Foot Locker Sees Weakness in Europe Slows Bottom Line Growth

Foot Locker, Inc. posted net income of $59 million for the first quarter ended April 29, 2006, up 2.1% from net income of $58 million for the year-ago period. Earnings per share reflected the net increase at 38 cents per share, up a penny from 37 cents for the first quarter last year. This year's results benefited by $1 million, or one cent per share, from a cumulative effect of accounting change, that essentially offset incremental share-based compensation included in SG&A expenses, both of which resulted from the company's required adoption of SFAS 123. The cumulative effect of accounting change is a one-time benefit while the incremental share-based compensation included in SG&A expenses is expected to be recurring.

First quarter sales decreased 0.9% to $1.37 billion this year compared with sales of $1,38 billion for the corresponding prior year period. Excluding the effect of foreign currency fluctuations, total sales for the 13-week period increased 0.2%. First quarter comparable-store sales increased 0.5%.

“Our first quarter financial results reflected a strong performance in each of our North American businesses offset by sales and profit declines in our European operation,” stated Matthew D. Serra, Foot Locker, Inc.'s Chairman and Chief Executive Officer. “Total sales in the quarter were lower than our initial expectations, but our profitability was enhanced by lower than planned markdowns that benefited our gross margin rate.”

Mr. Serra continued, “In total, our earnings per share for the first quarter were in line with the guidance range that we provided at the beginning of the year. For our second fiscal quarter, we currently expect earnings per share to be in the range of 27 cents to 30 cents. We currently expect that our earnings from continuing operations for the full year will be in the range of $1.75 to $1.85 per share, which is unchanged from our prior guidance, and reflects our outlook for improved earnings during the second half of 2006.”

Store Base Update

During the first quarter, the company opened 17 new stores; remodeled/relocated 84 stores and closed 61 stores. At April 29, 2006, the company operated 3,877 stores in 20 countries in North America, Europe and Australia. This represents a decrease of 51 stores, or approximately 1.3 percent, versus the first quarter of last year. For the balance of 2006, however, the company expects to open more stores than it closes, ending the year with more stores than it was operating at the beginning of the year.

During the first quarter of this year, negotiations were completed with a well-established third party franchisee, Alshaya Trading Co. W.L.L., to open Foot Locker franchised stores in several countries in the Middle East. The company expects that its first franchised store will open during the second quarter with a goal of opening 6 stores in the first year of operation. Over the next several years, the company and the franchisee are targeting a total of 75 stores in this region.

Financial Position

The company continues to redeploy its strong cash flow with an objective of further strengthening its financial position and enhancing shareholder value. First quarter initiatives included the following:

     * $68 million in contributions to its pension funds
     * $50 million in long-term debt repayments
     * $14 million in shareholder dividends
     * $8 million to repurchase 334,000 shares of its common stock

At the end of its first fiscal quarter, the company's cash position, net of debt, stood at $98 million, a $40 million improvement versus last year.

                    FOOT LOCKER, INC.
               Condensed Consolidated Statements of Operations
                                 (unaudited)
               Periods ended April 29, 2006 and April 30, 2005
                   (In millions, except per share amounts)

                                                  First Quarter  First Quarter
                                                       2006           2005
    Sales                                             $1,365         $1,377

    Cost of sales                                        946            959
    Selling, general and administrative expenses         283            283
    Depreciation and amortization                         43             41
    Interest expense, net                                  1              3
                                                       1,273          1,286
    Income before income taxes and cumulative
     effect of accounting change                          92             91
    Income tax expense                                    34             33
    Income before cumulative effect of accounting change  58             58
    Cumulative effect of accounting change,
     net of income tax                                     1              -
    Net income                                           $59            $58

    Diluted EPS:
    Income before cumulative effect of accounting
     change                                            $0.37          $0.37
    Cumulative effect of accounting change              0.01              -
    Net income                                         $0.38          $0.37

    Weighted-average diluted shares outstanding        156.7          158.1