Good morning, ladies and gentlemen, and welcome to Foot Locker's Second Quarter 2014 Financial Results 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 today'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 John Maurer, Vice President, Treasurer and Investor Relations. Mr. Maurer, you may begin.

Thank you, Dawn. Good morning. Thank you very much for joining us today to discuss Foot Locker, Inc.'s results for the second quarter of 2014. In this morning's press release, we reported an increase in second quarter net income to $92 million or $0.63 per share on a GAAP basis. This EPS figure represents a 43% increase over our second quarter earnings in 2013 of $0.44 per share. Year-to-date, our net income has reached $254 million or $1.73 per share on a GAAP basis, an increase of 25% over net income in the comparable 6-month period last year. As noted in our release, we incurred an impairment charge of approximately $2 million pretax related to the CCS trade name as we transitioned our online skate business to Eastbay. Excluding this one-time expense, second quarter non-GAAP EPS was a $0.01 higher at $0.64, a 39% increase over the $0.46 per share we earned on a non-GAAP basis last year. A reconciliation of GAAP to non-GAAP results is included in our press release, and except as noted otherwise, the numbers mentioned during our remarks today will be based on the non-GAAP results. Lauren Peters, Executive Vice President and Chief Financial Officer, will start us off this morning with a summary of our second quarter and year-to-date financial results. Dick Johnson, Executive Vice President and Chief Operating Officer, will provide additional insight into the business drivers in the quarter. And finally, Ken Hicks, Chairman and CEO, will highlight our progress on several of the key initiatives leading us on the path towards achieving our current long-term objectives. After Ken's prepared remarks, we will open up the call for you to ask questions. So let's jump right in. Lauren, shall we?

Yes, John, let's. Good morning, everyone. Thank you for joining us this morning. I am very pleased to share with you the details of how we achieved the excellent overall results that John just highlighted. We had strong top line growth, as well as very strong performance in gross margin, SG&A and the balance sheet. Our quarterly comparable sales gain of 7% is a clear indication that the momentum we have felt in our business in recent years has continued so far into 2014, and it's helped propel our financial results to new record highs. With the strength of a full quarter of Runners Point Group sales, our overall top line increased 12.9% compared to the second quarter of 2013. Recall that last year, RPG sales were included only for the month of July. Comparable sales increased high single digits in May, mid-single digits in June and in July, were strong mid-single digits. By segment, our athletic store sales were up 6.1%, while sales in our direct-to-customer segment increased 14.9%. We believe these results demonstrate the importance of having a strong and consistent focus across all channels of distribution, since our customer expects a fresh and exciting store environment and an engaging and flexible digital experience. Within our store divisions, we drove low double-digit comparable sales gains in both our U.S. Foot Locker and Kids Foot Locker stores. Our next strongest store banner, I'm pleased to report, was Lady Foot Locker, with a gain in the high-mid-single digits. Dick will address Lady Foot Locker's progress during his remarks. Our international divisions of Footaction were each up in the mid-single-digit range. Foot Locker Europe, in fact, posted a comparable store sales gain in all 19 countries in which it operates. In addition, the Runners Point and Sidestep banners both posted strong mid-single-digit comparable sales gains, although recall that their comps will not be included in our consolidated comp numbers until October. Foot Locker Canada's mid-single-digit gain this quarter was a nice improvement from the sales decline that posted in the first quarter when winter seemed unwilling to loosen its grip. And although it is our smallest division by store count, our Foot Locker Asia Pacific team has done a terrific job driving both top line results and our bottom line productivity, which is now among the highest in our company. The only store division which did not post a comparable sales gain was Champs Sports, which missed by less than 1%. The biggest challenge at Champs was in apparel and accessories, which is a bigger percentage of their business than it is in our other divisions. Within our direct-to-customer segment, our U.S. store banner.com business continues to be our fastest-growing business, with sales increasing at close to a 40% clip. Eastbay was up low-single digits in the quarter, while CCS was down low-single digits. The transition of our skate business from the CCS banner to Eastbay is proceeding in line with our plans and should be complete this fall. With the growth in top line sales, our gross margin improved at a very strong 80 basis points to 32%. The gain was driven primarily by operating leverage on our relatively fixed occupancy and volume costs. We improved our markdown rates in the quarter to offset ongoing pressure from lower initial market rates and lower shipping and handling income, leaving our merchandise margin flat to last year. Our expense management and store operations team did an exceptional job in the quarter, with our SG&A rate decreasing 70 basis points to 20.9%. Some of the improvement from last year's second quarter rate was due to enhancing store associate productivity through enhanced training, as well as utilization of hiring and scheduling tools being implemented in the last several quarters. We also took a disciplined pay-as-you-go approach to marketing expenses, which in Q2 actually came in below last year. However, due to the timing of certain back-to-school campaigns, some of the marketing expense dollars are shifting from Q2 into Q3. Depreciation expense increased to $36 million, an increase of $5 million compared to last year. This increase reflects the incremental investments we are making in our store fleet, our digital businesses and technology to drive efficiencies in our operation, as well as the addition of RPG to our asset base. Our tax rate came in very close to our expectations at 36.3%. Our rate was 140 basis points lower than last year's second quarter rate when tax expense was pressured up by an additional state tax provision and Runners Point acquisition costs, which were not tax deductible. The overall result was net income on a non-GAAP basis of $93 million or $0.64 per share, an excellent 35% increase over last year. We are proud to expect yet another record for our quarterly and year-to-date earnings results. We also had a very strong inventory performance, as we posted an increase of just 2% compared to a total sales increase of almost 13%. We are working hard to improve our inventory turns, and we are making good progress, especially in footwear. This inventory discipline enables us to keep solid flow of fresh receipts coming into the business, and we feel our inventory is well positioned for the back-to-school and fall seasons. We had strong cash flow during the quarter and in a period with a cash balance of $957 million. This performance has enabled us to continue investing in the business as we track towards our annual plan of $220 million in capital expenditures. We returned $98 million to our shareholders in the quarter through our $0.22 dividend, which we increased by 10% at the beginning of this year and the repurchase of 1.33 million shares of our common stock for $66 million. Year-to-date, we have repurchased $136 million of our stock, reducing outstanding shares by almost 2.9 million. In total, we have returned $200 million of cash to our shareholders through our dividend and share repurchase programs so far this year. Turning to a brief real estate summary. We ended the second quarter with 3,460 company-operated stores, a decrease of 4 from the end of the first quarter. We are still on track to close just over 100 stores this year, although some of the closures have been pushed back into the second half of the year. We are currently projecting to open approximately 80 stores this year, mostly in Europe and Kids Foot Locker, up from our initial projection of about 60. I will finish by updating our guidance for the balance of the year: Mid-single-digit comparable sales gains, 20 to 40 basis points of leverage gains in gross margin, 30 to 50 basis points of SG&A rate improvement, and a double-digit increase in EPS. We performed even better than that in Q2, as we're off to a solid top line start to back-to-school, with a high-single-digit comparable sales gain so far in August. However, I have mentioned a few timing factors, such as the final liquidation of CCS merchandise this fall, marketing expenses that shifted into Q3 and additional store closing expenses, which will lead -- which will yield more leverage opportunity in the fourth quarter than the third. And now, I'll turn the call over to Dick to review the merchandise highlights in the quarter.

