Foot Locker 2007 Annual Report Download - page 25

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9
Store Profile
At
February 3, 2007 Opened Closed At
February 2, 2008
Foot Locker . . . . . . . . . . . . . . . . . . . . 2,101 66 161 2,006
Champs Sports . . . . . . . . . . . . . . . . . 576 22 22 576
Footaction . . . . . . . . . . . . . . . . . . . . 373 623 356
Lady Foot Locker . . . . . . . . . . . . . . . . 557 10 41 526
Kids Foot Locker . . . . . . . . . . . . . . . . 335 13 27 321
Total Athletic Stores . . . . . . . . . . . . . 3,942 117 274 3,785
Direct-to-Customers
Footlocker.com — Footlocker.com, Inc., sells, through its affiliates, directly to customers through catalogs and
its Internet websites. Eastbay, Inc., one of its affiliates, is one of the largest direct marketers of athletic footwear,
apparel, equipment, team licensed and private-label merchandise in the United States and provides the Company’s
eight full-service e-commerce sites access to an integrated fulfillment and distribution system. The Company has a
strategic alliance to offer footwear and apparel on the Amazon.com website and the Foot Locker brands are featured
in the Amazon.com specialty stores for apparel and accessories and sporting goods. In addition, the Company has a
marketing agreement with the U.S. Olympic Committee (USOC) providing the Company with the exclusive rights to sell
USOC licensed products through catalogs and via an e-commerce site. The Company has an agreement with ESPN for
ESPN Shop — an ESPN-branded direct mail catalog and e-commerce site linked to www.ESPNshop.com, where consumers
can purchase athletic footwear, apparel and equipment which will be managed by Footlocker.com. Both the catalog and
the e-commerce site feature a variety of ESPN-branded and non-ESPN-branded athletically inspired merchandise.
Franchise Operations
In March of 2006, the Company entered into a ten-year area development agreement with the Alshaya Trading
Co. W.L.L., in which the Company agreed to enter into separate license agreements for the operation of a minimum of
75 Foot Locker stores, subject to certain restrictions, located within the Middle East. Additionally in March 2007, the
Company entered into a ten-year agreement with another third party for the exclusive right to open and operate up to
33 Foot Locker stores in the Republic of South Korea. A total of 10 franchised stores were operational at February 2, 2008.
Revenue from the 10 franchised stores was not significant for the year-ended February 2, 2008. These stores are not
included in the Company’s operating store count above.
Overview of Consolidated Results
The 2007 results represent the 52 weeks ended February 2, 2008 as compared with the prior year which represented
the 53 weeks ended February 3, 2007. Income from continuing operations was $49 million or $0.32 per diluted share as
compared with the corresponding prior-year period of $247 million or $1.58 per diluted share. Difficult industry trends
as well as internal factors affected the 2007 results. Sales of low-profile and casual footwear significantly declined and
sales of branded and licensed apparel were weak. Internal factors contributing to the decline included oversupplied
inventory, due, in part, to the lack of a clear fashion trend in athletic footwear and apparel, which necessitated higher
than normal markdowns.
The following key factors affected the Company’s results in the current year and comparability with the prior year:
• Comparable-store sales declined 6.3 percent.
• Gross margin was negatively affected by higher markdowns primarily to liquidate slow-moving merchandise
and lower vendor allowances.
• Included in 2007 were charges associated with the Company’s store closing program and non-cash impairment
charges totaling $128 million, pre-tax, or $0.52 per diluted share. Impairment charges totaling $124 million were
recorded to write-down the value of long-lived assets of underperforming stores in the Company’s U.S. retail
store operations and for stores included in the store closing program. The Company closed 33 unproductive
stores during 2007 as part of the announced store closing program. Included in 2006 was an impairment charge
of $17 million, or $0.08 per diluted share, to write-down long-lived assets of the European operations.