Good morning, ladies and gentlemen, and welcome to Foot Locker's Fourth Quarter 2021 Financial Results Conference Call. [Operator Instructions] This conference may contain forward-looking statements that reflect management's current views of future events and financial performance.

Management undertakes no obligation to update these forward-looking statements, which are based on many assumptions and factors, including the impact of COVID-19, effects of currency fluctuations, customer preferences, economic and market conditions worldwide and other risks and uncertainties described more fully in the company's press release and reports filed with the SEC, including the most recently filed Form 10-K or Form 10-Q.

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. Please note this conference is being recorded. I would now like to turn the call over to Robert Higginbotham, Vice President, Investor Relations. Mr.

Higginbotham, you may begin..

Thank you, operator. Welcome, everyone, to Foot Locker, Inc.'s fourth quarter earnings call. As described in today's earnings release, we reported fourth quarter net income of $103 million, inclusive of the recent purchase of both WSS and atmos compared to net income of $123 million in the fourth quarter of the prior year.

On a per share basis, fourth quarter earnings were $1.02 compared with $1.17 the prior year. During the fourth quarter of 2021, the company recorded $72 million of pretax adjustments to earnings, primarily including store impairments, store closing costs, the write-down of minority investments and acquisition-related expenses.

On a non-GAAP basis, earnings per share were $1.67, including a $0.20 gain in our Retailers Limited investment compared to $1.55 for the fourth quarter of 2020. Unless otherwise noted, the figures and rates mentioned during our call today will be based on non-GAAP results.

A reconciliation of GAAP to non-GAAP results is included in this morning's earnings release. Additionally, we have a slide presentation posted on our Investor Relations website with highlights on the quarter, including some sales details typically cited on our earnings call.

We'll begin our prepared remarks with Dick Johnson, Chairman and Chief Executive Officer. Andrew Page, Executive Vice President and Chief Financial Officer, will then review our fourth quarter results and financial position in more detail and provide color on the 2022 guidance we issued in our press release this morning.

Following our prepared remarks, Dick and Andrew will respond to your questions. With that, I'll now turn it over to Dick..

Thank you, Rob. Good morning, everyone, and thank you for joining us. This morning, we will review our fourth quarter and full year results, including the progress we've made against our key strategic objectives as well as talk to some changes in our business and the strategies we are accelerating that are well underway.

We closed out a record year by delivering solid fourth quarter results that reflect the ongoing momentum we have built in our business. Our total sales grew by 6.9% this quarter and almost 19% in 2021 to approximately $9 billion, the highest in Foot Locker's history.

We remain committed to our purpose to inspire and empower youth culture and further our connection to the sport and sneaker communities. Throughout 2021, we made great strides to do just that by diversifying our product mix across brands and categories.

We also extended our distribution across channels and banners by enhancing our omnichannel offerings, and we broadened our customer base through acquisitions of scalable new banners to strengthen our portfolio of retail brands. Starting with product. We know that our consumer demands choice across a variety of brands and categories.

So we continue to work to broaden our selection, including leaning into brands where we are underpenetrated, a bigger focus on apparel and the introduction of new third-party brands as well as our own private labels.

In the fourth quarter, we saw great vendor diversity with the majority of our top 20 vendors posting gains and driving excitement in their respective categories.

Not only were we excited by the amount of brands that showed improvement resulting in non-Nike comp growth of greater than 30%, we also remain encouraged by the size of the business we are building with our major partners, which has grown consistently over the years.

The momentum of brands like adidas, PUMA, New Balance, Timberland, UGG and Crocs during 2021 showcased the expanding breadth of our consumer sneaker closet, covering athletic, outdoor and seasonal.

Also, our push into apparel continues to yield strong results with the category growing 30% in the fourth quarter and reaching $1.4 billion in annual sales for the first time in the company's history. And within our controlled brand strategy, following up on our successful menswear launch of Wacker in the third quarter.

In December, we launched Cozi, our newest womenswear private brand, which is off to a great start. In addition to our own labels, we continue to develop exclusive partnerships to create energy and connect with new consumers.

We launched All City by Just Don, an exclusive lifestyle basketball brand that is inspired by the spirit of community that has immediately resonated with the next generation of streetwear enthusiasts.

