Q4 2024 Foot Locker Inc Earnings Call
Please note that this conference is being recorded. I will now turn the call over to Mr. Robert Higginbotham, Senior Vice President, Corporate Finance, Investment Relations, and Treasurer. Sir, you may begin. Thank you, Operator. Welcome everyone to Foot Locker, Inc.'s fourth quarter earnings call.
Speaker Change: Thank you Rob I'll start this morning, with a review of our financial results and outlook and then we'll provide an update on the progress we continue to make with that Lisa.
Speaker Change: At a high level, we made meaningful progress with our lease up strategies in 2024 and closed out the year with performance in the fourth quarter that was better than our previously revised expectations.
Speaker Change: Our team's execution during the year helped drive three consecutive quarters of positive comp sales and year over year gross margin expansion.
Speaker Change: Our performance demonstrates that our strategies are driving results, even as we navigate an increasingly dynamic external environment.
Speaker Change: As we look ahead in 2025 and beyond we're focused on continuing our progress in further advancing towards our long term operational and financial goals. We are confident we have the right plans in place to continue to drive profitable market share gains over time, as we maintain a disciplined approach to managing and investing in the business.
Speaker Change: Turning to our results our total comp increase of two 6% in the fourth quarter was in line with our expectations and led by share gains out of our global foot locker and kids foot locker banners, which comped up three 6% a strong bill during peak holiday sales drove the gains.
Speaker Change: Champs sports the fourth quarter marked the second consecutive quarter of positive comp since the banners repositioning began with comps up one 8%.
Speaker Change: Next on gross margin, we saw an improvement of 300 basis points year over year led by merchandise margin recovery against the prior year's higher level of promotions and ahead of our revised expectations.
Speaker Change: This was despite an elevated promotional environment across both the DTC and wholesale channels.
Speaker Change: At the same time, we continued the execution of our cost savings plan, which generated $35 million in total in the fourth quarter or.
Speaker Change: Our non-GAAP earnings per share in the quarter were above our revised expectations at 86 cents compared to our 70% to 80% guidance.
Speaker Change: As we reflect on 2024 I'm proud of the progress we've made with their laser plan and what's proven to be a dynamic consumer and category backdrop.
Speaker Change: During the year, we achieved some important financial milestones, including a return to positive enterprise comp sales growth gross margin expansion and positive free cash flow all of which we expect to continue into 2025.
Speaker Change: Similarly to our continued execution of the lease up plan, we made significant progress in 2024 and will look to build upon these efforts in 2025.
Speaker Change: First in stores, we're upgrading our customers' experience through both our new re imagined concept and extensive store refresh program both of which remain an important part of our plans looking ahead, which I'll speak to in a few minutes.
Speaker Change: We now have eight re imagine doors open across North America, Europe, and Asia. The response to our re imagine doors has been extremely positive from our customers our brand partners into landlord and we are accelerating our focus on re imagined as part of our efforts in 2025.
Speaker Change: In 2024, we also completed over 400, refreshes, which elevate improve consistency across our global foot locker and kids foot locker doors, and we're planning for roughly 300 more refreshes in 2025.
Speaker Change: In digital we made meaningful advancements in the customer experience, including the rollout of our new mobile App in the U S. In November and it increased our digital penetration of 100 basis points to 18, 2%.
Speaker Change: Moving to loyalty, we relaunched our epilepsy rewards program in the U S mid year, and we've been pleased with adoption by new and existing members as well as improvements across a variety of kpis, including increased frequency of purchase.
Speaker Change: After some improvements to the enrollment process. This fall we saw a meaningful step up in our sales capture rate in the fourth quarter, reaching 49% of sales in North America in the quarter and just under a 50% 2026 targets two years ahead of plan.
Speaker Change: Next we're continuing to strengthen our basketball leadership through marketing partnerships, such as the M. B, a and Chicago Bulls. We've also elevated our collaborations through the clinic with Nike and Jordan brand as well as the rollout of our co designed home court experience in select re imagine doors.
Speaker Change: Additionally, we made strides against our cost structure in 'twenty 'twenty four we achieved $100 million in savings as part of our $350 million cost savings plan, which was ahead of our expectations of $90 million in the year, and we're targeting incremental savings of $60 million to $70 million in 2025.
Speaker Change: Further we continued to take actions to optimize our business and real estate footprint in 'twenty 'twenty, four we announced our plans to exit international markets, including South Korea, and Norway, Sweden, and Denmark. We also made the decision to convert select markets in Europe to a license model.
Speaker Change: Overall, we made meaningful strides with our strategies in 2024, and we're looking ahead in 2025 to continue to execute our latest plan and drive our comp sales and gross margin progress.
Speaker Change: That said as we've moved through February we saw consumers be more conscious and sensitive which has impacted our business quarter to date we're.
Speaker Change: We're seeing consumers respond to come out to spend during compelling activation key shopping events and product launches or newness they spend when theres a call to action, but they're more cautious in those in between periods.
Speaker Change: Within the approach we've taken heading into 2025, we've adjusted some of our capital and spending plans to further claratyne, we're regenerating the strongest returns on investment.
Speaker Change: More specifically, we're maintaining our focus on our customer facing investments, which have been driving our returns of comp growth and share gains and are also exceeding our hurdle rates.
Speaker Change: At the same time, it will be slowing the investment cadence of some of our technology investments to ensure an appropriate pacing of these expenses against our top line. Our teams have been making great progress in updating our core technology stack, but we have decided to slow the cadence going forward.
Speaker Change: To be clear, we're continuing to prioritize related strategies and execution, but we're balancing the near and longer term business needs as we make our investments and.
Speaker Change: And we believe the adjustments, we're making to our investments will best position us to continue to deliver on the top line, while also continuing to make progress toward our longer term financial goals.
Speaker Change: Now, let me turn to the progress we've made with our laser plan in the quarter and how we are further advancing our initiatives in 2025 star.
Speaker Change: Starting with our first imperative, which is expand sneaker culture while.
Speaker Change: We're continuing to strengthen our basketball leadership through our strategic partnerships and collaborations as we know basketball as a category of our customers are passionate about.
