John Maurer - VP and IR Lauren Peters - EVP and CFO Dick Johnson - President and CEO.

Corinna Van der Ghinst - Citigroup Michael Binetti - UBS Eric Tracy - Janney Capital Markets Chris Svezia - Susquehanna Financial Sam Poser - Sterne Agee Robby Ohmes - Bank of America Bernard Sosnick - Gilford Securities Seth Sigman - Credit Suisse Eddie Plank - Jeffries Matthew Boss - JPMorgan Paul Trussell - Deutsche Bank Jay Sole - Morgan Stanley Camilo Lyon - Canaccord Genuity.

Good morning ladies and gentlemen and welcome to Foot Locker’s Fourth Quarter and Full Year Financial Results for 2014. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

This conference call may contain forward-looking statements that reflect management’s current views of future events and financial performance.

These forward-looking statements are based on many assumptions and factors, including the effects of currency fluctuations, customer preferences, economic and market conditions worldwide, and other risks and uncertainties described in the company’s press releases and SEC filings.

We refer you to Foot Locker Inc’s most recently filed Form 10-K or Form 10-Q for a complete description of these factors. Any changes in such assumptions or factors could produce significantly different results, and actual results may differ materially from those contained in the forward-looking statements.

If you have not received today’s release, it is available on the internet at www.prnewswire.com or www.footlocker-inc.com. Please note that this conference is being recorded. And I will now turn it over to Mr. John Maurer, Vice President, Treasurer and Investor Relations. You may begin sir..

Thank you, Brandon and good morning everyone. I’d like to welcome you to Foot Locker Inc.’s fourth quarter and 2014 full year earnings conference call. Thank you for joining us today.

As noted in this morning’s press release, we reported GAAP net income of $146 million in the fourth quarter, 21% more than the $121 million that the Company earned in the fourth quarter of last year. On a per-share basis, we earned $1.01 this year on a GAAP basis, compared to $0.81 in the same period a year ago, a 25% increase.

For the full year we topped $0.5 billion in net income for the first time in our history as an athletic company, reaching a total of $520 million. This represents a 21% increase over the $429 million that the Company earned in 2013. Earnings per share improved 25% to $3.56 from $2.85 per share.

As noted in our release, we had a one-time gain from the sale of a property as well as the write down of the trademark. Excluding these items fourth quarter non-GAAP EPS was an even $1, a 22% increase over the $0.82 a share we earned on the non-GAAP basis last year.

A reconciliation of our GAAP to non-GAAP results is included in our press release, and except as otherwise indicated, the numbers mentioned during our remarks this morning will be based on the non-GAAP results.

With me this morning are Dick Johnson, President and Chief Executive Officer; and Lauren Peters, Executive Vice President, and Chief Financial Officer.

Lauren will lead up our call with a detailed look at our fourth quarter financial performance followed by Dick, who will provide insight into some of the merchandise and industry trends that led to our strong results. Lauren will wrap up our prepared remarks with an overview of our annual and quarterly expectations for 2015.

As we announced last month, we will be hosting an Investor Meeting here in our New York headquarter on March 16th at 2 PM during which we will describe our long-term strategic priorities for growth and update our financial goals.

Therefore during today’s question-and-answer period we ask that you focus your questions on our fourth quarter results and near term outlook for 2015.

Lauren?.

Thank you, John and good morning to you all. We really appreciate you’re joining us this morning as we review our 2014 results and take a first look at 2015. What better place to start than describing our strong fourth quarter results than with our comparable sales gain of 10.2%.

This is an enormous credit to our merchants and operations team that we were able to drive such positive, and as you’ll hear broad based and consistent results. The direct-to-customer segment led the way as it has all year with a 21.9% sales gain for the quarter. Within the segment, our Eastbay banner was up low double-digits while our U.S.

store banner dot-com businesses were collectively up over 30%. For the year, our direct business had a comparable sales gain of 17.8%, with Eastbay up mid-single digits while store banner dot-com sales were up almost 40%. The store segment posted a strong 8.5% comparable sales gain for the quarter. Several U.S.

banners produced double-digit gains, led by Foot Action, and Foot Locker with increases in the teens, followed by low double-digit gains in kids Foot Locker and yes, Lady Foot Locker. The gain at Lady Foot Locker was its third consecutive quarterly increase, and its first double-digit gain in several years. To quote Ken’s reaction hoorah.

Champs Sports was up mid-single digits, as were our Europe business is. Elsewhere internationally, Foot Locker Asia Pacific was up low double digits, while Foot Locker Canada was up high single-digits. So very strong comparable sales gains across the board by channel, geography and gender.

A 10.2% comparable sales gain, which is calculated on a constant currency basis was partially offset by FX and other factors to bring our total sales gain to a still very healthy 6.7% in the quarter. Almost all of the 350 basis point difference between our comp gain and the total sales increase was attributable to the stronger U.S.

dollar in Q4 this year compared to last year, with the lack of CCS sales this year and a net 50 store count reduction by the end of the quarter, smaller contributing factors. Our monthly comp cadence was steady through the quarter.

We finished November with a low double-digit comp gain, driven in part by strong product supporting our Week of Greatness marketing campaign. The Week of Greatness is so great in fact, it now extends a more than a week. And we have successfully exported it to the other Foot Locker banners around the globe.

