Foot Locker, Inc. Reports Fourth Quarter and Full Year Results

NEW YORK, March 7 /PRNewswire-FirstCall/ -- Foot Locker, Inc. , the New York-based specialty athletic retailer, today reported its fourth quarter and full year financial results. In accordance with the National Retail Federation's recommended calendar, the Company's fiscal year ended on February 3, 2007, reflecting a 14-week fourth quarter and 53-week total year, thereby adding one additional week to the 2006 fourth quarter and fiscal year versus the comparable periods of last year.

Fourth Quarter Results

Net income for the Company's fourth quarter increased to $0.72 per share, or $113 million, compared with $0.61 per share, or $96 million, last year. Included in this year's results is income of $0.02 per share, or $3 million, from discontinued operations. Income from continuing operations for the fourth quarter of 2006 was $0.70 per share, or $110 million, compared with $0.61 per share, or $96 million, last year.

The fourth quarter results benefited from the additional week, which contributed $0.11 per share, or $18 million, to this year's results, while a reduction of the Company's income tax valuation allowance provided a benefit of $0.04 per share, or $6 million, to last year's results. For comparative purposes, income from continuing operations was $0.59 per share, or $95 million, before the impact of the additional week this year, and $0.57 per share, or $90 million, before the benefit of the income tax credit last year.

Sales for the 14-week fourth quarter increased 5.6 percent, to $1,652 million this year, compared with sales of $1,564 million in the 13-week year-earlier period, reflecting the benefit of the additional week, and negatively impacted by a 13-week comparable-store sales decrease of 3.4 percent.

"Our fourth quarter income from continuing operations came in higher than the guidance that we provided at the beginning of the quarter, primarily due to the stronger than expected earnings we generated during the extra week of the fiscal year," stated Matthew D. Serra, Foot Locker, Inc.'s Chairman and Chief Executive Officer. "While the athletic footwear and apparel retail environment in the U.S. was challenging, our domestic divisions generated a solid profit increase in the fourth quarter. In Europe, we continued to experience sales declines as we adjusted our merchandise assortments to be better aligned with the current fashion trend. A stronger gross margin rate, however, contributed to a stabilization of our fourth quarter profit at this division which, as a percentage of sales, was in the solid double digit level."

Full Year Results

Net income for the full year was $1.60 per share, or $251 million, including a non-cash impairment charge of $0.08 per share, or $12 million, recorded in the second quarter of 2006 to write down long-lived assets at the Company's European operation, pursuant to SFAS No. 144, and income from discontinued operations of $0.02 per share, or $3 million. In fiscal year 2005, the Company reported net income per share of $1.68 per share, or $264 million and included $0.01 per share, or $1 million, from discontinued operations. Income from continuing operations for the full year was $1.58 per share, or $247 million in 2006, versus $1.67 per share, or $263 million, last year.

Full year sales increased 1.7 percent, to $5,750 million, as compared with sales of $5,653 million last year, reflecting the benefit of the additional week this year, and negatively impacted by a comparable-store sales decrease of 1.2 percent.

Financial Position

At the end of the year, the Company's cash position was $470 million. During the year the Company redeployed its strong cash flow to fund the following initiatives:

* Cash capital expenditures of $165 million * Long-term debt repayments of $88 million * Pension fund contributions of $68 million * Shareholder dividends of $61 million * Share repurchases of $8 million

Included in the Company's 2006 capital expenditure program was the opening of 146 new stores, remodeling or relocating 278 stores and closing 125 stores. At February 3, 2007, the Company operated 3,942 stores in 20 countries in North America, Europe and Australia. In addition, three Foot Locker franchised stores were operating in the Middle East.

Share Repurchase Program

The Company also today announced that its Board of Directors authorized a new $300 million, 3-year share repurchase program. A total of approximately 334,000 shares were purchased in 2006 for $8 million under the Company's previous $150 million authorization.

