Peter D. Brown - Sr. VP, CIO and IR Robert W. McHugh - Sr. VP and CFO Matthew D. Serra - Chairman, President and CEO

Jeffrey Edelman - UBS John Shanley - Susquehanna Financial Group Robert Ohmes - Banc of America Securities Virginia Genereux - Merrill Lynch Kate Mcshane - Citigroup Brad Cragin - Goldman Sachs

Good morning,ladies and gentleman, and welcome to the Second Quarter 2007 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. This conference call may contain forward-looking statements that reflect managements' current views of future events and financial performance. These forward-looking statements are based on many assumptions and factors including the effects of currency fluctuations, customer preferences, economic and market conditions worldwide and other risks and uncertainties described in the Company's press releases and SEC filings. We refer you to Foot Locker, Inc's most recently filed Form 10-K or Form 10-Q for a complete description of these factors. Any changes in such assumptions or factors could produce significantly different results and actual results may differ materially from those contained in the forward-looking statements. If you have not received yesterday's release, it is available on the Internet at www.prnewswire.com or www.footlocker-inc.com. Please note that this conference is being recorded. I will now turn the call over to Mr. Peter Brown, Senior Vice President, Chief Information Officer and Investor Relations. Mr. Brown you may begin. Peter D. Brown - Senior Vice President, Chief Information Officer and Investor Relations: Good morning and welcome to our second quarter conference call. After the market closed yesterday we reported our financial results for the second quarter. Net loss of $0.12 per share was favorable to our updated guidance that we provided on July 30th, primarily, due to a lower markdown rate than forecasted at that time. Bob McHugh our Senior Vice President and Chief Financial Officer will begin the call of discussion of our second quarter financial results and provide some details on the key factors that led to our disappointing results. Matt Serra, our Chairman and CEO will follow with an operational review and provide an update on our strategic priorities. We'll answer your question after our prepared remarks. Overall, our second quarter results were negatively impacted by a challenging athletic retail environment in the US, and our strategic decision to aggressively liquidate slow moving inventory. We believe that this proactive decision, along with other initiatives that we are taking, will strengthen our position in the athletic marketplace for the future. The following is a recap of our second quarter results: Total sales decreased 1.5%; comp store sales decreased 7.3%; our gross margin rate decreased by 420 basis points; our SG&A expense rate increased a 130 basis points; interest expense was zero; our net loss was $18 million; and our cash position net of debt increased by $86 million from the same time last year. I will now turn the call over to Bob McHugh. Robert W. McHugh - Senior Vice President and Chief Financial Officer: Good morning. We are clearly disappointed with out second quarter financial performance but encouraged that our merchandized inventory is better positioned for the fall season. In fact the aging of our inventory is more current than it has been in a few years. Our financial results fell short of our expectations at the start of the quarter, primarily, due to a weak sales performance and higher than planned markdown at our US stores. The difficult athletic sales environment in the US was a continuation of a trend that we experienced during the first quarter of this year. During our first quarter conference call, we highlighted that we would take a cautious approach in managing our business for the balance of 2007. We also stated that we expected to take higher markdowns than last year in our US stores to sell-through some slow moving... slow selling goods and to reduce inventory levels. Based on our May results we concluded that we needed to significantly increase the intensity of liquidating slow moving merchandize in our US stores, during the balance of the second quarter, in order to achieve our objective of entering the fall season with our inventory level below and significantly more current than last year. This objective was accomplished, but it obviously came at a price. We believe that it was the right strategy that better positions our business for the second half of the year. Our inventory aging is much improved with the amount of our total US inventory older than 12 months reduced by approximately 40% versus the same time last year. This inventory reduction strategy impacted each of our US divisions although the most significant effect was on our largest division Foot Locker. On a positive note, our combined international profits increased double-digits led by strong gains at Foot Locker Europe. We ended the quarter in a strong financial position with our cash position net of debt improved by $86 million versus the same time last year. In total, our in-going inventory was 1.6% lower than at the end of the second quarter last year. On a constant currency basis, our inventories were 3.2% lower than last year. Second quarter comparable store sales of our major US divisions were as follows: our US Foot Locker business, comprising Foot Locker, Kids Foot Locker, and Lady Foot Locker, decreased high single-digits, Footaction declined high single-digits, Champs declined high single-digits, footlocker.com sales declined mid single-digits, our international comp store sales declined mid single-digits with the weakest results being in Europe, our Canadian sales were flat, while Foot Locker Australia increased to low double-digits. By month, the comp store sales decreased mid-to-high single-digits in May, decreased mid single-digits in June, and decreased