Thanks, Lauren. Good morning, everyone, and let me add my thanks to everyone on the team at Foot Locker, Inc. It was an outstanding team effort that led to the results Lauren just detailed. I'll start my remarks with our families of business. Footwear was once again our strongest area, with a comp gain in the high-single digits, while apparel and accessories were down mid-single digits. Within footwear, basketball continued to be the leader, with a gain in the teens. We had good strength in our running business as well, which is -- was also up in the teens with very strong double-digit growth internationally, where running is our biggest category, and mid-single-digit growth in the U.S. In basketball, and I know I'm starting to sound like a broken record on these calls, but Jordan continues to be the strongest area of the category, which fortunately has many others strengths as well. Jordan was strong across all its components. The Jordan player shoes, including CP and Melo, had solid sell-throughs, as did some of the classic off-court styles, such as the True Flight and the Flight Future. And of course, the Jordan Retro releases continue to drive sales and traffic into our stores. Our key player shoes were another bright spot in basketball, with gains in Lebron, Kobe and KD. While traditional mid- and high-top silhouettes were strong, some of the strength in basketball also relates to the proliferation of low-cut styles within all of those player franchises. These shoes are categorized as basketball, although a year ago, the same customer may have been buying a running shoe, since he's not necessarily buying the shoes to play basketball or run in. It's also about the look. In fact, I think John here, with this Kobe Phenomenons, is leading that fashion trend. Turning to running. Max Air from Nike, with models such as the Max 90, the Thea for women and Finger Trap Max, was a consistent winner across our banners and geographies. The Roshe Run has also become a global success, producing significant gains in dollars and units. The ZX Flux from adidas was certainly a popular choice in running, especially in Europe, but also in the U.S. where we expect it to continue to build. We're also seeing gains out of New Balance, particularly in the 574 program. Within lifestyle footwear, the Air Force 1 franchise continues to perform well, as do classic styles in PUMA and Vans. Switching over to apparel. Our U.S. Locker division, which includes Foot Locker, Kids Foot Locker, Lady Foot Locker and Footaction, generated a comparable sales gain in the mid-single digits. The improvement was led by branded tank tops, t-shirts, shorts and hats that all coordinated with footwear. Socks continue to sell well, especially Nike multipacks, stamps and NBA socks, which are offsetting a slowdown in Elite Socks. The areas of the biggest apparel challenge were Foot Locker Europe, with a double-digit decline; and Champs Sports, which was down mid-single digits. Both divisions were impacted by a fashion shift away from certain programs that had helped drive their results in the past, and both divisions are working diligently to adjust their apparel assortments and work with our key vendors to revitalize and refresh programs that we believe will resonate with our customers in the future. In the case of Foot Locker Europe, that division successfully drove a strong double-digit footwear gain to produce the solid mid-single-digit overall comp gain that Lauren mentioned. Champs Sports, on the other hand, had strong footwear sales in the quarter. But with apparel being a more important component of their total merchandise assortment, it wasn't sufficient to produce an overall comp gain. That said, Champs Sports remains a very productive chain and a strong profit producer for our company. We've had a great deal of success differentiating our banners over the past few years. Champs has been a leader in that effort and has had many quarters of double-digit comp gains during that time. With additional remodels, which are outperforming the balance of the chain, enhanced vendor partnerships and select assortment and presentation changes, we believe that we have the capability for Champs Sports to get back to be a strong contributor to our comp growth and increase its profits to even higher levels. Before I turn the call over to Ken, I'd like to conclude my remarks by touching on our women's business. We are all very pleased to be reporting the high-mid-single-digit comp gain that the Lady Foot Locker chain, which includes our 9 SIX -- at the Lady Foot Locker chain, which includes the 9 SIX:02 doors. Our women's business, in fact, was up in most of the banners we sell in this product. Within the Lady Foot Locker division itself, footwear was up mid-singles, while apparel was up in the teens. In short, the customers are finding us. They like the new performance-oriented assortments we offer in both SIX:02 and most Lady Foot Locker stores, and we're clearly on the right track. We're encouraged enough by our test results so far and the comp trends to expand our tests and remodels to drive the turnaround in this business. However, we still need a bit more time to finalize the model before we commit to a large-scale rollout plan. We'll be sure to keep you updated as our plans solidify over the coming months. Anything you'd like to add on the women's business, Ken?