"The strength of our current financial position and expected future cash flow allow us the opportunity to consider significantly increasing the amount of cash that we return to our shareholders," stated Mr. Serra. "We believe that we can increase our share repurchase program while, at the same time, continuing to execute our growth strategies and pay a meaningful shareholder dividend."

Subject to legal and contractual restrictions, the Company may make purchases of its common stock, from time to time, depending on market conditions, availability of other investment opportunities, and other factors.

2007 Outlook

The Company's strategic plan includes the planned implementation in 2007 of several key initiatives that are expected to add meaningfully to shareholder value. The planned strategic initiatives for 2007 include:

* Open 100 new stores, close 100-to-150 poor performing stores, and remodel or relocate 200-to-300 stores in its existing athletic footwear and apparel formats * Open 70 new family footwear stores under the Footquarters name and develop plans to open up to an additional 200 stores in 2008 * Expand franchising operation in the Middle East with 15 additional stores and research new countries where the Company expects it could operate profitably * Continue the pursuit of acquiring compatible specialty retail companies in the footwear industry * Utilize the Company's expected strong cash flow to increase dividends, retire debt, and/or repurchase shares of the Company's stock.

Capital expenditures for 2007 are planned at $170 million to support its existing business and the development of Footquarters. The Company currently expects its fiscal year 2007 earnings from continuing operations, and without the benefit of the 53rd week that added $0.11 per share to 2006 earnings, to be in the range of $1.55 to $1.65 per share. The Company currently expects its first quarter earnings to be in the range of $0.34 to $0.37 per share.

The Company plans to discontinue the practice of reporting quarterly sales information in a separate release prior to the reporting of its quarterly earnings. The Company believes that the simultaneous release of quarterly earnings and sales information in one press release is a practice that is becoming more common among industry peers, and is also consistent with best practices. Thus, beginning with the first quarter of 2007, the Company will issue one press release on May 24, 2007 that will report both sales and earnings for that period.

The Company is hosting a live conference call at 10:00 a.m. (EST) on Thursday, March 8, 2007 to discuss these results and provide guidance with regard to its strategic and earnings outlook for 2007. This conference call may be accessed live from the Investor Relations section of the Foot Locker, Inc. website at http://www.footlocker-inc.com/. The conference call will be available for webcast replay until 5:00 p.m. on Friday, March 16, 2007.

Disclosure Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws. All statements, other than statements of historical facts, which address activities, events or developments that the Company expects or anticipates will or may occur in the future, including, but not limited to, such things as future capital expenditures, expansion, strategic plans, dividend payments, stock repurchases, growth of the Company's business and operations, including future cash flows, revenues and earnings, and other such matters are forward-looking statements. These forward-looking statements are based on many assumptions and factors detailed in the Company's filings with the Securities and Exchange Commission, including the effects of currency fluctuations, customer demand, fashion trends, competitive market forces, uncertainties related to the effect of competitive products and pricing, customer acceptance of the Company's merchandise mix and retail locations, the Company's reliance on a few key vendors for a majority of its merchandise purchases (including a significant portion from one key vendor), unseasonable weather, economic conditions worldwide, any changes in business, political and economic conditions due to the threat of future terrorist activities in the United States or in other parts of the world and related U.S. military action overseas, the ability of the Company to execute its business plans effectively with regard to each of its business units, risks associated with foreign global sourcing, including political instability, changes in import regulations, and disruptions to transportation services and distribution. Any changes in such assumptions or factors could produce significantly different results. The Company undertakes no obligation to update forward-looking statements, whether as a result of new information, future events, or otherwise.