Our November performance was followed by a high single digit gain in December and another low double-digit gain in January. Although I'll say more about 2015 towards the end of our remarks, I'll mention now that we continue to have solid topline momentum having posted a mid-single digit comparable sales gain in February 2015 as well.

Moving down the P&L to gross margin, we produced a 40 basis point improvement to 32.9% of sales from 32.5%. It has been the case all year, the primary driver with leveraging our relatively fixed occupancy and buyer salary expenses in which we benefited 60 basis points.

Largely by lowering our markdown rate, we offset ongoing initial markup pressure and produced a slight improvement in merchandised margin on a constant currency basis, while also maintaining our inventory ageing standards. However between FX and some other small margin elements such as shipping, overall gross margin netted to a 40 basis points gain.

Our team did an excellent job managing expenses in the quarter, as our selling general and administrative expense rate decreased to 19.6% of sales from 20.4% of sales last year. For the full year, our SG&A expense rate improved by 50 basis points, from 20.4% to 19.9%, the first time we have ever had an expense rate below 20%.

The biggest factor in our full year SG&A performance was the increased productivity of our store associates. We have invested in systems and training to ensure we have the right associates on the sales floor at the right time, and that they are well prepared to provide excellent service to our customers.

As a result, we experienced improvements across the Company in sales per payroll hour, while maintaining a strong in-store service level. Depreciation expense decreased this quarter to $33 million, from $36 million, partly due to the impact of a stronger U.S. dollar.

On a constant currency basis we expect depreciation to increase again next year as we sustained a strong level of investments in our stores, digital capabilities and system technologies. Our capital expenditures reached just over $200 million in 2014 on an accrual basis, slightly below our most recent guidance.

FX played a role here too as spending in Europe translated into fewer U.S. dollars but the larger factor was the timing of certain technology projects, such as a new order management system for our digital business which has been extended into 2015.

Our earnings before interest and taxes reached a rate of 11.4% of sales, better than our long range goal of 11%. Our fourth quarter tax rate was 34.8%, below our expected run rate of 36.5%, due largely to the acceleration of statutes of limitations on foreign tax positions the Company had taken in prior year.

Last year’s rate of 33% was particularly low due to the effect of tax planning initiatives that received a boost from a favorable ruling on a foreign tax position during the quarter. Taken all together, it was another record quarter and another record year.

Net income in the quarter of $144 million, an even $1 per share was 18% higher than last year, and represented the first time in our history that we produced two separate quarters of at least $1 per share an earnings, having also earned $1.11 in the first quarter.

The net impact of FX on earnings in the quarter was as forecasted on our previous call about $0.02 per share. The effect on the bottom-line would have been $0.03, but we had a one-time financial hedge in place to minimize the effect of a stronger dollar. For the full year net income was $522 million, a 21% increase.

Our net income margin was 7.3% in 2014, making it the third of our long range goals that we have surpassed, along with EBIT margin and a 15% return on invested capital. Clearly it was an outstanding performance by the entire team at Foot Locker that enabled us to achieve these significant milestones.

Full year EPS was $3.58, compared to $2.87 last year. The 25% improvement was 4% higher than the increase in net income, reflecting the significant return of cash to shareholders we executed throughout the year via our share repurchase program.

For the quarter, we repurchased a total of 2.34 million shares for approximately $131 million, bringing our full year total to 5.9 million shares at a cost of $305 million.

We also returned $127 million of cash to our shareholders in the form of dividends during 2014, which brought our total return to shareholders for the year to $432 million, more than 80% of net income.

As we announced in February, our Board both increased our quarterly dividend payout rate to $0.25 per share and authorized a new $1 billion share repurchase program. These initiatives demonstrate that we have enhanced returns to shareholders as our underlying business momentum has continued to build.

Before I hand it over to Dick to go over the merchandize highlights, let me touch on inventory. At actual FX rates, inventory increased $30 million or 2.5%, less than half of our 6.7% sales increase. Using constant currencies, inventory was up 6.6%, although higher than our standard when compared to our 10.2% comparable sales gain.

However we deliberately brought in a significant amount of inventory early before year end to ensure that we avoided any major West Coast port delay issues and we're well positioned, particularly for NBA All-Star events. That inventory strategy helped support the solid sales gain in February I mentioned before. Let me now turn the call over to Dick..

Thanks Lauren and good morning everyone. Wow, what a great list of accomplishments that you just ran through. And for every high level achievement that you mentioned, there were so many smaller individual and team wins that contributed to our success. I can't thank the team at Foot Locker Incorporated enough for all of their efforts.

Record breaking results such as we delivered in 2014 could not have been produced without excellent leadership, team work and customer service across every part of our Company. We've now reached 20 consecutive quarters of significant sales and profit growth, and as Lauren mentioned, we're off to a good start in quarter 21.

The excitement around the NBA All-Star game has given our business a nice boost to begin the year. I should call out here the diligent work of our logistics team. We partnered very effectively with our vendors to ensure a minimum of delivery delays both in Q4 and in the lead up to the All-Star game last month related to the West Coast port slowdown.

Yes, there was some impact and it will take some time to get fully back on schedule, but we do not expect the backlog to have a material impact on our business, either in Q1 or the full year. Let's take a look now at the key drivers of our performance in our fourth quarter.

From a family of business perspective, footwear was once again the leader, with comparable sales gain in the teens, while apparel was down low single-digits. Basketball and running footwear were both up double-digits with strong gains in both categories in all major regions.