Yes, Dick, I would. But first, let me add my thanks to all our associates for producing the outstanding results we're privileged to be reporting today, and let me also thank all of you who are participating on the call this morning. I really appreciate the confidence and support you all give us, whether it's in analyzing and writing about the Foot Locker story or investing directly in our company. Thank you all very much. In terms of our women's business, I recently described the status as being in a green fuzz stage. When you plant a lawn, you go from seeing a barren-looking patch of ground, which is that discomfort thing that happens when you fire your previous customers, to seeing a few green shoots, which is what happens when your new target customer first starts to find your new assortment. At the green fuzz stage, you can finally begin to see that you're actually going to get a full lawn, but you have to keep watering and fertilizing it diligently to make it healthy and sustainable. We can't let the football team run around on it quite yet. The comp gain we achieved at Lady Foot Locker in the second quarter was a beautiful thing and was especially gratifying for the team that's been working so hard to make our women's business a success we believe it will be. However, we're still in the nurture and development stage, and the team is doing a great job. I give them all the credit in the world. Turning to the overall business, as Lauren and Dick have described, the momentum we've built remains intact. We've achieved 18 consecutive quarters of meaningful sales and profit growth, and the team continues to set records in the key financial and operating metrics we track. The even better news is that we continue to have multiple opportunities to improve our business even further. We have many strengths upon which we're building, including the store banner.com business, which is up more than 40% year-to-date; the children's business, which continues to grow at a double-digit pace; strong vendor relationships, as seen in the variety of shop-in-shop partnerships we're rolling out or testing and in the very significant portion of exclusive product in our assortments; our geographic diversity, which allows us to spot, capitalize on and even develop trends around the world; our multiple banners, which in the U.S., have already allowed us to broaden our customer set through thoughtful differentiation and which is the same playbook we're drawing from in Germany with the Runners Point, Sidestep and Foot Locker banners; our creative marketing programs, which continue to reach millions of customers and bring fun and humor to our business and our strong capital structure, which allows us to invest in the business, return cash to our shareholders and retain our financial stability and flexibility. I could go on with examples of initiatives that we're working on that are already contributing to our strong results. Apparel is a growth opportunity as we expected, that's taking longer to gain consistent traction. We're working hard with our key brands to build on the programs that have been successful, get other important programs back on track and develop new programs with vendors, big and small. We plan to capitalize on the exciting store environments we're creating through our extensive remodel initiatives. For example, we're working closely with Nike on Jordan and women's apparel and closely with Under Armour as we're exploring opportunities to bolster both of our businesses. We're also continuing to push our private brands such as Sneaker Freak, Champs Sports Gear and Actra to become even more relevant parts of our assortments. And finally, we're driving our apparel results in those banners in which apparel was previously underpenetrated, particularly in kids and women's. Overall, we still believe in our ability to boost our apparel penetration over time back closer to the 30% level it was a decade ago. I touched briefly before on our remodel program, which, overall, continues to exceed our expectations. Let me give you a few statistics. We remodeled almost 100 stores in the second quarter, the most of any quarter so far and doubled the number in the first quarter. The second quarter, sandwiched as it is between Easter and back-to-school, gives us the largest window to let our excellent construction teams work their magic on the stores. We're on a planned pace to have remodeled 20% of the Foot Locker stores in the U.S. and close to 30% of the Champ Stores by yearend. At the same time, we're testing additional Footaction remodel locations, as Dick mentioned, and testing more SIX:02 stores and rolling out more Bridgewater format remodels in Lady Foot Locker. Meanwhile, we're testing our remodel formats in international markets, as well as expanding banners and shop-in-shop concepts there. For example, we have 17 Kids Foot Locker stores outside the U.S., as well as 16 House of Hoops shops in 10 other countries around the globe. We're being thoughtful as we execute all of these remodel programs both in the U.S. and internationally, making adjustments, where appropriate, to maximize their potential. These fresh remodels are an important element along with other factors, such as strong marketing programs, and of course, a great pipeline of products from our world-class vendor partners. That has been -- that has contributed to our ability to buck the declining traffic trends in much of retail. Most of our banners, in fact, have experienced increased traffic this year to last. In Footwear, both units and average selling prices were up in the second quarter. We're working hard to be able to say the same thing about apparel in the future. With that, let me just sum it up by saying again that I'm extremely proud of the team at Foot Locker, which produced these outstanding results. At the same time, that the team is delivering record results like this, we're planning for the future, not just by having thoughtful operating strategies and initiatives to build the business, but also by developing leaders across the organization. In fact, just last week, we had the entire senior management team from around the globe together in New York to test drive a new leadership model that we developed specifically for Foot Locker. It's a powerful model, which can be applied throughout all layers of the store and support organizations, and which I believe can help us take full advantage of all the opportunities the company has in the near, intermediate and longer terms to reach even greater heights of financial and operating performance in the future. Thank you, all, very much. Let's get to the questions.