very low double-digits in July. Due to back-to-school shifts in certain states like Florida and Texas, we do not believe that the tone of business change as much as the numbers indicate between June and July. Our second quarter gross margin rate decreased by 420 basis points from last year reflecting a 320 basis point decline in our merchandized margin rate, and a 100 basis point de-leveraging of our buying and occupancy expense rate caused by lower sales. The decline in our merchandized margin rate include a 620 basis point decrease at our domestic stores reflecting approximately $50 million of higher markdowns at cost or $0.20 per share, taken to reduce inventories and clear slow moving goods. Our merchandized margin rate at our international stores improved by 300 basis points primarily reflecting lower markdown levels of Foot Locker Europe, as our inventory is on plan and well positioned with current customer demand. Our total second quarter occupancy costs were slightly better than our plan, but increased by a 100 basis points as a percentage of sales due to our comp store sales decline. Our occupancy rate increased to 150 basis points in the US and 70 basis points in our internationals stores. Our second quarter SG&A expenses increased $30 million or 4.8% versus last year; this increase includes $4 million as a result of stronger foreign exchange rates. Our net interest expense during the second quarter was zero; $1 million favorable to last year. At the end of the second quarter our cash position net of debt was a $133 million, our total cash in short-term investments totaled $363 million, while our long-term debt stood at $230 million. This cash position net of debt was $86 million favorable to this time last year. Additionally, our pension plan remained fully funded on a GAAP basis which provides additional financial flexibility. We repurchased an additional 1.1 million shares of our common stock in the open market during the second quarter for $24 million. This brings the year-to-date share repurchase program up to 2.3 million shares for a total of $50 million. As already mentioned, our merchandise inventory at the end of the second quarter was 3.2% below last year on a constant currency basis. Our inventory level on the US is approximately 4% below last year, while our international inventory, state in constant currency, was essentially flat with last year. Our primary focus for the balance of this year is to work closely with our key suppliers to receive a steady flow of hot selling marquee goods, and in the right quantities. Our promotional posture for fall season will be dictated by the overall athletic marketplace and actions that we feel our necessary to keep our inventories current and in line with expected sales trends. In summary, while we are disappointed with our financial results for the second quarter of 2007, we believe our business is better positioned for the fall season. As we've previously announced we plan to implement an accelerated store closing program during the balance of this year. During the uptime... upcoming fall season we expect to incur one time cost that may total up to $20 million to close underperforming stores. Matt will provide an update on the status of this program during his prepared remarks. Current accounting regulations require that lease termination cost be recorded at the time of store closing. Additionally, we may be required to conduct an impairment review of our US store base before the end of the year in compliance with FAS 144. The P&L impact of this potential review would not be known until later this year. Given these factors as well as the current challenging athletic retail environment in United States, we do not believe it is appropriate to provide specific earnings per share guidance for the fall season at this time. However, we will provide some insights to our planning assumptions that will assist you in updating your financial models. Built into these assumptions are several external factors such as economic uncertainties that may impact our sales during the balance of this year. Therefore we are currently planning our business more conservatively for the third and fourth quarters of this year than we had at the beginning of the year. These forecasting assumptions include flat comp store sales, gross margin and SG&A rates slightly unfavorable with last year reflecting the conservative sales assumption, depreciation expense relatively flat with last year, interest expense of approximately $2 million for the fall season, and income tax rate of approximately 35% reflecting an expected higher percentage of our income being earned in international countries; we benefit from lower tax rates. In closing, I would like to emphasis that even though we... our financial position is currently strong, we have to further tighten our controls over capital spending, working capital and expenses. We took some important steps during the second quarter that we believe have improved our competitive position, strengthened our financial position and enhanced our ability to generate strong earnings during the fall season. With a strong balance sheet, improved inventory position and the closing of additional underperforming stores, we believe that we are better positioned for a meaningful earnings increase in 2008. I will now turn the program over to Matt Serra. Matthew D. Serra - Chairman, President and Chief Executive Officer: Good morning. Second quarter of 2007 was far more challenging than we expected going into the quarter. As a result our financial results were disappointing and fell short of our expectations. The shortfall in our profits was primarily result of our sales shortfall versus the initial expectations and significantly higher markdowns than last year in our US stores to clear inventory. This combination of disappointing sales and a strategic decision to clear goods led to loss in our US