Starting with basketball, well I know this is the same story you've heard me tell all year, but brand Jordan was very strong across all of our banners and geographies. The retro business continued to build momentum, the sportswear collection performed very well and the Jordan player shoes also saw increases.

Signature basketball was also very strong in the quarter. Particularly encouraging was the emergence of Kyrie Irving with Nike whose new signature shoe sold very well. At the same time that the shoes of the more established Nike players LeBron, Kobe and KD also continued to perform at a high level.

The ClutchFit shoe from Under Armour had solid results in the fourth quarter and we're excited about the early performance of the Seth Curry signature shoe so far in Q1. With Lillard, Rose and Wall, Adidas also has a promising position in signature basketball.

As I believe we have continually demonstrated, strength in one category does not preclude strength in another and as strong as basketball was in the quarter, running was even stronger. The gains were driven by lifestyle running silhouettes including the Roshe, Huarache and various elements of the Max Air platform from Nike.

Other brands are performing well too. In particular Adidas with its popular Zed-X Flux shoe, Puma, New Balance and Asics also are developing encouraging lifestyle running footwear offerings. Speaking of lifestyle, the shift towards boots as a fashion item led by Timberland and Nike contributed significantly to strong Q4 results in casual footwear.

As I mentioned briefly before, apparel was more challenging for us as it has been all year. We had good results in several banners but the two banners with the highest apparel penetration, Champs Sports and Foot Locker Europe still face significant challenges.

In the U.S., apparel at Foot Locker was up just shy of double-digits, while Foot Action apparel sales were up in the teens. Our ongoing banner differentiation efforts have positioned these two banners well to attract very unique customers.

With the Foot Locker customer preferring a performance inspired look put the Foot Action customers squarely in the lifestyle camp. The team at Foot Action has done an excellent job in mixing lifestyle items from the major athletic brands alongside more niche brands such as Asphalt Yacht Club, American Stitch and Fair Play.

That said margins in apparel continue to trail footwear. So we have a lot of opportunity to get even stronger in this part of our business. Lady Foot Locker also had an excellent apparel gain, well into the double-digits with a higher margin rate as well.

We are successfully transitioning our women's apparel mix to reflect a more premium offering from our key vendor partners, such as Nike, Under Armour and Adidas. There is still work in progress but we feel very well aligned with our vendors on a shared strategy of emphasizing and growing the women's athletic apparel business.

On the flip side, apparel sales decreased double-digits in Foot Locker Europe with the downtrends in certain branded lifestyle programs as well as private label continue to challenge us. While sales were down, the European business does retain some of the highest apparel margins in the company.

Apparel sales were down mid-single digits at Champs Sports. There were some bright spots led by fleece tops and bottoms, which performed very well at good margins. However these could not offset the continued decline in licensed apparel and some of the same lifestyle programs that challenge Foot Locker Europe.

We continue to work with our vendor partners to develop new or updated styles that we believe will begin to rebuild the apparel businesses at both Champs Sports and Foot Locker Europe in 2015. Turning to real-estate, we ended the year with 3,423 owned stores, a decrease of 51 from the end of the third quarter, and 50 beginning of the year.

The decrease is larger than the 25 stores we mentioned on the third quarter call, as we had the opportunity to closer several more underperforming stores than previously anticipated, the majority of which were Lady Foot Locker doors. Despite the decreased store count, gross square footage ended the year slightly higher than a year ago.

The stores we are opening tend to be larger than the stores we are closing. We also typically require extra space when we add our various vendor shopping shops and remodeled stores. These real-estate projects continue to produce positive results for our business, hence our announcement last month of our $220 million capital spending program for 2015.

Between these exciting fresh store environments and powerful marketing programs, we were successful in driving an increase in traffic during the quarter. We continue to see higher average selling prices with footwear units increasing as well. All in all, it was a very strong year for Foot Locker.

Lauren mentioned three of our long range goals that we have already reached ROIC, EBIT margin and net income margin. We have made good progress towards other key objectives, sales, sales per square foot and inventory turns.

Over the past few years we have developed into a high performance Company that has reached record heights of financial and operational success. The teamwork, innovation and passion that I see in our people have been incredible. I want to again thank the entire team of associates for their outstanding accomplishments.

Looking ahead, we intend to seize our opportunities to once again raise the bar and achieve our next set of financial milestones, which the senior management team and I look forward to sharing with you on March 16th in New York. For now let me turn the call back over to Lauren to give you some specific guidance on 2015. .

Thanks, Dick. We have indeed built a good deal of momentum in our business overall. So we do not see that fundamentally changing in the near term. We have opportunities to grow the base business this year domestically and internationally. On the other hand, the stronger dollar is expected to be a significant headwind to our reported results in 2015.

That said, I'm happy to be in a position to repeat the high level of guidance for 2015 that we've given in recent years. We believe we can deliver a mid-single digit comparable sales gain and a double-digit percentage earnings per share increase this year.

However, the strong U.S dollar means that a double digit increase in 2015 will be more tempered in the 20% plus gains of recent years. If exchanges rate stay around where they are now, our 2015 EPS results will be $0.16 to $0.18 lower than they would have been at 2014 exchange rates.

The remainder of my remarks on FX will also assume that exchanges rate stay close to where they are now, with the euro around $1.10 and the Canadian and Australian dollars around $0.80.

