Foot Locker 2003 Annual Report Download - page 20

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Division profit from athletic store formats decreased 1.4 percent to $279 million in 2002 from $283 million in 2001.
Division profit, as a percentage of sales, decreased to 6.7 percent in 2002 from 7.1 percent in 2001 primarily due to the
increased operating expenses associated with the new store-opening program. The impact of no longer amortizing
goodwill as a result of the Company’s adoption of SFAS No. 142 was a reduction of amortization expense of $2 million
in 2002. Operating performance improved internationally but was more than offset by the decline in performance in the
United States from the Foot Locker, Lady Foot Locker and Kids Foot Locker formats. Division profit included asset
impairment charges of $1 million and $2 million in 2002 and 2001, respectively, for the Lady Foot Locker format. An asset
impairment charge of $6 million was also recorded in 2002 related to the Kids Foot Locker format.
Direct-to-Customers
2003 2002 2001
(in millions)
Sales ............................................................. $366 $349 $326
Division profit .................................................... $ 53 $ 40 $ 24
Sales as a percentage of consolidated total ...................... 8% 8% 7%
Direct-to-Customers sales increased 4.9 percent in 2003 to $366 million as compared with $349 million in 2002.
Division profit, as a percentage of sales, in this quickly expanding division, is more profitable than the store business.
The growth of the Internet business continued to drive sales in 2003. Internet sales increased by 32.6 percent to $191
million from $144 million in 2002. Catalog sales decreased by 14.6 percent to $175 million in 2003 from $205 million
in 2002. Management believes that the decrease in catalog sales is substantially offset by the increase in Internet sales
as the trend has continued for customers to browse and select products through its catalogs and then to make their
purchases via the Internet. The Company continues to implement new initiatives to grow this business, including new
marketing arrangements and strategic alliances with well-known third parties. During 2003, the Company extended its
agreement with the NFL, entered into new alliance agreements with the NBA and the USOC and expanded its services
through on-line specialty stores with Amazon.com. These agreements generally provide for the Company to merchandise,
fulfill and manage the websites of these strategic partners.
Direct-to-Customers sales increased by 7.1 percent to $349 million in 2002 from $326 million in 2001. The Internet
business continued to drive the sales growth in 2002. Internet sales increased by $44 million, or 44.0 percent, to $144
million in 2002 compared with $100 million in 2001. Catalog sales decreased 9.3 percent to $205 million in 2002 from
$226 million in 2001. During 2002, the Company implemented many new initiatives designed to increase market share
within the Internet arena. A new catalog website was launched that offers value-based products. The Company began to
offer product customization to further differentiate its products from those of competitors, expanded on the existing
relationship with the National Football League and, prior to the end of 2002, entered into a strategic alliance to offer
footwear and apparel on the Amazon.com website. Foot Locker is a featured brand in the Amazon.com specialty store for
apparel and accessories.
The Direct-to-Customers business generated division profit of $53 million in 2003, as compared with $40 million in
2002. The increase in division profit was primarily due to increased sales. Division profit, as a percentage of sales, increased
to 14.5 percent in 2003 from 11.5 percent in 2002. Management anticipates that the sales and earnings of the integrated
Internet and catalog business will continue to grow.
The Direct-to-Customers business generated division profit of $40 million in 2002 as compared with $24 million in
2001. Division profit, as a percentage of sales, increased to 11.5 percent in 2002 from 7.4 percent in 2001. The increase
was primarily due to the increase in gross margin, reduced marketing costs and $5 million related to the impact of no
longer amortizing goodwill as a result of the Company’s adoption of SFAS No. 142 in 2002.
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