store business. On the positive side, a significant lower promotional posture in our international business led to a division profit increase of approximately 20%. As Bob mentioned, our merchandise inventory in our US stores is approximately 4% lower than at the same time last year. Additionally, and just as important, the amount of our aged inventory in our US stores at the end of the quarter, inventory that is 12 months or older, was approximately 40% lower than that same level at the same time last year. The percentage of our aged goods was at the high end of our internal standard at this time last year. Today we are comfortably in good shape with the same standard. Going forward, we have already intensified our focus on inventory management and plan to be more conservative with our open to buy process. Overall, our combined US stores posted a high single-digit comp store sales decline during the second quarter, with footwear sales decreasing approximately 7.5% and apparel and accessory sales decreasing 9%. Due to our decision to aggressively liquidate slower selling aged goods, our domestic average selling prices decreased nearly 10%. The number of pairs of footwear that we sold in our US stores during the second quarter increased by 3% versus the same period last year. This liquidation strategy was successful and enhances our ability to receive fresh and more compelling goods in the fall season. The acquired markdowns, however, contributed to our comp store sales decline and division profit loss. There were also a number of external factors that contributed to our disappointing second quarter results, including the summer fashion trend of sandals, slides and flip flops, a continuing fashion shift to brown shoes, lack of newness in the athletic category, the back to school shift from July to August in certain important states like Florida and Texas. And while steps that we took in June and July adversely impacted our profits for the second quarter, our cash flow was strong, and I believe positions our business better for the back half of this year. From a merchandising standpoint, the story for the quarter was mostly about clearance. With that said, the marquee category led by brand Jordan, Shox Running, some Nike Max Air products, Adidas Bounce, New Balance Zip and the high-end of ASICS continues to be a very important part of our business. During the third quarter each of our US divisions are scheduled to receive, from a key supplier, anywhere from 15% to 30% additional marquee products than the same period last year. During the second quarter, our strongest sales percentage increase came in the sandal, canvas, and brown shoe categories. The classic footwear categories mix with premium styles such as Air Force Ones, Nike Prestige, and Cortez continuing to sell well. We are also seeing some encouraging results, and a revival of the women's technical running category. Apparel sales led by private label Polos, and as well as cargo, and plain shorts. We are also very encouraged with our apparel program that we've introduced from Nike under the Nike Pro in the box labels doing extremely well. In Europe, we continue to scale back our promotional cadence, the strategy that is working and contributing to much higher profits. In the near term, we are trading sales dollars for higher profit dollars by running this business significantly lower markdown rates. On the footwear side of the business, we continue to see encouraging signs in Europe as the higher priced technical running footwear is coming back into fashion. Last year at this time we were clearing a lot of slow selling technical running shoes in Europe which was pressuring our gross margin rate. Today with our inventory better positioned, we have the opportunity to increase our seed of new high priced technical running footwear during the third quarter. In fact, we expect to receive twice the amount of new technical running shoes in Europe during the third quarter than we received at the same time last year. Other footwear categories in Europe that were strong during the second quarter include running, court shoes, sandals and slides. We believe that the Fusion category has clearly peaked as certain shoes have already lost their appeal while other numerous styles are selling through at a good pace. Again, the strong profit gain at our European business resulted from an effective trade-off between lower sales being significantly offset by improving gross margins and tight inventory management. Our Canadian division's profit was in line with last year and continues to run at a double-digit division margin rate. We generated our highest sales and profit percentage increase at our Asia Pacific division. footlocker.com Eastbay sales declined by approximately 4% during the second quarter with profits up slightly from last year. For the full year we are expecting this division to post a low single-digit sales increase and a solid profit gain. In the Middle East the Alshaya Group our well established franchisee is currently operating seven Foot Locker stores. The initial results continue to be very encouraging. While franchising is still a new business for us, the initial results indicate that the average sales volume in these Middle Eastern stores has potential to exceed the productivity of our stores in the US, based on the initial success with this new venture we reached an agreement with an additional franchisee to open an approximately 20 stores in South Korea. This franchisee opened its first store in Korea earlier this month and it's doing fairly well. During our first quarter conference call, we outlined several key priorities for the balance of 2007, these priorities include improving working capital management in our US stores, increase the receipt of hot selling marquee shoes during the all important back-to-school season. Continue to enhance the profits of Foot Locker Europe, identify additional