Peter Brown - SVP, CIO and IR Bob McHugh - SVP and CFO Matt Serra - Chairman and CEO

Jeff Edelman - UBS John Shanley - SusquehannaFinancial Group Bob Drbul - Lehman Brothers Robert Ohmes - Banc of AmericaSecurities Robert Samuels - J.P. Morgan John Zolidis - BuckinghamResearch

Good morning, ladies andgentlemen and welcome to the Third Quarter 2007 Earnings Release ConferenceCall. At this time, all participants are in a listen-only mode. Later we willconduct a question-and-answer session. This conference call may containforward-looking statements that reflect management's current views of futureevents and financial performance. These forward-looking statements are based onmany assumptions and factors, including the effects of currency fluctuations,customer preferences, economic and market conditions worldwide, and other risksand uncertainties described in the Company's press releases and SEC filings. Werefer you to Foot Locker Inc.'s most recently filed Form 10-K or Form 10-Q fora complete description of these factors. Any changes in such assumptions orfactors could produce significantly different results, and actual results maydiffer materially from those contained in the forward-looking statements. If you have not receivedyesterday's release, it is available on the Internet at www.prnewswire.com orwww.footlocker-inc.com. Please note that this conference is being recorded. I will now turn the call over toMr. Peter Brown, Senior Vice President, Chief Information Officer, and InvestorRelations. Mr. Brown, you may begin.

Good morning and welcome to ourthird quarter conference call. After the market closed yesterday, we reported anet loss of $33 million, or $0.22 per share for the third quarter. This netloss included a non-cash impairment charge and expenses associated with closingunproductive stores, totaling $66 million after tax, or $0.43 per share. Ourthird quarter net income, before these two charges was $33 million, or $0.21per share. Bob McHugh, our Senior VicePresident and Chief Financial Officer, will begin the call with a discussion ofour third quarter financial results. Matt Serra, our Chairman and CEO willfollow with an operational review and provide an update on our strategicpriorities. We will leave the reminder of the call to answer your questions. Our third quarter resultsreflected a challenging retail footwear environment, in addition to thesignificant impairment charge and store closing expenses. As we go through ourpresentation, we will refer to our financial results as amounts from continuingoperations before the 144 charge and store closing expenses. We believe thiswill assist you in better understanding our operating results and help in anyforecasting exercise. Our third quarter resultsreflected the following. Comparable-store sales decreased 5%, our gross marginrates decreased by a 140 basis points due to deleveraging of occupancy costs.Our retail margins were 10 basis points favorable to last year. Our SG&Aexpenses, excluding the impact of favorable foreign exchange rates, were $4million below last year. Interest expense was zero, and our cash position, netof debt increased by $70 million from the same time last year. I will now turn the call over toBob McHugh.