[Operator Instructions] Our first question comes from Mitch Kummetz from Robert W. Baird.

I guess I was just hoping to get even more color on the women's business. I mean, great performance in the quarter, both footwear and apparel. How much of that was the Bridgewater rollout? I mean, where are you guys in that process? Just any more color on this sequential improvement in women's would be very helpful.

We've said next to -- this is Dick, by the way. We've got 9 SIX:02s, we've got about 60 doors that are Bridgewater. Most of that Bridgewater work happened very -- at the very end of Q2, so a lot of this success in the quarter was driven by the big stores before the Bridgewater remodel. So again, we continue to test and develop the plan, and we're feeling good about the footwear and apparel and accessories business across our women's chain.

And then maybe on the margins, Lauren, could you just give us a little more detail? I mean, obviously, you did really well both gross margin, SG&A in the quarter. Just kind of run through the puts and takes on gross margin in terms of the basis point impact on the quarter.

Yes, again, it was 80 basis points of improvement that really came from leveraging the fixed occupancy and buying cost elements. We lowered markdowns in the quarter. And as we've described before, that helps us offset the IMU pressure that is ongoing, primarily from a mix of vendor and category performance. So the underlying merchandise margins ended up flat.

Okay. And I know you said more margin or more margin opportunity I think in Q4 than in Q3. Is there any way you can just kind of talk about those puts and takes as they -- you expect them to flow over the balance of the year?

Yes, you're correct, Mitch. So as we're looking at the back half, Q3 has some timing issues in it, right, of the CCS inventory that we're working our way through, and that's putting the additional pressure on merchandise margins. And then in Q3 in particular, as we've described, some of the marketing campaigns for back-to-school are more skewed towards Q3 than early -- than late Q2 as they were last year. And we've got a bit more store closing costs, so that's going to be in Q3.

Our next question comes from Michael Binetti from UBS.

Lauren, just one more quick follow-up, just for our models on the liquidation of the CCS merchandise this fall. I think that that's finalizing this fall, so maybe a temporary headwind to gross margins, but could you tell us when that CCS drag started on the merch margins for you guys?

Well, it really started with the announcement that we were going to transition that business to Eastbay, so that was in Q2.