For sales, we expect the weaker foreign currencies will mean that our mid-single digit comparable sales gain would translate into a low single digit total sales increase. For merchandise margin, the offsetting dynamics of lower initial markup and markdowns will likely continue in 2015.

On a constant currency basis we believe we can achieve slightly higher merchandise margins. The fact that our international divisions have a higher gross margin rate than our domestic divisions means that our overall rate will be pressured down due to FX.

Although we should continue to lever our fixed buying and occupancy cost, the net impact of all these factors is that we expect gross margin to be flat to up slightly in 2015. On the other hand, we believe SG&A expense will benefit from the weaker exchange rate.

While international divisions have higher than average gross margins, they also have higher SG&A expenses. In a mid-single digit comp for the Company overall we should expect to achieve an SG&A rate improvement of 50 to 60 basis points. Depreciation and amortization expense benefited from some one-time adjustments in 2014 to land at $139 million.

With our $220 million capital expenditure program approved for 2015, we expect depreciation expense to increase to a range of $150 million to $155 million. In the capital program for this year, we plan to open just over 100 stores and close about 80. The new stores will be concentrated in kids, Europe and 602.

We'll provide more detail on store opening plans on the 16th. In the mean time we believe we can continue to improve the productivity of our existing square footage through the investments we are making in our store fleet.

We are planning interest expense to be fairly flat to this year's $5 million and we are continuing to plan our effective tax rate at 36.5% in 2015. Our guidance of a double digit percentage increase in earnings per share also assumes a lower share count, based on the continued execution of our new $1 billion share repurchase program.

There are no really big variances by quarter to the guidance I just gave you. We are planning mid-single digit comp gains in each quarter. That said, the FX impact on sales, margin and SG&A are naturally greater in quarters with lower sales volume.

Thus the second quarter, which saw that euro still pushing $1.40 last year, it will be especially difficult to achieve a double digit EPS increase this year. Our current expectation is the mid-single digit percentage EPS increase in Q2. Of course difficult FX comparisons ease as we get into the back half of 2015 and especially in Q4.

I think that covers the highlights of 2015. So I'll end there and ask Brandon to open up the call to your questions..

Thank you. (Operator Instructions) And from Citigroup we have Kate McShane on the line. Please go ahead..

This is Corinna Van der Ghinst on for Kate. I was wondering if you guys could talk a little bit more about the promotional environment that you saw across the competitive landscape in Q4, and how that might have impacted your business during the quarter.

And then just as a follow-up to your comments on the inventory buildup ahead of the port disruption, you mentioned that you're not expecting a material impact on your results, but how do you think the port disruptions might be impacting the selling environment across the industry in the first half?.

Yes, from a promotional point of view -- our focus is really on premium footwear and apparel. So we know what our cadence is. As Lauren talked about, our markdowns were lower. So going into the holiday period, our promotional cadence was where needed to be to manage our inventory and to drive sales.

So we finished up with our inventory on standards better than standards and with the markdown down. So we worry about what we have to do from a selling point of view. The cadence around the industry, we monitor. We know what goes on. But again the kids are coming to us for innovation, exciting new products and they're willing to pay for those.

As far as the inventory buildup and the port delay, again our team did a tremendous job of getting out in front of it so that we were positioned going into Q4? We gave a little bit of relief on our ending inventory number as Lauren talked about to make sure that we are positioned going into February and we continue to monitor it.

Obviously there is catch up going on. As we talked about there will be a while, while everything gets reset, but we feel good about where we fit in the industry..

Okay, great.

And then just as a quick follow-up, do you have any guidance on how many shop-in-shop rollouts you're planning to do this year across the Fly Zone, Kick Zone, Jordan 23, et cetera?.

Yes, we’ll go into a lot more detail on that when we talk on the 16th, but those would be part of remodel programs and new store openings and our remods will be at a level fairly consistent with what we experienced and -- what we’ve accomplished in 2014..

From UBS we have Michael Binetti on line. Please go ahead..

So, can you talk a little bit about -- and I apologize if I missed this -- can you talk about what ASP was versus traffic in the fourth quarter? And then maybe just how that dynamic looks directionally as we think about 2015?.

ASP is continued strong as they have been all year, but traffic was up slightly in the quarter, very strong traffic in international divisions. In the U.S. it was a bit more mixed with some divisions, up slightly and some divisions down slightly..

And directionally in 2015, Lauren?.

We see ASP direction to change and traffic we continue to drive in excess of them all we believe because very strong product offering, great marketing efforts and that’s the reason why we’re making sure that we keep those store environments so fresh and exciting. That helps with the traffic..

And vendors continue to bring innovative and fresh product and the customers clearly are responding positively to that. So I agree with Lauren. I think ASPs will continue to be where they are at or up slightly..

So I guess the, where I was going with that is that you guys were thinking ahead on the gross margin for next year here a little bit, and I know you guys tested some new allocation software last year and you commented that that would further help merchandised margins with improved markdown rates. But you also just commented on ongoing IMU pressure.

You've had a lot of pricing power here that's been helping on ASPs, and the products are obviously resonating.

I'm curious how far we should look ahead to IMU continuing to be a pressure, considering the consumer seems to be accepting these price increases?.

Yes, again I am new to -- we saw this year that pressure was really driven by mix of vendor offering and mix of category. So it wasn’t about the price we paid for the product. I would see IMU tempering somewhat that delta year-over-year, but we still think that’s a factor. So we control what we can control.