expense reduction opportunities, take a more conservative approach in regard to capital expenditures, close additional under-producing stores, launch our new Footquaters business, develop plans to more rapidly expand our European operation. Since, I've have already updated our progress in regard to the first four priorities, I will move on to our current real estate and capital plans. With regard to our store closing plans for this year, we are reasonably confident that at least 200 stores will be closed that are currently on a month-to-month basis, having natural lease expirations this year or closed due to mall closures. This is an increase of 80 stores versus our original 120 store closing plan. These stores are expected to be closed at a very minimal cost and with very positive implications to cash flow and elimination of store losses. A group of 69 additional stores has been identified for closure for natural lease termination. We are hopeful that we can reach an agreement with our landlords to close at least 50 of these locations before the end of this year. From a profit perspective, we expect the expense impact of closing a total of approximately 250 stores this year to be up to $20 million. The cost associated with closing these stores are expected to be incurred during the fall season as the deals are completed. These, of course, include both negotiated landlord settlements and write-offs of the remaining book value of 50 to 69 stores slated for the early closure. From a cash flow standpoint, we do not expect the impact to be material. The landlord settlement costs associated with the 50 to 69 stores are expected to be offset by recapturing the working capital on the total 250 closed stores. Looking towards 2008, we expect the impact of closing all 250 stores to improve the division profit by approximately $20 million or $0.13 per share. After the close of the second quarter, we converted our Footquarter stores to Foot Locker outlet stores. A few stores were also converted to Champs outlets. We were not satisfied with the initial results of the Footquarter's operation and we are not willing to invest additional capital or time in this business. At the same time, we are moving ahead with making plans to more aggressively open new stores in European market. Currently plans call for opening up to 30 stores in this market next year versus 12 in 2007. The internal rate of return and ROIC we have generating on our new stores in this market have well exceeded our internal projections and capital investment hurdle rates. We plan to end the year with approximately 513 Foot Locker stores in Europe. We believe that over the longer term our Foot Locker Europe infrastructure will be able to support the operation totaling up to 1,000 stores including Western and Eastern Europe and other potential markets such as Turkey and Russia. We'll open our first store this September in Turkey. As previously announced we also made several management changes during the second quarter. Keith Daly was promoted to President and COO of Foot Locker US reporting to Rick Mina. Keith will have responsibility for our Foot Locker, Footaction and Kids Foot Locker stores in the US. Most recently Keith headed up our Foot Locker Europe operation doing a commendable job in stabilizing the profits of that business. Replacing Keith as President and COO of Foot Locker Europe will be Dick Johnson, formerly President and CO of footlocker.com. Dick, who is a proven merchant and experienced businessman has managed the rapid growth of our direct to customer division over the past decade. He will report to Ron Halls. We also promoted Dowe Tillema to Executive Vice President of footlocker.com. Dowe will also continue in his role as CFO of that division. We are currently undergoing a search for new President and COO for footlocker.com. I feel very good about each of these promotions; they are well deserved and I believe positions us for the future. Today Foot Locker's financial position is as strong since been in many years. There is no doubt that the athletic industry in the US is very challenging during the spring of summer season due to fashion trends towards brown shoes, casual footwear and sandals. We're already beginning to see some signs that the market is improving, particularly in those states that have begun their back-to-school season. Until we see more tangible evidence that the athletic trend has improved, we will remain cautious and even more focused on generating stronger cash flow. We believe that if we maintained a strong financial position, when sales return to more normal growth levels our shareholders would be rewarded. Before we answer your questions, I will make a few comments regarding our involvement with Lehman Brothers in reviewing strategic alternatives. As you are aware we engaged Lehman Brothers several months ago when we were pursuing the purchase of Genesco. Sometime after Genesco accepted a competing purchase offer from another suitor, we engaged Lehman Brother as an advisor to work with the company to evaluate strategic alternatives including inquiries from several private equity funds. I appreciate your understanding that we are not in a position to provide any additional details on this subject at this time. In closing, I would like to emphasize that we believe that Foot Locker remains well situated as a leader in the athletic retail industry, and as a result of the actions that we've taken this year, will better position us to generate increased shareholder value in the future. Clearly, the athletic industry continues to evolve with fashion changing with every new season. Therefore to compete most effectively in this marketplace requires more proactive adaptation to change. Again, we believe that we are taking the right steps and are very enthused for our near term and longer term future. I will now be very happy to answer your questions. Thank you.

