of the chain. This will result in 80 basis points of total margin improvement for the company. So as we think about malls, and we talk about malls, I want to focus on A and B malls for a moment, where we have seen sales growth over the last few years. Now, traffic has decreased by 6%. But that's due to increased customer discovery and pre-shopping on their mobile device. The good news is this creates intent, which is evident by our 8% increase in conversion since 2019, more than outpacing the traffic declines. Thus, the result is an 8% increase in sales across these centers. This sets up very nicely for us to expand in these centers with our power store concept into the future. Lastly, I will quickly touch on optimizing our international portfolio, and we're going to do that in two different ways. First, optimizing our footprint, and second, tailoring our growth by region. In Europe, we recently announced the shutdown of Sidestep to focus on our Foot Locker banner and to continue that focus. We will spend against key market opportunities in Europe with two-thirds of our capital being spent in key countries. Larger footprints and the expansion of our power and community stores will also be a focus in the region. In Asia this morning, we announced the closures in Hong Kong and Macau, and we're also converting our own Singapore and Malaysia stores to a license model in partnership with MapActive. This, along with our other strong partnerships with the Al Shaya and Fox groups, will allow us to further grow in the markets across the EMEA regions and Asia Pacific regions. So quickly, let me tie this all back together for you. We will power up our portfolio, and we'll do it by transforming our real estate. We're going to optimize our store counts down approximately 10% through 2026 to 2400 stores. But we will increase our square footage by 10% to over 14.5 million square feet as we open up larger, more experiential expressions of our brands with a wider product assortment. New formats will surpass 400 locations and represent over 20% of our square footage. Foot Locker will play a key role with community and power stores. Kids Foot Locker will play a key role with the growth of House of Play. And then we will increase our off-mall penetration to over 50% in North America. And as Frank noted, the strength and the growth of WSS, which is 100% off-mall catering to the Hispanic community, will play a major role there. All of these actions will provide us a much stronger real estate foundation as we lace up for the future. And I couldn't be more excited to lead this team. Now I'll hand it back to Frank. So he can talk about our third strategic imperative, which is deepening our relationships with our customers. Thank you.
spk06: All right. Can we hear me this time? Perfect. Thanks, Tony. All right. As we build an even stronger fleet of stores across our global footprint, we'll also continue to evolve. HOW WE ENGAGE WITH CUSTOMERS FROM A MARKETING AND A DIGITAL STANDPOINT. SO OUR THIRD STRATEGIC PRIORITY IS TO DEEPEN OUR RELATIONSHIP WITH OUR CUSTOMERS. OUR OBJECTIVE HERE IS TO BUILD PERSONALIZED RELATIONSHIP WITH CUSTOMERS DRIVEN BY DATA AND INSIGHTS AND SUPPORTED BY A WORLD CLASS LOYALTY PROGRAM AND TECHNOLOGY. WE KNOW THAT DOING THIS WELL WILL YIELD A HIGHER SHOPPING FREQUENCY WITH OUR CUSTOMERS AND INCREASE OUR SHARE OF WALLET WITH THEM. SO LET ME TAKE YOU GUYS THROUGH OUR APPROACH IN THIS AREA. So first, I want to acknowledge, again, that as we broaden our reach and use our respective banners to connect with a more diverse audience, it's critical that we get the right marketing mix by banner. This is by no means a one-size-fits-all exercise. To help us do that, we just completed our most exhaustive consumer segmentation study yet, which yielded a great baseline of insights about how our customers shop, how they consume media, and how they interact in a content-driven, omnichannel world. That research study helped us learn that our core Foot Locker consumer, the sneaker maven and fashion forward, are digitally native, highly engaged on social media, and enjoy cultural content and being the first in the know on all things sneakers. And those insights will inform our marketing strategies for the Foot Locker brand, including, for instance, a meaningful investment in social media and content creation. But for example, as Champs Sports engages more directly with the active athlete, we know that product functionality, product fit, ratings and reviews, and personalized service are more critical to the customer relationship. So Champs will distort its resources against the in-store experience, try-ons, and having more product-based information and content on their digital site and app. And these are just a few examples of how our banners will customize their marketing mix driven by insights and data to drive more meaningful connections with their core consumer segments. Meanwhile, we know that we have a massive opportunity to uplift our loyalty program. Our current program certainly confirms and demonstrates the value of having engaged members. As shown here, FLX members