Okay. And then could you just talk -- Ken, would you be able to talk us a little bit through the apparel trends at Champs? I felt like you were getting pretty comfortable with the overall shift to branded apparel. And then, can you help us think about the crosscurrents that are there today and if there's any -- and maybe some of the details on the strategy in the back half, as well as whether -- you've obviously got crosscurrents from a lift from remodeling these stores, but it sounds like across several of the banners, a drag from the apparel program. Can you help us try to sort out how you look at those heading into the second half?

Yes, Champs has a higher penetration of apparel, as Dick mentioned. One of the challenges is -- challenges are that some of the larger programs that they've had in the past have not been as productive, for example, the licensed business has been more challenging. They had a pretty good-sized license business. We are rightsizing that and focusing them more on performance and training. Some of the brands that they've had, if they have some ups and downs, and we're balancing those out, and the brands are working hard to update what they have. So because of some of the shifts have more of a negative impact on them than the other brands, that said, we've got increases in most of our banners in apparel, and so we think, based upon the work we're doing at Champs, is a shift from some of the down-trending elements into these up-trending elements. And as we remodel and update the stores, which are performing better than the chain, we will see the improvement in Champs, along with the continued improvement in the other divisions.

So is it safe to assume that the remodeled Champs are still in positive territory even though we've got some temporary apparel stuff to work through here?

Yes, overall, they are. Like anything else, there's an outlier on both sides.

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

I guess I'd like to -- for Ken, for you on Europe. It looks like footwear up double digits. We're in the early stages, I think, on sort of how that product is being seeded in the market. Maybe just talk to thoughts there relative to the overall macro environment. And it looks like, stepping up the door count, I'm assuming that's mostly Europe, is that core Foot Locker doors? Is that Runners Point? Maybe just some color on Europe today.

Yes. Well, we feel very good about Europe. In fact, we just came back from a board meeting there and let the board see what is happening there and why we feel bullish on it. As Lauren said, all of the countries are positive. That doesn't mean that the economies are great in Europe. There are still challenges, some of which we've now anniversary-ed, but we've learned and have developed our assortments to better fit the environment. We continue to see some strength in running, and we've had some very good results on items like the ZX from Adi, and so we feel good about that. We've also seen a growth in basketball, and so we're working with Nike on their product in basketball and what we're doing there. We've opened up a number of House of Hoops, and that business continues to grow. We're getting -- working on the apparel, again, a bigger apparel concentration in Europe, and so they were impacted more on some of the shifts in apparel. We think that working with the vendors, we're going to be in a better position there. Our expansion, because of just the timing, we have -- we are continuing to expand Foot Lockers in underpenetrated markets and where we see opportunities. And we are also stepping up some of the Foot Lockers by putting in things like House of Hoops, adding Kids Foot Lockers in markets, and so we're developing there. We also had in the pipeline some Runners Point and Sidestep stores, and so we continue to build those. We are, at this time, primarily doing that in Germany, but we see, at some point in the foreseeable future, the ability to expand Sidestep and Runners Point outside of the German market.

We're also in the test mode with the remodels in Europe. We've got a handful of Willowbrooks that we're making sure that the floor fixtures are dimensionalized appropriately because a lot of the stores have a smaller selling floor than they do in the U.S.

So real quick, Dick, on that, to follow, could you say what percentage is sort of being in the remodel of those European doors?

Yes. We're just very much in the test on this. So we've got -- it's a small number.

Okay, fair enough. And then if I could switch gears, and I'm going to try to delicately ask this question. Again, I don't want you to speculate by any means, but this is important out there. Saw other reports of what's going on with the potential switch here for KD, Nike, Under Armour, maybe just walk us through the implications near term and long term in your view to Foot Locker brand.

I will tell you again, we don't comment on rumors, and I don't -- you probably know more than I do on what's happening there, so that's why we shouldn't comment. That said, we have a very strong set of vendors that have very good portfolios and work hard to make sure that we're positioned properly -- they're positioned properly and we're positioned properly with them. I think that we will have, and our vendors will have a strong portfolio of players and there possibly could be some very short-term disruption. I don't know if there was. But that said, I believe -- we're working with the vendors, and they're working very, very hard to make sure that we offer the best product from the best players all the time.

Our next question comes from Paul Trussell from Deutsche Bank.

Just want to go back to gross margins quickly. From the sounds of it, Lauren, I think you just reiterated the guidance of 30 to 50 bps for the year, although you guys have outperformed that kind of year-to-date. Is there anything that we should be thinking about in the second half that is mix-related or any IMU pressure that could potentially pop up in 3Q or 4Q that was not seen in the first or second quarter?

On the expectation line, IMU markdown, the strategy remains the same, that we still see the IMU pressure coming from just the mix vendor in category trends. But we feel good about our ability to control the promotional cadence to offset that, right, as we work to get better assortments, et cetera. It helps us with the markdowns. So the only new element, if you will, is the clearance that we need to get through with our CCS products.