We continue to have curated drafts by Melody Ehsani, our Creative Director of our Women's business, as we expand our offerings and make streetwear more accessible to younger female consumers. In omnichannel, we continue to enhance our consumer experience with new features like payment options and launch capabilities.

And outside the U.S., we hit significant milestones in transitioning to our new e-commerce platform, completing the rollout across Foot Locker Europe. We also continue to expand our drop ship program where we added more vendors during the fourth quarter to expand our assortment and availability online.

Our integrated FLX reward program continues to build momentum. In Europe, we continue to roll out the program across the region, adding Italy, Spain and Germany in Q4 with 5 more countries planned for 2022. Overall, on an annual basis, we saw over 50% growth in active members.

The difference between member and non-member spend has increased year-over-year, and the sales capture rate increased from 50% last year to nearly 70% this year. On the M&A front, we added 2 tremendous brands and high-growth companies, WSS and atmos, to the Foot Locker family.

These strategic acquisitions expand our customer base and geographic reach, strengthen our store footprint and further diversify our product mix across consumers and price points.

WSS gives us a strong off-mall presence in fast-growing markets with a full family offering and a special connection to the Hispanic community, while atmos provides us with a foothold in Japan and a key launching point into the rest of Asia.

While not yet in the company's overall consolidated comp base, both businesses comped up double digits in the fourth quarter. Looking ahead, our customer-centric framework demands that we adapt and mold the business to where the customer is headed.

Gen Z, in particular, craves uniqueness to project their individualism, which we are well equipped to serve with our multi-brand model. While we seek to provide more variety, our largest vendor is accelerating its DTC strategy.

We expect their concentration to decline meaningfully in the fourth quarter this year to a level that will continue into 2023. We continue to have a strong relationship with Nike, and they remain an important partner for our business, especially in basketball, kids and sneaker culture, where we have an unrivaled connection with our consumers.

As we remix our business, 2022 will reflect an acceleration of pre-existing strategies that are well underway and have already been yielding success. On the product front, we will continue to work to further diversify our merchandise and vendor mix, including new brands and elevating brands and categories where we are underpenetrated.

We continue to strengthen our consumer concept offense to deliver exclusive product storytelling driven by our extensive consumer insights.

These will include big global programs from adidas in Stripe Life and the Trefoil State of Mind; exciting storytelling with New Balance around our 574 Life concept; and exciting third-party partnerships with the likes of Pokemon and PUMA with Carats and Crocs among others.

We will build out our basketball leadership position with the continuation of our exclusive LaMelo Ball program with PUMA; our new exclusive partnership with Reebok featuring the iconic Iverson and Shaq franchises; and our Nike exclusive basketball concepts in Got Next, Legacy and the Tunnel Wall.

We will also be continuing to grow our exclusive control brands to enrich and add dimension to our apparel offering to connect with consumers and add uniqueness to our assortments. Another area is our shift to bigger box off-mall formats in our rollout of key growth banners, both of which we are accelerating in 2022.

Based on the success of our first 50 global community and power stores, we will be growing these formats to approximately 300 locations over the next 3 years. Our community and power stores enhance both our off-mall presence as well as our connection with communities by bringing life to a wider and richer, more locally relevant product assortment.

These stores help us build authentic relationships with our customer at the hyperlocal level by incorporating local elements into the physical designs, partnering with local businesses and organizations and engaging local artists, athletes and influencers.

Product from local designers has given special activation, and stores are staffed with local personnel to deepen the ties to the community. Additionally, WSS is now expected to reach $1 billion in sales by 2024, supported by accelerated store openings and strong same-store sales growth.

The company also expects to grow atmos by approximately 50% to nearly $300 million over the next 3 years by scaling in existing markets and expanding internationally. We are excited to soon be opening our first home field store in South Florida.

Our new off-mall large-format concept store provides a one-stop shop across sport lifestyle, sport performance and nutrition and wellness, including rich interactive experiences with energy stations, a focus on wellness, dedicated training zones, coaching clinics, training sessions and more.

We have 4 pilot stores planned for this year and believe this presents another exciting opportunity to further diversify our consumer base and product assortments. We will also be accelerating our omnichannel evolution efforts.

As part of our investment in Gulf Group, the companies are in active discussions to create programs aimed at enhancing the value proposition and consumer experience of both platforms, including creating a more intentional connection between the 2 companies, prioritizing loyalty and membership benefits.