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Jeff Edelman from UBS. Please go ahead. Jeffrey Edelman - UBS: Thank you. Good morning. A couple of questions on the domestic side, Matt. One, how will merchandising decisions changed with Keith in-charge? And as part of that, many of us attended the Adidas Analyst Meeting yesterday, where they reaffirmed the fact that mall stores were clearly underperforming sporting good stores and they felt they had some pretty good ideas on how to help the mall stores reverse that trend, in fact indicated they were meeting with your people on Friday. Could you share some insight as to your ideas how to kind of change the flow of traffic in here and ultimately reverse the sales, and to the extent you're starting to bring in some other types of brown shoes. How does that fit into this? Matthew D. Serra - Chairman, President and Chief Executive Officer: Yes. First of all, Keith is a very strong merchant. I think we have... as an organization, have to come down early. We have been chasing unrealistic sales numbers and we are going to focus more on profit and receipt management. Keith is very, very disciplined and I think will add a lot to the process. We really have had a tendency, the last several years after we experienced some pretty good growth in the US to, in plain English, overbuy with certain suppliers, and that ends, it's ended now, and going forth we are going to have the checks and balances in place that that doesn't happen and that's what led to that huge earnings hit. I mean, we did have a sales decline, but if we didn't have to take that $50 million, we would have made $0.08 in the quarter versus $0.09 last year. But looking at the business, it was the right thing to do. Mall traffic is clearly down a little, and I think that we need to do a better job of diversifying our product mix to compete with some of the other mall players that sell more casual athletic footwear as well as brown shoes. As you know, we have put brown shoes into our Foot Locker division and into our Champs division. And the initial response is somewhat encouraging, and these are casual brown shoes. We are not going after the dress shoe business and quite frankly, I don't think it's going to be a huge piece of the business but it could add some significant volume in the US space. We studied long and hard made many, many trips around, particularly around New York. And you see a lot of the independence where they have as much as 40%, 50% of their offerings in casual brown footwear, we are not headed in that direction, but there is clearly a market for it. And if you have the right product, I think, it will enhance our offering, even now we want to remain in athletic footwear and apparel chain. But the causal piece of the business, all our... Timberland. Timberland boots are not athletic, but as you know in the hay day they were very important piece of our business. Jeffrey Edelman - UBS: Okay. And as far as working closer with some of the major vendors, they seem to have some pretty exquisite ideas on how some of the parts of your stores should be merchandised. Matthew D. Serra - Chairman, President and Chief Executive Officer: Yes, I think... I think there is some good feedback from our key suppliers, in that, one of the most important ingredients is that has to materialize, not only for us but for the whole industry. There is got to be more at once goods, EDI product where you put in a... obviously, for us it's significant opening order. But you just speed off the real orders. One of our most profitable suppliers and the fastest growing is ASICS, where I think... I may be mistaken, but I think every single shoe they offer is on EDI including the $135 marquee running product. And I think, we are going to begin to see some of that, more of that, from a lot of our suppliers and I think that is the key to getting the inventories down and getting the turns up. Jeffrey Edelman - UBS: Okay. Great. Thank you. Matthew D. Serra - Chairman, President and Chief Executive Officer: Thank you, Jeff.

Our next question comes from John Shanley from Susquehanna. Please go ahead. John Shanley - Susquehanna Financial Group: Thank you and good morning. Matt, following up on your comment about more-at-once business, generally, the brands get a higher product margin from the sale of that once versus the future-for-order business. Is this going to impact your product margins any degree at all, if you are going more like Reebok announced recently that they are only going to sell you on a at-once basis in terms of their product line, I don't know whether any other vendors are doing the same thing, but will that impact both your product and gross margin levels? Matthew D. Serra - Chairman, President and Chief Executive Officer: No, it won't impact our... the margin... the markups will be the same, the only difference is, I believe we will carry less inventory and turn it faster. John Shanley - Susquehanna Financial Group: Does it limit the selection of the product, since I don't think all vendors keep everything on that --? Matthew D. Serra - Chairman, President and Chief Executive Officer: No, it won't be everything, John. It will be obviously key basic commodities. New balance, as you know, does a terrific job with that product, as does K-Swiss. John Shanley - Susquehanna Financial Group: Right. Matthew D. Serra - Chairman, President and Chief Executive Officer: As far as the... to Reebok comment that I... I was just traveling last week... I am not clear that I understand what that really meant but that's neither here nor there. John Shanley - Susquehanna Financial Group: Okay. Just turning now to Europe for a second, the replacement of Keith Daly with Dick Johnson, does Dick have any either brick-and-mortar or European experience in terms of background? Matthew D. Serra - Chairman, President and Chief Executive Officer: No, no, but a very, very strong merchant, one of our top guys. Clearly, I've