Speaker Change: Now in year two of our NBA partnership we just hosted one of our largest basketball activations ever and NBA All Star 2025 in San Francisco with a two storey interactive multi brand experience, we showed a bigger and bolder. This year at headlines wrapped around the block for four days throughout the activation.
We hosted over 20000 visitors in the excitement we generated across customers and the industry at large earth foot locker 3 billion media impressions.
Speaker Change: We had great support from our brand partners, including Nike Jordan brand, Adidas, Puma, Comverse Crocs, new era and antenna as we launch high heat sneaker drops in feature top MBA talent appearances, all designed to connect with the basketball community and inspire the next generation on and off the court.
Speaker Change: We also brought back the clinic, our program with Nike and Jordan brand featuring in Leds Court, our daily basketball programming with top athletes reinforcing the strength of our partnership.
Speaker Change: As always our engaging strikers brought the energy and inspired our customers throughout the weekend. This immersive experience further cements our position as the leader in basketball and Sneaker culture.
Speaker Change: Turning to Nike, our partnership is strong and fully reset and serving our multicultural customers continues to be a top priority for both of our businesses are.
Speaker Change: Our laser strategies, coupled with their building product pipeline and focus on storytelling, well positioned both of our businesses for growth longer term.
Speaker Change: That said, we know we're bouncing marketplace in category dynamics as we move into 2025 to make wafer future innovations to come later in the year and into 2026.
Speaker Change: Looking out we have full confidence in our partnership and the steps. The Nike team is taking for the brand and marketplace longer term.
Speaker Change: In addition, our results with brands such as Adidas, new balance on Coca Aces Saucony, Crocs, and timberland continue to reinforce our proposition as a multi brand retailer sales in those brands were up a combined double digits in the fourth quarter across men's women's and kids and we continue to have room for growth on.
Speaker Change: Both the allocation of door count basis, with a multitude of brands as we look to 2025.
Speaker Change: And finally looking at our exclusive penetration in the quarter. It was 15% in line with last year, we continue to target exclusive progress as we look to 2025 and still aim for about 20% penetration by 2026.
Speaker Change: Moving to our second pillar, which is power of the portfolio.
Speaker Change: Taking a step back our teams have made a lot of progress in optimizing our real estate portfolio over the last several years.
Speaker Change: Since 2019, we've closed over 20% of our global doors, including the exiting of non core banners in the exit or conversion of select international markets in the last two years alone. We've also pared back our store exposure at the Champs Sports banner as part of its repositioning.
Speaker Change: We are continuing some of that closure work in 2025, it's important to note that after this year it will be at a new baseline in our fleet and go forward, we will be operating with a tighter stronger store base with reduced exposure to lower tier malls.
Speaker Change: Now among that optimize fleet. It he objected in this pillar is to elevate optimize and standardize our store experience and to bring the fleet to our newly designed brand standard.
Speaker Change: We began this journey for a refresh program, which was our capital light and quickest mechanism to impact a large percentage of the fleet swiftly with elevated a consistent signage fixed wing to support brand partner storytelling and an improved customer experience.
Speaker Change: We did this while testing and ultimately proving out our new <unk> concept, which builds upon those same design principles to deliver a customer centric experience support brand storytelling create fun and immersive customer experiences and enhance the power of our stripers, including with technology tools.
Speaker Change: In 2025, we intend to refresh approximately 300 doors and this is on top of the over 400 refreshes, we accomplished in 2024, including 160 in the fourth quarter.
Speaker Change: Coming out of 2025, there will be over 800 stores that we've elevated through our refresh program at a two and a half year timeframe.
Speaker Change: With our refresh program set to slow after 2025 now our focus shifts to scaling our re imagine concept going forward as such we expect to open or convert 80 additional re imagine locations by the end of 2025 on top of the eight we ended with in 2024.
Speaker Change: We intend to at least maintain if not accelerate that pace of re imagined openings as we look out the next two years.
Speaker Change: We anticipate the majority of our re imagine project should be completed via conversions or relocations of existing locations.
Speaker Change: We're making this deliberate push given the strong returns these projects are delivering as detailed in our investor presentation.
Speaker Change: Through the efforts we've made so far as of the end of 'twenty 'twenty four we now have 44% of our footage at brand standard representing 44% of sales going forward, we expect to reach approximately 65% of our footage at brand standard and over 70% of sales by year end 2020 sets, including both refreshes and re matches.
Speaker Change: Yeah.
Speaker Change: Turning to our off mall exposure in the quarter, our penetration was up three percentage points from a year ago to 42% of North American square footage and closer to our goal of 50% by 2026.
Speaker Change: Now moving to our third pillar, which is deepen our relationship with our customers.
Speaker Change: Focusing on loyalty, we made meaningful progress after the relaunch of our epilepsy rewards program in the U S. Mid 2024 with a loyalty penetration in North America at 49% of our sales in the fourth quarter, which was up nearly 30 percentage points compared to last year and just under a 50% 2026 lease up targets.
Speaker Change: Improvements to the envelope funded process in stores towards the end of the third quarter drove that meaningful improvement in the sales capture rate as well as the pace of new enrollments.
Speaker Change: We also expanded on how we're activating around the program in the holiday quarter, including through the use of member only of beds in stores and online across banners.
Speaker Change: In the quarter, we added $3 2 million F. L X numbers here in North America, and we're coming into 2025 with the loyalty mix and in our business in a fundamentally higher baseline.
Speaker Change: Further in just a few quarters into the enhanced epilepsy rewards program, we've been pleased with adoption by new and existing members as well as response across a variety of kpis, including frequency of purchase.
Speaker Change: We're excited about the progress we've made with loyalty in 2024 and expect to build upon that further in 2025, including through bringing the program to Europe later this year.
Speaker Change: And turning to our final pillar would be best in class omni in stores comp sales were up slightly positive in the quarter traffic outside of the key selling periods proved more challenging that said, we continued to see conversion increases in the quarter as our initiatives around product in store experience Striper training and planning tools drove results.
Speaker Change: Turning to digital global Enterprise digital comps were up 12, 4% in the fourth quarter as we saw increases in organic traffic.