While details are still coming together, we are incredibly excited to be working with our partners at Gold and finding the best ways the 2 platforms can create value together. We will keep you updated on our progress.

Separately, the company will be accelerating its rollout of Drop ship across vendors, banners and regions through 2022, which allows us to add to our assortment and availability, effectively creating an endless aisle for the consumer while not increasing our working capital needs.

As part of our efforts to drive productivity, another of our key strategic imperatives, we are announcing a new cost-savings program.

This new cost-savings initiative is expected to generate savings of approximately $200 million on an annualized basis and is designed to better align the company's cost structure to its needs to remain nimble and able to invest appropriately as the consumer landscape evolves. Andrew will provide more detail on this program in a moment.

As we look forward beyond 2022, we are confident that the remixing of our business aligns us well with the consumers' desire for a variety of both product and experiences. Our strengths remain our unique affinity with our customers across our portfolio of retail brands and our growing ability for them to engage with us in multiple ways.

Our balance sheet remains strong, and we have made tremendous progress in reducing our mall exposure as we shift stores off-mall, which Andrew will detail in a moment. Foot Locker is one of the truly iconic retail brands in the industry with a special place in the market as a destination for great selection and product discovery.

We will meet our customers where they need us and want us to be with the multi-brand omnichannel experience that is more relevant than ever as we continue to foster connectivity with the communities that we serve.

Finally, before I turn the call over to Andrew, I want to extend a heartfelt thanks to our entire team who did a great job throughout the quarter and a record year. Their commitment and great effort made our tremendous results possible. I'd also like to welcome Rob Higginbotham to Foot Locker as our new Vice President, Investor Relation.

Rob joined us last month and looks forward to getting to know all of you. We thank Jim Lance for leading our IR effort over the past several years, and Jim remains an integral part of our finance team. Let me now pass the call over to Andrew..

invest in the growth of our business and return cash to our shareholders through our periodic dividend payments and opportunistic share repurchase program. Yesterday, our Board approved a $0.40 per share quarterly dividend and a new share repurchase authorization of $1.2 billion.

Our CapEx plan for 2022 is $275 million, which includes our new store openings, our ongoing technology and omnichannel investments as well as a new distribution center in Reno, Nevada and a new WSS facility in Houston, Texas, to support growth in that banner.

In addition, our real estate portfolio provides us with a tremendous amount of flexibility as we move forward. Over the past several years, we have increased our off-mall mix in North America to 21%, up from 14% in 2018.

And we expect that, that mix will continue to move up as we open up power and community stores as well as the potential ramp of home field stores. At the same time, we have reduced our overall lease life in North America to approximately 3 years, down from 4 years in 2018.

These relatively short-term leases have allowed us and will continue to allow us flexibility to optimize our real estate decisions in a cost-effective manner. In closing, we are continuing our journey in diversifying our business.

With our fourth quarter and full year 2021 results as proof points of our progress, we are confident that our customers and product diversification efforts will continue to drive differentiation and connection with our customers and scale with our vendors. Our team is focused, and we look forward to sharing our progress throughout this year.

With that, operator, please open the call for questions..

[Operator Instructions] Our first question comes from Jonathan Komp with Robert W. Baird..

I just want to understand a little bit better the changes to the vendor mix that you highlighted. And maybe just thinking through the major changes you've seen in that relationship, if any, specifically with Nike and the significance of the fourth quarter of '22, why you're calling that out as sort of the shift in mix that you expect.

And then going forward, when you think about -- I think you disclosed the total penetration for your top 5.

How should we think about the next vendors within the top 5 that aren't Nike, how you expect the mix of those vendors to change?.

Thanks for the question, Jonathan. And again, as we reflect back on 2021, there was an awful lot of focus with us and our vendor partners around inventory management, prioritization of key products and editing of SKU lines.

As we continue to bail through the pandemic, there was a heavy, heavy concentration in a very few SKUs, and that clearly allowed us to be successful in '20 and '21.

As we went through our normal planning process with all of our vendors, which we do in November, December, January, as we set up the next fiscal year for us, it became clear that allocations as we got to the back half of the year were changing.

And again, as we talked about in our prepared remarks, some of that is the Nike move to DTC that they've talked about, and again, I believe, has been able to accelerate during COVID. But some of it is truly our -- part of our ongoing journey to create a true house of brands that we are.

