Foot Locker 2010 Annual Report Download - page 33

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Footaction — ‘‘Head to Toe Sport Inspired Style’’ — Footaction is a national athletic footwear and apparel
retailer. The primary customers are young males that seek street-inspired athletic styles. Its 307 stores are
located throughout the United States and Puerto Rico and focus on marquee footwear and branded apparel. The
Footaction stores have an average of 2,900 selling square feet.
CCS — ‘‘Largest Deck Selection’’ — CCS serves the needs of the 10-18 year old skateboard enthusiast while
maintaining credibility with core skaters of all ages. This format complements the CCS catalog and internet
business, which was acquired in November 2008. During 2009, the Company opened two stores under the banner
of CCS. This concept was expanded to 12 stores in 2010, all of which are located in the United States and average
1,700 selling square feet.
Direct-to-Customers
The Company’s Direct-to-Customers segment is multi-branded and multi-channeled. This segment sells,
through its affiliates, directly to customers through catalogs and its Internet websites. Eastbay, one of the
affiliates, is among the largest direct marketers in the United States, providing the high school athlete with a
complete sports solution including athletic footwear, apparel, equipment, team licensed, and private-label
merchandise. In 2008, the Company purchased CCS, an Internet and catalog retailer of skateboard equipment,
apparel, footwear, and accessories targeted primarily to teenaged boys. The retail store operations of CCS are
included in the Athletic Stores segment. The Direct-to-Customers segment operates the website for eastbay.com,
final-score.com, and teamsales.eastbay.com. Additionally this segment operates websites aligned with the brand
names of its store banners (footlocker.com, ladyfootlocker.com, kidsfootlocker.com, footaction.com,
champssports.com, and ccs.com).
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
Foot Locker stores located within the Middle East, subject to certain restrictions. Additionally, in March 2007, the
Company entered into a ten-year agreement with another third party for the exclusive right to open and operate
Foot Locker stores in the Republic of Korea. A total of 26 franchised stores were operating at January 29, 2011.
Royalty income from the franchised stores was not significant for any of the periods presented. These stores are
not included in the Company’s operating store count above.
Overview of Consolidated Results
The Company recorded net income from continuing operations of $169 million or $1.07 per diluted share for
2010; this compares with $47 million or $0.30 per diluted share for the prior-year period. Other highlights
include:
• Sales increased by 4.0 percent and comparable-store sales increased by 5.8 percent as compared with
the corresponding prior-year period.
• Gross margin increased 260 basis points in 2010 as compared with 2009. Included in cost of sales for
2009 is a $14 million charge to reserve for inventory as the Company began its transition to a new
apparel strategy.
• The Company recorded a charge of $10 million in 2010 to impair the CCS tradename intangible asset
due to the lower projected revenues for this division. Included in 2009 are impairment charges totaling
$36 million, of which $32 million was recorded to impair store long-lived assets within the Athletic
Stores segment and $4 million related to a write-off of certain software development costs within the
Direct-to-Customers segment.
• The Company recorded a $2 million gain in 2010 on the settlement on its money-market investment in
the Reserve International Liquidity Fund, Ltd. (the ‘‘Fund’’). During 2008, the Company had recognized
an impairment loss of $3 million representing the decreased value of the underlying securities of
Lehman Brothers held in the Fund. These amounts were recorded with no tax expense or benefit.
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