Speaker Change: And conversion.
Speaker Change: Customers responded to our proved experience, particularly through our new mobile App, which launched in November as well as inventory depth in key styles.
Speaker Change: Our digital penetration in the quarter increased 230 basis points year over year to 21, 8% of sales and we continue to target about 25% e-commerce penetration by 2026.
Speaker Change: Particularly for our mobile savvy and younger customer base, having a new and improved mobile app across the U S that provides a faster more modern shopping experience is a key advantage and we look forward to building upon that work in 2025, including two the launch of store moat capabilities, which enables customers to scan products skus in store and checkout.
Speaker Change: Product availability, including sizes.
Speaker Change: We plan to roll out enhanced mobile apps for our Champs sports and kids foot locker banners later this quarter.
Speaker Change: We're confident based on our results to date, but an improved mobile experience across multiple banners can be a significant lever for us to drive both our digital and loyalty penetration overtime.
Speaker Change: So in closing we were pleased with our progress in the fourth quarter and 2024 overall led by completing the year with three consecutive quarters of comp sales growth and year over year gross margin expansion. Our laser plan is delivering results across multiple aspects of the business and our disciplined approach is driving free cash flow in 2020.
Speaker Change: We're planning to build out those results now let me hand, it over to Frank to provide more details on our category and banner performance.
Frank: You Mary and good morning, everyone, starting with fourth quarter product and brand partner performance footwear Comped positive high single digits gains.
Frank: Gains in both our base business as well as a strong launch calendar drove comp sales in the quarter.
Frank: These gains were led by growth in momentum from a broad portfolio of our brand partners. The Jordan brand delivered gains thanks to very compelling launches in the quarter and a complimentary sportswear business.
Speaker Change: Meanwhile, Adidas new balance on Coca basics Saucony crocs.
Speaker Change: And timberland all contributed meaningfully to the success of our footwear business a good holiday.
Speaker Change: As Nike rebalanced as their product portfolio and inventory levels in the short term in an effort to make way for future innovation, we are continuing to navigate some impacts on our business.
Speaker Change: Throughout this process, we continued to align closely with them to optimize our merchandize mix and inventory levels to support full price sales and partner with them to bring held back to critical consumer franchises like Air Force one dumped in the AJ one.
Speaker Change: And as we look to 2025, we are encouraged by their innovation pipeline across basketball performance running shocks and the reinvigoration of the Max Air business.
Speaker Change: Our recent NBA all star activation in San Francisco demonstrated again, the power of our brands coming together to elevate consumer experiences serve athletes and pushed sneaker culture forward.
Lineups and community excitement for the Nike All Star Black pack, the Kobe, six and Galaxy phone posit demonstrated just how powerful the Nike brand is to our core consumer.
Now turning to performance by footwear category.
Speaker Change: Within the basketball category customers continue to respond to Nextgen signature athletes, such as nike's jaw to Sabrina to Adidas is aae, one and Puma Melo for.
Speaker Change: We also had a phenomenal launch result, with the Nike Kobe franchise.
Speaker Change: Each brought renewed energy to the marketplace.
Speaker Change: And as mentioned Jordan delivered a powerful launch assortment this quarter led with premium executions of the retro nine retro three and the Carolina Blue Retro 11, all of which were sellouts with consumers.
Speaker Change: Moving to lifestyle footwear, Adidas continues to see strength as they leave the terrorist trend, especially within our womens and kids segments and.
Speaker Change: And we were pleased that this momentum occurred on a global scale positively impacting all geos and banners.
Speaker Change: In 2025, we will continue to diversify this category with energy from handball Spence Y'all and superstar.
Speaker Change: Turning to the running category new balance continues to see momentum across womens mens and kids franchises like the 90 60 have consistently ranked among our top sellers and we were pleased with the performance of other styles like the $19, six and $5 30, and which premium executions resonated strongly with our sneaker maven.
Speaker Change: And fashion forward consumers.
Speaker Change: Brand searches full price selling and a pipeline of innovation give us confidence that new balance will continue to be one of the fastest growing brands in the industry.
Speaker Change: <unk> continues to see global momentum across men's and women's with running inspired styles such as the Jo NYSE. The 11, 30, and the GT $21 60.
Speaker Change: We're adding doors elevating the presentation and ramping up our marketing with Asics as we look into 2025.
Speaker Change: We expect both globally and across multiple banners in North America that <unk> will continue to trend with young multicultural consumers and remain excited about growth potential with this important partner.
Speaker Change: As lifestyle running continues to be a powerful connection point with consumers, we are proactively bringing in new ideas to keep the consumer engaged we recently introduced saucony into the assortment and have been pleased with customers' response to styles such as the pro grid omni nine and millennium.
Speaker Change: Within performance running on and hope you are continuing to resonate in our business. We continue to see healthy sales gains with these partners and we plan to expand doors with them globally in 2025.
Speaker Change: Within seasonal played a leading role in our business this quarter, especially within our global foot locker banner.
Speaker Change: With exciting content and must have styles, such as the Tasman and ultra many AR continues to drive excitement during the gifting season.
Speaker Change: And the success, we had with the sneaker inspired low mill gives us confidence that there is a broader opportunity with this brand moving forward.
Speaker Change: Also within the boot category, we saw strength in timberland as customers responded to their exciting collaborations and marketing.
Speaker Change: Turning to the apparel business challenges persisted with comp declines down in the mid teens, while we continue to see innovation within apparel lagging compared to the footwear business. We are beginning to be even more aggressive in pursuing our private label strategy, which has worked for us in recent quarters, particularly the Champs sports.
Speaker Change: Alongside that we will continue to work upstream with our brand partners to encourage more newness and materials silhouette sneaker connectivity and speed to market.
Speaker Change: We know that apparel allows for more exciting retail presentations better integrated storytelling and an opportunity to build the consumer's basket.
Speaker Change: Finally, our accessories business Comped up high single digits as we see shoppers respond to our refreshed assortments through categories, such as Sox headwear and shoe care.