We've got very high in our concentration, and many of you have called it out. And as we shifted -- and I think that Q3 and Q4 were great proof points for us that we saw great growth outside of our Nike and Jordan business. The next group of vendors, most of our top 20 vendors, all had strong double-digit growth, and we were able to drive the business.

So again, as we look forward to Q4 is really in the planning process, where we saw the first impact that we mentioned, and we want to be as transparent as we can with you all.

So again -- but this is certainly part of accelerating our product assortment and vendor assortment changes that -- I believe Q4 was a great proof point in how successful we've been so far..

And if I could just follow up, the comps guidance for the year of down 8% to 10%.

Could you maybe disaggregate how much of that outlook reflects expectations that the private-label initiatives and the other brands won't make up for the lost Nike product? And how much of it is sort of the general assumptions you're making for the environment and cycling stimulus and everything else that's not related to the vendor change?.

It's a combination, Jonathan, and we haven't parsed it out for public consumption. But it is a piece of all of those. We've got the, certainly, inflation that we're all seeing. We've got the stimulus that won't be repeated in '22.

There's still a fair amount of supply chain disruption when you think about between 60 and 70 vessels still anchored off Long Beach in L.A. trying to get in. So again, it's a combination of all of those things that you called out.

But we have a high degree of confidence that our private brands, our shift to apparel, our bigger pivot off-mall, again, one of the reasons that we pivot off-mall is so that we can create more space for these great stories that our teams tell.

And ultimately, those bigger spaces connected with our omnichannel and digital efforts create a stronger demand-creation opportunity for us, which, again, I think the down comps is reflective of all of those elements that you called out, Jonathan..

Our next question comes from Paul Kearney with Barclays..

Just a quick one.

What is embedded in the sales and EPS contribution from WSS and atmos to your FY '22 guide?.

Yes. If you recall, when we initially had forecasted approximately $0.40 to $0.48 contribution from those, that has scaled up and that number that's embedded in as approximately $0.65 to $0.75..

Okay. Great. And then just a quick follow-up.

Can you just provide some commentary on what you're seeing on the consumer, if we see weakening demand in -- as cost inflation kind of roll through and price increases that you're seeing just throughout your merchandise? What do you kind of expect the consumer reaction to be than what has been historically?.

Well, our consumer has been very -- has been able to fend off some of these inflationary trends, it seems like. And again, as the marketplace opens more and they get more active, we'll see what happens. But clearly, traffic was up significantly in the fourth quarter. The consumer has shown a tremendous amount of resiliency.

We all -- as it relates to our specific category, we all wait for the tax return money to start flowing in Q1. So again, I think that there's a lot of upsides with our consumer. They have not been hesitant to shop the stores and shop our digital sites. So it depends on how long and how rampant the inflation gets.

Again, clearly, with some of the geopolitical things going on, there's a wait and see is what the impact to that, that will be to the broader global market. But again, the consumer has been very resilient..

Our next question comes from Tom Nikic with Wedbush Securities..

From a modeling perspective, when we think about this year, should we assume that the worst quarters from a comp perspective should be Q2 when you're lapping stimulus and Q4 when the vendor change really happens? And should we assume that comps are negative in all 4 quarters of the year?.

Well, I think your assumption around Q2 and Q4 is correct. Again, I think stimulus is going to play a little havoc with everybody in the marketplace. But certainly, we expect some pressure there. And then obviously, the pressure that we talked about with the allocation changes in Q4 will play into that.

Q1 and Q3, flattish to down slightly, I think, is the way that our model is built. And again, a lot of it is dependent on the flow of tax return money. A lot of it is dependent on the resiliency that I just talked about in the customer that stayed strong so far. But go ahead, Andrew..

No. I agree. Flattish in Q1 to Q3, pressure from the stimulus and the allocation shift in Q2 and Q4..

Understood. And as we look out to FY '23, I mean, I know we're a long way from there, but -- so if the vendor mix change is happening in -- or if it's really happening to a great extent in Q4, that would suggest there would also be some wraparound into 2023 as well.

And am I thinking about that correctly?.

Yes. As we said in our prepared remarks, we see the levels in Q4 wrapping around. And again, that's with one specific vendor.