Good morning. From our high levelanalysis, our third quarter results reflected a shortfall on expected sales, anon-cash impairment charge and costs associated with closing unproductivestores. Our 5% comp store sales decline fell short of our initial expectations,which was to be flat with last year. As Peter mentioned, my prepared remarkswill review our earnings from continuing operations, before the impairment andstore closing charges. Afterwards, I will provide somedetails on the impairment charge and store closing costs, as well as theexpected financial impact of each on our future results. As already mentioned,our financial results fell short of our expectations at the start of thequarter, primarily due to a weak sales performance. We believe our third quartersales were impacted by three key factors. First, a challenging externalenvironment, including weakening consumer confidence, second, the warmerweather that continued through the fall season, appears to be impacting thetiming of consumer shopping habits, and third; a lack of clear fashion trend inathletic footwear and apparel or excitement created by new must have assortments. During our second quarterconference call, we highlighted that we will be more cautious in managing ourbusiness for the balance of 2007. We stated that we expected our comp storesales for the fall season to be flat with last year. We also commented that weexpect our gross margin and SG&A rates to be slightly unfavorable with lastyear, reflecting a conservative sales assumption. As it turned out, our thirdquarter sales fell short of these assumptions, which also put pressure on ourgross margin and SG&A rates. Third quarter comparable storesales of our major divisions were as follows. Each of our U.S. storebusinesses decreased mid-single digits. FootLocker.com sales increasedlow-single digits. Our international comp store sales declined mid-singledigits, with the weakest results being in Europe.Our Canadian sales were flat, while Foot Locker, Australia increased lowdouble-digits. By month, comp store salesdecreased low-to-mid single digits in August, and decreased mid-single digits inSeptember and October. Our third quarter gross marginrate decreased by a 140 basis points from last year, reflecting a 10 basispoint improvement in our merchandise margin rate, and a 150 basis pointdeleveraging of our buying and occupancy rate caused by lower sales. Our merchandise margin rateincluded a 30 basis point decrease at our domestic stores, and a 40 basis pointimprovement at our international operations. The merchandise margin decline inour U.S.stores reflected selling a lower percentage of higher margin apparel versus thesame time last year. This was partially offset by a lower overall markdownrate. In total, our markdowns were 12% lower than last year, and as apercentage of sales 90 basis points favorable. While our third quarter buyingand occupancy costs increased to 140 basis points, the tenancy component, on aconstant currency basis, increased approximately 1% versus the third quarter oflast year. Third quarter SG&A expensesincreased $5 million versus last year. On a constant currency basis, our thirdquarter SG&A expenses decreased by $4 million or 1.4% versus last year. Our net interest expense duringthe third quarter was zero, which was a $1 million favorable to last year. Before I turn to our balancesheet, I will provide some additional insights in regard to the impairmentcharge and store closing costs. Both of the potential, [for an] impairmentcharge and expected store closing costs were discussed during our lastconference call in August and were highlighted in our first and second quarter10-Qs. The non-cash impairment chargeand store closing cost recorded during the third quarter totaled $66 million,after tax or $0.43 per share. This impairment charge was recorded to write downthe value of certain underperforming assets at our U.S. stores, operations inaccordance with FAS 144, which defines the accounting for the impairment oflong-term assets. Our accounting policy, as itrelates to FAS 144, is outlined in our Annual Report Form 10-K. As a result ofour lower than expected earnings this year at our 3,100 store U.S. operation,we concluded the need to conduct an impairment review during the third quarter. Last year, during our secondfiscal quarter, we performed a similar review of our 500 store European operation,and recorded a charge equivalent to $0.08 per share. Including the impairmentand store closing charges this year, were cost of $6 million, after tax or$0.04 per share related to 66 underperforming stores. 13 of which were closedduring the third quarter, and 53 that we are working with our landlords toclose during the fourth quarter. We currently expect to incur additional $10million to $15 million in costs during the fourth quarter, as these remainingnegotiations are completed. Matt will provide an update onthe status of this program during his prepared remarks. At the end of the thirdquarter, our cash position, net of debt, was $98 million. Our total cash andshort-term investments totaled $332 million, while our long-term debts stood at$234 million. This cash position, net of debt, was $70 million favorable tothis time last year. We did not purchase any of ourcommon stock during the third quarter, therefore year-to-date, our sharerepurchases remain at 2.3 million shares for $50 million. In total, our endinginventory was $4 million greater than at the end of the third quarter lastyear. On a constant currency basis, our inventory was approximately 3% lowerthan last year. Before I move from our balancesheet, I would like to point out that our shareholders' equity currently standsat about $2.2 billion and $91 million greater than at this time last year. Thisrepresents a book value of $14.40 per share, an amount above our current shareprice. I would also like to point out that our cash position is currently theequivalent of $2 per share, and expected to be approximately $3 per share atyear end. Given the current tone of theretail environment, we remain very cautious in planning for the fourth quarter.As a reminder, last year's fourth quarter included an extra week that added$0.11 per share to our 2006 results. The details of that extra week wereincluded in last year's fourth quarter press release. Our fourth quarter forecastversus the 13 week period last year, includes the following assumptions. Compstore sales down mid-single digits. Gross margin rate unfavorable with lastyear reflecting the deleveraging of occupancy costs associated with theconservative sales assumption. The embedded retail margin rate is expected tobe relatively flat with last year. SG&A expenses on a constantcurrency basis relatively flat with last year. Pre-tax store closing costs of$10 million to $15 million, depreciation expense of $8 million below last year,interest expense of approximately $1 million, and income tax rate ofapproximately 33%, which is lower than the last year, reflecting expectedhigher percentage of our income being earned in international countries wherewe benefit from lower tax rates. These forecasting assumptions forthe fourth quarter reflect a conservative outlook we're taking given thecurrent external environment. We're more optimistic foryear-over-year profits gains in 2008 for the following reasons. The costsassociated with the FAS 144 charge in store closing expenses are expected total$0.48 per share this year. The operating losses related to the 300 stores thatwe are closing this year totaled approximately $0.10 per share. We expect torealize approximately $0.03 per share of that benefit in 2007 and an incrementalbenefit of $0.07 per share next year. The FAS 144 write-down willreduce next year's depreciation expense by approximately $0.07 per share. Werecorded $0.31 per share of higher than normal markdowns during the springseason to clear slow selling goods. Therefore, there is an opportunity for our2008 EPS to compare favorably to 2007 by $0.93 per share for these items. In closing, I would like toemphasize that our financial position remains strong, and we'll remain veryfocused on controlling tightly our capital spending, working capital andoperating expenses for the balance of 2007 and throughout next year. I will now turn the program overto Matt Serra.

Good morning. Thank you, Bob.Third quarter of 2007 was more challenging than we expected going into thequarter. As Bob already covered, the shortfall for expectations primarilyreflected a 5% shortfall from our sales forecast. Our third quarter resultsalso reflected a FAS 144 charge and the cost associated with strategic decisionto accelerate the closing of unproductive stores. The other financial factorsimpacting our third quarter results, our merchandised margin rate, markdowns,operating costs, depreciation and interest expense were all within a reasonablerange of our initial expectations. While there is no doubt that ourresults were disappointing, we did take steps to better position our companyfor the future and ended the quarter with our inventory levels on plan andbelow last year on a constant currency basis. We also made additional progressworking with our vendors and adjusting our orders for the fourth quarter, whichwere in line with our sales expectations. We currently expect to end the yearwith inventory on plan and properly positioned for the next year. Thus, even as2007 has proven to be one of the more difficult retail environments, we'veexperienced in some time, we believe that we have positioned ourselves well toemerge in a stronger competitive position. Looking towards 2008, we haveintensified our internal disciplines in regard to inventory management. We havebegun placing new orders for fresh spring assortments being more conservativethan in the recent past. Looking at the third quarter ofthis year, our combined U.S.stores posted 5.2% comp store decline with footwear sales decreasing 2.8% andapparel and accessories sales decreasing almost 12%. On the U.S. footwear side, our men'sbusiness decreased low single-digits, kid's increased low single-digits andwomen's decreased mid-to-high single-digits. In addition to a solid kid'sfootwear business, our men's basketball sales was slightly positive, led bystrong sales of brand Jordan and Jordan Retro assortments. Men's Running was our strongestfootwear category with comp store sales of nearly double-digits. Shox Runningand from Nike Air Max products, Asics and Adidas Bounce were our strongestperformers. We also generated strong sales gains in the skate category, led byboth Adidas and Nike. Specific styles include the Master St by Adidas and the Sellwood byNike. In total, the classic category continued to trend down with the exceptionof premier assortments like Nike as well as Converse Canvas. The moderate price classiccategory is at the heart of our overall shoe decline in the U.S. business. Also, the weakness in our thirdquarter results was in the casual category. This is dominated by the lowprofile styles. Boot sales were also extremely weak. The low profile trendappears to be on the downside in most markets that we operate, whereas the bootbusiness was most impacted by the warmer weather. Our average footwear sellingprices in U.S.increased mid single-digits, reflecting both a lower a markdown rate than lastyear and a mix of shift towards selling a greater percentage of higher pricefootwear. U.S. apparel sales continue to beweak, inline with the trend that we've experienced for several quarters. Salesof both licensed and branded apparel continue to be very soft. We continue tohave better success with our private label apparel, particularly, a short andpolo programs. But it has not been enough to offset the declines in the othertwo major categories. The exception is our continuingsuccess with selling Nike Pro apparel. In Europe,we are sticking with the strategy of operating our business with theconservative promotional cadence. We believe that this is the right long-termstrategy to maximize our profits in this region. In the near-term, however, ourcomp store sales continue to be pressured. On the footwear side of thebusiness, the story is somewhat similar to that of the U.S. business,with encouraging signs that the higher priced technical running footwear iscoming back into fashion. In fact, we generated very strong gains in therunning category in various assortments from Nike, and have had strong customerreaction to the Mega Bounce shoes from Adidas. Our canvas business withConverse was also extremely strong. Another strength of the quarterwas the Cross-Trainers Shoe program. The precipitated slowdown in the fusioncategory was the primary factor that led to our footwear decline in Europe. Looking towards the fourth quarter, the number ofpairs of fusion footwear that we expect to receive will be down 40%, offset byan 80% increase in running shoes. In our Canadian division, profitwas very much inline with last year, and continue to run at a very soliddouble-digit division margin rate. Combination of strong sales per square foot,consistent markdown rates, effective inventory control, and good expensemanagement provided a well balanced [fall in] for the success in this division.We generated our highest sales and profit percentage increases at ourAsia-Pacific division. FootLocker.com Eastbay sales andprofits were essentially flat during the third quarter. For the full year, wecurrently expect this division to post a solid profit gain, with divisionmargin rate of approximately 14%. In the Middle East, a franchisee opened itssecond franchise store in Kuwaitmarket. In total, they currently operate nine stores in this market and plan'sto open additional 10 stores next year and eventually reaching 75 in severalyears. Through the first three quartersof this year, we opened 112 new stores, remodeled or relocated 179 stores, andclosed 158 stores. During the fourth quarter, we currently expect to close upto an additional 142 stores for total of approximately 300 closed stores forthe year. 234 of the 300 expected closingsof stores that we are currently on a month-to-month basis or have naturallylease expiration this year. We expect to exit these stores at a very minimalcost. The additional 66 stores targetedto close this year will come at a cost, as we look to exit these stores beforetheir natural lease expirations. These are cash flow losing stores. As aresult, their closing is expected to enhance our operating results goingforward. 