Speaker Change: Switching to channel performance comparable sales in our stores were up slightly while traffic was down to last year, we continue to see gains in conversion as well as average ticket led by positive AUR.
Speaker Change: A special thank you to our amazing Striper teams, who delivered great customer service, while driving conversion increases during the holiday season.
Speaker Change: Meanwhile, digital comps Rose 12, 4%, we saw increases in traffic.
Speaker Change: And conversion as our efforts to improve the customer digital experience continue to resonate.
Speaker Change: This included the launch of our new foot locker, App, which immediately drove conversion gains and an improved customer shopping experience.
Speaker Change: Now for performance by geography in banner in North America overall comps were up three 6%, including our foot locker North America banner Comping up five 5%.
Our foot locker banner saw a record breaking build in the business in the final week, leading up to Christmas led by gains in running seasonal as well as strong launches.
Speaker Change: The combination of re imagine stores refreshed stores, our new digital capabilities and the power of our hardest sneakers platform clearly registered with consumers.
Speaker Change: Kids foot locker comped up 4% in the quarter growing in both stores and online K F. L delivered a strong performance in the quarter mirroring many of the same dynamics driving the foot locker banner in fact towards the end of the quarter. We opened our first Standalone kids foot locker re imagine location at Bay Plaza in the broth.
Speaker Change: Thanks.
Speaker Change: We are thrilled to have our first <unk> store in the heart of New York City Sneaker culture, as a way to introduce our youngest sneaker enthusiasts to the category.
Speaker Change: While very early days results from a Bay Plaza store have been very positive, which is validating of our <unk> strategy as we look to add additional locations in 2025 and beyond.
Speaker Change: Champs sports comps were up one, 8%, which marks the second quarter in a row of positive banner comps since the repositioning.
Speaker Change: Customers are responding to the banners updated head to toe sports style positioning with differentiated assortments from partners, such as Nike, New balance Adidas, Asics Brooks and our CSD label.
Speaker Change: Champs Sports also continues to build momentum with its run club program and strong positioning of performance and lifestyle running product.
Speaker Change: Champs held 12 run club events in 2024 with strong brand partnership support from Nike Asics and Brooks.
Speaker Change: And in 2025 the team is looking to scale. This program to over 30 events and include even more brand partners is co sponsors of run club.
Speaker Change: We are confident that our improved assortments and sharper brand positioning we will continue to support Champs sports momentum into 2025, and we're proud of the team leading network.
Speaker Change: Moving to WNS comparable sales were down three 3%.
Speaker Change: Despite strong results over the Black Friday sales period, we saw our WSI customers be cautious with their discretionary dollars into December and January as they contend with ongoing inflation as well as impacts from the Los Angeles fires.
Speaker Change: Our <unk> team continues to position the banner with compelling assortments with an emphasis on value, including below $80 footwear as well as global football in workwear as they support the local communities and neighborhoods they serve.
Speaker Change: Nonetheless, we will continue to take a prudent approach to capital with the WSI banner in 2025, when it comes to new store openings as.
Speaker Change: As such we are planning for one new store opening in 2025 for <unk> as we shift investment into other real estate projects that are driving higher returns.
Speaker Change: Longer term, we still believe in the unit growth potential of the WSI banner, but we do believe a more conservative view in the near term is the right path.
Speaker Change: Turning to Europe comps were up one 9% the.
Speaker Change: The environment in Europe was choppy and competitive throughout the quarter and the promotional environment included aggressive actions in both footwear and apparel categories.
Speaker Change: Looking ahead, our team in Europe plans to continue to invest prudently in store refreshes to elevate the customer experience and improve our competitive positioning.
Speaker Change: Simultaneously, we will work with our brand partners to move back towards a pull market with more full price selling.
But we do expect that 2025 will be a transition year in the European marketplace.
Speaker Change: In Asia Pacific comps were down seven 6%.
Speaker Change: At our foot locker banner comps fell seven 2%, reflecting competitive marketplace dynamics in Australia as consumers. They are continued to deal with prolonged inflation.
Speaker Change: A reminder, that we began to wind down our business in South Korea during the quarter, including shutting down our E Commerce operations at the end of the calendar year and.
Speaker Change: And we expect that our store operations will largely be wound down by the end of the fiscal first quarter of 2025.
Speaker Change: And finally at Atmos comps were down eight 7%, reflecting our decision to shift sales to our own digital site and away from less profitable third party digital platforms.
Speaker Change: To close we were pleased to deliver another quarter of positive comps and solid gross margin expansion in the quarter.
Speaker Change: Led by our global foot locker and kids foot locker banners and sustained strength at our Champs sports banner.
Speaker Change: Our lease up strategies continue to gain traction and in 2025, we will continue working closely with our brand partners to be led by consumer insights, while we elevate the consumer experience across channels.
Speaker Change: And we are taking a prudent and agile approach this year by focusing on capital investments with the highest returns while maintaining inventory and expense discipline.
Speaker Change: I'll now hand, the call over to Mike to go over the financials and guidance in more detail.
Mike: Thank you Frank and good morning, everyone in.
Mike: In the fourth quarter, starting with revenue total sales were down five 8% with the majority of the decline led by the lapping of the 50 <unk> week in 2023, along with additional pressures from foreign currency headwinds and store closures.
Mike: Our total comp was positive two 6%, which was in line with the midpoint of our guidance and led by our global combined foot locker and kids foot locker banners at plus three 6%.
Mike: This represented our third consecutive quarter of positive comps.
Mike: In terms of cadence November was down mid single digits.
Remember comps accelerated to positive mid single digits, partly due to the shift in cyber Monday.
Mike: And finally January was positive mid single digits as well.
Mike: Moving to margins gross margin for the quarter expanded 300 basis points versus last year to 29, 6%, which was ahead of our revised expectations and highlighting our progress in recovering last year's heightened promotions despite elevated sector inventories.
Mike: Merchandise margins were up 300 basis points year over year due to lower markdown levels, while occupancy as a percentage of sales was flat on a year over year basis.
Mike: Approximately $10 million of gross margin savings from our cost optimization programs also flowed through our cost of goods line.