But we also expect that the growth that we've seen from our other initiatives around our other brand partners, our private-label brands, our drive into apparel and this off-mall pivot into bigger store base will be some of the offset there..

Our next question comes from Jay Sole with UBS..

Great. I just want to ask about just some of the vendor changing that's happening. Could you elaborate a little bit on what type of products are going to be on different allocation, really specifically apparel versus footwear? Maybe just to start with that one..

Yes. As I talked about during '21 and '22, Jay, there was a concentration into some very specific styles and the hype -- the heat from certain styles that Nike certainly drives through their DTC, and that's where the allocation pressure will be. We still have access to all of those products. We'll just see different quantities flowing our way.

And part of the effort that we've had ongoing with Nike is to diversify our mix with them as well because we got here a concentrated in those silhouettes. And again, part of it was the thought of -- in 2020, the thought of survival and having to focus on the inventory management, the prioritization of those key products.

And as I said, it allowed us to be very successful in '20 and '21. But as we got further into '21, it became very clear that we needed to diversify our offering for our consumers, and that coincides with Nike's DTC growth. So again, it's -- it really is -- Jay, you've been around the business long if you know the key styles and where the heat comes.

And again, we'll still have access. We'll just see fewer units in those SKUs. But we will, in fact, continue to diversify our business with Nike, and we'll continue to grow our other brand partners..

Jay, and I can't overemphasize as much, I mean [indiscernible] what Dick pointed out is, as we move through the pandemic, you saw elevated access in some of those styles, especially as it relates to early part of 2021. And so getting back down to a more sustainable mix of product even in style is what a lot of this shift looks at.

But there was elevated access and -- during the pandemic years of 2020 and 2021..

Got it. Maybe then just to follow up on that, I mean, because you mentioned the word sustainable.

I mean can you put in context this change versus last year with some of the Footaction stores closing or a big percentage of the Footaction stores closing? Like is this sort of now like just the one change where now you're at a sustainable level of not going forward? Or do you feel like that maybe there could be some more tweaks and adjustments to the allocation going forward?.

Kids Foot Locker, Foot Locker and Champs and East Bay. And we will continue to utilize our allocations at the geographic level to assort appropriately and grow our other brands as relevant.

And again, Champs has always had a little bit of a broader product assortment because they've got more space for apparel in their traditional stores and more space for more branded footwear. So again, we feel good about the portfolio. And the allocation discussion and the foot action discussion are really 2 separate discussions, Jay..

And Jay, just kind of going down to the allocation. When you think about vendor concentration and sustainable business models going forward, we talked about no single vendor going forward having more than a 55% penetration, and that's kind of the direction that we're modeling our business around as we move forward right now..

Our next question comes from Kimberly Greenberger with Morgan Stanley..

I wanted to ask, is Foot Locker still considered a strategic partner for Nike? Or has that classification changed over the last year? And secondarily, could you just talk about the productivity of the new brands that are coming in to fill the floor space that Nike is leaving behind?.

Thanks for the question, Kimberly. And again, we continue to be a strong partner, a strategic partner of Nike's, and we are working on building complementary strategies to their DTC growth. Their support of us in specifically basketball kids and sneaker culture continues to be elevated. So again, I feel great about the relationship.

We have ongoing dialogues with them as we plan our business. And this has been something that's been in process for a while as we've continued to shift our business and focus on the things that we need to do for our company. So again, strong relationship there. And again, part of the pull model that works in our industry is the scarcity model.

And again, it's -- one of the things that Nike does the best is they control the flow of these high-heat products into the marketplace, which keeps the demand high. So again, they will certainly benefit their DTC with some of that. We'll continue to benefit from that.

But our biggest benefit will be broadening our assortment with them and bringing other brand partners in. Now the second part of your question, Kimberly, around the productivity of those second -- that next tier of vendors, the product across the board doesn't turn quite as fast as the Nike product.

But that being said, we just had a great LaMelo Ball launch with PUMA. We bring in high-heat collaborations, Crocs and Carats. And we do those things and drive heat and demand with those type of offerings, which are, again, turned pretty quick. So I would say, in general, a little bit less productive.

But again, one of the hottest brands in our market right now certainly continues to be New Balance, and that's in all of our geographies. So there's puts and takes as we help brands develop and really create that demand. We see their productivity accelerate.