not moved into a division because of the complexity of building the Eastbay business and the profitability of that business. Dick is, in my judgment, a guy with a lot of growth potential and extraordinary people skills, and a very good merchant, I would be remiss in not saying he's like one of the greatest sports enthusiast I've ever met, and he is really into the product and has excellent vendor relationships. And he has real nose on profitability. And working with the Ron Halls who overseas Europe, who is an outstanding store merchant, I think the combination of the two will really create a very strong management team over there. John Shanley - Susquehanna Financial Group: Basically you are not anticipating any kind of issues that you have when you put Tom Slover from Eastbay over to Europe a number of years ago? Matthew D. Serra - Chairman, President and Chief Executive Officer: No. John Shanley - Susquehanna Financial Group: Okay. Great. The other question I had is on the retail stores. Can you give us an idea of the timing or the anticipated timing of the closing of the 135 to 150 stores that will be shuttered before the lease expiration? Will most of those be closed down this year and next year, or is this a longer term proposition? Matthew D. Serra - Chairman, President and Chief Executive Officer: No, most of them will go this year. Now, there is two pieces to that. We originally had a 120 in the original plan. Then we made a decision to close an additional 80 that in many cases are on month-to-month deals, where we are kind of in the mall because our competition is in the mall. At the end of the day, John, we are losing money,and their problem we are losing money. And we've come to a mindset where it really no longer is an efficient way to use our capital. Then we've identified... so that brings us to 200 stores, which we expect to get done this fall with no significant financial impact. The inventory goes and working capital kind of gets a little enhanced. Then we've identified 69 stores that we're losing some big bucks in and we expect to get at least 50 of those this fall. I am hopeful that we can get more. And as you know on a GAAP basis you can no longer take the one-time charge; you have to take it as you go along. But we are hopeful that we will get at least 50 done this fall, and so far most of them been pretty receptive in working with us. John Shanley - Susquehanna Financial Group: Are any of those 50, the residue of the triplex units? Matthew D. Serra - Chairman, President and Chief Executive Officer: Few of them, yes. John Shanley - Susquehanna Financial Group: So, should that help your bottom-line considerably, getting those things off the balance sheet? Matthew D. Serra - Chairman, President and Chief Executive Officer: Yes, and I think we said that the whole... the addition of the 69 added $0.13 to next year. John Shanley - Susquehanna Financial Group: Okay. Great. The last question I have is for you, Bob. What caused the better than anticipated results of loss of $0.12 versus the guidance you gave just only a couple of weeks earlier of the loss of $0.15 to $0.20, was there is nothing in terms of currency or some other thing that wasn't factored in -- Robert W. McHugh - Senior Vice President and Chief Financial Officer: No -- John Shanley - Susquehanna Financial Group: That came in better than you expected. Robert W. McHugh - Senior Vice President and Chief Financial Officer: It was lower markdown than we anticipated to clear the slow moving inventory. John Shanley - Susquehanna Financial Group: But no... it didn't have anything to do with currency benefits in Europe? Robert W. McHugh - Senior Vice President and Chief Financial Officer: No. John Shanley - Susquehanna Financial Group: Okay. All right. Thanks. Appreciate it. Matthew D. Serra - Chairman, President and Chief Executive Officer: Thank you.

Our next question comes from Roby Ohmes from Banc of America. Please go ahead. Robert Ohmes - Banc of America Securities: Thanks. Good morning. Just two quick questions, Matt, can you give us some detail on how you brought the aged inventory down 40% versus last year in terms of just generally clearing it through outlets versus clearing it through your full-line stores, versus giving stuff back to vendors. And the other question is, can you... it sounds like you're making nice change for back-to-school on your footwear strategy... more brown shoes, more marquee. Can you walk us through if there is going to be any sort of significant change to the apparel strategy that aligns with that? Thanks. Matthew D. Serra - Chairman, President and Chief Executive Officer: I think with regard to the inventory reduction, it was kind of a three prong process but we really identify the aged inventory, hit it hard. We hit it hard in the stores and we hit it very hard in the outlet locations, and just liquidated it very, very aggressively. We also... as we... we do move a significant amount of merchandise into those locations, which now totals a little over, it's probably about a 120 stores around the country in the US. We liquidated a lot of it in the stores which was a little disruptive but make the trucking industry a lot wealthier. We chose to, really, liquidate that merchandise where it was located and got rid of it that way. In terms of RTVs, we have many arrangements with our key suppliers and they were very supportive in getting us back on track. And as far as the apparel strategy goes, it's been a very tough apparel strategy in the specialty zone, certainly not in the big box zone. And I think what we're doing is we're enhancing, in the fall, some of the branded product, but more importantly, Roby, I think you will see more in the spring of '08 of the kind of merchandise I think we missed, and should have under our armor. Robert Ohmes - Banc of America Securities: Terrific. Thanks a lot, Matt. Matthew D. Serra - Chairman, President and Chief Executive Officer: Thank you.