Mike: On SG&A, our fourth quarter rate came in at 22, 3%, representing an improvement of 10 basis points versus last year.
Mike: SG&A dollar declines of 6% was better than our prior expectation of $1 down approximately 2% to 3% as we made additional progress against our cost savings program, along with tightly manage expenses and lower incentive compensation levels.
Mike: Our cost optimization program generated $25 million in savings within our SG&A line.
Mike: Collectively our cost optimization program generated total savings of approximately $35 million in the fourth quarter and $100 million for fiscal 2024, which was ahead of our prior expectation of approximately $90 million.
Mike: Finally, our earnings per share from continuing operations was <unk> 57 and.
Mike: And our non-GAAP earnings per share was <unk> 86.
Mike: Turning to the balance sheet, we ended the quarter was $401 million of cash and total debt of $446 million.
Mike: At quarter end inventories were up one 1% versus last year slightly ahead of our expectation for approximately flat levels exiting the year as we pull forward pull forward spring receipts to ensure smooth product flows into the first quarter.
Mike: From a composition and aging standpoint, our inventories are well positioned as we head into 2025.
Mike: For the year, we improved our inventory turns turning the business at approximately two eight times, a 5% improvement versus 2023, while acknowledging we still have room to improve that further as we continue to make progress relative to our medium term term goal of approximately three times.
Mike: This emphasis on inventory control and working capital management supported our free cash flow generation with the business, having generated $105 million in free cash flow in fiscal 2024.
Mike: Moving on to our 2025 outlook.
Mike: At a high level following our performance over the last three quarters of 2024, we expect ongoing comp sales growth and margin expansion into 2025.
Mike: That said, we recognize heightened levels of the consumer and marketplace uncertainties as we move into the new fiscal year.
Mike: As Mary noted, we saw a softer start to the year in February.
Mike: We've seen customers respond well to peak moments such as NBA, All star weekend holidays, and trending product in key launches like the retro 12 last week.
Mike: We've also seen our customer sensitive to external factors like the timing of tax refunds and we've experienced increased pressure on the walls between key events.
Mike: As such we have incorporated this consumer dynamic into our 2025 outlook.
Mike: For the year, we are issuing guidance for non-GAAP EPS of $1 35 to $1 65, representing growth of approximately 10% at the midpoint relative to the $1 37, we reported in fiscal 2024.
Mike: Our guidance also assumes approximately <unk> <unk> and.
Mike: And foreign currency headwinds.
Mike: Our outlook Embeds the following drivers.
Mike: Total sales for 2025 are expected to be from down 1% to.
Mike: 5%.
Mike: <unk> are roughly 100 basis point adverse impact of changes in foreign currency exchange rates.
Mike: We expect comps of between plus 1% to plus two 5%.
Mike: The upper end of our comp range that assumes we continue to drive comps at our more recent run rates in the last three quarters led by the impact of our strategic initiatives and a relatively stable macro backdrop.
Mike: The lower end does factor in some impacts related to marketplace and consumer uncertainty.
Mike: Overall, our store count is expected to be down approximately 4% in 2025 with square footage down approximately 2%.
We expect to add roughly 20, new stores in the year and to close approximately 110.
Mike: As Mary noted following our net closure trajectory over the last several years combined with our store investments, including refreshed and re imagine we expect that 2025 will be a year, where we've appropriately appropriately re baseline to a healthier store fleet size from which we can operate in the near term and grow in the future.
Mike: We expect to end the year with a meaningful portion of our tighter and optimized fleets at brand standard, which we expect can continue to fuel positive comps and competitive share gains over time.
Mike: Turning to gross margin, we expect gross margin expansion of between 40 to 80 basis points to a rate of 29, 3% to 29, 7%.
Mike: While we expect margin recapture this year, our expectations are being somewhat tempered by the elevated consumer uncertainty and marketplace backdrop.
Mike: On SG&A, we expect deleverage between 20, and 40 basis points to a rate of 24, 3% to 24, 5%.
Mike: Excluding some ongoing normalization of our incentive compensation levels in 2025, we do expect modest leverage on an underlying basis within our cost structure.
Mike: Our plans include ongoing progress in our cost optimization efforts, including an additional $60 million to $70 million in cost savings targeted this year after which are $350 million savings plan will be completed.
Mike: Switching to cash flows our adjusted capital expenditure outlook for the year is approximately $300 million.
Which is lower than the average implied 330 to 340 billion and our prior 1 billion cumulative capex guidance from 2024 through 2026.
Mike: Recognizing the need to better match, our capital spending with our topline we're moderating our capex spend as we come into 2025 with an emphasis on our customer facing investments.
Mike: Embedded in that $300 million figure as a greater emphasis on our store projects, including <unk> and refreshes versus the prior year.
Mike: As you can see highlighted within our investor presentation. The reason why we are leaning into these investments is because of the solid cash on cash returns and favorable paybacks. They are generated.
Mike: Our average re imagine location, we're seeing roughly $4 million to $5 million in sales and 20% EBITDA margins in year, one and are generating cash on cash returns of approximately 50%.
Mike: For our refreshes, we're also seeing attractive cash on cash returns of 35% to 45% driven by annualized sales productivity lifts in the low to mid single digit dollar growth range and mid single digit lifts and merchandize profit dollars.
Mike: As we complete 300, plus refreshes in 2025 following over 400 last year, we will shift to investing and re imagine formats going forward and expect our store investments to continue to drive returns and generating cash for the business.
Mike: While our technology investments will continue the next few years, we are adjusting the timing of some of the non customer facing technology investments. So we can prioritize the projects with highest cash on cash returns in the medium term.
For the year, we expect to continue to be free cash flow generative in 2025% as our sales and margin recovery continues along with our broader inventory and working capital management efforts.
Mike: Moving on to our assumptions on the shape of the year recall that we will be lapping the nonrecurring <unk> charge in the second quarter of 2020 for which we will get back in this year's results.
Mike: That charge represented an approximate $11 million revenue, but not comp headwind in the second quarter, a 40 basis point drag on our gross margin in the quarter and a nine detriment to our EPS last year.