But there is nothing like a retro Jordan launch that comes in on a Friday and sells on a Saturday, right? I mean that's a tough dynamic to overcome. But again, I think there is enough heat, and we do a great job of storytelling and demand creation that we will continue to be productive in our boxes and our omnichannel efforts..

Okay. Great. And then just thinking more broadly about the store fleet with downsizing of the Nike business.

Does it cause you to take an assessment of the store fleet for potentially additional closures in future years, noting, of course, that it sounded like you're shrinking square footage by 3% in the upcoming year, and you effectively shortened your average lease life.

Should we take these as signals perhaps that over time you plan to continue to downsize the fleet?.

Well, Kimberly, we've been a net door closer for a decade now, right? If you look a decade ago, we had probably 4,000 stores -- or close to 4,000 stores. And we have continually looked for our opportunities to get into the -- get the right-sized store in the right marketplace to serve the consumer.

And just a slight correction, our square footage is going to be down about 2%. Our door count will be down about 3%. So -- but we -- our team does a great job proactively managing our portfolio.

And when we see the opportunity to exit a lease early because the store is not as productive as we'd like or we can't afford to put the capital into that specific marketplace, we've done that -- I think a really good job of that over the years, and we'll continue to do that.

But I do expect that we will continue to see door count go down, square footage stay flat to slightly down..

Yes. I was going to say as it relates to the lease life, I mean that -- you should read that as an indication of our -- as a proxy as part of our omnichannel journey.

Like as digital engagement goes up and as we continue to increase our digital penetration, thinking of that full omni circle, we need to consider our physical footprint and given ourselves leverage in that physical footprint to flex up or flex down and get out of leases in a cost-effective manner, as Dick pointed out, has been a journey and has been an effort that we've been on for a while.

And that continues to really, really help us to make the right real estate decisions..

One other thing about the door count as we look at 2022 and beyond will be the growth of the WSS stores, right? We made a great acquisition of a fast-growing brand, very connected to a specific consumer. And we will, over the next 3 years, are planning to double that door count.

So again, we'll expand much slower with atmos because it's really a digitally led brand. But WSS, there's an awful lot of white space as it relates to that consumer and where they're not. They've begun -- we've begun the migration out of Southern California, but we've just stuck our toe in the water in Texas.

We've got South Florida that's going to open up with WSS. So again, we see tremendous growth opportunities there. So there's always puts and takes across the portfolio..

Our next question comes from Brian McNamara with Berenberg Capital Markets..

Clearly, these vendor decisions aren't made overnight.

I'm just curious kind of when did you get the indication or when did Nike -- or when did you give Nike an indication that things are kind of headed this way? Has it been the last couple of months as you -- I think as you previously mentioned? Or has it been kind of over the last couple of years? I'm just curious the time line of the vendor decision..

Well, we started this journey just prior to COVID. If you go back to our Investor Day in March '19, we started to show some of the vendor changes there.

But certainly, as it relates to the numbers that we talked about today, our '22 plan and the wraparound into '23, those discussions really happened during January -- late January, actually, when we were in our regular planning process with Nike.

So again, it's sort of an acceleration, again, that I believe is driven by their success with DTC, certainly. But I think that COVID has allowed us all to see that the consumer is changing, the consumer behaviors are changing. Our consumer is clearly saying that they want choice and that multibrand destinations matter.

And when 70-plus percent of your 75% of your purchases are with one vendor, it doesn't leave a lot of space in your store for choice. So that's part of what we're looking at. So really, it's an acceleration of conversation that's been going on for a couple of years, and it was late January when we worked on the planning for 2022..

And just a quick follow-up on the 55%.

Is that a number you expect to continue to drift lower over time? How should we think about that on a kind of a longer-term outlook?.

We don't expect it to go up from there. We would expect it to probably drift slightly lower. But again, that depends on where we take the brand, where the -- where we work with the brand to move forward, to meet our customer expectations, how their DTC business progresses, et cetera.

So again, that 50% to 55% -- and if you reflect back to the mid-2000s, 2006-'10 -- to 2010, that's about where we were, in the mid-40s to upper 50s. And I think that we will create a healthier business by spreading our choice for our consumers out to a broader vendor base..