spend 80% more per year than non-members, and we also know that they shop more frequently with us. But we also recognize that our penetration of loyalty members lags competitive benchmarks significantly by a factor of three times. And that means that we are leaving a big opportunity on the table to cultivate more profitable consumer relationships. In fact, we have to look no further than our own WSS loyalty program, which drives 85% of that banner sales to see how powerful and scalable our future loyalty program can be. So we will reset FLX this year to be more meaningful to our core customers, but importantly, to be far more relevant and user-friendly to the new consumers that we aim to acquire. So let's review how it will change. Our current program was primarily designed to engage with a core sneakerhead who's driven by launches and high-heat product and looking to get advantages to product access. And while there's nothing inherently wrong with that benefit, it's certainly not comprehensive enough for our future consumer strategy. Our new program, set to test in 2023 and begin scaling in 2024, will be more valuable to more consumers by design. It will fundamentally pivot to be a points-based reward system based on the customer spend and hitting identified thresholds, which will then trigger an opportunity to redeem those points for cash against a future purchase. FLX will also offer exclusive product and service access for members only, gating those benefits and making them available to our members only, which obviously drives the perception and value of FLX membership. It will also leverage our personalization engine to provide custom incentives to drive incremental trips, increasing retention, buying frequency, and share of wallet. And our intent is to use this capability to be even sharper with our overall markdown and promotional budgets in the future. The new FLX program will also be more simple and transparent in design. This means easier for customers to sign up, easier for them to track their status in their account, and easier for them to redeem their points. In a few minutes, Peter will talk about our new digital app for which FLX will be integrated into the design and user experience. Finally, there will be deeper integration with our stripers and store teams to drive sign-ups and member usage, including better recognition of members in store so that we can provide more personalized service. Beyond the loyalty program itself, we'll also invest into a more robust and integrated MarTech capability that will enable personalization at scale for both our loyalty program and our digital marketing programs at large. Our ability to capture more customer data through our FLX program and our consumer data platform combined with more sophisticated data analytics and machine learning will yield more effective consumer communications and offers, allowing us to not only be more efficient with our spend, but also demonstrate that we know our consumers and make smart use of the data that they provide to us. So let me share an example of how we envision this coming to life in the near future. So success starts with our banners being able to do better customer identification and tracking of their shopping journey as they interact with digital media and our digital sites. In this example, let's say a customer would see and like a social media post by Foot Locker for a Hoka running shoe on Instagram. By liking this post, this customer, an identifiable and known customer in our loyalty program, would trigger a follow-up engagement. Our decision engine would then send them a personalized push message through the Foot Locker app. In this case, a message introducing a brand new Hoka running silhouette that has just hit the market. This push notification would have a direct click to shop link and enable a seamless purchase for the customer if they're so inclined. So let's assume that they buy that Hoka shoe online at FootLocker.com. After completing the transaction with the customer, we would update their purchase history and membership profile. and we would then turn to engaging them with an invitation to a community event. In this example, let's assume that that customer lived in the Metro Dallas area. Our next action might be to invite the customer to their closest Foot Locker store to join other members for a Foot Locker Run Club event with free giveaways at the store. An email message with personalized imagery of a runner with Hoka sneakers would be sent along with the offer of a free gift for attending as an appreciation for their loyalty and engagement. Of course, after attending the run, we'd invite them into the store to shop and use the occasion to introduce them to new footwear and apparel. And then finally, as the last image on the right shows, knowing that this customer showed a high affinity for the Hoka brand and running category, we would a few weeks later send them a personalized email that showed them new Hoka styles and colors that they have not bought before. And certainly, if they had accrued enough points in their FLX membership to earn