Mike: With our strategic initiatives building through the year, specifically in real estate, we expect comps to accelerate from the first half to the second with the first half closer to the lower end and the second half closer to the upper end of our guidance.
Mike: We expect our gross margin improvement to be greater in the second half compared to the first half as our initiatives continue to build and allow us to pair back some promotional levels.
Mike: On earnings we expect our first half earnings in total flat compared to the prior year inclusive of lapping of that <unk> <unk> charge in the second quarter.
Mike: As such our earnings growth is expected to be weighted towards the second half of the year.
Mike: Within the first half of the year, specifically, we expect profitability to be weighted towards the second quarter, as we lapped and nonrecurring athletics charge last year.
Mike: Before we turn it over to questions I want to reiterate that we remain confidence in our execution abilities of plan as well as the profitable market share gains we are seeing as we implement our strategies and manage our expense and investment profile to generate sustainable shareholder value creation.
We look forward to updating you on our progress against our goals next quarter.
Mike: With that operator, please open the call for questions. Thank.
Mike: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.
Mike: If at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two and now at this time, we'll pause momentarily to assemble our roster.
Speaker Change: And the first question will come from Anna <unk> with Piper Sandler. Please go ahead.
Anna: Great. Thank you so much good morning. Thank you for all the color and taking my question.
Speaker Change: First Tim Murray just from quarter to date can you provide a bit more color on what you're seeing you mentioned the more cautious consumer are you seeing that across demos and regions and Mike what are you factoring into outlook for <unk> and can you guys also speak to what youre expecting for Nike either for the year or the first half.
Anna: As they continue to rationalize the marketplace here in the first.
Speaker Change: In the near term thank you.
Speaker Change: Thank you Anna I'll start with your question about the consumer are quarter to date.
Speaker Change: Coming out of holiday, we felt really good about the momentum in that business in.
Speaker Change: January was the strongest month of the quarter, but our global comps for the quarter were plus two 6%. So about good as we came into February I would say, we just started to see some consumer uncertainty begin to pick up I'd say that was kind of across the board. It led to some choppy performance. So what we're seeing is pressure people coming out to buy when there is an exciting call to action.
Speaker Change: But cautious in between those times, so we talked about just now.
Speaker Change: We can activation Valentine's day last week, and we had a Jordan retro 12, all of those were really exciting call to action for consumers and worked well I'd say in between what we're just looking at as consumers with some uncertainty. So our customers are young by definition. There are more limited in their discretionary budget. This is for sure a category that they prioritize it.
Speaker Change: But we're watching as they're thinking about overall cost of living caused some uncertainty about tariffs. So we factored that into our 2025 outlook.
Speaker Change: Reiterating we know our <unk> strategies are working and our customers are responding really well to those so we're going to continue to drive those this year, whether it's a store improvements digital.
Speaker Change: Royalty et cetera, So I'll turn it to Mike to give a little more detail about the assumptions about the consumer in our guidance.
Mike: When we think about the full year outlook really in our guide of 1% to two 5% comp really at the lower end, we're factoring in some of that recent consumer uncertainty that Mary just highlighted and at the higher end is really where we've run for the last three quarters and it factors in our initiatives continuing to perform in a more stable.
Mike: The macro environment I think as you think about our initiatives for the year. It is important to think through both the wraparound benefits from what we did in 'twenty four and the new benefits that will add in 25.
Mike: From a refresh standpoint, the 400 stores. We did in 24 are really back half loaded and you've called out in our investor presentation, they're generating low to mid single digit sales and profit slightly above that.
Mike: Then from a store investments in 25, 90% of the refresh and re imagines that we will complete will really occur in the first three quarters of the year across.
Mike: Across the digital space, our mobile App really launched in November of 24 within the U S. And then we will have that.
Mike: <unk> and Champs in the first part of the year.
<unk> was really a mid year benefits in the U S from a new program.
Mike: And we will add that mid year in EMEA and 25 as well and then we'll continue to add doors, which is key and trending brands like <unk> and HOKA.
Speaker Change: So a lot of initiatives that are supporting our comp build Bob Watson should be acknowledged there is.
Speaker Change: Some consumer uncertainty that we're seeing in the beginning.
Speaker Change: Part of the year as we think about the marketplace more generally I think in 2000 coming into 2025 channel inventories do seem to be in better shape.
Speaker Change: The promotional tenor and DTC, specifically seems to be monitoring moderating as we come through the year.
Speaker Change: And then as we move through the year closer back to school and holiday are we do think the pace of innovation and newness that we will keep moving in the right direction, which should be supportive of more full price selling.
Speaker Change: Okay. That's terrific. Thank you so much and can I ask just a follow up to Mike on SG&A I guess why aren't you guys seeing bigger cost savings coming through a bit more why arent, we seeing more SG&A leverage this year and thank you again.
Speaker Change: Absolutely so acknowledging a lot of moving pieces in our results.
Speaker Change: Structurally we have made progress, but also acknowledge that 24% SG&A is not supportive of our long term.
Speaker Change: <unk> targets and we will continue to make steps to lower that are 25 guide is modestly leverage excluding the normalization of some incentive comp.
Speaker Change: And said differently, if you sort of look at what we comped, our what we guided coming into 'twenty for versus what we're guiding into 25, which would have normalized incentives we are showing some leverage.
Speaker Change: And the SG&A category and Youll continue to see us work on that going forward.
Speaker Change: Alright, well. Thank you so much for all the color.
Adrienne: The next question will come from Adrienne <unk> with Barclays. Please go ahead.
Adrienne <unk>: Great. Thank you very much and congrats on the progress.
Adrienne <unk>: Mary I wanted to talk about the Nike relationship inserted.
Mary: I'll use the word surprise or for <unk> during the quarter.
Mary: How promotional they gotten their own channel, which then created kind of a halo of promotion ality According to their guidance.
Mary: Or sort of really taking a lot more gross margin here in this next quarter and so I know, there's a delay between the marketplace and their business how far along is the big three in franchise management through in the in the system in the marketplace and if you can talk about.
Mary: You're probably starting to see some of the new innovation coming down the pipeline for fall winter. So if you can talk about anything that youre seeing there that is.
