Foot Locker, Inc. said the infrastructure integration of Footaction is “essentially complete”, indicating they expect to have the stores “re-merchandised” during the second quarter, but the Foot Locker nameplate will be clearly positioned as the “leading provider of marquee footwear in America”.

This last weekend was expected to see the start of two months of “aggressive” clearance sales at the Footaction stores as they move to clean out broken inventory. They expect to be “positioned” in mid-July for back-to-school. Foot Locker told SEW that the Footaction inventory was valued at around $80 million at wholesale, but they had not valued it at retail yet.

CEO Matt Serra said in a conference call with analysts that Footaction had not “received a lot of goods in a long time” and were “completely broken in sizes”, especially in the meat sizes, indicating that men’s sizes 9 through 11 “are basically gone”. He also said the apparel assortments were “very broken”.


New visuals will be added to the stores over time as they promote the Footaction brand.


The company said they expect that approximately 25% to 35% of the footwear at Footaction will be different from that of Foot Locker. They also see improved apparel assortments as the “most significant sales opportunity in the Footaction stores”, merchandising the FA stores with “less private-label and more branded apparel” than typically seen in the Foot Locker stores.


Foot Locker expects that the Footaction stores will average “approximately $1 million in sales” for the balance of this year, but are expected to produce over $1.4 million in sales and produce an operating profit margin in line with the average of Foot Locker’s other U.S. stores. FL is planning for FA to be “breakeven to mildly accretive in 2004”, but is expected to add 10 cents or more per share to our earnings base in 2005.


Serra said the $225 million investment in the 350 FA stores is “very similar on a per store basis” with their current costs of opening new stores. They see the stores generating “at least adjusted double-digit internal rate of return”, well in excess of the estimated 8% cost of capital.


The deal will be financed in part by a new financing arrangement with their current banking group which extends an existing $200 million revolving credit facility to May 2009 and the addition of $175 million raised through a new term loan that amortizes over five years at a current floating interest rate of approximately 2.6%. FL earlier this month redeemed $150 million in 5.5% convertible notes. Total debt at the end of Q2 is expected to be just $25 million higher than before the Footaction acquisition.