With Foot Locker CEO Matt Serra stating that “BOGO’s are getting tired” and “were missing some product there” when talking about the loss of Nike allocations and reduced orders, the company was left focusing on a building on Europe and re-building U.S. stores to fuel future growth.

Business is such that Z — the soon to be FL-was unable to make any estimates for first quarter and full year 2003 other than to say that February was “a little down” from last year.

Foot Locker feels that the market has gotten tired with the type of promotion that worked a couple of years ago when the market was highly promotional. Management stated that its competitors were doing it and Foot Locker just “did it better” and “got some lift from it.”

Management did point out that the U.S. footwear market has grown 6.4% since 1998 and Foot Locker has grown 13% in the U.S. Foot Locker has grown 115% in Europe in that period.

Over a third of the Foot Locker nameplate doors are in need of updating and the company expects to complete the work over the next couple of years and improve on a layout that dedicates only a third of total square footage to selling square footage in many stores. During 2002, the Company opened 157 stores; remodeled/relocated 205 stores and closed 122 stores.

The result is improving sales per square foot, seeing an increase to $316 from $306 for the year. The goal is $350 per square foot.

Sales for the full year 2002 ended February 1, 2003 increased 4.3% to $4.5 billion as compared with sales from adjusted operations of $4.3 billion last year. Comparable store sales increased 0.1%.

For the full fiscal year, Foot Locker reported net income of $144 million, or 99 cents a share, up 57% from $92 million, or 64 cents, in 2001.

Fourth quarter sales increased 5.1% (2% currency-neutral) to $1.21 billion compared with $1.16 billion in Q4 2001. Fourth quarter comp store sales decreased 0.9%, or down approximately 3% in neutral currency.

Regarding the Nike dispute and subsequent cutback in marquee product from both sides, management stated that they have “an ongoing dialogue” and they hope to “shore up that disparity.” “They have made their decisions and we have made our decisions and I think over time we have to wait and see what happens”, said Serra.

Nike was 47% of sales in 2001 and 44% in 2002. Sales in 2003 “will be lower”.

Foot locker said in a conference call with analysts that they have a lot of exciting products from a lot of other very ‘important” suppliers and pointed to the Polo line as one of the key movers, indicating the brand has “checked out” of their stores faster than anything they’ve seen in some time. The company boasted of some 771 exclusives, and said they were still getting a substantial quantity of Air Force Ones from Nike.

The replacement of the Nike “House of Hoops” shop with Reebok “Outside the Arc” has been “transparent” in terms of sales change.

Foot Locker said net earnings in the fourth quarter were $48 million, or 33 cents a share, compared with $36 million, or 24 cents in the year-earlier period.

Excluding a loss from discontinued operations, year-ago profit was 28 cents a share. Gross margin improved 20 BPS in the quarter.

First Call estimated EPS of 34 cents for the quarter. Shares fell 3.3% for the week to close at $9.82.
In addition to the growth of its European operations and profit growth at Champs Sports, Foot Locker said its improved profit was due to development of its “highly profitable” direct-to-consumer channel, expanded offerings of private-label apparel and lower costs.

Z will open 100 doors in first 9 months of 2003, with 25 Foot Locker nameplates, all in urban locations, 60 Int’l stores (50 in Europe) and 15 Champs stores. The plan to improve sales per square foot will see Z renovate or relocate 500 doors with particular emphasis on Foot Locker (250 doors).

Foot Locker, Inc.’s ticker symbol will be changed to “FL” from “Z”, effective with the beginning of trading on March 31, 2003.

>>> Clearly the lack of Nike allocated styles has had an impact on top-line. The question is, how interested is Nike in talking when they seen the results at Finish Line?