Mary: <unk>.
Mary: And then really quickly I have to ask the tariff question I know the answer but I've got to ask it anyway.
Mary: Can you talk about kind of your direct exposure to China, Mexico, Canada, and then in the last iteration of it in 2018 19, how well were you able to negotiate kind of to partner and kind of split some of that cost.
Mary: Or passing a lot. Thank you so much.
Mary: The big two parter question I'll start with the tariffs and burst.
Mary: And certainly this is a rapidly evolving situation and its arent consumers' minds, we're watching it closely of course, how this would impact overall.
Mary: Constant pricing for consumers across multiple categories could have impact I would say first of all the industry has done some good work over the years to diversify our portfolio outside of China. So that's an advantage in and also I would say that our direct exposure is pretty moderate to small and I'll have Mike add a little bit more detail on that but what we're doing.
Mary: Really just working with our brand partners and communication regulators is the situation.
Mary: <unk> continues to unfold.
Mike: John It's Mike just.
Mike: Just a couple of specifics within our direct business. We do have some some modest exposure to China, it's about half of our private label.
Mike: Business, but for total foot locker, it's really about low single digit percentage of our sales. We also do have some minor exposure tied to fixtures across China, Mexico and Canada.
Mike: Pretty modest impact to how we're thinking about our capital plans this year and our return profile for those investments are still very healthy so.
Mike: So we'll continue to monitor that as we go.
Speaker Change: And then let's just a Nike let me step back Big picture and then I'll just ask Frank to add more but you know one of the things I'm just I'm really proud about the strength of our partnership as we're focused on our key pillars of basketball kids and sneaker culture.
Speaker Change: We have a nice strategic partnership with the clinic and Homecourt with Nike and Jordan brand and also our weekend activation I think is a great example of the power of our partnership.
Speaker Change: We have a lot of faith in Elliot and his team. The actions. We're taking we think are good for the brand in the overall marketplace and longer term for us as they rebalance their portfolio and to make way for the future innovations and we feel good about what's in the pipeline I'd say at a high level.
Speaker Change: There's been some real recent wins like the Black label, Pat The Jordan Retro 12 et cetera. So we did return to allocation growth in the fourth quarter.
Speaker Change: But now we're actually really focus on longer term strategies and growth plans between our two companies which were quite excited about.
Speaker Change: I might just add though that of course, we're also leaning into our wider product portfolio, which still remains very much in focus for us it's reflected in what our consumers want which is seeing full libraries I guess, all things sneakers, we like to say and we've seen double digit growth in the rest of the portfolio led by Adas Adidas new balance Asics on Hogan timberland.
Speaker Change: So all drove really positive comps in the quarter. So we're balancing that well I would say I'll ask Bryan to add a little bit more about about making sure yes, as Barry said very happy with the partnership and the level of engagement with Nike as we said in the prepared remarks, we did return allocation growth in Q4, and you saw that read through in our results in the Jordan brand new.
Speaker Change: Launch business. So we really do consider the business to be reset so to speak of this year. As you mentioned, we're really focused on optimizing our merchandize mix and do see sequential.
Speaker Change: Top line as well as gross margin recovery with the Nike partnership we're definitely supportive of the actions being taken on those big three basketball classic franchises and we're actually quite bullish on some of the innovation and storytelling that's coming in the latter part of the year and think that will be net benefactors of that of that delivery. Meanwhile.
Speaker Change: Very excited about the future in terms of innovation Nike shops, running construct with peg of the marrow and structure all looks incredible and the recent launches have been well received by the consumer basketball of course continues to see diversification Jos Sabrina book, Colby, all performing well with consumers.
Speaker Change: And then the Max Air franchise again, we're launching DNA later this week and Super excited about our go to market plans globally for that franchise. So we're very clear eyed and working closely with our Nike partners and 25 to improve the performance of the business more importantly, the long term outlook is very strong with our partners there.
Speaker Change: Fantastic that's great to hear best of luck. Thank you.
Speaker Change: The next question will come from Michael Binetti with Evercore ISI. Please go ahead.
Michael Binetti: Thanks for taking my question here.
Speaker Change: As we look at the guidance you just gave the at the high end. This year. The algorithm is two 5% same store sales growth with EBIT margins up 60 basis points on that level of comp and SG&A levering 30 basis points let.
Speaker Change: Let me see the first quarter and the first half are below that rate, but is that is that a rate that you can look at it and say this is the high end of this right you've referred to a couple of times as normal is that is that a normal algorithm can you can you do 60 basis points of EBIT.
Speaker Change: On a two to three comp going forward and should we should we think about it for next year for 2026. When the consensus model is I think only 30 basis points of total margin expansion.
Speaker Change: Particularly considering.
Speaker Change: With this year's guidance gross margins will still be more than 200 basis points below 2019 levels.
Mike: Michael This is Mike.
Mike: We do feel comfortable with that algorithm, especially in the next few years as we're continuing to recapture.
Mike: Some improvement in margin that we owe.
We will continue to make our SG&A leverage as we.
Mike: Continue to focus on our cost structure.
Mike: And I think the other thing that will be supportive of that Mary alluded to it in her earlier comments is just the health of our store fleet.
Mike: The work that we've done to have a tighter healthier store portfolio.
Mike: The high end of that comp range in the 60 basis point of EBIT.
Mike: Res growth, we do feel comfortable with.
Speaker Change: And let me ask you about the store you're going to add you're going to refresh 300 more this year, we heard the re imagine plan.
Speaker Change: I'm curious it seems like they are fairly low touched not disruptive refresh and I think the capital was quite low and you didn't have to have them closed for a long while.
Speaker Change: Slow just 300 this year from 400 given the.
Speaker Change: Over 2000 stores globally, and I understand the brand standard Matthew.
Matthew are doing as we think about more of the fleet being refreshed and re imagined but.
Speaker Change: Talk about the bottom.
Speaker Change: The fleet.
Speaker Change: What what what do you think you need for the stores that arent eligible for refresh or won't be converted into re imagine how do you think about what to do with the bottom part of the fleet to help to contribute more to the overall.
