Foot Locker 2007 Annual Report Download - page 4

Our Company’s fi nancial results for
2007 fell short of our expectations.
Despite our disappointing perfor-
mance, we believe we responded to
the internal and external challenges
by taking the necessary strategic
steps to enhance our Company’s
future profi tability.
Overall, the climate for U.S.
footwear retailers in 2007 was more
challenging than it has been in a
decade. We did not anticipate the
severity of the slowdown in con-
sumer spending – and in particular
athletic footwear – that ensued across
the country. As a result, we had to
make adjustments to our merchan-
dise strategy over the course of the
year, and this adversely affected our
2007 fi nancial results.
While the near-term economic
climate in the United States remains
challenging, we believe when the cur-
rent retail cycle turns more positive,
that our Company will be in a strong
position to capitalize on business
opportunities. The depth and experi-
ence of our merchant-led senior man-
agement and store operations teams,
supported by an effi cient corporate
infrastructure, gives us the advantage
to be successful over the long term.
Additionally, Foot Locker, Inc.’s strong
balance sheet provides us with the
fi nancial fl exibility to execute our
long-term business plans effectively
and to move strategically to expand
our business reach.
The Year in Review
Our fi nancial performance in 2007
refl ected declining U.S. store opera-
tions results. A challenging external
environment, combined with a lack
of exciting fashion trends in athletic
footwear and apparel, were the pri-
mary reasons for the sales slowdown.
Three additional factors contrib-
uted to reduced profi ts in our U.S.
store operations and/or affected our
overall earnings per share:
• We recorded non-cash impairment
charges pursuant to SFAS No.144
as well as expenses associated with
closing unproductive stores of $81
million after tax, or $0.52 per share.
• During the year, we made a
strategic decision to acceler-
ate the clearance of slow-selling
merchandise in our U.S. stores.
This inventory clearance strategy
resulted in markdowns at our U.S.
stores increasing by approximately
$125 million, after-tax, or $0.50 per
share, compared to 2006.
• We recorded an income tax
benefi t of $65 million, or $0.42
per share, to decrease a Canadian
income tax valuation allowance
relating to income tax deductions
that we now expect to be utilized.
While our U.S. operations did not
perform to our standards in 2007, we
are encouraged by the achievements
made by our international divisions.
Profi ts at Foot Locker Europe began
to stabilize in 2007 after two years of
profi t declines, the profi t margin at
Foot Locker Canada remained in the
double digit range, and the profi t of
our Foot Locker Asia/Pacifi c division
increased signifi cantly.
As the challenging external envi-
ronment unfolded over the course of
the year, we proactively took several
steps to ensure that our fi nancial
position remained strong, by:
• Decreasing inventory purchases for
the fall season of 2007 and spring
season of 2008, refl ecting a more-
moderate external environment.
• Reducing the number of new store
openings in the United States from
103 in 2007 to 36 planned for 2008,
to decrease capital spending.
While this past year was challenging for our
Company, we believe that our advantageous
competitive edge and strong fi nancial
structure position us well for success in 2008.
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LETTER TO SHAREHOLDERS