Foot Locker (FL)

Segment Analysis

          Athletic Stores sales increased by 2.1 percent and 0.2 percent for the thirteen and thirty-nine weeks ended October 28, 2006, respectively, as compared with the corresponding prior-year periods.  Excluding the effect of foreign currency fluctuations, primarily related to the euro, sales from athletic store formats increased 1.0 percent for the thirteen weeks ended October 28, 2006 and decreased 0.2 percent for the thirty-nine weeks ended October 28, 2006 as compared with the corresponding prior-year periods.  Comparable-store sales increased by 0.1 percent and decreased by 0.4 percent for the thirteen and thirty-nine weeks ended October 28, 2006, respectively.  Champs Sports, Lady Foot Locker and Footaction formats increased sales, primarily from the sales of marquee basketball and running, as well as low-profile styles. These increases were offset, in part, by a decline in Foot Locker Europe’s sales due to the continued difficult athletic retail environment.        

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Segment Analysis

          Athletic Stores sales decreased by 0.2 percent and 0.8 percent for the thirteen and twenty-six weeks ended July 29, 2006, respectively, as compared with the corresponding prior year periods.  Excluding the effect of foreign currency fluctuations, primarily related to the euro, sales from athletic store formats decreased 1.4 percent and 0.7 percent for the thirteen and twenty-six weeks ended July 29, 2006, respectively, as compared with the corresponding prior year periods.  Comparable-store sales decreased by 1.5 percent and 0.6 percent for the thirteen and twenty-six weeks ended July 29, 2006, respectively. The decline in sales for the thirteen and twenty-six weeks ended July 29, 2006 primarily represented a decline in Foot Locker Europe’s sales due to a more competitive athletic retail market. This decline was offset, in part, by increases in the Champs Sports and Footaction formats, which benefited from increased sales of higher-priced marquee footwear and private label apparel.

          Included in the Athletic Stores division profit for the second quarter of 2006 is an impairment charge of $17 million, consistent with the Company’s recoverability of long-lived assets policy.  The charge was comprised primarily of stores located in the U.K and France. As previously disclosed in the Company’s 2005 Annual Report on Form 10-K, the Company was monitoring the progress of the European operations and the possible analysis of recoverability of store long-lived assets pursuant to SFAS No. 144.  Foot Locker Europe’s decreased sales contributed to a significant decline in division profit during the second quarter of 2006, as compared with the corresponding prior year period. This combined with a lower outlook for the balance of 2006 necessitated an analysis of recoverability and resulting write-down of 69 stores.  The negative sales results in Foot Locker Europe were principally the result of a fashion shift from higher priced marquee footwear to lower priced low profile footwear styles and a highly competitive retail environment, particularly for the sale of low profile footwear styles.  Foot Locker Europe’s results for the second quarter of 2006 were also negatively affected by a slowing demand for its athletic apparel offerings.  Excluding the impairment charge, Athletic Stores division profit decreased by 33.3 percent and 14.2 percent for the thirteen and twenty-six week periods ended July 29, 2006 as compared with the corresponding prior-year periods.  For the thirteen weeks ended July 29, 2006, the domestic Foot Locker division declined as compared with the corresponding prior year period due to a shift in the back-to-school shopping season in certain markets. The significant decline in Foot Locker Europe’s division profit was somewhat offset by profit increases in the Footaction, Kids Foot Locker and Champs Sports formats for the year-to-date period ended July 29, 2006. 

          Direct-to-Customers sales increased by 2.7 percent to $75 million and by 3.7 percent to $167 million for the thirteen and twenty-six weeks ended July 29, 2006, respectively, as compared with the corresponding prior-year periods.  Internet sales increased by 14.9 percent to $54 million and by 15.5 percent to $119 million for the thirteen and twenty-six weeks ended July 29, 2006, as compared with the corresponding prior year period.  Increases in Internet sales were offset, in part, by a decline in catalog sales, reflecting the continuing trend of the Company’s customers to browse and select products through its catalogs, then make their purchases via the Internet.

          Direct-to-Customers division profit for thirteen and twenty-six weeks ended July 29, 2006 as compared with the corresponding prior year period was essentially unchanged. Division profit, as a percentage of sales, decreased to 9.3 percent in the second quarter of 2006 from 9.6 percent in the corresponding prior-year period. Division profit, as a percentage of sales, remained essentially flat in the first half of 2006 from the corresponding prior-year period. 

Segment Analysis

          Athletic Stores sales decreased by 1.2 percent to $1,273 million for the thirteen weeks ended April 29, 2006, as compared with the corresponding prior year period of $1,289 million. Excluding the effect of foreign currency fluctuations, primarily related to the euro, sales from athletic store formats remained flat for the thirteen weeks ended April 29, 2006, as compared with the corresponding prior year period.  This reflects an increase of approximately $15 million in domestic sales, particularly from the Footaction division, offset by a decline in sales from the European operations due to the ongoing competitive environment. Comparable-store sales increased by 0.3 percent for the thirteen weeks ended April 29, 2006.

          Athletic Stores division profit increased 1.0 percent for the thirteen weeks ended April 29, 2006, as compared with the corresponding prior period.  Athletic Stores division profit, as a percentage of sales, increased to 7.8 percent for the thirteen weeks ended April 29, 2006, from 7.6 percent in the corresponding prior year period.  The increase in division profit is attributable to increases in all the domestic formats, offset, in part, by a decline in Foot Locker Europe’s division profit.  Foot Locker Europe’s division profit for the thirteen weeks ended April 29, 2006 declined significantly as compared with the corresponding prior year period.  This decline in division profit was principally the result of a fashion shift from higher priced marquee footwear to lower priced low profile footwear and a highly competitive retail environment, particularly for the sale of low profile footwear.  The effect of these factors on Foot Locker Europe’s division profit was, to some extent, offset by Foot Locker Europe being significantly less promotional during the first quarter of 2006 as compared with the corresponding prior year period, resulting in fewer markdowns recorded in almost all the countries. Management has continued to implement management and merchandise initiatives to better align its product offerings with current trends, including additional quantities of the low profile footwear planned for the fall season. Management believes that this trend toward lower priced low profile footwear and the competitive environment will continue for the remainder of this year.  Management will continue to monitor the progress of the European operations and will assess, if necessary, the impact of various initiatives on the projected performance of the division, which may include an analysis of recoverability of store long-lived assets pursuant to SFAS No. 144.

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