Foot Locker, Inc. Reports First Quarter Results

NEW YORK, May 17 /PRNewswire-FirstCall/ -- Foot Locker, Inc. , the New York-based specialty athletic retailer, today reported financial results for its first quarter ended April 29, 2006.

Financial Results

Net income for the Company's first quarter ended April 29, 2006 increased to $0.38 per share, or $59 million, from $0.37 per share, or $58 million from last year. This year's results benefited by $1 million, or $0.01 per share, from a cumulative effect of accounting change, that essentially offset incremental share-based compensation included in SG&A expenses, both of which resulted from the Company's required adoption of SFAS 123(R). The cumulative effect of accounting change is a one-time benefit while the incremental share-based compensation included in SG&A expenses is expected to be recurring.

First quarter sales decreased 0.9 percent to $1,365 million this year compared with sales of $1,377 million for the corresponding prior year period. Excluding the effect of foreign currency fluctuations, total sales for the 13-week period increased 0.2 percent. First quarter comparable-store sales increased 0.5 percent.

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

Mr. Serra continued, "In total, our earnings per share for the first quarter were in line with the guidance range that we provided at the beginning of the year. For our second fiscal quarter, we currently expect earnings per share to be in the range of $0.27 to $0.30. We currently expect that our earnings from continuing operations for the full year will be in the range of $1.75 to $1.85 per share, which is unchanged from our prior guidance, and reflects our outlook for improved earnings during the second half of 2006."

Store Base Update

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

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

Financial Position

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

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

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

The Company is hosting a live conference call at 10:00 a.m. (EDT) on Thursday, May 18, 2006 to discuss these results and provide guidance with regard to its earnings outlook for 2006. This conference call may be accessed live from the Investor Relations section of the Foot Locker, Inc. website at http://www.footlocker-inc.com/. The conference call will be available for webcast replay until 5:00 p.m. on Monday, May 29, 2006.

Disclosure Regarding Forward-Looking Statements

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

FOOT LOCKER, INC. Condensed Consolidated Statements of Operations (unaudited) Periods ended April 29, 2006 and April 30, 2005 (In millions, except per share amounts) First Quarter First Quarter 2006 2005 Sales $1,365 $1,377 Cost of sales 946 959 Selling, general and administrative expenses 283 283 Depreciation and amortization 43 41 Interest expense, net 1 3 1,273 1,286 Income before income taxes and cumulative effect of accounting change 92 91 Income tax expense 34 33 Income before cumulative effect of accounting change 58 58 Cumulative effect of accounting change, net of income tax 1 - Net income $59 $58 Diluted EPS: Income before cumulative effect of accounting change $0.37 $0.37 Cumulative effect of accounting change 0.01 - Net income $0.38 $0.37 Weighted-average diluted shares outstanding 156.7 158.1 FOOT LOCKER, INC. Condensed Consolidated Balance Sheets (unaudited) (In millions) April 29, April 30, 2006 2005 Assets CURRENT ASSETS Cash, cash equivalents and short-term investments $370 $405 Merchandise inventories 1,403 1,320 Other current assets 172 165 1,945 1,890 Property and equipment, net 674 710 Deferred tax assets 159 181 Other assets 472 505 $3,250 $3,286 Liabilities and Shareholders' Equity CURRENT LIABILITIES Accounts payable $380 $439 Accrued and other liabilities 226 318 606 757 Long-term debt and obligations under capital leases 272 347 Other liabilities 301 299 SHAREHOLDERS' EQUITY 2,071 1,883 $3,250 $3,286 FOOT LOCKER, INC. Store and Estimated Square Footage (unaudited) (Square footage in thousands) April 29, April 30, May 1, 2006 2005 2004 Foot Locker U.S. Number of stores 1,365 1,403 1,436 Gross square footage 5,498 5,705 5,849 Selling square footage 3,251 3,337 3,402 Footaction Number of stores 365 350 --- Gross square footage 1,721 1,685 --- Selling square footage 1,063 1,049 --- Lady Foot Locker Number of stores 546 555 570 Gross square footage 1,220 1,242 1,270 Selling square footage 685 696 707 Kids Foot Locker Number of stores 320 336 350 Gross square footage 777 812 846 Selling square footage 465 484 504 Champs Sports Number of stores 555 566 580 Gross square footage 3,037 3,149 3,227 Selling square footage 2,090 2,160 2,221 Foot Locker International Number of stores 726 718 651 Gross square footage 2,081 2,058 1,864 Selling square footage 1,083 1,094 1,005 Total Athletic Group Number of stores 3,877 3,928 3,587 Gross square footage 14,334 14,651 13,056 Selling square footage 8,637 8,820 7,839