We worked very closely with the vendors to improve product flow that helped lift the margins and as you pointed out we’re in the midst of the installation of the allocation system which will help us get that much smarter, getting the right product to the right place, therefore supporting, lower markdowns from a full price selling..

And using more cross channel initiatives as well. So our inventory is visible to all of our customers regardless of where they are shopping, which gives the inventory at the end more value and allows us to use fewer markdowns..

And when we really are at a top of our game in parallel that should help us well, but we’ve got what we described -- we thinks that on a constant currency basis merchandise margins improved slightly in ’15.

We lever the fixed but we’ve got to navigate the FX, which when you factor that in, it means that we’re going to be flat to up slightly when it's all finished..

From Janney Capital Markets we have Eric Tracy on the line. Please go ahead..

If I could go to DTC, just continued strength, particularly in the banners, maybe just a bit of an update there in terms of where you feel like that channel has evolved, what still needs to be done in terms of sort of infrastructure build out to support, and any just sort of updated thoughts around the consumer migration that you all see?.

Well, I’ll with the consumer, Eric we see multichannel consumer work more than a single channel consumer. So while we drive excitement in the stores, we also have great programs online that attract the consumer. We want them to be able shop our stores and our banners wherever they are, whenever they are.

So we’ve been in the digital or dot-com Internet business for a long, long time. So the infrastructure has been in place. We continue to make improvements.

Lauren mentioned an order management system that we'll put in place starting in 2015 just to make it a little bit more effective on the back end, to make it a little more streamlined for the customer on the front end.

But we continue to make investments, both in the stores and in the digital space to make it more clear for the customer that wherever they are, whenever they want to shop, they have access to our banners and to our product..

And as you think about, as a follow-up on that in terms of the vendors, Nike coming out with their sneaker app, again just that balance of working with the vendors to segment the product across the space.

Any issues, challenges as this channel evolves?.

No, I think we have a great relationship with our vendors. The strength that we to the table is that our consumer can see the best of all the vendors.

We are able to create meaningful assortments across vendor brands and I think that we’re going to both co-exist in the space obviously, but our marketing programs drive consumers to our sites, the product attract some to our sites and our stores and I think that it will continue to drive success in a multichannel environment. .

And then just lastly, if I could, as it relates to Europe on a constant currency basis.

So beyond FX, the assumptions being made for ‘15, it sounds like traffic is holding up pretty well, but maybe just speak to again, the underlying demand within Europe that you guys see?.

We continue to see the recovery. The economic recovery is a little bit bumpy in Europe, different north and south, different country to country. But we're in 19 different countries and the sneaker culture continues to be strong.

The running silhouette is king there, but the team over in Europe is doing a great job of making basketball relevant to that consumer. Our vendor partners are strong in Europe as well. As called out in previous calls, that the two real emerging markets from a sales perspective are the U.S. and Western Europe. So we’re positioned well.

We continue to invest there. Lauren talked about the store openings being driven there, and the team over there is also doing a nice job with their digital efforts. So we feel good about where we're at in Europe..

From Susquehanna Financial we have Chris Svezia. Please go ahead..

So I guess first just on apparel. I guess fourth quarter better than maybe the trend line we’ve seen throughout the year, but still some work to do.

So your thoughts about where the opportunity is, maybe where the issue is, private label versus branded? What can you do really to start to see some improving trend line, given the drag it's been across the business? And I’m just curious, in Champs remodeled stores, was there a dramatic difference versus those Champs stores that were not remodeled on apparel?.

We see a difference in remodeled stores absolutely. I think we talked about it in the comments earlier Chris, that in Europe it’s a little bit of case of some branded assortment items that have not resonated as well with the consumer, along with some private label hiccups at Champs.

There are some branded issues with a couple of programs and then the license side of the business at Champs is on a pretty steady decline. So it’s a matter of giving those things balance, working with the brands to make sure that we’ve got strong assortments.

Part of the remodel program is to do a better job of story-telling from head to toe and across the brand. So the remodels, a small percentage, we’re not done with the remodel program by any by any stretch of the imagination.

So I think that the work that we’ve seen done at Foot Locker and the things that they’ve done at Foot Action tell us that there are some upsides, and the work that the team had Lady Foot Locker and 602 is doing on the apparel front tell us that we can get there.

It’s just the two banners that have the highest penetration, Champs in Foot Locker Europe have struggled a bit..

Okay.

I don't know if you’ll break this out, but in your assumption, your mid-single- digit comp on the year, you’re not really assuming the apparel business turns? I assume you’re still a negative number?.

We are not breaking up that guidance of that product category but rest assured we're working very hard on apparel..

Okay, fair enough. Just last two things here. One, just on the remodels for Foot Locker and Champs, I think you’re at 30% on Champs, 20% on Foot Locker.

Any thoughts about what that looks like this year? You continue to remodel those, any percentages? And Lady 602, are you at a point now where you can more aggressively roll that out or is that something you’ll touch more on, on the 16th?.

We’ll talk more about 602 and our women’s business in totality on the 16th but status of remods, we ended the year with Foot Locker at about 20% through its remod and Champs about 25%.

And we are at the same remod level in ‘15 and ‘14, which is what the plan is, they would both end up Foot Locker and Champs in the low 30% completion at the end of ‘15 on remod..

From Sterne Agee we have Sam Poser online. Please go ahead. .

I just want some clarification. You said that you expect reported numbers, the D&A to be 150 million.

Is that correct, or can you just clarify that for me?.

Yes, we should be about 150 to 155, in reported next year..

And then even with that, you are expecting reported -- are you expecting your reported currency affected earnings to be up double-digits as well, correct?.

Yes. But as I described, the double-digits is because of FX, more tempered than what we finished during the last few years, which has been double-digits 20 something increase. We are expecting something more tempered than that because we have got FX pressure about $0.16 to $0.18..

And then as far as the product mix goes and where you are with the allocation, where are you Dick with allocation system and the implementation there? And where are you with the implementation of the allocation system right now? And when do you think -- when do you expect that to be completely in place?.

Well, Phase I of the implementation is ongoing across the U.S. divisions. Europe was our leader in that and has most of their divisions up and they will be a 100% onboard with the allocation system later this quarter. The U.S.

will that a bit but we'll also be -- by the midpoint of year we'll have all of their departments on the allocation system and that will be Phase I. Phase II will be piloted in Q4..

But we really don’t -- we don’t really warp-up until 2016, before we get to the last division, the last product category. .

So then just to understand it, you should steadily get some benefit from this, as it rolls in, but arguably as it gains its own history, it does all the stuff.

Next year will be -- this year will be good, next year will be better and ’17 would be full effect?.

You are absolutely right, that we continue to get benefit for multiple periods. Because as you described, it is a learning system. The more it learns, the better. There are also humans running it. So the more we learn, the better.

But as we have an opportunity then to apply to learnings to our purchases -- purchase many months in advance, we'll start to apply those learnings to the purchases and we'll get benefit. So it’s a multi-year build..

And then lastly what is the share count that you are assuming? The average share count for the full year that you are assuming in the guidance?.

I am not going to go that far, but as we said, with executing the share repurchase program, the new $1 billion program, we expect average share count to decline in the year. .

Would you expect it to decline more than it did last year on a percentage basis?.

I can’t do that for you. .

It will depend on multiple factors. .

From Bank of America we have Robby Ohmes online. Please go ahead. .

Just quarter couple of quick ones, one is just a follow-up on Michael Binetti's ASP question.

Can you give us color on -- was the ASP strength in the fourth quarter, was it across basketball and running? Was it sort of a similar type of average selling price or was one way ahead of the other?.

We saw increases across our footwork categories Robby. .

So was basketball lot stronger than running, or was running ASPs up similarly to basketball?.

They were both up. .

Okay. And then, the technical running business.

So I think you called out the casual running business, but any commentary on the health of the technical running business, the three and lunar, and I think you mentioned A6 getting into casual running, but how about their technical running business? How is the outlook for that in 2015?.

It varies banner-by-banner for us of course Robby. I think when you look at Brooks and A6 and some of the platforms that you mentioned from Nike and our women’s business, there is still strength. We have got certain number of doors that have good programs with all of those technical shoes in our Foot Locker banner, both in the U.S. and in Europe.

So we think that technical -- we think that the running silhouette continues to gain strength. Whether the shoes are technical or lifestyle, most of them don’t get run in anyway. So the point is that the vendors continue to bring great looks and a silhouette that has meaning for our consumer. .

And then last question, I know you guys saw the Walmart and TJX announcements about wages.

Can you remind us where Foot Locker in wages and if we should expect any changes or pressures, given what’s going on across retail?.

So our compensation for our store associates is base plus commission. So they have the ability through their sales strengths to set their compensation. But as a result, the majority of our associates earn significantly more than minimum wage.

So we watch those developments very closely because we are committed to paying competitive wages, but our associates, certainly compensation dollar wise is important to them, but there are also other things that they enjoy about working at Foot Locker, not least of which is being in stores surrounded by sneakers, which they have a personal passion for.

So the discount that they get on that product is also important to them. But yes, I would say we continue to watch that very closely and we'll remain competitive..

From Gilford Securities we have Bernard Sosnick on the line. Please go ahead..

I'm wondering about eBay posting a pretty nice gain.

Is there something going on there that's invigorating that business?.

Well I think that as they manage -- as our team out in Warsaw manages our store dot com banner and the Eastbay banner, there are puts and takes sometimes Bernie, but they've done a really good job of communicating with that high school athlete, which is really their target. They've got great relationships with our vendor partners.

They published a really nice looking Adidas catalogue and a really nice looking Jordan catalogue. They continue to use the catalogue – the Eastbay catalogue as a marketing tool. I just think that the consumer really responded to some of the marketing efforts in Q4..

And could you flush out a little bit the reasons for success at Foot Action?.

I think the footwear sort of speaks for itself.

They've got a great assortment of footwear that really attracts the consumer, but the thing that we really called out Bernie was their really good work around apparel, where they've been able to take key lifestyle silhouettes from our major athletic vendors and blend them in with some of the faster fashion sort of vendors that that consumer that really shops Foot Action's after, Asphalt, Yacht Club, American Stitch, et cetera.

And they've got the ability to move a little bit quicker in adjusting to some of those styles. So I think that they finally have a nice rhythm as it relates to that mix and obviously when you talk about things like Timberland boots becoming a fashion item, Foot Action certainly benefits from that sort of mixture..

From Credit Suisse we have Seth Sigman on the line. Please go ahead..