a cash reward, we would message them that they're able to buy this sneaker with the benefit of their membership reward. So that is what good would look like in our new loyalty and personalization capabilities. And we're very excited about taking the leap to becoming a more modern marketing company. Now, our roadmap for loyalty in MarTech is a multi-year journey. In fall of 2023, we will pilot our new FLX loyalty program to gain learnings and fine tune the processes. We'll also finalize the blueprint for our customer data platform, our decision engine, and all of our personalization tools. As we move into 2024, we'll launch the new FLX program across all of our North American banners, building on the learnings from our fall pilot. At that time, We'll also begin to roll out the personalization engine features, leveraging agile pods to pilot customer use cases and continuously generate new offers and engagements. Finally, in 2025, we'll expand FLX to our international markets to get the full scale impact of that platform in Europe and Asia Pacific. And by that time, we'll have fully adopted and operationalized our agile ways of working in order to leverage more machine learning tools and deploy our test and measurement protocols to drive and prove true customer incrementality. Taken all together, our medium term aspiration is to generate at least 50% of our sales across our banners from members in the FLX program. This is a meaningful improvement over the next three years, but we also have a longer-term aspiration to drive at least 70% of our Omni sales from loyalty members. It's a challenge that our team, led by our new chief customer officer and new chief technology officer, is very excited to take head on. So that wraps up part one of our presentation in which we've taken you through our first three strategic pillars. So why don't we take a 15-minute break, and we'll return to share our fourth and final pillar along with our long-term financial targets. Thank you, everyone.
spk03: All right, welcome back. Good morning, everyone. Happy to be here and really excited to share our fourth strategic imperative, being a best in class Omni retailer. You've certainly heard the team reference the customer experience throughout the morning. And so for us, this imperative is all about creating pathways for our customer to engage and transact across channels and in any way they choose. And we've spent a lot of time as an organization listening to our customers to understand their pain points, their passion points, and everything in between. So this imperative is one that we feel can and will truly differentiate us in the marketplace. Before we go into the details of the plan, let's talk a little bit about opportunity. First, we know that we're trailing the broader market when it comes to digital penetration. We finished 2022 in the high teens, right around 17%, while much of our competitive set are in the 20s, and the broader marketplace is actually double that. So there's a sizable gap for us to fill. We believe that as more digitally native customers continue to grow in purchasing power, and as we broaden the customers we're serving, we have a clear opportunity to increase our digital mix, and most importantly, have that growth be incremental to our business. But we also know that our channels are highly complementary to each other. I'll share a few stats. 80% of digital sales happen within 10 miles of a store, and customers within that 10 mile radius spend almost two times more per person than the rest of the country. And those digital sales per person are almost 20% higher in the areas surrounding our new concept stores. So the Power, Community, and House of Play stores that Tony referenced earlier do an even better job of driving engagement and creating a digital halo in the business. Third, over 95% of customers incorporate the digital channel in their shopping journey. Whether that means drawing inspiration from a social post, using our launch reservation app before picking up highly coveted product, or engaging with our immersive brand and product stories through articles, images, and YouTube videos, the digital channel is a key component of our customer's journey. And finally, almost half of all digital sales are aided by a store, with services like shipping from our back rooms or using Bopas to conveniently pick up product. So our two channels are already working together to drive growth. But the ultimate opportunity lies in our ability to drive more customers to shop across both channels. I'll share a couple more stats. Omnichannel customers spend more than three times more than single-channel shoppers. They're more engaged, they're more committed, and they're spending more of their wallet share with Foot Locker, Inc. But they make up a relatively small portion of our customer base today, only about 7%. Many of our peers are two to three times higher than that. So unlocking the Omni customer creates a strong tailwind to our business. So let's talk about the priorities we need to execute to get us there. You guys have probably been sensing a theme throughout the morning that our company and our lace-up plan are all about the customer. And so we wanted to start the Omni conversation with the customer journey in mind. And we tried to keep it simple. We're going to focus our energy on creating powerful and seamless touch points during the pre-purchase, purchase, and post-purchase experience. We're going to remove friction, add features, and ultimately provide our customer with a more integrated and enjoyable shopping experience, however they choose to engage with us. So let's dive into some of the details. First, on pre-purchase, we'll start with another stat where we believe there's opportunity, and that's around discovery. We're currently trailing our peer set by 1.2 to 1.4 times when it comes to the amount of time spent on our digital properties. And so as we begin to broaden our customer base and provide them with more choice, we believe a more dynamic and personalized experience will drive discovery time up, and that time will ultimately turn into revenue. Here are some of the top priorities. First, improve search and navigation to drive relevancy with a more predictive and engaging search algorithm. Improve navigation to highlight new brands, additional colorways, and create a more seamless and intuitive shopping experience. Second, we're going to leverage the great content that our industry creates to tell better stories, provide more detailed and engaging product visuals, more in-depth rating and reviews to help our customer find the perfect pair. And finally, we're going to leverage product recommendations driven by past browsing history, trending items, and our global history of purchase behavior to drive more discovery around new products and brands. We've already begun taking steps in this direction with small, iterative changes to the site and app, and feel really confident in the direction that we're heading. From a purchase perspective, we believe we can create a strong tailwind to improve conversion with a few key investments. The first, near real-time inventory. By 2024, we expect to have our inventory synced across stores, DCs, and our digital channel to give the customer and our stripers a near real-time picture of not only what's available, but where it sits in the network and how we can get it to them. Second, This year, we will scale new handhelds and upgraded networks across our entire fleet to provide our stripers with the ability to access that inventory picture, access product information, and provide customers with a more seamless checkout experience for purchases in-store and if the product is not in-store, through one of our digital properties. And third, we're going to relaunch the Foot Locker app to drive energy, commerce, and connectivity across our customer base. In 2022, over 80% of our traffic came through mobile. So our customer is telling us how and where they want to engage. So it's on us to make sure that experience is immersive, drives loyalty, and ultimately connects our customer to the category and the products that they love. Finally, on post-purchase, we're going to leverage the combination of our digital properties and our physical footprint to create a more frictionless fulfillment experience. We're going to focus our priorities on flexible fulfillment options by accelerating our global rollout of BOPIS this year and introducing expanded and expedited shipping options across the globe. We're going to create a more seamless return process between channels, and we're going to create clear order transparency and communications so you know exactly when and where your product will get to you. And the key stat here that we think tells a pretty significant story is that our store NPS is about 1.5 times higher than our digital NPS. So we believe that by creating focus and prioritization along the customer journey, we can create parity in how our customers experience our brand in stores or online and drive significant growth for the organization. And so what does that growth look like? Our aspiration is to achieve a 25% digital mix by 2026, close to $2.5 billion in digital sales. And I know we've been talking about Omni throughout this section and a lot throughout the morning, but we feel the best measure of success will be our ability to better balance the mix between channels and drive our digital penetration up higher than it has been historically. And this is going to be a journey. It's not going to happen in one month or one quarter. It's going to require a multi-year strategic road map across our technology and supply chain infrastructure to get us there. But we're confident that we can get there. And a big piece of that confidence comes from our next presenter, our Chief Operations Officer, Elliot Rogers, who will outline some of those key enablers.