Got it. Okay, that's helpful. And then just -- if you can just give us an update on Eastbay. Obviously, CCS is getting added into that online business, and the banners are what's seeing the strong growth. Just how should we think about how you're approaching kind of the marketing angle for Eastbay? What's kind of the latest update from a team sports standpoint? I thought Eastbay was going to really be the launching pad for you guys to get more aggressive on that front. Just be helpful -- any color would be helpful.

Yes, we continue to feel good about Eastbay. It continues to run ahead. We put it as part of overall dot-com. But Eastbay is a very important brand to the young elite athlete. And we believe through the marketing of that, both in terms of online and through the catalog, the catalog still shows up in all Locker Rooms, that it's going to be a driving business. We just are coming out with a new program that highlights some of the elite high schools and how those high schools train, and it's in the online site. And I'll tell you what, it's impressive. I'm not sure I could make a team in today's day and age, but it really talks to that young kid. So we're expanding there. We also are expanding our women's, our girls business through Eastbay, and we're seeing some good success there in sports like basketball and volleyball, field hockey. We're expanding in sports like lacrosse. So Eastbay, the site continues to be a strong and important part of our business. We are having good growth in our team sports. The challenge with team sports is, as we expand to other markets, it -- we give up Nexus, and so it's a trade-off between what we do online and what we do in team sports. We want to have a place -- a selling organization in place to offset that. We have seen that when we put that in place, we really haven't had a big impact on the sales of Eastbay online in those markets. The third element of Eastbay and one that we just started, as we said in the beginning -- or in the middle of this quarter, is our new Eastbay Performance Zone in Champs. We've gotten 4 stores in Wisconsin, Milwaukee, California and Florida, and they're off to a very good start, receiving great customer and associate reaction. We've used them for team selling events. And I believe taking that idea to a -- to the market where you take a virtual store and put it in a real store and kids can try on the shoes and see all the different colors that it's -- that's going to be a game-changer for Eastbay, too. So we feel good about Eastbay. We've got what you would consider the traditional initiatives, and we continue to update those, the team sports and sales and now, the Eastbay Performance Zone in Champs that will continue to step it up.

And just quickly, there has been maybe a surprising shift away from a trend standpoint of some of the apparel products. What is it that gives you the confidence, in terms of what you're seeing from a vendor pipeline or what the customers are telling you, that gives you the confidence that the footwear aspect will continue to see this type of strength throughout the balance of the year?

Well, we continue to see great product coming down the pipeline, Paul, from all of our vendors, both on the footwear and apparel side. I think, as Ken mentioned a little bit earlier, as we balance some of the apparel categories, they're really there to help us support our footwear sales. And we want to sell more apparel because we believe it helps us drive footwear sales. But as we look forward from our vendors, both on the apparel pipeline and the footwear pipeline, we see a lot of innovation, we see a lot of freshness and newness from a variety of suppliers. So we have the confidence that both the footwear trend is going to -- we're going to continue to roll in footwear and that the apparel will support that.

Our next question comes from Robert Ohmes from Bank of America Merrill Lynch.

Dick, I was hoping to just follow up on your vendor support commentary. Can you give us -- I know you can't give us a lot of detail for competitive reasons. But could you maybe give us a little more help, as you look at the basketball trend and you look at the launch schedule through holiday of this year and into early spring next year, how you feel about it and maybe a little color on that on the basketball side? And then, could you also maybe give us a little more detail on -- I understand that basketball may be taking some share from running. But if you look at running by itself within your business, are there any positives to call out there or things that can keep the running and your casual footwear business comping as you move against some tougher comparisons this year?

Yes. I'll start with the basketball and the launch question, Robbie. And launch is a part of our business, but our job is to really grow our core business, as well as working with our vendors to make sure that we've got launch increases. Now we've said many times that the launch calendar is what it is. It flexes by a week here and maybe a different player, whatever it happens to be. But we work closely with our vendors to make sure that the launch cadence is supportive of what we need to do from a business perspective and matches what they need to do. So I'm pleased with where we're at from a launch perspective, but I'm really pleased with where we're at from a core business perspective, and that goes to the running versus basketball that you talked about. And we've called out the ZX Flux, which the team over in Europe has really been having a nice run with. We're bringing that into the U.S. The Roshe Run, which is a casual shoe, obviously, but categorized when we look at running, that continues to be strong. We still sell an awful lot of Free. The Flyknit program from Nike continues to be strong. Our smaller technical brands continue to have some strength. And we look at the fall marathon season and believe that they'll continue to be strong in our business. So the balance between basketball and running, we look at running as being able to continue to sustain comps. And probably, if you look at it across all of the footwear categories, casual is probably the one that's suffering a little bit. When you look at slides and sandals, they seem to be dropping off a bit. That being said, we've got some mix changes with our vulcanized product between Converse and Vans and some of the other vendors. So the balance feels pretty good, Robbie. If we can get some retro trending and some casual pieces to work, it looks even better.