Speaker Change: P&L of the company going forward.
Speaker Change: Yes, so Michael this is Mike a couple of things tied to that one is the 800 stores from a refresh standpoint that will completed by the end of this year or really the store portfolio or the store composition that we feel comfortable can generate the returns that we committed to within our investor.
Speaker Change: File as.
Speaker Change: As we look forward with the <unk> concept we.
Speaker Change: We do have stores that would have been more costly to do from a refresh standpoint, and and are in markets or locations that are worthy of the full re imagined.
Speaker Change: Scope.
Speaker Change: I think as we think through our broader portfolio one of the things that we're really pleased with is when you look at I think 2019 versus 2024, we have about 20 points more of our penetration into the higher end malls and off mall and we've really reduced our exposure into the the.
Speaker Change: Forming or the lower tiered malls so again.
Speaker Change: You can take away from that so we feel really good about the construct of our real estate portfolio, especially with the remaining actions we take to close another set of stores this year.
Speaker Change: Okay. Thanks, a lot I appreciate the detail.
Speaker Change: The next question will come from Janine Stichter with BTG. Please go ahead.
Janine Stichter: Hey, good morning, Thanks for taking my question.
Speaker Change: Follow up to the real estate piece of things.
Speaker Change: I think youre reallocating, capex and new concepts refreshes and then pulling back on some of the Haynesville.
Speaker Change: Can you elaborate on the areas that youre pulling back in and how you think about the tech investments IP investments that might be needed over the medium term. Thank you.
Michael Binetti: Jeanine. This is Mike. So we are from a technology perspective, very much maintaining the consumer facing.
Speaker Change: Side of our technology investments and the.
Speaker Change: And the aspects that would be tied to the digital experience and the mobile app and setting up best I'll ask.
Speaker Change: For example, so we're very focused on that.
Speaker Change: We do have core technology pieces that we are really moderating or adjusting the timing of that just acknowledging that.
Speaker Change: We do have these investments that.
Speaker Change: Our paying back quicker that we want to lean into.
Speaker Change: I would.
Speaker Change: I'd like you to take away from this the reinvestment or the reallocation into more consumer facing.
Speaker Change: Our strong cash on cash return projects and an elongation of the technology investments that are more sort of back of house related.
Speaker Change: Great and then maybe just on WSI, obviously that the consumer has been pressured there and youre pulling back on the store growth.
Speaker Change: What do you think is the fix there and what would it take for you to Reaccelerate the unit growth there.
Speaker Change: Yes. This is Frank I'll jump in there. So first of all I think the team has been very focused on the consumer and been sensitive to some of the conditions that they've been going through prolonged inflation, particularly in the state of California, where more than two thirds of our store fleet lies.
Speaker Change: But also just some of the <unk>.
Speaker Change: Recent dynamics going on with the consumer which has caused them to be even more cautious. So we are doubling down on our value proposition. So really recommitting to sub $100 footwear really tapping into some of the passion points of global football, but also acknowledging workwear is a key category an instrument of growth for us we're doing a lot of.
Speaker Change: Work on the merchandise mix and our pricing strategy and we continue to connect with the consumer at a very local level. So we're being very prudent as we talked about in terms of capital allocation. So really only one new store in 2025.
Speaker Change: Our focus is really on improving the profitability and productivity of our existing fleet here. While we go through this transitory period with the consumer long term, we have a lot of faith in that Hispanic community in terms of what they mean to the marketplace and their purchase power and so we're going to stay the course and worked through this.
Speaker Change: Great. Thanks, so much.
Speaker Change: The next question will come from Jay sole with UBS. Please go ahead.
Speaker Change: Great. Thank you so much maybe if you could elaborate a little bit on what youre seeing in Europe, and the differences there between Europe and North America that'd be Super helpful. Thank you.
Speaker Change: Yeah.
Yes, I can jump in it's Frank again, so it's been a.
Speaker Change: Challenging macro both from an economic as well as the political environment been very choppy and volatile to say the least that said really proud of the work that the team did turning in a 2% comp gain in Q4 in comp positive sales for the year with good market share gains in the footwear category, but we do feel that while it was relatively.
Speaker Change: <unk> in both footwear and apparel, we are seeing channel inventories clean up and Directionally headed in the right direction.
Speaker Change: We also as Mike mentioned have an aggressive refresh program in 2025, so over two thirds of the refreshes will happen in Western Europe, and the U K. So that's going to significantly improve the productivity as we've seen in terms of sell through margins and cash on cash returns in that marketplace and then maybe.
Speaker Change: While we're working very closely with our brand partners upstream on new ideas in both footwear and apparel to excite the consumer and make sure inventories stay fresh and our margin and topline continues to move in the right direction.
Speaker Change: Got it and then could you just clarify the comments on the guidance for the first half of the year.
Speaker Change: How should we think about Q1 really in that context. Thank you.
Mike: Jay This is Mike So I think from the.
Mike: Really articulating that we think the first half in general is going to be.
Mike: Flat to flattish overall from a profit standpoint to what we had versus last year.
Mike: Q2 from a year over year standpoint would benefit from the.
Mike: <unk> charged <unk>, anniversarying, which was worth <unk>.
Mike: <unk>, so that does put some pressure on our.
Mike: How we are thinking about the first quarter.
Mike: Got it and then is there a difference in the sales growth expectation for Q1 versus Q2.
Mike: I would say across if.
Mike: If you think about the guidance of the first half being at the lower end in the second half being at the higher end of our guide we would expect somewhat of a ramp across Q1 to Q2 within that.
Got it okay. Thank you so much.
Jeff: Thanks, Jeff.
Jeff: This concludes our question and answer session I would like to turn the conference back over to MS. Mary Dillon for any closing remarks. Please go ahead.
Speaker Change: Thanks to everybody for joining us today, we remain confident that our strategies and actions are put in foot locker and the continued path towards sustainable growth.
I extend my thanks to the entire foot locker team from our global Striper community to those working on distribution centers to our headquarters for their dedication passion and commitment every day first forward to updating you on our progress next quarter and thank you.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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