Our next question comes from Virginia Genereux from Merrill Lynch. Please go ahead. Virginia Genereux - Merrill Lynch: Thank you. Matt, on the door closures, you are talking about sort of 250 to 270 in total? Matthew D. Serra - Chairman, President and Chief Executive Officer: Yes. Virginia Genereux - Merrill Lynch: Is there -- Matthew D. Serra - Chairman, President and Chief Executive Officer: It's in the US, Virginia, in the US. Virginia Genereux - Merrill Lynch: Okay. Right, all in the US. Is there a reason you wouldn't do even more... maybe a specific accounting treatment or you've --? Matthew D. Serra - Chairman, President and Chief Executive Officer: I think that... it's a good question... that next year we'll probably, through natural lease exploration, probably hit as many as 80 to a 120, and it's... when you look at the profit implications, it's better to do it over that timeframe and not to take that asset write-off it all at one time and the liquidation of that inventory. So, by natural lease expirations, getting out of those doors and slimming that Foot Locker division down to around 1,100 doors in the US. Virginia Genereux - Merrill Lynch: Okay. And if you did that, Matt, would that sort of going back to some of your communication from a couple of years ago where you guys, I think, said we had... you had 200 of these underperformers, some of which were quite 10,000, 11,000 square feet. Matthew D. Serra - Chairman, President and Chief Executive Officer: Right. Virginia Genereux - Merrill Lynch: Does that basically get you out of all those stores? Matthew D. Serra - Chairman, President and Chief Executive Officer: Get you out of most of them, quite frankly, now that a lot of them are fully depreciated to making money. So, it gets set of a lion share of them now. Virginia Genereux - Merrill Lynch: Okay. Sort of a related question, on the apparel side; some industry folks say they're just... we've got stores that are too big, that the specialty format still has too much square footage devoted to apparel that maybe the branded athletic apparel business just isn't going to come back. What's your view on that? Matthew D. Serra - Chairman, President and Chief Executive Officer: Well, that comment has been said... I'm here almost nine years next month... and that comment has been said twice. And it's come back twice, since I've been here. I think one of our key strategies going forward is differentiation. I think we need to do a better job of differentiating Foot Locker from Champs, in particular, and Footaction to a degree. And we have plans to begin initiating that this fall. Obviously, as you know, Champs has a much stronger, greater apparel business than Foot Locker. And I think we've got to step back a little in Foot Locker and have a two-pronged strategy. We have some very large stores in Foot Locker that sell a lot of apparel, and then we have some stores that we... I think we... and it's a good point, Virginia. I think sometimes we just put it in, to put it in, to say we have it there. And we've got to do a much more thoughtful job of allocating that product to some of the stores that are really shoe doors. And also in Footaction, we need to reexamine our thrust in urban apparel in those doors. And we have not aggressively gone after it. In many cases some of those urban brands are... I want to use a low gross margin but not the greatest gross margin, and I think that we can develop some partnerships to integrate a nice presence of urban apparel in that Footaction location. Virginia Genereux - Merrill Lynch: Okay. Thank you. And then maybe on the inventory front. I know first Bob, when you say that you took markdowns of $50 million at cost? Robert W. McHugh - Senior Vice President and Chief Financial Officer: Right, additional $50 million. Virginia Genereux - Merrill Lynch: Okay. That basically means you are selling inventory for $50 million below cost. Is that below your costs? Is that what that means, Matt? Matthew D. Serra - Chairman, President and Chief Executive Officer: No, at cost. Virginia Genereux - Merrill Lynch: Okay. Okay at cost. So then, sort of two questions. You said the aged inventory was down, at the 12-month plus, was down 40%, but can you tell us either what the aging standards are or how much more you think you need to go... you should go to be in the sort of --? Matthew D. Serra - Chairman, President and Chief Executive Officer: We have never given out our aging standards. I will tell you that they are very requiring and probably the most stringent in the industry. Having worked, obviously, the lion share in my career in the department store world, they're very aggressive on aging of inventory and our standards are far below those and we see and hear in our marketplace. We are very aggressive at the high end of that 12 month range. And I think that we need to be a little more aggressive in clearing that goods and spending more of our markdown dollars to clear the older inventories that are promoting newer inventory. Virginia Genereux - Merrill Lynch: Okay. And then maybe in absolute terms... this is the last one, I am sorry. Matthew D. Serra - Chairman, President and Chief Executive Officer: No. Virginia Genereux - Merrill Lynch: If your inventory levels are kind of $1 billion... $1.450 billion, that still looks to me, Matt, like a couple of 100 million. I mean maybe $250 million plus, higher than where you were on a similar sales base a couple of years ago? Matthew D. Serra - Chairman, President and Chief Executive Officer: Yes, but that... don't forget you had Footaction. We picked up 500 doors with Footaction three years ago. And that's when we really got the lion share of that jolt. And you made a very, very clear analysis, probably nine months ago, that our increase in inventories for outpaced our inventory in sales; and you're correct. And we've stepped back and I don't think it's $250 million higher, but I think there is more to come and it's really gated in the US. Our inventory at the end of this past quarter was in the $40 million to $50 million level below last year in the US. The international operations have been doing well and we fed some of the inventory into that area. But, I don't believe there is $250 million. Virginia Genereux - Merrill Lynch: Okay. And then if -- Matthew D. Serra - Chairman, President and Chief Executive Officer: I think they're somewhere in between. Virginia Genereux - Merrill Lynch: Okay. And, Bob McHugh, what's wrong... if I am trying to forecast cash flow and I see inventory net of payables coming down, when is tax-effected EBITDA a good proxy for cash flow, is it next year? Robert W. McHugh - Senior Vice President and Chief Financial Officer: I think that this year we expect working capital to be flat with last year. So -- Virginia Genereux - Merrill Lynch: And could next year... should next year it be a sourced. I mean you're still taking, you are still taking down inventories this year though, Bob, you know what I mean, so? Robert W. McHugh - Senior Vice President and Chief Financial Officer: Yes. But I would think that you... yes, may be next year you will see it go further down, yes. Virginia Genereux - Merrill Lynch: Okay. Thank you, guys, very much, and good job. Matthew D. Serra - Chairman, President and Chief Executive Officer: Welcome. Thank you.

