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We’ve spent a ton of time on Foot Locker recently, working to understand the opportunities ahead and to proactively predict the company’s strategic moves.  This morning we received confirmation on a few areas of focus as well as few positive surprises:

  • The Nike relationship is alive and well.  We’ll see a collaborative effort in the Spring around Nike’s Fresh Air launch.  In addition, House of Hoops highlighted as an example of an already successful collaboration.  Management sounded upbeat about 2010 as it pertains to Nike and we suspect there are more programs yet to be announced.  A definite positive and also a prerequisite for this turnaround to work.
  • RUN by Foot Locker was acknowledged as a test and as an opportunity to tap into the large and growing running category.  Clearly management believes there is an opportunity to build share in performance/technical running.  It was also acknowledged that service levels are key to this concept’s success and there is much to learn there.  Staffing levels aside, any improvement in customer service across the chain will be a big deal. 
  • Apparel was the most often mentioned opportunity on the call but also the one with the least details.  An upgrade towards more performance oriented apparel, especially in women’s (at Lady Foot Locker) sounds like it’s in the works.  Importantly, a change in the company’s approach to clearing aged inventory (faster) will clear the decks. This was evidenced by a charge taken in the quarter to jump-start the process.  Current apparel trends are under-performing.  CEO, Ken Hicks, alluded to the “new apparel team”, which we hope to learn more about at Tuesday’s analyst day.
  • Europe continues to outperform, posting positive mid single digit comps for the quarter with strength carrying into 1Q.  Interestingly, an uptick in the basketball category was noted.  Historically, Europe has been more driven by low profile and running silhouettes.  This trend is noteworthy, as ASP’s in basketball are higher and this would present a great near term growth opportunity for the chain.  Perhaps, the proliferation of European basketball players throughout the NBA is finally starting to take hold…
  • Inventory well managed down 7.4% on an absolute basis, 10% in constant currency, and down 6% per foot- all against total sales that increase 0.6%  Expect to hear more about a focus on turning goods faster next week. 
  • Again, we believe this not a massive store closing story at all costs.  With that said the unprofitable, unproductive stores slated for closure are adding up.  Another 150 announced for 2010, mostly tied to lease expirations.  Lease attrition is clearly the preferred (and cheapest) method the company will use to right size the base.
  • Same-store Sales are trending even better post-quarter, giving management confidence to put out a low single digit forecast for year.  February comps were up mid single digits across all divisions, even against tough compares.  A word of caution here. While it’s good to see comps accelerating, let’s not forget that the entire retail universe had a great February.  A rising tide lifts all boats and in this case Foot Locker is back in the water. 
  • More to come on Tuesday with the official unveiling of the “strategic plan”.  We expect to hear much more detail about product collaborations, marketing plans, store segmentation, and internal personnel changes.

Eric Levine