Our next question comes from Matthew McClintock from Barclays.

I was wondering -- you gave some really good color on Europe earlier to Eric, and I was just wondering if you could elaborate on that specific to the e-commerce business. How do you think about that business now that you had it for over a year? Are the growth rates in that business similar to what you're seeing in your dot-com banners here in the U.S.? And are there any differences between how you're thinking about that business in Europe versus thinking about the business in the U.S.?

Yes, we feel very good about the dot-com business in Europe, and it's one of the strengths that we've got with the Runners Point, the Tredex. But we had been developing a good FootLocker.com business and we're now in 9 countries, specifically, but we got a .eu that's across all of -- or most of Europe. And so that business actually has been growing much faster than the dot-com business in the States, but it's a much smaller business, smaller penetration. But we're seeing good acceptance, and we are making the investment in many of the things that we've got in The States in terms of the site, the energy of that, in terms of delivery options. You can actually take more ways -- means of payment in Europe than we can in the States because they have more means of payments. So dot-com in Europe, that's -- it's a small business now, but it's a very fast-growing business and one that we see will become a much more significant part of their portfolio.

Our next question comes from Bernard Sosnick from Gilford Securities.

We're hearing from a large number of retailers that this is not a good denim year, but an active wear year. Could you discuss how this pattern is influencing your business? You've indicated Champs is having difficulty with licensing, but I'm sure that it's a big part of what's happening positively with Lady Foot Locker. And relatedly, was there a chance that with Champs, you're a little late in recognizing the development?

Yes. I think the trend -- what you're hearing from are mainly the women's retailers because the men's retailers have not changed as much, although, there are some trends that we're seeing, for example, in the type of shorts that a guy wore this summer. And -- but in women's, you see a lot more women who are wearing tights and exercise pants and exercise tops around, and there's a benefit there. I think that there's a fashion element of that, but there's also an element that women are just working out more and so they're wearing it more, and they say, "Okay, I'm not going to go to my workout," then change, and then go to Starbucks or -- and the grocery store. "I'm going to wear my stuff that I worked out in to Starbucks. I'm going to go to Starbucks and then I'm going to go work out." So they just find it more convenient, and it's gotten a better look and fashionable, so she can do that. So there's some impact, but I think it's a trend versus cycle that there is a trend that women will be wearing more of this in the future than they have in the past on a continual basis.

And what about the men's side? I mean, license weakened, but what are you seeing that's replacing it going forward at Champs?

Well, the actual performance where we see is the strengthening business. More guys are wearing that. Literally, coming back on the plane yesterday from Europe, I'd say half of the guys were wearing performance tops. There weren't a whole lot wearing -- even with the World Cup here, wearing World Cup tops. You thought some of the tourists might have been bringing that back. The -- so that was one. We probably stayed a little bit too long at the party with the size of our license business. There's still a license business out there, it's just not quite as big, and we're seeing more performance. We're also seeing from the -- some shifts in some of the fashion that guys are wearing in terms of the type of shorts or type of fleece bottom they're wearing, and we're making adjustments. Some of that is coming from Europe, some of that is U.S.-specific. But as Dick said, other change where they weren't just depending on some of the stuff historically, they're actually seeing some pretty good business.

The footwear business is strong overall -- pretty much overall, you've cited certain weaknesses. But included in the weakness, you said casual shoes, and I guess Roshe is in your casual segment and yet performing well. Could you give us a sense of how Roshe is being received? You said it's doing well in Europe. Is it influencing the thought process and the fashion sense overall?

Well, one of the things I think that's important is, we said Roshe is doing well and it's doing well everywhere, and it's a great shoe. And the ZX is bigger in Europe. They're just now coming to the States. We think that will do well. What's happening is displacing some of the older casual or lifestyle shoes, what the industry calls classics. And so instead of buying an older-type sneaker, people are buying Roshe. I don't know if you want to add something, Dick?

And the thing about Roshe is that they're at a price point that is very accessible, so they may buy 2 or 3 different colors in Roshe, so that they can hook up with different things. So it's a very positive silhouette around the globe for us.

Great. You have a lot of stamina, Ken. You sustained 4.5 years of growth. Of course, I know it's with a terrific team, but that's overall to the credit of Foot Locker.

Our next question comes from Taposh Bari from Goldman Sachs.

So one quick follow-up for Lauren, and then a question. The margin guidance that you gave on gross margin and SG&A, is that for the full year or is that for the rest of the year?