FOOT LOCKER, INC. Condensed Consolidated Statements of Operations (unaudited) Periods ended February 3, 2007 and January 28, 2006 (In millions, except per share amounts) Fourth Quarter Fourth Quarter 2006 2005 Sales 14 Weeks 13 Weeks 13 Weeks $1,652 $1,557 $1,564 Cost of sales 1,118 1,063 1,080 Selling, general and administrative expenses 323 312 301 Depreciation and amortization 44 44 43 Interest expense, net -- -- 2 Other expense (income) (7) (7) (3) 1,478 1,412 1,423 Income from continuing operations before income taxes 174 145 141 Income tax expense 64 53 45 Income from continuing operations 110 92 96 Income from disposal of discontinued operations, net of tax 3 3 -- Net income $113 $95 $96 Diluted EPS: Income from continuing operations $0.70 $0.59 $ 0.61 Income from disposal of discontinued operations, net of tax 0.02 0.02 -- Net income $0.72 $0.61 $ 0.61 Weighted-average diluted shares outstanding 156.9 156.9 156.7 Year-To-Date Year-To-Date 2006 2005 53 Weeks 52 Weeks 52 Weeks Sales $5,750 $5,655 $5,653 Cost of sales 4,014 3,959 3,944 Selling, general and administrative expenses 1,163 1,152 1,129 Depreciation and amortization 175 175 171 Impairment charge 17 17 -- Interest expense, net 3 3 10 Other expense (income) (14) (14) (6) 5,358 5,292 5,248 Income from continuing operations before income taxes and cumulative effect of accounting change 392 363 405 Income tax expense 145 134 142 Income from continuing operations 247 229 263 Income from disposal of discontinued operations, net of tax 3 3 1 Cumulative effect of accounting change, net of tax 1 1 -- Net income $251 $233 $264 Diluted EPS: Income from continuing operations $1.58 $1.47 $1.67 Income from disposal of discontinued operations, net of tax 0.02 0.02 0.01 Cumulative effect of accounting change, net of tax -- -- -- Net income $1.60 $1.49 $1.68 Weighted-average diluted shares outstanding 156.8 156.8 157.6 FOOT LOCKER, INC. Condensed Consolidated Balance Sheets (unaudited) (In millions) February 3, January 28, 2007 2006 Assets CURRENT ASSETS Cash, cash equivalents and short-term investments $470 $587 Merchandise inventories 1,303 1,254 Other current assets 261 173 2,034 2,014 Property and equipment, net 654 675 Deferred tax assets 109 147 Other assets 452 476 $3,249 $3,312 Liabilities and Shareholders' Equity CURRENT LIABILITIES Accounts payable $256 $361 Accrued and other liabilities 246 305 Current portion of long-term debt and obligations under capital leases 14 51 516 717 Long-term debt and obligations under capital leases 220 275 Other liabilities 218 293 SHAREHOLDERS' EQUITY 2,295 2,027 $3,249 $3,312 FOOT LOCKER, INC. Stores and Estimated Square Footage (unaudited) (Square footage in thousands) February 3, January 28, January 29, 2007 2006 2005 Foot Locker U.S. Number of stores 1,368 1,395 1,428 Gross square footage 5,509 5,602 5,809 Selling square footage 3,243 3,290 3,390 Footaction Number of stores 373 363 349 Gross square footage 1,744 1,718 1,683 Selling square footage 1,076 1,060 1,049 Lady Foot Locker Number of stores 557 553 567 Gross square footage 1,243 1,238 1,265 Selling square footage 700 693 705 Kids Foot Locker Number of stores 335 327 346 Gross square footage 810 791 837 Selling square footage 483 472 497 Champs Sports Number of stores 576 556 570 Gross square footage 3,138 3,045 3,173 Selling square footage 2,143 2,096 2,178 Foot Locker International Number of stores 733 727 707 Gross square footage 2,109 2,089 2,013 Selling square footage 1,095 1,099 1,069 Total Stores Operated Number of stores 3,942 3,921 3,967 Gross square footage 14,553 14,483 14,780 Selling square footage 8,740 8,710 8,888 Total Franchised Stores Number of stores 3 -- -- Gross square footage 9 -- -- Selling square footage 6 -- --