And Brian, it's math and it's obvious. But remember, that penetration is the penetration of RBI. We expect to grow our non-Nike brands at a much faster rate. And so therefore, that penetration could go down as -- just as a sheer result of the growth of our other businesses..

Our next question comes from Michael Binetti with Credit Suisse..

I guess we've gone over the vendor mix quite a bit here, but -- so maybe I'll focus on the model for a minute. Can you help us just reconcile between the comps down 8 to 10, footage down 1 to 2 more on top of that, but revenue is only down 4% to 6%. I think there's a gap there.

And maybe you can just help us clearly understand the footage down 1% to 2%, how the acquisitions fit into that number. And I would also love a little bit of help understanding the cadence of gross margin this year and how much we should expect the gross margin compression to be concentrated around the fourth quarter vendor mix..

Yes. I'll jump on the first part of that question, Michael, and then Andrew can jump in. But again, part of the sales change, the comp change and the square footage change is being driven by our acquisition of WSS and atmos, right? So atmos does a bigger percentage of their sales digitally. They are a double-digit comp grower.

WSS has been a teens comp grower, and we expect that to continue and add square footage there. So that's sort of the relationship.

We expect -- as we talked about in the prepared remarks, we expect doors to be down about 3% square footage in that 1% to 2% range in productivity because of a broader offering in our off-mall community stores and power stores, we expect that's going to help cover some of the overall sales change as will WSS as we expand their footprint..

And just to add a little bit on the footprint, because we're opening bigger formats, so you can be down and closing at a faster rate of stores and as you open stores in bigger footprint, WSS is a bigger footprint, the community and home field stores are bigger footprint. So that's why the square footage is declining at a slower rate.

Now as it relates to gross margin, from a margin perspective, there is -- we called above 400 to 410 bps decline in gross margin. And as you think about that, about $30 of that relates to occupancy deleverage as -- if you think about the revenue coming down and us moving out of -- and us having that occupancy footprint.

So there's going to be some deleverage there. And then on the merch side, approximately 280-ish on the merch side. And of that 280 on the merch side, approximately 100 bps is really driven by increased freight costs..

And how would you break down the remainder of that -- the other 180 then?.

There's going to be some distribution center costs. And the rest of it is really distribution center costs, increased acquisition-related costs. And –.

And honestly, we’ll see markdowns..

Yes. You’re going to see markdowns..

We’ve run at historical lows during 2021. And we don’t expect that the marketplace to get overly promotional, but we do expect it to be more promotional than it has been in 2021..

Right. Yes..

And just so I’m crystal clear, the footage down 1% to 2% is taking the endpoint from 2021 with WSS and atmos in it and the end point of 2022? That delta will be down 1% to 2% when we add all the components up?.

That’s correct..

That’s correct, yes..

Our next question comes from Cristina Fernandez with Telsey..

I wanted to talk about the vendor mix change. But think about the apparel versus footwear composition apparel on my math with about 16% of sales last year.

As you look about -- as to how the business is changing, do you see that being materially higher as we move over the next couple of years?.

Yes, we absolutely do both from a branded perspective and our private and control brands. Again, one of the benefits of moving off-mall into slightly square -- bigger square footage doors is that we can do a better job of storytelling for apparel -- for all the great apparel brands that we work with.

As we brought in our Locker product and our Close product in Q3 and Q4, we saw great acceptance from our consumers. We've got many brands that we work with to drive apparel as well. So I think the more square footage really allows us to do a better job of the storytelling and demand creation around apparel.

And working with great, great collaborators like Melody Ehsani, Don C, those all drive our apparel team, and we'll continue to leverage that across all of our brands..

And as a follow-up, can you talk about the power stores that you've opened so far? How are they performing relative to the stores in malls? And any details you can share about how the vendor mix is in those stores and the apparel penetration that will help us think about as you transition to more off-mall stores, how that's going to help the business..

Yes. We haven't broken down the specifics inside each of those power store boxes. But suffice it to say that we've been very pleased with the results of the first 50. That's why we're accelerating our expansion of those.

If you think about our -- really, our first 181st Street, 8-mile road in Detroit, Compton, Dallas, Centra, Philadelphia and the U.K., we've opened up bricks, and we've seen a broader distribution of brands in those stores because we have more square footage.