13 of these stores will close during the third quarter, with anadditional 53 targeted for the fourth quarter. In total, we expect the expenseimpact of closing a total of approximately 300 stores this year to be $20million to $25 million. From a cash flow standpoint, the impact is minimal inthat the cash cost of closing these 66 stores are expected to be offset byrecapturing the working capital on the 300 closed stores. The closing of all 300 stores isexpected to enhance our division profit by approximately $25 million or $0.10per share; $0.03 per share is expected to be realized in 2007, with anincremental benefit of $0.07 per share in 2008. From a strategic standpoint, weare currently focused on three key opportunities. Programs designed to improvecomp store sales and sales per square foot; Initiatives to generate cash flowand enhance our financial structure, and strategies to provide additionalgrowth for our company. Continuing strong focus onexclusive high price marquee footwear is our primarily merchandising focus.This is the footwear that our core customer has historically looked to us, andis first to buy in our stores. We are working more closely withall of our suppliers to ensure that our customers have a wider selection of newexciting marquee products. At the same time, we need to rebuild our brandedapparel business with our biggest suppliers, mainly Nike and Adidas, while alsoadding Under Armour to our stores this spring. Another initiative that we thinkwill be a big win for us is to do a better job in differentiating our brandsfrom each other. This differentiation strategy will include, changing the lookof selective fixtures in our stores, modifying how we display our product, andmerchandising our different store brands with more unique and exclusiveproduct, by store brand. We have completed one of theinitial stages of this strategy by updating the look of our Champs stores. Thiswas completed at Champs last week. You will be hearing a lot about this from usover the next 12 months, as these initiatives begin to roll out. And given the challengingexternal environment, we have intensified our focus on cash flow, to ensurethat we maintain a strong financial position. We've taken a more conservativeposture in regard to merchandise purchasing for the next year. We are working with our keysuppliers to increase the amount of goods on quick response and reducing thelead time between inventory receipt and sale. In the near term, we plan to openfewer stores in the U.S.and spend more capital on our existing stores, providing a cleaner look withnew flooring, fixtures and lighting. At the same time, we willcontinue to pursue new growth initiatives. One of these sales growthopportunities is the new House of Hoops by Foot Locker that we have developedin partnership with Nike. The first store was opened earlier this week on 121st streetin Harlem. House of Hoops by Foot Locker is aninnovative retail concept whereby Nike, Jordan andConverse basketball assortments will be offered in high-traffic, destinationlocations. The House of Hoops stores willfeature basketball products available nowhere else in the U.S., includingcoveted player exclusive footwear. As mentioned on our earlier conference call,we are also making plans to begin to more aggressively open new stores in Europe. The churns that we've been generating from thestores that we have opened over the past several years are well in excess ofour capital investment hurdle rates and our cost of capital. We have good visibility where wethink we can grow our European chain from slightly over the current 500 storesup to 750 stores in our existing markets. By expanding into new markets such asEastern Europe, Turkeyand Russia,it is possible to reach up to 1,000 stores without a major investment in ourexisting infrastructure. Another growth opportunity isexpanding chance in the U.S.by another 150 stores to a maximum of approximately 700 stores. Footlocker.comcontinues to post high returns and have the excess capacity to support newgrowth, through both product initiatives and comp store gains. Franchisingremains another opportunity, especially in the Middle Eastwhere business is very encouraging. In closing, I'd like to state theobvious, that the first nine months of this year have been very challenging forour company. We recognized that we are not alone and that the results of mostathletic and non-athletic footwear companies have been under pressure for thepast several quarters. Nonetheless, we remain committedto managing our business profitably by focusing on our core business, so thatwe'd be able to be in a strong position when the current business cycle turnsmore positive. Fortunately, our balance sheet is strong and we continue togenerate positive cash flow from operations and fund our cash needs throughinternal generated funds. As Bob mentioned, our book valueis $14.40 per share and we expect it to have in excess of $3 per share in cashat yearend. We are encouraged that there are signs that the fashion trend isshifting back in our favor, with higher price marquee running in basketballshoes. All indications are that the low profile trend has subsided and arestill an important part of our business. We have a significant increase inmarquee products plan for the fourth quarter, even though our receipts areplaying down. We believe that we are taking the right steps to improve ourresults and believe in our future. I'll now be happy to answer yourquestions. Thank you.

Thank you. We will now begin the question-and-answersession. (Operator Instructions). Our first question comes from Jeff Edelman from UBS. Pleasego ahead. Jeff Edelman - UBS: Thank you. Good morning. Matt, I was wondering you couldlook forward a little bit from the comments that you made. What is your visionas to what the company will look like, let's say, three years from now, beyondthis valley in terms of what do you think that each divisions will stand forproduct mix, mix U.S. international, things like that?

Our goal is to obviously enhance our international presence,where we clearly have had a fairly long history of stronger earnings. So, wewould hope that we would get the two, like a 32% to 33% penetration ininternational operations. We also believe that each one of our divisions is a viabledivision. We would have taken action to close it, one of them. We will look tomake strategic acquisitions as they surface and expand the company domesticallywith such acquisitions. We also need to differentiate our brands more carefully.Kind of what's happened over the last six-seven years, we have overdone the bigbuzz word in the retail business, best practices, in that we found ourselves atthe beginning of this year having many of our formats, kind of looked the same,even though a lot of the merchandise was different in the stores. Thepresentation of the merchandise, the fixturing in the stores was very similarand over the next 12 to 18 months we are going to focus on differentiating thelook and the content in each of those operations. Clearly, in looking at an operation like Champs, we believethat that store, obviously, is more based and more sporting goods, and I am notsuggesting we're going into a large hard goods assortment, but more fan basesporting goods oriented. So, if you've been in any lately, you will see atremendous change in the way we display the merchandise in there, the way wefeature it and the way we're marketing it. Foot Locker is, while we sell a lot of apparel, is really abig time footwear store. And you know the difference between Foot Locker andChamps. Where it's well over 40% apparel, it's a lot less in Foot Locker. So,Foot Locker will become the key shoe destination with many interesting andexciting exclusives to focus on the shoe product categories, in particularbasketball and high-end running. Footaction, we believe needs to, even though it’s veryurban, needs to reach out and get a much stronger presence in urban apparel andeven more, if you could believe it, even more urban-oriented footwear. So,we've been down this path before. Unfortunately, this is a long time ago and werecovered from it. We are in a much stronger position today than we were whenthis occurred in '97 and '98. Our balance sheet is pristine; 90% of stores arerenovated, even though we need some fixturing work, and we still view it as agrowth company. Jeff Edelman - UBS: Thank you. And Bob, if I could just turn this over to you,when we get to that point a few years out, what kind of normalized cash flowgeneration could you envision?

I think we should be able to generate 200 and 250 cash ayear. Jeff Edelman - UBS: That’s net cash?

Yes. Jeff Edelman - UBS: Okay. Thank you very much. Happy holidays.

You too, Jeff.

Our next question comes from John Shanley from SusquehannaFinancial Group. Please go ahead. John Shanley -Susquehanna Financial Group: Thank you, and good morning. Matt, I wondered, if you couldgive us a sense as to whether you feel we are at the bottom of the trough, interms of the what has seemed to be declining urban consumer interest inathletic footwear, and clearly athletic apparel business and then what justlaid out for us, in terms of how apparel sales went in the third quarter. Doyou see any signs of any fashion shift or anything else that’s going to helpstimulate that particular consumer segment to come back into the stores in amore active fashion than they have been in the last couple of quarters?

Yeah, great question, John. I don’t know where is the bottomyet, but we are seeing signs of high-end marquee interest. Obviously I havesome -- the Hoop store was a tremendous success, lot of interest there. Whenbusiness get’s tough and all the buying is done, yeah we get out into thefield, and looking at very urban locations i.e. Fordham Road, 121st Street, Fulton Street in Brooklyn. There is no question that we’re seeing on thefeet of a lot of kids, a lot of high-end footwear, much more so than six monthsago and a year ago. That’s a very, very, very good important sign. Clearly, the field is very, very crowded and it’s my opinionthat, it’s only an opinion, but there will be a shakeout, there are a lot ofpeople that have gone into the zone. But, we’re beginning to bottom out, and Ican’t sit here and specifically point to any data that I have that we’re at thebottom, but I think it’s coming back. Let’s just look at it for a second. Thelow-profile classification has hit the wall big time. Classic footwear is,since I am in the business, which is little over nine years, going on ten, isat an all-time low; I am talking moderate price, John, moderate price, you knowout the door $50, $45, $55. And we're seeing a lot of exciting footwear on aconsumer, but I think it’s going to be challenging for a period of time. I amlooking at a horizon, you know, to come back in full force, six to eighteenmonths. John Shanley -Susquehanna Financial Group: Six to eighteen months?

Yes. John Shanley -Susquehanna Financial Group: That's a long time.

Certainly is. John Shanley -Susquehanna Financial Group: Okay. Thanks for that insight. I appreciate it. And justturning to Europe for a second, Matt, can you give us some insights into whatdo you think is causing the fairly persistent negative comps in Europe? And it doesn’t seem to be affecting youroperating profits, but why are the comps have been negative? I think we aregoing into over three years now with consistent negative comps. And what wouldhappen to that operation in Europe if you gotpositive comps?

Some of the comps by country are obviously worse than inother countries. We found ourselves in a position of dealing with newcompetition three years ago, when the low profile fusion category really gotinto the marketplace. And the competition now in the European market is a lotgreater than it was three, four, five years ago. In that, a lot of theindependence and a lot of the stores that would never receive marqueemerchandize have been receiving the low profile products. So, low profile, asyou know, became a large part of our business over in Europe. So, we had a plethora of new competition over there. What weare doing is, we are sticking to our guns, and we are not getting into thepromotional fray. You and I talked a while ago. We talked about the U.K.coming on strong again with the promotions. And actually, we're doing okay inthe U.K.So, we want to be fashion forward. And the promoting is still going on overthere in Europe. So, to define a clear answer is pretty difficult. As far as,why we are making more money? We are selling fewer units at higher margin, andcontrolling expenses very, very aggressively over there. So, we view Europe as a growth potential. Last 24 months, the metricson the new stores have been extremely impressive. And it gives us, in ourminds, tremendous base in thinking to continue to expand. John Shanley -Susquehanna Financial Group: Do you think you could comp positively in fiscal '08 in Europe sometime?

I think it's a real possibility, yes. John Shanley -Susquehanna Financial Group: Great. Bob, I had a question for you. The SG&A expenseswere down, according to our calculation to 1.4%, including foreign exchange,but sales declined 5% in the third quarter. Can you give us a sense as to whenyou believe selling expenses will be more likely to be leveraged down, and tobe more in balance with the company's sales performance?

I think we've done a pretty good job with expenses. I'm notsure that you can --

We are pretty well fixed in there. The one thing we don'twant to do, John, is to get sloppy on customer service, because once you gowith that route, there is some short-term pain and hopefully long term gain. Weare intensifying our efforts on our training programs, and trying to reallymake our shopping experience better or as good as anybody in the marketplace.So, you get to a certain number and if you go below, you really then startgiving bad customer service. John Shanley -Susquehanna Financial Group: Okay.

And when you got 40 some odd thousand employees, and we havecut back, John. I mean, you have to make some hard decisions, but we're nottaking it off to selling for. John Shanley -Susquehanna Financial Group: Are there other places where you could carve out someexpenses?

We continue to carve out expenses. One of the biggestchallenges we have is the real estate quotient. The rents are going down andwhenever we seem to have a great expense or saving idea, we get to offset bythe continuing increase in the real estate expense without being alwayssimplistic and you've been around long time, John, if there is nothing on thetopline, there is nothing on the bottomline. We've got to get the sales goingin this company. John Shanley -Susquehanna Financial Group: Right. Okay. I agree with that. Last question I had is, ofthe 142 stores that are closed in the fourth quarter and the overall 300 storesthat the company has announced are they going to close in fiscal '07. Are themajority of those stores met loss stores and can you give us a sense in termsso we can adjust our numbers going forward. What are the combined or collectivesales volumes of those stores were and perhaps, what was their negative impacton the company's operating performance were or would have been if you had keptthem open?

Yeah. First of all, they are all loss stores. And I don'tthink that we put a number on that.

We didn't put the sales…

We didn't put the sales

That were basically operating profits.

Yeah. It’s a couple 100 million bucks. John Shanley -Susquehanna Financial Group: Okay. And can you give us a sense of what they were losing?

Yeah, that was $0.10 a share, 25 million shares.

Which is $0.03, we were expect to realize this year and$0.07 next year. John Shanley -Susquehanna Financial Group: Okay. All right. Very well.

Next year, we have approximately 120 to 140 stores that wewill be closing. Some of those are cash flow negative stores, but as we dealwith those, it's obviously, we would have closed them this year, but it'sobviously more efficient to write out the lease through parts of next year. Butit’s, hopefully, towards the midpoint of '08, we will have dealt with the totalproblem in aggregate. John Shanley -Susquehanna Financial Group: Will you get rid of the majority or all of the Triplex by'08?

No, not really. The plan is to be done about 32, 33 andbelieve it or not, now that they are fully depreciated, most of them are makingmoney. So, but we still have a plan to take approximately 10% to 15% of themand scale them down. In other words, we just took a Triplex in one of ourbuckets, which had all three facet in it and we put a Foot Locker and a Kids init. And it's doing extremely well, because the ladies business was always thetopest in the Triplex. But basically now, correct if I am wrong guys, theTriplexes are pretty profitable. John Shanley -Susquehanna Financial Group: It's really great to hear. Thanks a lot, Matt. I reallyappreciate it.

Thank you. Happy holiday, John.

Our next question comes from Bob Drbul from Lehman Brothers.Please go ahead. Bob Drbul - LehmanBrothers: Hi, good morning. Here’s the first question that I have.When you talk about the book value of the equity of the company in the stockprice, can you just, maybe, update us on our philosophy around the sharerepurchase program and the use of cash that you guys have on the balance sheetand your priorities for that cash, a little bit more detail?

I think, first of all -- this is Bob, given the currentsales environment and external environment there we kind of been veryconsiderable with our cash and have been as you know from this last quarter.So, I think, we do look at the value, we constantly look at the value of thestock, both from the external market, as well as, internally and what otherthings we want to do with the business. We also have to balance that with,we’ve had blackout periods at various times during the past year because of theLehman strategic review, but again, we constantly look at this, but I thinkgiven the current sales environment we're going to be very cautious[externally] how we spend the cash. Bob Drbul - LehmanBrothers: Okay. And then the other question that I have is essentiallyfor Matt. When you look at the percentage, the current allocation of highpriced exclusive marquee merchandise, where was that in the third quarter, andwhat do you expect it to trend to over the next several quarters?

Well, we certainly are getting more of it and buying more ofit and we -- our company, since its inception, has always done well when thehigh end has been strong. So we've increased it to a very significant number,not at liberty to divulge that number, but we have a lot of -- customers arethere, we have got the merchandise. Bob Drbul - LehmanBrothers: Okay. And then, just the final question that I have is, whenyou do look at the pipeline of product that you have seen over the next severalmonths, are there any, either new running shoes or any new basketball shoesthat you really do think will and maybe start to leave you out of this?

I think we continue to have Jordon -- brand Jordon and theRetro doing extremely well. Dunks, Air Force 1, you can't get enough of them, Imean, all you can get -- you can sell. Very importantly, the Adidas Bouncerunning shoes is becoming a very, very important high-end shoe. Most of themsell for around a $110 and we are doing well universally, and when you have ashoe that is doing well universally, when I say, in every single market weoperate in, up and the other big shoe is obviously Shox, which is, I think,becoming a mini brand by itself. The kids have bought into it. It is one of thenumber one running shoes out there. Very impressive is the growth that we'veexperienced with Asics in the last couple of years, but this year is, I think,Asics is coming into their own as a major force in the business. Bob Drbul - LehmanBrothers: Okay, great. Thank you. Happy holidays.

Happy holiday to you.

Our next question comes from Robert Ohmes from Banc ofAmerica Securities. Please go ahead. Robert Ohmes - Bancof AmericaSecurities: Thanks. Hi, everybody. Just a couple of quick follow-upquestions, the first, Matt, is the store closings in the fourth quarter, Iwould imagine you are going be doing a lot of liquidations in those stores. Doyou think that will have an impact on the promotional environment for thefourth quarter? Or sort of can you walk us through that process versus what wasgoing on in the third quarter? The other question was just on Under Armour, you mentionedit's going to be in your stores for spring. Is it a test or you are rolling outin all stores? Can you give us some sense of the magnitude? And also whetheryou anticipate carrying Under Armour's footwear as well? And the last question would just be on the marquee, you areobviously increasing it year-over-year and to top performing everything else inthe store. But if you look at the comps, if you look at the square footageincrease in your stores versus the comp in marquee, are you out-comping theincrease in square footage that you are doing? Or is it just outperforming theother stuff that's doing so poorly? Thanks.

Yes, it’s clearly outperforming all the other products.That's the bottomline. And looking at Under Armour, I would say it's anaggressive test. We certainly wouldn’t roll out Under Armour in 1,300 Foot Lockers. Butthere will be a nice presence in Foot Locker. And we think that Champs, beingclearly a very sports-oriented operation, there are several hundred stores thatwill be carrying that. And they will be carrying the footwear, the cleats, andFoot Locker will participate in the cross-training shoe, when that comes out,which I believe is July '08. In terms of promotional stance, I think that the fourthquarter is, and I am sure you guys are on this. I think it's going to be very,very promotional. Whether we aggressively go after a little more aggressivelyin these stores we're closing, I don’t think it's going to create havoc in themarketplace. So, there is always people discontinuing stores, closingstores or liquidating stores. So, it's not a huge piece of our fleet. And weare taking pretty big hit this weekend on that category. So, and our plans areto get out of them as quickly as possible, and I don't want to be in a lot ofthese stores on December 26th. Robert Ohmes - Bancof AmericaSecurities: Got you.

Did I miss one? Robert Ohmes - Bancof AmericaSecurities: No, no. That’s very helpful. Thanks a lot, Matt.

Okay. Thank you.

Our next question comes from Robert Samuels from J.P.Morgan. Please go ahead. Robert Samuels - J.P.Morgan: Hi, good morning. Just a quick question. Are you seeingpatterns or trends by region on mall verses urban locations?

Yes, this is very good in Northeast, particularly in New York. I think it'spretty apparent that the city is flushed with tourists and the exchange rates,they are basically getting -- I am sure you all know that the same shoe thatwould be a $100 in the U.S.,in many cases is a EUR140 in Europe. So, andparticularly in our Time Square operations, 34th Street operations and all overthe city, up in the 125th Street, where we did the grand opening the other day,with the House of Hoops, we had just tons and tons of tourists up in them. Thathas become a very big tourist market. And the northeast is really doing well and that's a bigpiece of it. We also have a lot of very important flagship stores here.Geographically, if you look at California and Florida, they are ourtwo toughest markets. And Texasis right behind them. Texasis a new development that's been going on about for last three to four weeks.But this year the California market and Florida have been ourroughest parts of the country. Robert Samuels - J.P.Morgan: Okay. And then, finally, any new brands you're planning upbringing into the stores for next year?

Yeah. There is a couple of, I am not at liberty to discussit, we are negotiating with them now, but there are a couple new interestingthings we are working on. Robert Samuels - J.P.Morgan: Great. Thanks.

Thank you.

Our next question comes from John Zolidis from BuckinghamResearch. Please go ahead. John Zolidis -Buckingham Research: Hi. Good morning. I was wondering if you could comment onthe strategic review. Is that continuing or has it concluded? And then, mysecond question is on cash flow. You gave us an idea of what you thought yournet or your gross cash would look like at the end of the year? Can you give usa little bit of help with the assumptions, in terms of, what you think you cangenerate, in terms of cash flow from operations? How much of a benefit fromworking capital do you anticipate there? And then, what's your updatedexpectation for capital expenditures for the year? Thank you.

For the current year or next year? John Zolidis -Buckingham Research: Well, for the current year, and if you got next year, I'lltake that too?

I think it's around 148 this year, something in that range.

Yes.

Next year, we're planning approximately 170 and, by andlarge, that is really to execute this differentiation strategy in the U.S.and cleaning up a lot of the stores that we've done in the last six-sevenyears. They are in need of new flooring, new lighting, new fixturing, and someother items to make them look fresher. And looking at the strategic review with Lehman, Lehmancontinues to advise our company on a range of matters. We really don't haveanything to report further at this time. I think there was a question on cashflow, were you talking about this year or out years? John Zolidis -Buckingham Research: For the current year, what kind of cash flow from operationsis built into the statements that you're going to end with the year? Was itabout $3 per share?

It is not over yet, but…

Matt, I think that we addressed that in the preparedremarks, where we stated that we thought that we would end the year with about$3 per share of cash, which kind of puts it in the $400 million to $500 millionrange. John Zolidis -Buckingham Research: Okay. And then is the share repurchase suspended whileLehman is doing the strategic review, are those two independent of each other?

They are -- no they are not suspended. But, if you read the8-K after we received our amendment, about a month ago from the banks andextended our facility through, I believe, this May of 2010 that we have a $15million ceiling on share repurchase. And until business gets better quitefrankly, I think, we want to really maintain a very strong balance sheet andliquidity levels and be sure that our working capital needs cover. And I don’tbelieve at this point in time, going on purchasing a lot of stocks isparticularly a good idea for our company. John Zolidis -Buckingham Research: Okay. Thanks a lot, guys and good luck for the holidays.

Thank you.

Okay great. I think we have run out of time for today. Ijust want to clarify one statement and maybe fine tune it a little bit. Thesales related to the 300 stores that we want to close this year will be about a$175 million. So with that, I appreciate everybody joining us, and everybodyhave a happy holiday.

Okay. Thank you, all.

Thank you.

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