spk04: Thanks, Peter. Now that we've talked about our omni-channel aspirations and the strategies to achieve them, let's talk about the supply chain and technology enablers. Let's start with supply chain. We've made enhancements to our U.S. supply chain network to improve flexibility, speed, and efficiency, while significantly improving our ability to meet customer expectations. We have rapidly evolved the network from two centralized single-channel DCs to three regional omni-channel DCs that service markets in their respective territories. Consequently, we can now service 95% of our stores and customers within two business days. Our new omnichannel network allows us to leverage inventory across all locations to fulfill customer demand, enabling a buy-anywhere, fill-anywhere experience. We will make similar advancements to our supply chain network outside of the U.S. to achieve parity within the markets we operate. Our multi-year supply chain roadmap will enable our omnichannel growth strategies. We recently opened an automated DC in Reno, Nevada to better service our stores and customers on the West Coast. This investment will drive efficiency and has reduced shipping times to the service market by 50%. We will continue to upgrade our DC network globally while leveraging supply chain partnerships to extend our capabilities. To enhance our omni-channel convenience offerings, we will further optimize our end-to-end product flow and create the near real-time visibility of inventory that Peter mentioned. This visibility will yield many benefits, such as better aligning our e-commerce estimated delivery promise with our actual delivery times. This strategy will be underpinned with technology investments ranging from data and analytics to inventory management to robotics and automation. all focused on creating a resilient, reliant, and responsive network. And speaking of technology, we are committed to a multi-year technology investment plan to achieve our omnichannel and broader growth aspirations. Over the last decade, we have invested at a level below the industry benchmark. We will increase our investment to be at or above 3% of sales and increase our capex by 50% over the next four years. This acceleration will not only be an enabler of growth in our digital channels, but will create a more efficient, nimble, and digitally enabled organization. Our digital transformation will create a more agile, modern platform. The improvements will not be limited to technology. They will include improvements to our processes and ways of working. We will move from legacy platforms with heavy customization to a modern architecture that is scalable and future proof for growth. We will evolve to a more agile product and platform operating model that delivers capabilities and personalized customer journeys with a faster speed to market. Through this transformation, we will reduce our technology debt and emerge with a stronger technology core. We have launched a multi-year plan to elevate our technology foundation and accelerate our digital capabilities. Recent improvements include extending our FLX program to Canada, launching buy online, pick up in store in the UK, and introducing express shipping from Foot Locker stores in the US. We have launched a digital win room along with product teams across key experience areas, including search and browse, loyalty, and launch, and are already seeing encouraging results. After introducing recent enhancements, we've seen year-over-year NPS improvements of 14% across digital purchase and fulfillment. We believe that with our focused three year roadmap and key priorities of strengthening our foundation, reimagining our tech operating model and transforming the customer experience, that we will be well positioned to achieve our strategic imperative of being a truly best in class omnichannel retailer. Now, I will bring up Rob Higginbotham, our interim chief financial officer, who will tie this all into our financial outlook.
spk02: Thank you, Elliot. The plans we are presenting to you today are meant to create value for all of our stakeholders. That's our community, that's our team members, and of course, our investors. In the communities that we serve, we will continue to invest in Black-owned businesses through our commitment to our LEAD program, invest in scholarships in under-invested communities, as well as donate our time, funds, and product to charities we hold dear. We are also creating value for our team members, our people. We do that through empowering our people and transforming the way we work. We empower our people by creating mobility in multiple ways, including promoting from within, and in doing so, are dedicated to a culture of diversity. Secondly, we have our Ignite program, which includes our cost optimization work, but is much more than that. We are changing the way we work through deep engagement and collaboration, making us more nimble, and building an always-on capability and mentality when it comes to driving efficiency. Then there is, of course, our investors. Now, you've probably all skipped ahead to this section if you got the slides online, but I'll go through it anyway. To summarize our financial vision at a high level, our goal is to be over $10 billion in revenue with over 10% EBIT margins. Now, that extends beyond the 2026 timeframe that we'll flesh out in more detail in a moment, but this is our long-term ambition. The path to get us there, again, is to simplify our business, invest in our core assets and capabilities in order to drive sustainable growth. And what that means is that 2023 will be a reset year for us as we absorb changes to the business, exit certain businesses, optimize our store footprint, and accelerate investments. When it comes to Simplify, we've taken two key actions in our international operations. First is the wind down of our sidestep banner in Europe, which involves closing 70 of those 80 stores while converting the other 10 to the Foot Locker banner in the region. And the benefits are clear. It will give us a sharper focus on our core brand in the region, it will simplify our overall operations, and it will have significant financial benefits. This was a $100 million top line business, but it was losing $10 million a year. It will cost us $25 million to exit the business. That's part of the reset dynamic in 2023. But then it will give us over 10 basis points of margin accretion going forward. We are also transforming our Asia business model by moving from a mostly owned and operated model and shifting to a mostly licensed model. We still see tremendous growth potential for the Foot Locker brand in Asia, but have made the strategic decision to lean into our partnership with MapActive to leverage their scale and expertise in the region to drive that growth so that we can focus on our more developed markets. And what that means is that the current profile of 30 owned stores that are losing $30 million a year will evolve into a model where by 2026 we will have 15 owned stores, but 130 licensed stores that generate over $15 million of licensing revenue that falls mostly to the bottom line. We will then be taking that increased focus and more targeted capital to invest in our core. OUR AVERAGE ANNUAL CAPEX RUN RATE WILL INCREASE BY OVER $50 MILLION OVER THE NEXT FEW YEARS AS WE LEAN INTO THE NEW STORE FORMATS THAT TONY TALKED ABOUT AND AS WE LEAN INTO BUILDING THE TECHNOLOGY CAPABILITIES THAT ELIA TALKED ABOUT. AND THAT MEANS THAT THE TECH EXPENSE THAT FLOWS THROUGH THE PNL WILL INCREASE BY ABOUT $80 MILLION A YEAR, WHICH WILL BE AN OVER 50 BASIS POINT OF MARGIN INVESTMENT THAT WE'LL USE TO DRIVE GROWTH. AND WE WILL FUEL THAT INVESTMENT THROUGH OUR COST OPTIMIZATION WORK. A year ago, we announced a $200 million cost savings program opportunity that we identified in SG&A that we would flow through to the bottom line. Since then, through our Ignite work, we've identified another $150 million of savings coming from merge margin and occupancy. So we now have a $350 million cost savings program, still with $200 million falling to the bottom line, but now with $150 million to fuel our growth strategies. What that means for the path of our earnings growth is that 2023 will be a reset year for us, with earnings down 30%. But as our growth initiatives gain traction, as our investments continue, but then our cost savings work start to more than offset that, we see sustainable growth beginning in 2024 and continuing into the future. In 2023, our reset year, we expect sales to decline by 4.5% to 6.5% on a 52-week basis Our closing of Asia stores, Sidestep, Champ for Rationalization, offset by ongoing growth in WSS, will result in about a 9% store count reduction. But as we open bigger stores, our footage will decline by a lesser 4%. Given the timing of the closures and the productivity differences of those stores, they will only have a 1% impact to sales for the year. We expect comps to decline by 3.5% to 5.5% this year. as we absorb the change with Nike before returning to growth with that brand later in the year, and as we reposition the Champs banner. Comps will be down mid to high single digits in the front part of the year and improving to down low single digits in the back half of the year as our growth initiatives start to take hold, which gets us to the down 4.5 to 6.5 total top line on a 52-week basis, and then the extra week adds about a point of sales growth to that. Our EBIT margins will be down significantly in 2023, given the reset, as our cost-save work is more than offset in the near term by our investments, some ongoing promotions in the early part of the year, and deleverage in the business on the sales decline. From the 7.9% level in 2022, our cost-save program will add about 160 basis points. Our technology investments will then see the biggest pickup in 2023, and we're also investing nearly $40 million into wages for our frontline associates. So together, those two factors will result in a 100 basis point drag on margins. Promotions, weighted toward the earlier part of the year, will be another 100 basis point drag. A meaningful deleverage of 180 basis points on down comps takes our 2023 EBIT margin to 5.7% on a 52-week basis. Tying all of that together, here's our full guidance for the year, including the extra week. With an EBIT margin, our gross margin will decline by 90 to 110 basis points on promotional pressure and occupancy deleverage. We expect SG&A to deleverage by 80 to 100 basis points, with investments offsetting cost saves in the near term, plus the underlying deleverage on the down comp. And as we mentioned, as our reset year, our EPS will decline by 30% to a range of $3.35 to $3.65, including 15 cents from the extra week, which embeds minimal buybacks for the year. Now, looking beyond our reset year and into 2024 through 2026, we plan to resume robust sales growth as we expect to at least keep pace with our growing market going forward. Our store base will decline by about 1% a year. But with that same dynamic of opening bigger stores, our footage will actually be up 5% a year as a company. The Foot Locker banner will grow a bit below that average. KFL, with the growth opportunity that Frank described, will grow above that average. Champs will continue to rationalize its store base as we move towards that $1 billion top line target. WSS will continue to grow at about 20%. And Atmos will grow, but at a modest pace. That incremental footage, by the way, given its bigger boxes, will come in at roughly half the sales per foot productivity versus the company average. So when combined with the comp outlook of 3% to 4%, we see total sales growth of 5% to 6% starting in 2024 through at least 2026. Combined with that top line growth trajectory, we expect significant margin expansion from 2023 levels, and see a path to 8.5% to 9% by 2026. Let me walk you through those drivers. Technology spend will have a modest drag as those investments continue, but our sales begin to grow. And then our cost savings will really start to shine through, where we expect to see about 170 basis points of impact. Then the sidestep in Asia exits will help our margins by about 30 basis points. Our store rationalization will add another 80 basis points, as Tony mentioned. Our improved licensing revenue stream will add another 15 basis points. And then leverage from our top-line growth will add another 20 basis points to get us to that 8.5% to 9% range for 2026. But that will not be the end of our journey. Beyond 2026, we see potential for us to reach 10% or higher EBIT margins, driven by us continuing to optimize our real estate mix, uncover further cost saves, optimize our mix of fulfillment, and leverage expenses as we grow the top line. As part of our growth plans, we are establishing a more explicit and targeted approach to capital. When it comes to investing in the business, going forward, we will be less focused on external sources of growth and more focused on organic growth and core capabilities, our new concepts, digital, technology, all the things we've been talking about today. And that means we will be less focused on M&A activity and on minority investments. Now, that doesn't mean we're closing the door entirely on M&A, especially when it comes to buying new capabilities, but it does mean that we will be focused on internal investment first. And in terms of returning cash to shareholders, we are committed to a stable but growing dividend, which we will target at 30% to 35% average payout over time. And on buybacks, apply a more consistent approach, targeting a low single-digit lift to EPS annually starting in 2024. So the result of all of that is our 2024 to 2026 earnings growth algorithms. That's 5% to 6% total sales growth on a 3% to 4% comp and 5% footage, reaching 8.5% to 9% EBIT margins. Together, that's high teens to low 20s EBIT growth, and with buybacks adding a low single-digit lift to that, which gets us to an average EPS growth in the low to mid-20s. Altogether, that puts us on a roadmap for over 25% annual total shareholder return through 2026. Our sales growth... Margin expansion, buybacks will drive that low to mid-20s EPS growth, and then combined with our current dividend yield of 3% to 4% would result in an attractive TSR of 25% or greater. So let me end by summarizing the key elements of our new growth plan. Overall, we will simplify our business, invest in our core in order to drive sustainable growth to achieve over $10 billion of revenue in the long term. And to get there, we will expand sneaker culture through more occasions, more choice, and greater distinction, increasing our exclusive mix to over 25% of sales, increasing our non-Nike sales mix to over 40%, while also revitalizing our growth path with Nike. We will power up the portfolio by creating more distinction among banners, closing underperforming stores, expanding our off-mall footage to over 50% in North America, and increasing our new format footage to over 20%. We will also deepen our relationship with customers by reimagining our loyalty program and increasing our sales penetration of loyalty from 25% today to 50% by 2026, and then to 70% longer term. And we are making a firm commitment to be a best-in-class omni-channel retailer, including a rich digital experience for our customers, targeting digital penetration of over 25%. The financial output of which will be 10% or better EBIT margins long-term, attractive returns on capital, and our low-to-mid-20s earnings growth algorithm. And with that, I'll bring Mary back for some closing comments.
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