We've seen a higher penetration of women's and kids because we can do a more full family presentation in those doors. And we've seen greater connectivity from our consumers as they come into those doors, spend more time shopping, their dwell time is longer, et cetera.

So again, we've really been on this journey, the 181st Street store in the Heights opened up in 2019, 2018 -- 2019. And we've been on this proof-of-concept journey, and you have to test it around the globe. You have to test it in a lot of different ways.

But the brand expansion, the square footage expansion, the ability to take care of full family shoppers with full family offerings has really been the strength of the power stores and community stores. And of course, the deep connection with the community, bringing in local managers to run big, big boxes.

Historically, we would have brought a manager who had experience running that size store. We're now looking for local managers to make sure that they've got that deep connectivity with the community..

Our next question comes -- our last question comes from Robert Drbul with Guggenheim Securities..

A couple of quick questions. I think the first one is when you think about some of the vendor shift, the marketing expense requirements, I don't know, if it's cooperative marketing or co-op dollars, et cetera.

Can you just talk about your plan to need to invest in some of these smaller, I would say, use the iconic brands or players that you're partnering up with and that relationship? And I guess the second question is when you look -- and this is probably for Andrew, but when you think about the transition underway in the business, it does sort of strike me that the range of rates that you're forecasting for '22 is rather tight versus your historical expectations for like a full year.

So I just wonder if you can just address that visibility, the confidence in gross margin, 20 basis point range, SG&A range, just broadly speaking, that would be helpful..

I'll start, Bob, and then I'll hand over to Andrew for the second part of the question. But clearly, we believe that part of our role in the market is to be a demand-creation tool, right? So we're working with smaller vendors. We're working with all of the vendors that we have great products from to create better stories and create more connectivity.

Part of our marketing -- we got great digital marketing and great social connectivity with our consumers. Our followership is significant. And we continue to leverage our FLX program to speak to our best consumers more often. So we start with exclusive concepts that we're creating with all of these vendors.

We communicate that digitally and socially and through FLX. And as we get further and further along that FLX journey, we'll be able to have enough data that we can truly personalize the connectivity with our consumers.

So I think that we've got the right elements in place, and we've got very willing partners to continue to grow with us so -- and invest with us. So I think certainly a bit of a shift. The truth is that you don't have to spend a lot of marketing dollars on certain high-heat profile silhouettes.

We will deploy those marketing dollars to be more effective as we work against our consumer preferences and the exclusivity of the concepts that we're going to bring to bear in our stores. Now I'll turn it -- Bob, I'll turn it over to Andrew to talk you through some of the ranges and margins..

So as you think about our 2022 guidance and some of the information that we put out with regard to 2022, our confidence in our ability to really look at our market and look at our offerings, look at our product bottoms-up perspective and really get a fairly good perspective on our top line. We obviously have a lot of information on our margins.

Obviously, we're in an MSRP environment. And so our ability to really drive margin is it has a ceiling and it has a floor. And as you think about our ability to really get close to the pin on that, what we've done is we feel confident in our numbers, but we also have built in lapping stimulus.

We've also built in what we believe is slower velocity of some of our non-Nike accounts -- that some are our non-Nike product that will now be elevated. And we believe that we have a really good pulse on that. And so this is the information that we put out for 2022. I think it does provide a relatively range that's appropriate for full year guidance.

I think that if there's some specific line item that you want to talk about, I'm happy to focus on it..

No. I mean, I think generally, especially just I think the margin piece of it -- the gross margin piece of it seems narrow with a lot of the change.

But I guess the other piece that I would ask, Andrew, is with the share repurchase program, the $1.2 billion, I guess, can you just maybe address the thought process at this point in time on the share repurchase? And I guess, what's in this forecast, the financial outlook for '22 that you have in there today?.

Yes. So as you know, our share repurchase is and always has been an opportunistic share repurchase. So in our -- yes, we don't forecast or guide share repurchase. We'll obviously lean into those opportunities to return value to the shareholder as the market conditions allow.

But we have not modeled in a particular share repurchase amount in the guidance that we've provided..

I would like to turn the call back to Mr. Robert Higginbotham for any closing remarks..

Thank you for joining us today. Please join us again for our next earnings call, which we anticipate will take place at 9 A.M. on Friday, May 20. The call will follow the release of our first quarter results earlier that morning. Thank you and goodbye..

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect..