Good morning, ladies and gentlemen, and welcome to the Second Quarter 2012 Earnings Release Conference Call. [Operator Instructions] This conference call may contain forward-looking statements that reflect management's 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. John Maurer, Vice President, Treasurer and Investor Relations. Mr. Maurer, you may begin.

Thank you, and good morning. I'm pleased that everyone could join us this morning to discuss Foot Locker, Inc.'s second quarter 2012 results. In our press release earlier this morning, we reported a 59% increase in second quarter net income to $50 million or $0.39 per share on a GAAP basis. This profit level represents the highest level of earnings from continuing operations of any second quarter in the history of the company as Foot Locker, Inc. This result brings the year-to-date earnings to $187 million or $1.21 per share, an increase of 43%, also the highest profit level the company has earned in the first 6 months of any year. Lauren Peters, Executive Vice President and Chief Financial Officer, will begin this morning's prepared remarks with a summary of our second quarter and year-to-date financial results. She will also update our outlook for the second half of the year. Ken Hicks, our Chairman and CEO, will then recap our progress on some of the major initiatives we outlined earlier in the year at our investor meeting, initiatives which we believe can continue to drive our performance to new heights. Ken will also discuss the current business environment in the major regions in which we do business. And we'll, of course, allow time for questions after our prepared remarks. Good morning, Lauren.

Thank you, John, and good morning to you all. We were pleased to report earlier this morning that we sustained top line momentum in the second quarter, with a 9.8% comp gain, following the first quarter's 9.7% comp gain. And just as in the first quarter, we were able to flow those sales to the bottom line to produce record EPS results. Our domestic stores comped up in the low-teens in the second quarter, with gains in every division except for Lady Foot Locker, which was essentially flat. Foot Locker Europe's comparable store sales were also essentially flat, down less than 0.5%. But total sales in Europe were actually up mid-single-digits, as we operated more than 30 additional stores in the second quarter of 2012 compared to a year ago. Our other international divisions posted mid-single-digit comp gains and our Direct-to-Customer segment posted an 18.1% gain, including a gain of almost 50% in our store banner Dot-Com sales. Coming on top of last year's Q2 comp gain of 11.8%, this year's overall comp gain marks the second consecutive quarter in which we have posted a 2-year stacked comp gain in excess of 20%. In fact, our 2-year stacked comp gain for the first half of 2012 is a strong 22.1%. By month, we posted high single-digit comp gains in May and June, while July was up double-digits. The strongest division in the second quarter was Kids Foot Locker, which posted a comp gain in excess of 20%. Champs Sports continued its very strong performance with a comp gain in the teens, on top of last year's similar results for a 2-year stacked result of more than 30%. Foot Locker in the U.S. and Footaction also posted double-digit gains this quarter, on top of similar results a year ago. CCS.com sales fell below last year by a low single-digit percentage, as it ran far fewer promotions this year compared to last, resulting in improved profit margins. Excluding CCS, the other parts of our Direct-to-Customer segment posted a gain in excess of 20% for a 2-year stacked gain of well over 40% for the second quarter in a row. Footwear and accessories both had high single-digit comp gains, while apparel lead the way with a low double-digit increase. Within footwear, the kids' business was stronger not just at Kids Foot Locker, but in almost all of our divisions that sell kids' merchandise. Jordan product, Adidas classics such as the Samoa, padded collar Chucks from Converse and Slides all had very strong gains. In men's footwear, basketball was once again the key driver. There were several Jordan Retro launches that pushed really well during the quarter. In addition, we had tremendous results in marquee players shoes, led by LeBron, we were happy to see get a ring and a gold medal, but also Kobe, Rose and Durant. The broader basketball business was very strong as well, as we continue to build on our leadership position in our biggest category with Nike, Jordan and Adidas. Running was relatively flat overall, we continue to develop and differentiate our running and casual assortments to match the distinct customer expectations in each of our different banners. Sales of footwear were down slightly at Lady Foot Locker. But overall, we posted a positive comp in women's footwear, as gains in several other divisions were solid. Our positive results were driven by Nike Lightweight, Tech running, including the Colors That Run program from ASICS, Adi classics and Nike Prestige. Apparel sales in the U.S. once again achieved a 20% comp gain. The total company apparel gain was low double-digits due to comp apparel declines in Europe and Canada. Graphic tees continue to be a major area of growth for us. And our Team Edition facility is busy producing T-shirts for several brands, as well as our own private label. We had particular success with Jordan apparel that hooked up with the major shoe launches. And we also saw significant gains in LeBron apparel. Just as in footwear, the biggest apparel gains were in our kids' businesses. Overall, Brand Jordan was the biggest gainer. Apparel sales comped up double-digits at Lady Foot Locker, as we saw some early success with the improved apparel assortments in that banner. The accessories business continued to be strong for us. Both socks and hats were up double-digits again with socks led by Nike Elite, Nike multipack and Adidas. Snapback and NBA hats also saw big gains. Turning to the rest of the income statement. Our gross margin rate rose to a strong 31.3% in the second quarter, an increase of 90 basis points compared to last year. We picked up 130 basis points from effectively leveraging our occupancy and volume costs. However, we gave back 30 basis points in merchandise margin and another 10 basis points due to lower shipping revenue from our online sales. Let me focus for a moment on that 30 basis point decline in merchandise margin, which is a function of a few different factors. First, our merchandise margins in Europe declined, although the rate achieved in the quarter remains higher than our U.S. margins. We have been aggressive in taking the markdowns necessary to keep our merchandise in Europe fresh, which remains key to sustaining the healthy profitable business we have there. Second, both our in-store and online operations in the U.S. carry lower merchandise margins than our international divisions. As the U.S. businesses grow at a much brisker pace than our international operations, the proportionately higher mix of U.S. business tends to compress overall merchandise margins. Our merchandise margin in the U.S. stayed steady in the quarter, even though our initial markup rate declined. We are seeing price increases from our vendors, and not all of these increases are passed on directly to customers in the form of higher retail prices. However, we have been able to reduce our markdown rates to offset the impact of the lower initial markup. Thus the increases in average selling prices that we continue to see are a combination of higher prices from the vendors, some of which we pass on to our customers, and lower markdowns, which we achieved by continuing to execute the initiatives of our strategic plan. These efforts include differentiating our banners, making our stores and digital sites more exciting places to shop and buy and more effectively allocating our merchandise to make it more productive. And no discussion of margins would be complete without noting that overall, apparel margins remain below footwear margins. We've made good progress in the U.S. but internationally, where apparel margins are already higher than footwear margins, we did lose some ground with the tough market conditions, especially in Europe. We continue to work hard to improve margins in all product categories. Turning now to SG&A. Our expense rate improved 120 basis points to 22.4% in the second quarter from 23.6% last year. SG&A dollars increased by only $5 million on a $92 million sales increase. Year-to-date, SG&A expenses have risen only $13 million on a $218 million sales increase. The biggest driver of this performance is the disciplined approach we take in managing store wages. In fact, all of our divisions, including Foot Locker Europe, have improved their year-to-date sales for payroll hour metrics. We believe this performance can get even better over time, as we begin to capture the benefits of the new time and attendance system that we implemented in the second quarter. Our depreciation expense was $29 million in the quarter, up $1 million from last year, while interest expense was flat at $1 million. Our tax rate came in at 36.7% in Q2, slightly better than the 37% we planned for, primarily as a result of a tax rate change in Ontario. This tax benefit contributed $0.01 per share to our earnings. Thus without that item, non-GAAP EPS in Q2 was $0.38 as opposed to our GAAP results of $0.39 a share. A GAAP to non-GAAP reconciliation reflecting this adjustment will be included in our second quarter Form 10-Q. The bottom line net income total of $59 million is the highest level of earnings from continuing operations of any second quarter in our history as an athletic company. Similarly, the year-to-date net income total of $187 million is easily the best result in Foot Locker, Inc.'s history. Reflecting Ken's well-documented constant state of dissatisfaction, the entire team at Foot Locker, while proud of these results, remains far from satisfied. We see too many opportunities for us to improve our business further to be content. We have many initiatives underway to take advantage of market opportunities we see ahead of us, which we believe can drive performance even higher. And Ken will talk more about those initiatives in a few minutes. First, though, let me give you a brief real estate update. We ended the second quarter with 3,354 stores, having opened 47 new stores and closed 62 so far this year. You'll recall that at the beginning of the year, we estimated that we would open 82 new stores and close 75. Our store openings are on plan, with the store count in Europe up by 20 year-to-date and several new highly productive House of Hoops stores open in the U.S. On the flip side, we now expect to close about 100 stores during 2012. We have identified opportunities to close additional stores, which we have been using to clear markdown merchandise. Given our significantly improved inventory position, it is definitely a positive that we do not need to operate as many of these clearance stores as we have in the past. Speaking of inventory, we ended the quarter with about $1.2 billion in inventory, down $38 million or about 3% from last year, despite a 7.2% increase in sales. Weaker foreign currencies had a lot to do with the nominal decline. On a constant currency basis inventory was flat, and it was up about 1% on a per-store basis. The productivity of our inventory continues to get better overall, and we feel well positioned in all of our markets for the important back-to-school season. We ended the quarter with $820 million of cash and short-term investments, an increase of $139 million from the end of Q2 last year. We spent $37.5 million in the quarter to buy back about 1.2 million shares, bringing our year-to-date share repurchase program to $64.6 million at a reduction of approximately 2.1 million shares. As mentioned on our last call, we have increased our projected capital spend for 2012 to $170 million. And just this week, we met with our Board of Directors to preview our potential capital spending program for the coming years. It is still premature to discuss specific numbers because much depends on the degree of success of the various tests we are currently conducting and plan to conduct over the next year or so. But the potential exists to take up our capital spending significantly over the next few years. We continue to follow the model of first developing a prototype, making adjustments, and then thoroughly testing in order to understand the sales and profit potential before committing large amounts of capital to any project. As a result, our goal is to ensure that any capital spending scenario would enhance our financial performance over the long term while not disrupting it in the short term. Let me touch on a couple of key topics for the rest of the year before I turn the call over to Ken. First, we continue to be cautiously optimistic about our business for the back half of the year. Given the trends from the first half of the year and our early back-to-school sales, we are positioning ourselves for comp sales growth at the high end of mid-single-digits. So far in August, our comps are running up double-digits, including a mid-single-digit gain in Europe. While that performance is of course very good, there are some shifts, including timing of certain launches, tax holidays and school openings that make reporting comps over such a short period less meaningful. That said, the momentum of our business is clearly intact globally. In terms of gross margin, we continue to anticipate 30 to 40 basis points of improvement in the second half, with gains from leverage somewhat offset by pressure on merchandise margins. The primary merchandise margin dynamics I mentioned before, IMU pressures from our vendors and the higher growth rate of Direct-to-Customer and U.S. store sales compared to international sales, are likely to continue. Similarly, we still plan SG&A expenses for the remainder of the year to improve as a percentage of sale by 6 to 80 -- 60 to 80 basis points. That would equate to a full year rate decrease of about 100 basis points. Our tax rate over the back half of the year is likely to be slightly higher than our previous outlook of 37%, as a consequence of the higher-than-planned proportion of earnings that are coming from our U.S. business, where the tax rate is higher than our average international rate. Blended with the favorable tax rate in the first half of the year due to some one-time benefits such as the Ontario rate changed, we're still likely to be close to 37% for the full year. Finally, we have profit headwinds of about $0.01 per share in the second quarter due to currency movements. Using constant year-over-year FX rates, our EPS would have been about $0.01 higher in Q2 than the $0.39 we reported, and about $0.02 higher year-to-date. Assuming exchange rates stay where they are now, the exchange rate differential in the back half of the year will be smaller than it was in the second quarter, since the euro, in particular, started to weaken in the second half of last year. On the other hand, our international profits are greater in the second half, so any differential has a somewhat different impact. Bottom line, we are still expecting headwinds of about $0.05 per share for the full year. This impact has been factored into our guidance of double-digit percentage profit increases in each quarter for the rest of 2012. With that financial overview, let me give the floor to Ken so that he can discuss some key initiatives and the trends in our business. Ken?

Thank you, Lauren, and good morning, everyone. Thank you for your participation on the call and your interest in Foot Locker. I'm very proud of the entire team at Foot Locker. We have achieved consistently strong financial and operational results so far this year. Our record of consistency goes back even further. In 2011, we posted a 9.8% comp gain for the full year. Now this year we posted a 9.7% comp gain in Q1 and a 9.8% comp gain in Q2 having achieved, as Lauren said, an impressive 2-year stacked gain of over 20% in both quarters. In fact, we've now reached our 10th consecutive quarter of meaningful sales and profit growth. I believe this track record of steady improvement is a consequence of carefully executing the initiatives of the strategic plan that we first laid out more than 2 years ago, and which we continue to refine as we identify new and exciting opportunities to increase shareholder value. Lauren did a great job highlighting the key drivers of the quarter, basketball, kids', apparel in the U.S., to name just a few. So before I get to your questions, I'm just going to spend a few minutes reviewing some of our key ongoing initiatives and where we stand at the moment. From a store perspective, we have several exciting things in the works. We've talked in the past about our Champs prototype store in Florida. We now have 11 test stores open, so we can determine if the excellent results we got out of the prototype happened when the stores are spread around the country in different market situations. At the Foot Locker division in the U.S., we have a new prototype store opened in the Smith Haven Mall on Long Island and so far, so good. We have a number of Foot Locker test stores with some variations on tap for later this year and early next year. We have a three-pronged effort with Lady Foot Locker. First, as Lauren mentioned, we've upgraded the apparel assortments in virtually all of our existing Lady Foot Locker stores and the initial results have been encouraging with a double-digit apparel gain there in the second quarter. Second, we're also in the process of remodeling 14 Lady Foot Locker stores in which we intend to really highlight the apparel offerings with much of the apparel assortments displayed prominently on the walls and with many of the shoes moved to the center of the store. Most of these stores are open now or will be shortly, so feel free to contact John after the call if you might like to see where the closest store to you is. Third, and finally, we intend to open 3 new concept stores for women before the holiday selling season. These stores will be merchandise significantly different than the Lady Foot Locker store with much more apparel, stronger coordination between shoes and apparel and more emphasis on performance. These stores will have a new nameplate over the door, which we'll announce later in the quarter. We are excited about the opportunity in the women's business, but we'll have to see how these various tests play out before making any decisions about the future direction of our Lady Foot Locker business or how best to apply some of the learnings to our other women's businesses. Moving onto Kids Foot Locker. We have several test stores operating now with an updated look. And given the current strength of our kids' business, we're eager to get going with a further rollout. But we're just in the middle of the back-to-school season, so it's still too early to make decisions. In Europe, we've expanded beyond the locker room prototype store in Brent Cross that we told you about at the end of 2011 and now have 2 additional test stores operating in the U.K., with 2 more on the continent slated for later this year. We're also experimenting with additional Kids stores in Europe, which we think is a natural. In the meantime, we continue to expand the Foot Locker store count in Europe as planned. The business there remains profitable, and we're investing for the long run in Europe, which we believe will stabilize over time. Lauren mentioned that we have more initiatives in the works than ever before. And you can see that we have a lot happening on the bricks-and-mortar front. But we're far from idle in the digital space. I feel we can do a better job of communicating all the exciting investments we have made and are continuing to make to position our online and mobile applications as the premier destinations in the industry. Certainly we believe no one is better plugged in than we are as to how our young customers want to be engaged and how they use technology to shop and buy. We are in a constant state of refinement and enhancement at Foot Locker. We recognize it is a necessity to constantly upgrade our technical capabilities to meet the quickly changing demands of our tech-savvy customers. First, at our Eastbay business, we continue to build on the competitive advantage we have with the high-performance varsity athlete. We are constantly enhancing the functionality and engagement features of the Eastbay website with aspirational imagery, authentic athletes and storylines and features such as the Athletic Resource Center, or ARC. At ARC, our exceptional athletes can measure their physical performance against elite, world-class athletes with Close the Gap. Football players can see from real players how equipment works on the field from cleats to pads to gloves and more, and from position-to-position with the Eastbay Edge. We also plan to leverage Eastbay's unparalleled reach to high school athletes and coaches, as well as very strong relationship with Nike to build a much more meaningful team sales and service business. We are strengthening the team sales organizations and have already started selling in California, and we're also positioning for the future growth in key states such as Texas and Florida. Second, we're investing in expansion of our e-commerce business in Europe. We're now online including mobile applications in several countries on the continent in addition to the U.K., where we've been already operating for a couple of years. We have more countries rolling out over the next few quarters. Third, we are strengthening the omnichannel experience for the customers of our various bricks-and-mortar brand banners in the U.S. We already have excellent award-winning Web and mobile sites that leverage the efficient infrastructure of our Direct-to-Customer model. We continue to introduce capabilities that clearly pay off, such as enabling online purchases to be returned to stores and buy online, pick up in store. We're supporting this with a mobile feature that enables shoppers to locate their favorite banners' nearest physical store. We're testing the use of handhelds and iPads for both our associates and customers in the U.S. stores. We already have handhelds in most stores in Europe. And we're on the vanguard of testing new payment options from PayPal, Google Wallet and Isis. And we're exploring the use of WiFi for our customers. In these and other ways, we continue to align and feel the look and feel of our in-store experience with our digital retail space. As a matter of fact, we held this week's board meeting at our Direct-to-Customer headquarters in Wausau, Wisconsin, where we showcased to our Board of Directors our existing capabilities and our plans to capture the ongoing migration of more and more of our customers to the digital space. The 50% increase in our store banner Dot-Com sales that Lauren mentioned early on during the call is a good sign we believe we're on the right track. Turning to the macro situation, Lauren used the words cautiously optimistic. And I'd like to echo that sentiment when summing up how we see the athletic industry over the back half of the year. The pace of product innovation coming from our key vendors such as Nike, Adidas, Converse, Jordan, ASICS, New Balance, Mizuno and Under Armour is as fast as ever, and our customers are continuing to vote enthusiastically in favor of our assortments. That said, we have an election coming up and a so-called fiscal cliff the country is approaching. So there's always the potential of an impact on the U.S. economy that we will have to manage through. And the future direction of Europe's economies in the short run, especially, is still highly uncertain. As I said though, we're investing there for the long term. But our business remains solid in the U.S., Canada and Australia, and it seems to be picking up in Europe with positive comps there in July and so far in August. We will continue to plan cautiously, but we believe we have the right product in the stores now for back-to-school and the right product coming up in for the holiday selling season. The Olympics have helped to expand awareness of quite a few high-profile athletes and several exciting new technologies. The NFL is already getting its season underway on time. And later on, the NBA season will also start on time. These elements all support an overall trend that continues to be positive for our industry. To wrap up my remarks, I'd like to reiterate my appreciation for the hard work of the entire team that made our excellent second quarter and record year-to-date results happen. Their teamwork, both within the company and with our brand partners and other major suppliers, enables us to connect with our customers and reach new heights of customer satisfaction and financial performance. As high as we climb, however, we still see plenty of opportunities ahead, and we're determined to execute our strategies to reach even higher. Thank you. Operator, let's open it up to questions.

[Operator Instructions] And our first question comes from Camilo Lyon from Canaccord Genuity.

My first question, you guys mentioned that running was flat in the quarter, so wondering if you could give a little bit more color around the category and what might be behind the flat trends that you're seeing.

We have seen good performance in our Lightweight running and our technical running. Where we've had challenges is in some of the higher-priced Air running. And in units, we're doing well. It's the shift in the dollars. But we feel confident with some of the new Air product that's out there and the continued growth of Lightweight running that running will continue to improve.

Got it. That's helpful. And then shifting over to Europe. It seems like the trends there are a little bit volatile, which is to be expected. What do you think is driving the most recent strength in July and August? Is it really all of the Olympic boost? Or is there something underlying that, that has helped the latest few weeks here?

Well, there obviously was some impact by the Olympics. But that was primarily in the U.K. We saw good performance as a result of some of the new product that we got, Lightweight running is one of the important new ideas. We also are seeing some very good performance on some of the classics like the Blazers and some of the shoes from Adidas. So we've implemented a new technology zone that is allowing us to sell more performance-related running product that's helped our business. And so you put all of those elements together, and we're seeing some better results than we did at the end of last year.

Are there some stores or countries in Europe that don't have the Lightweight running product just yet?

No. We've got the technology throughout all of our stores in Europe now.

Okay. Got it. And then my third and final question actually relates to technology. You spent a little bit of time discussing the investments of where you're at right now. One of your larger competitors has made a big push into upgrading their technology systems really from front to back. Do you feel like there's a need for you to increase any of your expense or CapEx dollars to catch up with them?

We don't think we need to catch up with them. We think they're trying to catch up with us, quite frankly. We've had handhelds in our stores for a period of time in Europe, as I stated, and got them in a number of stores in the United States. We've had a very good distribution system -- I'm sorry, planning system in our company for a period of time and are now looking at an allocation system, which I believe they're looking at both of those. And we have been testing and trying different kinds of pads and screens in our stores for a period of time. We've spent a great deal of money making sure that we have very workable websites, both online and mobile. So I salute them for trying to catch up with us. But we've been pretty aggressive in this space. And I think our results show that we continue to make progress there. The thing we don't do is we don't try to clear a lot of products online. And it's one of the reasons why our online performance, I think our profitability is higher than theirs.

Our next question comes from Eric Tracy from Janney Capital Markets.

I guess we can focus on quarter-to-date trends, up low double-digits, maybe just talk through again the various categories from basketball to running on the footwear side, what apparels kind of contributing to that. And then it does sort of seem based on the guidance that there is an expectation for that to moderate a bit. Again, maybe just how we should be thinking about that -- those trends for early back-to-school.

Well right now, as we said, we're up low double-digits early this month. But I think that when you look at the business, running, as we stated, was flat. We had a strong performance in basketball, strong performance in apparel, strong performance in classics. Our men's and kids' business was good. Women's business continues to be a little bit more challenging at Lady Foot Locker. It's up overall, by the way, throughout the whole -- when you put the whole company women's business together, it's up. So we've got a lot of legs of the stool, as I'd like to call it, that are working. When you look ahead, I don't think that saying -- it's kind of funny when somebody says the upper end of mid-single-digits is conservative. That seems to me like we're stepping out a bit. But if you could tell me who's going to be elected, what's going to happen with the fiscal cliff and what will happen with the economy in the back half of the year, I could probably be more certain about how to plan. But I think we're planning appropriately based upon the trends and what we see, which from the vendors the product looks great. There's a lot of fantastic things that they're bringing out and we're working with. So I feel good about the back half, but I'm not willing to step out way too far.

Fair enough. And by the way, if you could -- anyone could tell us what those things are, we'd all make a lot more money. So maybe just in terms of the NFL license, how we should think about that in planning the business? It certainly seems like an incremental year-over-year boost. But how should we be thinking about you sorting the products going forward?

Yes. We feel very good about the new -- Nike's new license of the NFL. They're being very aggressive with the product. The marketing of it looks great, and the season obviously hasn't really even started yet. We're going to have some very strong presentations. Champs will be the headquarters of that. We're going to have a terrific store set up in Champs. And we're going to have some stores that are going to have really spectacular setups. But all of the stores will be selling the hats. We'll have some of the apparel in some of our other stores. But Champs will be the headquarters and brick-and-mortar, and we'll have a very strong presentation online through Eastbay and through the champs.com -- champssports.com.

Okay. And then maybe lastly, Lauren, for you, just switching to the merchandise margins. Possible to sort of quantify the mix shift towards U.S., obviously growing in a faster pace, but maybe quantifying that, and then how we should think about sort of other opportunities, initiatives that you have in place that could support sort of offsetting that U.S. mix shift.

Yes. So we talked about being 30 basis points of merchandise margin. The bigger piece of that coming as we worked through product in Europe to keep those inventories fresh, a smaller portion being the mix that we talked about with the strength in the U.S. and online business. So as we think about margin expansion, we continue to believe that as we do a better job of flowing our product and making it more productive, allocation being an area that we're investing in technology to get even better at our job there that, that will create opportunities for our merchandise margins to improve.

Our next question comes from Michael Binetti from UBS.

So let me just fine-tune something on Europe. As we think of the mid-single-digits that you said you're seeing in comp growth there right now, obviously there's some noise there based on the rest of your comments. Is that -- as we think about your guidance for global comps up at the high end and mid-single-digits, are you planning -- is that a comment baked in, kind of a run rate in the mid-single-digits in Europe? Or is there some leeway there?

No. We feel very good about what the European team has done and where they are. But our plans -- or our forecasts, I should say, for the fall season are not that aggressive for them.

Okay. That's helpful. Can you talk a little bit about the new labor planning initiative that you launched in the second quarter? And is that something that's rolled out to all stores now? Or is that something that -- and even if it is in all stores, I guess, is that something that can continue ramp as a margin contributor as you go forward and fine-tune it? Any color there would be helpful.

Yes. It is, at this point, rolled out now to all stores in the U.S., and will be coming to Europe a bit later. Definitely, you should think about it as paying dividends over a longer-term as we become even more proficient at using it. So what it's intended to do is to get us even smarter about how we spend our hours to make sure that we're aligning with peak selling periods and that you have your very best salespeople at your very peak traffic times. So yes, it definitely is something that will pay out over a long period of time.

Okay. And then one just for Ken, I guess. Ken, with all -- the number of initiatives you highlighted was pretty heavy. Which ones are you personally most excited about right now out of all the ones you've just talked about?

I love all my children, thankfully. I tell you what, the ones -- the most straightforward ones that we're seeing obviously are the prototypes and what's happening there. They also happen to be some of the more expensive. The kids' is very, very encouraging, and it's one that provides -- there's nobody in that space as strong as we are, and that's a great opportunity. I feel the women's opportunity, personally, is a terrific one for us again because that space, while there's some new entrants, we provide something with the brands and price points and quality and performance that nobody else does. And then finally, what we're doing in Dot-Com, and it's across 3 fronts, Eastbay, team sports and our banners. And as I said, we just reviewed it with the board this week, and they were -- I think they were very positive and felt very good about our team's capability and where we can get that division as we go forward on -- and I just mentioned some of the things that we're doing to improve our Dot-Com sales. They feel very good about what we can do there. So it's difficult to pick one out because we've got to make sure that we test and support all of them. One of the most important things is that we've divvied up the workload so that we can execute it and we don't -- the thing that I'm most worried about is that we buckle because we have too much going on. And the team feels pretty comfortable in our ability to execute against this.

Our next question comes from Paul Trussell from Deutsche Bank.

Ken, price points have been certainly a part of the success driving the top line. Just a few questions on this topic. I guess first, could you just kind of speak to the change in mix and performance that you've seen of $100, $150, $200 price point items versus a year ago and kind of versus the product that are below $100 price points? Second, can you just kind of give us an update on where we are in regards to the inflationary pass through from the vendors? Is there still more to come? Or are we kind of somewhat done with that for the year? And just lastly, is there -- there seems to be a willingness to pay up for very unique attributes in footwear, whether it's the cutaways, the styles, the technology like Nike+ or events like the Jordan's Golden Moments Pack tomorrow. But as we approach like $300 price points for certain items, are you seeing any pushback at all on these higher price points? Or is the demand still much greater than the supply?

Okay. The first point on price points, we are seeing price points go up, and we're working with the vendors to make sure they're thoughtful because there's some classic shoes that you try to maintain as close as possible. But then there are new shoes with new features where you're able to get more. Our average selling price has gone up, and we have seen -- I would say for the technology, look and important shoes, that's a growing classification for us, over $100 group, and so that's good. Part of the reason is some of the shoes that were under $100 have moved into the over $100, so there's more of an offering there. But we also -- we're doing a good job with Converse and the Chucks. And they're some of our largest group of lower than $100 shoes. But the growth is coming in the greater than $100 for us because there are more shoes there and there's more going on. With regards to inflation on costs, the cost for the shoes for the fall season is pretty well baked. We've already signed the purchase orders and those are done. And again, as I said, we've work with the vendors. We're seeing some pressure. Lauren talked about a little bit of pressure on margin, but it's manageable at this point because the prices have gone up. And it gets to your last comment, the customer has been willing to pay for the higher prices. I think there will be -- the big jump in inflation probably has occurred, but there will still be some continued cost pressure because of wages and things like that back with the manufacturers. But the customer is willing to pay for those high-end shoes. And in fact, that's where some of the larger increases have occurred because of the demand for them. And it hasn't slowed the demand. But we're also seeing, even with higher prices on a lot of the Lightweight technology, the customer has -- demand has not slowed down for those shoes either.

And our next question comes from Robbie Ohmes from Bank of America.

Just a few quick follow-ups. Can you -- will you guys quantify for us the sort of ASP component to that great same-store sales number you put up?

No.

Can you tell us if it's more than half of the comp for the quarter, ASPs?

We had increases in average selling price. We had increases in traffic. We had increases in conversion. So all the elements went the right way.

Got you. And then for fall, you mentioned that you're pleased with the product lineup for fall and holiday. Is there anything new coming in on the apparel side that you can call out?

Well, we're -- you're seeing more -- obviously, the NFL is a big plus, NBA. The Lightweight isn't just shoes, the uniforms that the Olympic team wore were over 1 pound less. I mean, I didn't even know they weighed a pound. But over 1 pound less than the old Olympic uniforms. And so we're excited about new technology in apparel. There's some new looks coming. Jordan’s got some strong items that we think will be very, very good. And as their largest retailer, we feel good about what we have coming from Jordan. And then there's new technology in shoes, the whole Lunar idea, Nike+, miCoach. That technology is something that the customer is learning about and starting to get excited about. So beyond -- it's not just they're lightweight, there's technology and stuff. Probably though, the biggest thing that's exciting about both in apparel and in shoes is color. Right now, color is hot. You look at -- we ran the ASICS Colors That Run and we have terrific colors from Nike and Adidas. And New Balance has some phenomenal color shoes.

You couldn't miss the color in the Olympics.

No. And you couldn't miss the color in the Olympics, that's right. But that is one of the things that's really excited about what we're seeing because people need -- they've got to have 3 and 4 different pair of shoes to go with the different outfits.

Our next question comes from Joseph Parkhill from Morgan Stanley.

I was just curious if you could talk about your decision not to pass through some prices, what areas you didn't think you could, and the reason behind that given that your total comps are so strong.

Well, I think, quite frankly, that's one of the reasons why we didn't pass through all the prices. I mean, there's some shoes that they go over a natural price point or because of comparisons to other shoes and what the competition is offering, it just isn't appropriate to take up enough to capture and recognize that, that was only a small part. This is not a huge issue, but it's something that is real. But in order to keep the sales and in order to drive the leverage that we've got, there was -- and it's all very selective on the item decisions, and again working with the vendors because we are in a competitive market. We can't raise a price on a shoe and a competitor have the same shoe at a lower price and be competitive. So we've got -- we watch the market very closely to make sure that we have competitive prices so that we can drive sales.

Okay. That's helpful. And then from -- just from -- I mean I know it's just a small part, but that headwind would most likely weigh in as we head into 2013, even expect price increases coming, given commodity costs or...

Say again?

Would you expect some of your price increases to slow heading into 2013?

No.

No?

I think that based upon the business and what's happening, what I think you will see is more value. There's more being put into the product. And so while the price may go up, the customer is willing to pay for it, either because of the look, the technology or whatever. So there will be some continued price increases. I don't think it will be at the rate that it has been.

Our next question comes from Kate McShane from Citi Research.

The apparel strengths during the quarter was great to see. But I think in Lauren's prepared comments, she noted that the merchandise margins in apparel were still below that of footwear. And I just was wondering, is it a matter of accelerating the sales in the full price sell-through of apparel to get those margins above that of footwear? Or is there still mix changes that you're making in apparel? And can you update us on your view of private label?

Kate, it's really 3 things. One is the shoe margins continue to improve so that it's chasing something. Two, there are some things that we're looking at in terms of mix, as we continue to exit some of the lower-margin commodity businesses that we did in the past and move into more branded and more performance-driven apparel. And the third thing is, and we're in the process of doing this, is developing a more -- a stronger, more effective private label program, where we can get stronger margins on our own private label. So it's putting all 3 of those elements together. I'd say the first one, I don't want to change. I want to keep chasing the footwear. But the last 2, getting that mix right with our brands and building a private label business that's more effective.

Okay. Great. And then my second question, and I know you're still in the very early stages of your new concepts in ladies and the changes that you're making at Lady Foot Locker, but is the thinking with the other concept you announced today, if it works, would that be a replacement? Or would that be in addition to Lady Foot Locker? And with regards to again, the new concept, are we -- can we expect to see other brands that you don't currently carry? And is the store going to be bigger or smaller on a square footage basis?

The store will be bigger. It will be focused on the brands that we have. But it will have more, because it is bigger, it will have more product and product that you might -- or that I know you wouldn't see in a Lady Foot Locker or other places just because it will be big enough to hold more of it. We will have to see the performance versus Lady Foot Locker. There may be room for both or we may have to choose between the 2. Right now, it's a gleam in the eye. And I'll feel better about what's happening. I've seen the new Lady Foot Locker, the 14 prototypes, and it looks very good. Now we've got to see how it performs. And we'll do this new store, the renderings and the floor plan and everything look great. Now we've got to see how it looks on the floor and how the customer responds to it.

Our next question comes from Chris Svezia from Susquehanna Financial.

Just a quick question. When you made that comment about quarter-to-date trends, shifts in the calendar, tax-free holidays, can you just clarify what that is and how much of an impact, if you could quantify, that has on that double-digit performance?

There are always changes, one state will move up, and there are only a couple of states where the tax freeze really do matter, and they are comped to last year. And we've had a shift in a launch shoe that we've moved up a little bit, but then we've got some other launches that are coming. So I would say it's a nominal difference. And I could tell you at the end of the month whether it was more positive or negative. But it's just -- some things got moved up and some things got moved back. We think they offset each other come, but not sure exactly how much.

Okay. All right. That's helpful. And then I guess, I'm curious with regards to some of the prototypes in the talk, Foot Locker and Champs. And I guess, Lauren, your comment about how we start to think about CapEx in upcoming years, you must be encouraged by at least some of the things you're seeing and some things you're developing. And can you maybe just talk for just little bit on what that might be, what they might be and how quickly, potentially, if it does work in check, you can ramp up those remodels? I mean, are we talking several hundred a year? I mean, just any -- I know it's a little ahead of the game but just any thoughts there.

Well, we're pleased with some of the early rollouts and some are more extensive than others. And they happen -- Champs is more extensive than Kids. And so they -- there are several variables that are included. One is how good they perform. If they're off the wall, we'll move faster than if they're just good. So that will be a determining factor. Two, is for some of these, like Champs, we've got to close a store for a period of time. You guys are pretty tough and we close bunch of stores. There's a negative there, and we don't get the positive quite as quickly, so we've got to manage that. And the third is just our capability to absorb all this. This is a lot. But we would like to think -- and in fact, one of the things that we've reviewed are different scenarios, kind of low, medium and high of what we can and can't do and within each of the different divisions. And so depending on what the reads are, we'll make a determination. One, we may move out faster than another because it's stronger. But right now, we think that they at least look promising.

Okay. And then last question I have, just real quick here. On the second quarter, does -- when certain brands maybe grow faster, call it maybe Nike, which theoretically might have lower product margins than other brands or certain concept, Kids versus your core Foot Locker chain or Champs grow faster, does that have an impact, to some degree, on your product margin rate? Does that have any impact on the second quarter?

Well, all of those things are elements to mix. But I think it's pretty granular to sort of pick all that apart.

I mean there's all factors, but we don't disclose them. We manage them.

Okay. Fair enough. As long as it generates high gross profit dollars, then it all leverages to the bottom line.

Exactly.

Our next question comes from John Zolidis from Buckingham Research.

Most of my questions have been already asked and answered. But I just want to confirm, Ken, that you think that footwear ASPs can continue to rise in FY '13. And then I guess, why do you -- what do you think is going to be the main driver of that?

Well, I think it will be moderated some. It's not going to be huge increases. But the reason I think they can rise, there's a couple of reasons. One is the value that they're putting in the product, there's new technology, new looks, new ideas, and so the customers want those. And the second is the customer demand is there. We're seeing the increases and the response to the customer for the new product is strong. So I think that they will continue to react positively as long as we continue to offer great product for them.

Our next question comes from Sam Poser from Sterne Agee.

Just a couple of questions, real quick. On the gross margin, Lauren, how did the FX affect the gross margin by itself?

FX, $15 million to gross margin.

And then just to clarify, Ken, I think there's -- when you talk about your margins, there's a big difference between your initial markup and your markup on goods sold, I assume, and your cleaner inventories and everything. Despite the fact that your IMUs may not be increasing as greatly as they used to, your markup on goods sold is higher because you're running a cleaner, faster-turning inventory. Is that just the right way to think about it?

Yes. The squeeze is on IMU, not necessarily on the margins.

Right. Because I think people are confused about how you're speaking about it, so I mean just to be clear...

That's helpful. Because yes, when we're talking about the IMU squeeze as opposed to the gross margin squeeze because we continue through better planning and allocation, fewer markdowns, a cleaner inventory to deliver good margins.

That's the dynamic. You've got pressure on IMUs. It's that just more pressure to do a good job in managing the inventory, so your markdowns are lower, therefore your margins are better.

Right. I know exactly. And then lastly, on the apparel initiatives that you're working on, I noticed in -- I was out in the store in Smith Haven. Are you working on basically getting most out of the nested tables and doing more hanging, which will free up salespeople, present the product better and help drive better sales in apparel?

We're playing down significantly those commodity products that are not -- or don't really, quite frankly, fit with what we're trying to do. And that's what those big tables were for. So you're going to see more presentation, more coordination, more fashion product than just cotton by the pound.

And that's mostly going to be hanging.

A lot of it will be hanging. I mean, one of the things that you will see, you go in the store and just look up at the walls and you see the T-shirts. And the T-shirts will still be on the tables, but the customer uses like a menu, "I see that, okay that's the one I want, here it is," and shopping that way.

Our next question comes from Bernard Sosnick from Gilford Securities.

What you've given us essentially is the outline of an overarching theme of an evolving Foot Locker. I'm not going to ask you to give us the new 5-year plan. But essentially the company, you're saying, is going to be transformed over the next 3 to 5 years through the rollout of new prototypes. Could you just give us, in the broadest brush terms, what you think this is going to mean in terms of an evolution over a several-year period?

Well, the thing obviously with more exciting, engaging store environments, a much stronger Direct-to-Customer business, be it mobile or online, a better connection between those 2, a much stronger element of quality that we will be positioned for the long term. We've had the same format in our stores for 20 years. We've not -- we in the past did not have our channels connected. We now are working, recognizing that the customer wants the great environment, wants the channels connected, wants to have the information, wants to have and is willing to pay for quality performance product and fashion and look that, that will position us for much longer than what we're going to do the next quarter.

Essentially, you're also saying that Foot Locker in the past had a homogenous offering, and you're going to more lifestyle, so there's going to be a greater variety of product offered in the athletic footwear-inspired business. What are your thoughts with respect to how the mall will be changing with respect to athletic products?

Well, I think the customer's looking for alternatives and places that they can go to, to get product that's both exciting and also fashion, performance, all of those things together. There's a great trend. You look at what people are wearing now, they're wearing more active apparel. We're fitting in with that and we're the place to go for brands. And I think the mall will be an important element of that. But you've got to connect it with the broader assortments and information that we have online. "Well, I need a different size, I want a different color, I want something." We offer that capability. "I want to know more about what this shoe does for me, whether I pronate or supinate. I want to know was this the shoe that Durant wore when he won the World Cup." All of those different things are elements of where we're working. And I think that these pieces, while they're individual, when you put them together will provide that exciting new environment and connectivity for our customers.

Can I ask one other question with regard to handhelds? Finish Line, Macy's, Nordstrom say they have handhelds that will provide inventory information within the stores and the ability to find the item, color, size in another store if it's unavailable at a particular store or to have it shipped from a distribution center or another store to fulfill the order. Is Foot Locker equipped to do that now?

Yes. We have -- our handhelds do both administrative jobs, inventory, receiving the packages. But they also -- and the ones we have, and we're testing a couple different versions of them, which is one of the reasons we haven't rolled out is trying to make them more functional and easier for the associate and the customer to use that will provide whether or not I have it in the back room, so I don't -- "I'm sorry, ma'am. I don't have that in 7.5, but I've got it in an 8. It runs a small. If you'd like, I could go get that or I have it in this color." So they can do that selling right on the selling floor, help them. The second thing it will allow them to do is, "We don't have it here, but the Foot Locker down the street has it. You can go there, and I can reserve it for you or I can have it shipped to your home or shipped to the store." And it can also -- "Oh, you'd like to know a little bit about that shoe, how much it weighs, here's the information on that." So provide all of that right there in the associate's hand to be able to deal with [indiscernible].

I'm very pleased that you've clarified that, and it's clear that you're not being left behind at all.

And our last question is from Omar Saad from ISI Group.

This is actually Sam Lee in for Omar. Ken, I have a couple of questions. It seems like in the U.S. in particular, you guys are nicely outperforming relative to your competitors. Are you seeing a similar relative outperformance in Europe? Or can you speak to sort of what you're seeing in the region?

I would say that we are performing as well as most people there. But Europe's a different environment. Because in Europe, we're the only real pan-European retailer in our space, and there are local ones in each country. And so in some countries, we're doing very well. In other countries, there might be a competitor that's doing as well or possibly even better than us. So it's difficult to say across the board we're doing better or worse. I would say that we are doing as well as on average as any of the competition. It's a challenging environment for everybody. One of the things that's happening is there's a lot of impact on some of the weaker merchants, and a number of them are going under. And in fact, there's been quite a bit of press about the U.K. I will tell you, we're doing much better than what some of the press has been written about some of the competition in the U.K. So I would say we're doing as well if not a little better in Europe than most of our competitors. But it's not a pan-European, it's country-by-country.

Okay. Great. And my second question was on the Nike Flyknit. I think previously you had indicated that you expected to have the shoe in select Foot Locker stores. I was wondering if you'd be willing to share sort of your initial reads on that particular product and sort of where you think it could trend over time.

I think the product will be terrific. I think it offers a lot in terms of look, weight, performance. But I can't tell you how it performs because we don't have any yet. We're getting them in some select stores, as you said, in the different chains and in the different countries in the next couple of months. But I wish we could have a lot more. I wish I could tell you, but I haven't had any yet. But I feel very good about the product.

All right. That's all we have time for now. Thanks again for your participation on today's call. We look forward to having you join us on our next call, which we anticipate will take place at 9:00 a.m. on Friday, November 16, following the release of our third quarter and year-to-date earnings earlier that morning. Thanks again, and goodbye.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.