Foot Locker, Inc.

Good morning and welcome to Foot Locker's third quarter 2023 financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. This conference call may contain forward-looking statements that reflect management's current views of future events and financial performance. Management undertakes no obligation to update these forward-looking statements which are based on many assumptions and factors, including the effects of global economic and market conditions, currency fluctuations, customer preferences, and other risks and uncertainties described more fully in the company's press releases and reports filed with the SEC, including the most recently filed Form 10-K or Form 10-Q. Any changes in such assumptions or factors could produce significantly different results and actual results may differ materially from those contained in the forward-looking statements. Please note, this conference is being recorded. I would now like to turn the call over to Mr. Robert Higginbottom, Senior Vice President, FP&A, Investor Relations, and Treasurer. Mr. Higginbottom, you may begin.

Thank you, Operator. Welcome, everyone, to Foot Locker, Inc.' 's third quarter earnings call. Today's call will reference certain non-GAAP measures. The reconciliation of GAAP to non-GAAP results is included in this morning's earnings release. Note, we have a slide presentation posted on our investor relations website with information that will be referenced during the call. Today, we'll begin our prepared remarks with Mary Dillon, President and Chief Executive Officer, Frank Bracken, Executive Vice President and Chief Commercial Officer, We'll then give more detail on our operating results across our banners and geographies. Then, Mike Bond, Executive Vice President and Chief Financial Officer, will review our quarterly results in more detail and provide color on our fourth quarter and updated 2023 guidance. Following our prepared remarks, Mary, Frank, and Mike will respond to your questions. With that, I'll now turn it over to Mary.

Thank you, Rob. Good morning, everyone, and thank you for joining us today for a discussion of our third quarter financial results, our outlook for the holiday season, and an update on the advances our team continues to make on our lace-up initiatives. While the operating environment remains uncertain, momentum behind the lace-up plan is beginning to unlock wins as our team executes in a customer and brand partner focused, collaborative, and agile manner. It's been over a year since I joined Foot Locker, and while we recognize that we have work ahead of us, I'm encouraged by the progress we've been making in this reset year. I continue to be confident that we're executing the right strategies as we simplify and focus our business and invest in the capabilities that will enable Foot Locker to be the best omnichannel retailer at the intersection of sneakers and sneaker culture. As we say in our new brand platform, the heart of sneakers. In the third quarter, comps declined 8%, including a three-point comp headwind from the repositioning of our Champ Sports banner. We delivered earnings per share ahead of our expectations at 30 cents. Trends in the quarter accelerated from our first-half run rate, driven by a strong back-to-school in our Kids Foot Locker banner. We also delivered sequential improvement in our conversion rates across stores, and our digital channel outperformed our expectations including a positive trend in October. Importantly, we continued to exercise disciplined expense management and made further progress in executing our cost savings plan. Based on the results we've generated year to date, combined with our outlook for the fourth quarter, we are narrowing our bottom line guidance to $1.30 to $1.40 for the full year as we balance early successes in our lace-up initiatives with the uncertainty we're seeing in the external environment and our internal inventory goals. As we enter the fourth quarter, our teams have stayed agile as we learn from and build upon recent progress. We know we're vying for wallet share with a value-conscious consumer this holiday season. While our customers remain discerning with their discretionary dollars, and we expect that will continue through the season, we're also seeing them respond to newness at key moments. Quarter to date, we've been pleased with the trends as consumers respond to our full-price holiday assortments in addition to our compelling deals. As a team, we continue to make strides as our customer-facing and support teams are well synced and executing at an elevated level into the holiday season. Over the Thanksgiving week period, we saw solid traffic levels and conversion gains in our stores and online. While customers responded to our competitive offers, we also saw nice gains in ticket and basket size as our customer is willing to pay full price when the product is new, compelling, and trend right. While we're encouraged by our building momentum, we acknowledge that much of the holiday season is still ahead of us, and we factored in our quarter to day performance into our fourth quarter plans. While there's still uncertainty in the macro backdrop, we're encouraged by the building momentum against our strategic initiatives, as I'll discuss in more detail in a few moments. To summarize, however, we'd name a few key wins, including solid strides in our digital performance, including improving conversion levels and double digit gains in new customer acquisition. Increases in our already high brand awareness levels, suggesting our top of funnel marketing and brand building efforts are resonating. Stabilizing conversion trends in stores as product flows resonate and our in-store execution improves. Strides in Champ Sports, with banner comps actually outperforming our original plans from the start of the year. And finally, early positive readout of our loyalty pilot launch in Canada. All in looking ahead, we know that by continuing to lean into our LACIP plan, we're on the right path towards longer-term shareholder value creation. Now, before we dig into our LACIP progress, I want to take a moment to talk specifically about our basketball business. Sneaker culture has long been influenced by sports and specifically basketball, and that's why we are so excited about our recent agreement with the NBA for Foot Locker to serve as an official league marketing partner here in the U.S., Foot Locker and the NBA have a nearly 25-year history of working together, and we're thrilled to be building on that in the years to come with this new partnership. This season, you'll see Foot Locker and the NBA collaborate around exciting content, on-court virtual signage featuring our iconic striper logo, and activations around marquee events such as the NBA All-Star Game. We'll also be focused on social engagement and we're excited about reaching the NBA's 84 million followers on Instagram, along with other platforms with our brand building and commerce driving content. We'll focus on creating collaborative content highlighting our basketball product and point of view.