[Operator Instructions]. Our next question comes from Kate Mcshane from Citigroup. Please go ahead. Kate Mcshane - Citigroup: Hi, good morning. Can you talk a little bit more about your Footquarter's decision and why you decided to give up on that concept after only a few months? And how was the Footquarter inventory being liquidated? And then just a kind of related question to that is, what are Foot Locker's thoughts now? What are the Company's thought at possibly diversifying more into the brown shoe category going forward, whether it be through new store concepts or just more brown shoe within your existing stores? Matthew D. Serra - Chairman, President and Chief Executive Officer: Well, obviously with the tough athletic business this year in a real... I mean we have to call like it is. We were not doing well, and certainly not meeting our expectations in Footquarters. This is an old fashion saying, the first markdown is the best markdown. So, instead of prolonging something that we knew that we could have additional difficulties in, we transformed the Footquarter's stores into Foot Locker's outlets and some Champs outlets. And that inventory that's in there, there is not a lot of inventory in there that will be gone in a month or so, just through normal promotional activity that you do have in a pay/clearance outlet operation. As far as the brown shoe business goes, it's clearly a something we are very interested in getting into, and we are still on a lookout for something out there. But, I think, right now we've got to focus on our core business and get our house in the water, and get a descent fall season, and get set up properly for 2008 and bring things back to normality. Kate Mcshane - Citigroup: Okay. Thank you. Matthew D. Serra - Chairman, President and Chief Executive Officer: Thank you. Peter D. Brown - Senior Vice President, Chief Information Officer and Investor Relations: I think we have time for one more question.

Yes sir. Our last question comes from Brad Cragin from Goldman Sachs. Please go ahead. Brad Cragin - Goldman Sachs: Yes. Good morning. I was wondering if you could talk about your SG&A cost a bit. Do you still think there is room for payroll perhaps to come down further or where might there be some other opportunities to reduce those costs? Robert W. McHugh - Senior Vice President and Chief Financial Officer: Yes. Brad, this is Bob. I think we always focus on SG&A. We spend a lot of time trying to flex those expenses with the business and we are going to continue to do that. I mean we not only look at store wages, we look at general SG&A for the Company. And we have quite a big group of people focused on particular expense areas and try to manage them down in the current business environment. So, we are going to continue to push for that. Brad Cragin - Goldman Sachs: Okay. And as you think about the variance between your latest guidance and your end result, I mean, can you talk a little about the calendar shift and what type of an impact that had. I think, earlier you had said that it would result in about a $40 million shift from Q3 to Q2. Is that still consistent with your experience? Matthew D. Serra - Chairman, President and Chief Executive Officer: Yes. But we are looking at back-to-school now which, in Florida and Texaswe operate approximately 500 stores in those two states alone. And there is a shift in back-to-school in those states, there is also a tax holiday shift. And as we're getting closer to back-to-school openings, we're experiencing some good lifts. And we're expecting a fairly strong August. August... one month does not make a season and does not make a quarter, but the initial results are very encouraging in the US. So, as these stores kick in, it will be interesting to see how we come out. And with the cleansing of the inventory and selling a lot of new fresh merchandise at full price, it certainly is a gross margin enhancer. Brad Cragin - Goldman Sachs: Okay. Thank you very much. Matthew D. Serra - Chairman, President and Chief Executive Officer: Thank you. Peter D. Brown - Senior Vice President, Chief Information Officer and Investor Relations: Okay. Well, we thank everybody for participating today and we look forward to the third quarter. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may all disconnect.