I wanted to follow-up on the Lady business, and the double-digit comps that you're seeing there.

Is there a way to quantify if there's a benefit you're seeing from some of the store closings that you've done there? Or is there a benefit from maybe opening some bigger stores? I'm trying to dig in a little bit more on to that level -- that low double-digit comp that you're seeing and what's driving that improvement?.

It's a combination of a lot of things. I think the merchandize assortment has improved. They've done a nice job positioning apparel even in the smaller Lady Foot Locker stores. They've shifted that consumer over a little bit in that base. Clearly, Lauren called out that we closed some underperforming stores. So that will continue to benefit us.

The footwear mix is strong and obviously we've got the 15 602 doors that factor into that mix as well, which are in fact a bit – bigger stores..

Is there a way to think about how big of a delta there was between your better performing Lady Foot Locker stores and then some of the ones that you closed?.

We haven’t really got into discussing how good the good are and bad the bad are. So it's blended out to a double-digit comp gain for the quarter..

And then as we think about capital allocation, it's been great to see the increase in buyback. There's been a little bit of an evolution in the thought process it seems like.

How do you think about the right ratio or the right level of repurchase on an annual basis? I know you gave a three-year view with the authorization, but what's the right way to think about the annual target there?.

It's not a formula. We take into consideration what our capital plans are. We describe those as 220 [ph] for next year. We factor in other uses for the cash between that and the dividend; we're making sure that we've got really meaningful returns to the shareholders. So I hope that helps you..

As John said earlier, the amount of repurchases is driven by a lot of factors and Lauren just called out many of them. So we don't have an annual target. .

Okay, understood. And then just one more and I'll hop off. But in terms of store growth it looks like you're going to be a net opener in 2015 for the first time in a while.

And I know we'll get a lot more color in a couple weeks but I'm just wondering, are you accelerating the openings of some of the banners or are you just closing less of others? How should we be thinking about that at this point?.

We called out in the comments Seth that the openings are going to be around kids in Europe and then in 602. So I think that our goal is always to close fewer quite honestly. We'd prefer to get them productive and keep them open, but when we have opportunistic chances to close stores, we'll take those opportunities if it makes sense.

So I think that's regardless of net opener or not, our square footage continues to increase based on some of the shop-in-shops that we talked about. And the productivity of our square footage continues to increase, which is really what drives the business. .

From Jeffries we have Eddie Plank on the line. Please go ahead. .

I wonder if you guys could dig into the Runners Point Group a little bit more. At this point what have you learned about that consumer? How does it affect your thinking about the growth opportunity there? And then as a second point, how is their online business helping you guys to think about your own dot-com business in Europe? Thanks. .

Well from a Runners Point perspective, from a group perspective, we're working on the consumer segmentation work that we've talked about in the past. We've got the Runners Point stores now really to find there is all things running from lifestyle to performance.

So they have got men's and women's, the assortments are there, the high-touch selling is there, the treadmills are to really create that running destination in the mall in the high streets of Germany right now. Once we get that model proven and completed, we will be ready to test that model outside of Germany.

The work is not quite as far along with the Sidestep banner.

That's a more lifestyle driven banner, so as we look to position Sidestep, Foot Locker and Runners Point in the same mall or the same high street in Europe, we've got a little work to do around profiling the Sidestep assortments in a way that the store looks and figuring out exactly who their amused customer is and making sure that we speak to that consumer.

So I think we're making good progress. Clearly the Runners Point is ahead from a segmentation point of view at this point.

From a dot-com perspective, the Tredex business that's part of the Runners Point Group is helping them form the Foot Locker Europe team and we've got our center of dot-com business, our center of excellence in Warsaw, so we trying to share global best practices between the team that’s over in Europe and the team that's in Warsaw and I continue to see progress being made there as well.

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From JPMorgan we have Matthew Boss on the line. Please go ahead. .

There's been a lot of debate lately about the athletic cycle, what inning we're in. I'm just curious what you guys are seeing in terms of lead indicators, product pipeline. And you talked about customer demand for the more premium price shoes.

But, just in general, what's the best way to think about -- not just here but also abroad -- the athletic cycle and the pipeline?.

Yes, we continue to see good product in the pipeline. I think Matthew the vendors continue to bring innovation, whether it be technical innovation, whether it be fabrications, colors, new platforms that they are operating on. So we continue to see a pretty robust pipeline of product across the categories and around the geographies.

So I think it's somewhat of an athletic cycle but it's also a casualization cycle where people are very comfortable wearing sneakers these days. And I got a lot of stares on the train when I've got my suit on with my sneakers, but it doesn't bother me at all and our core consumers certainly are very comfortable wearing sneakers.

So there's ebbs and flows across categories that I expect we'll continue to see, but I feel good about where the athletic trend is and certainly where the pipeline is. .

Great.

And then on the margin side, can you just talk about where the European margins stand today versus maybe prior peak? And more so, how to think about the opportunity on a go-forward basis?.

The merchandise margins is your question or finished margins?.

As much detail as you're willing to provide. .

Well okay. Let's talk about in terms of finished margins which I -- my comment about that would be we have done just so much on productivity, really across the geographies but margins no matter what part of the globe you're in are strong.

But historically, our international margins finished have benefited from the fact that it's just less promotional in many of the European markets with legislated promotional periods. So Europe, countries recovering from trough periods and as Dick described, that's been a little uneven.

So if that comes back, opportunity to further increase those finished margins internationally. And the initiatives that we're working on, they apply across the geographies. That doesn't matter what you're talking about.

So the allocation systems and the time and attendance system, scheduling systems that we've put in, all of those are global initiatives..

From Deutsche Bank we have Paul Trussell on the line. Please go ahead..

There's already been a lot of focus on AUR on this call and I'll just try to ask in a bit of a different way. You are seeing sneaker strength beyond the very highly priced premium Jordan and LeBron product. You mentioned boots and other casual and running silhouettes. Some of the younger hoopers like Steph and Kyrie are also seeing success.

Are you concerned at all that there will be a share shift towards some of these lower-priced -- relatively lower-priced products that could have a negative impact to your overall comp? Or is the unit volume from these assortments enough to make up for it?.

We know that our kid is going to wherever the coolest shoes are, right? We certainly trade, as you called out, up at the higher end with the Jordan and the LeBron and some of those key sneakers, but a lot of the business is also built on the LeBron Soldier for example which is not up at that high price point.

That's more in the Kyrie the Steph Curry sort of price range. So I think we've got strength Paul, across the range of price points and we see kids buying the Roshe's which are great casual sneakers. They may have two or three pairs because of the colors that are there and what they want to hook up with.

And the same with the Zed-X Flux from Adi, not a high end basketball sort of price point but certainly we do volume because the shoe is so flexible for the kid to wear in multiple iterations. So I think we continue to see a good strong mix of price points..

And I think we've worked very hard to make sure that we have a strong offering across the price points..

And then just touching on margins, obviously there's a lot of noise regarding FX this year.

But just in general taking a step back, how should we think about the comp thresholds to leverage fixed occupancy and expenses on a go-forward basis? Has that changed at all as we look back over the past year or two?.

No, we are still able to lever at low single digits, and part of that is making sure that you really plan your expenses tightly in line with sales and you react to ups and downs, and I think as we demonstrated last year with where we finished with our margins and our SG&A rate, we have a finally developed muscle there..

From Morgan Stanley we have Jay Sole online. Please go ahead..

Questions about the basketball trend. Under Armour has made a lot of improvement in basketball recently.

And when that happens, do you see overall interest level from a consumer standpoint increase or do you think one brand's benefit really just comes at the expense of another brand?.

Well, I think that we end up expanding the market in totality, Jay. I think that, there's kids that are comfortable with the Under Armour brand, there are kids that will try the Under Armour brand because some of things that they're doing, but I think that in the end we end up expanding the market a bit.

It's a new price point, it's a new vendor, there is new excitement around and the Curry shoe -- obviously having him win the three-points shoot out in his new shoe than we heard us starting this quarter around the All-Star game. So I don't necessarily think it’s a share shift I think that we end up growing the market a bit..

Got it.

And then just on that All-Star game, can you just talk about how you were able to leverage that event and turn it into a big sales driver?.

The All-Star game is important for us every year, regardless of where it's played. Obviously with us being in New York and the league being here in New York, there is a lot of excitement around it. So I think that one of the differences this year was the fact it was held in two locations.

So we've seen many markets where the All-Star Game is brought the town, the city to have virtual hall. Well, New York of course is so big that it can absorb all of that, but it's a good boost of the start of our year, regardless of where the All-Star Game is held. It's ultimately driven by great product..

Great product and we have some exciting things going on in special shop..

From Canaccord Genuity, we have Camilo Lyon online. Please go ahead..

Apologize for the voice. Just one question here looking out to ’15, in thinking about the mid-single digit comp here, you've had five years of mid to high-single digit comps, outstanding performance.

Can you help us prioritize the building blocks that will drive another mid-single digit comps this year, whether it's categories, remodels, e-com, international? Any sort of prioritization and maybe quantification would be greatly appreciated..

Well, Camilo, I think that we’ve got the ability to walk and chew gum with all of those categories. So I think that there is strength across our banners, there is strength across our categories, there is strength across our channels and there is strength across our geography.

So we obviously have internal plans that we work off of but I think our guys -- our teams are all driven to find success in -- retail is sort of a perpetual game.

It's not like we can’t repeat -- it's more difficult in some of the team sports to repeat, but our team certainly believes that they can repeat and I don’t think it makes any difference what banner they represent, what channel they represent and what geography they represent. So I think there is a nice strength across our business..

All with all of those levers that you enumerate, that’s had all of those levers and what make us excited about the future and give us confidence and we’ll be talking a lot more about that excitement on the 16th..

No change in demand profile for any of the categories, nor the opportunities to continue to drive sell through for them?.

Well, we -- our categories are always ebb and flow Camilo. Our buyers and our merchant teams do a great job of identifying hot categories and shifting off to the buy dollars to be in the right place. We work closely with our vendor partners to have a view of the future, but we don’t give in to where we see categories going up and down dramatically.

So I just think that we have a strength across all the pillars that you mentioned, and that really to Lauren's point is what has us excited about ’15 and certainly beyond..

So thanks again for participating on today’s call. We hope to see many of you here on the 16th and please join us on our next earnings call which we anticipate will take place at 9 AM on Friday May 22nd, following the release of our first quarter results earlier that morning. Thanks again and good bye..

Ladies and gentlemen, this concludes today’s conference. Thank you for joining. You may now disconnect..