That's for the balance of the year.

Okay, so effectively, the second half of the year?

That's right.

Okay, great. And then a broader question, just on your operating margins, which are obviously a very good quarter, very good last 12-month performance record highs. Can you just remind us, I know you haven't set a new goal of where your margins could or should be, but can you just remind us of the biggest buckets where you have either the greatest visibility and/or the most room to improve? I know there are many, but I'd love to hear the ones where you see the greatest convictions.

We have many things that are opportunities in front of us, near term leading to long term, as Ken described in his comments during the call. And all of those add up to increased productivity, whether it's increases sales per square foot. And when you're doing that, that's driving the margin metrics. So we manage that and we pursue the gross margin opportunities that we have with investments such as the allocation system, right, which for us has yet to come online. We begin the process of bringing it online here in the fall. And what that tool does, to spend a minute on it, that it lets us improve getting the right product to the right place, the right time, all of those right, which support greater top line and better margins because you're doing less promoting to correct the places where you sent it and shouldn't have, right? So these are the things that long term will help us and make us very -- feel very good about achieving our objectives on the margins.

Our next question comes from Kate McShane from Citi.

Most of my questions had been answered, but I wondered if you could just spend a few minutes telling us about your longer-term outlook and strategy for Europe. Nike has been very vocal, I think, about their efforts for more category offense in the region. I know you mentioned a few things on the call today with regards to House of Hoops in Europe as well. But overall, what do you see as the ultimate goal for Europe Foot Locker?

Kate, as Ken mentioned, we've got the opportunity to expand our Foot Locker base in underpenetrated countries. We see the category offense that Nike's pushing as we talked about running as the primary category -- or the lead category, I should say, in Western Europe. But the team over there is working to grow basketball as a significant part of the business as well. And then the apparel piece is one that I talked about earlier that we're working hard at and we think that there are some opportunities. Then when we get into the differentiation of our banners with Sidestep and Runners Point sharing space with Foot Locker in Germany, we believe that once we get those banners clearly defined and differentiated, we will be able to test them going outside of Germany, and that was one of the rationales behind the acquisition. So category offense will play strong, expansion in underpenetrated countries, ability to differentiate the banners and test that, and then the dot-com business that Ken just talked about. So we see opportunities out in Western Europe.

Our next question comes from Jay Sole from Morgan Stanley.

Again, you made a nice call-out about your Asia team, and I know it's small, roughly 90 stores of 3,500 in the chain. But can you talk about -- since you talked about Europe, can you talk about the potential in Asia? Are there any possibilities of increasing the store count there? Do you see a long-term opportunity that maybe we haven't talked about so much on previous calls?

Well, we constantly look and evaluate the opportunities in markets around the world. And at the current time, we don't see an opportunity, but we've got to be open to look and listen, and we've got a strong team in Australia, New Zealand, we've got a good franchise in Korea. And so that's our effort in the Asian market, but we have not announced or have any plans for expanding beyond that.

Okay. And then, Lauren, the growth in the first half of the year in terms of earnings per share has been like 28%, terrific growth. The guidance for the year is double-digit. The market is looking for 11% growth -- EPS growth, I mean, in the second half of the year. Can you maybe just define what double-digit means a little bit more, if possible? Is it closer to what is kind of already in the consensus number? Or is it closer to maybe what you've done in the first half of the year?

We're not going to go beyond double-digits. We're not giving guidance beyond double-digits.

Our next question comes from Sam Poser from Sterne Agee.

A couple of things. Can you be specific on like how -- what the marketing shift was between Q2 and Q3, or is going to be between Q2 and Q3?

It's about $2.5 million.

Okay. And then, Dick, when you look at the European -- the international business and the challenge in apparel, we saw some data that was saying that a little -- that the licensed apparel for the World Cup did exceptionally well. Were you involved in that business, either here or over there? And did that -- what happened with that?

Yes, we had just a thimble full of World Cup product around the fleet, Sam. And where we had it, it worked well. Like any event merchandise when the event is over, the merchandise sales are over and we got to move on. So it certainly was not impactful to the business. In the specific stores that we featured it, the specific countries that ended up having more success, we sold the product that we had, but it was not a big investment or a big position during the World Cup.

Would that -- with the new allocation system going in 4 years from now, let's say, would that end up being something that you could be more aggressive with, having more information and so on, and being able to allocate it better?

Yes, theoretically, it could be a little bit bigger, Sam. But again, the event stuff drives right up to the date of event and then it drops off dramatically. And with the World Cup, it drops off dramatically as your team gets knocked out in the knockout rounds.

Got you. And then lastly on -- you commented -- well, on the Roshe, you commented on the 574. Are you seeing other sort of that retro running either from some of the ASICS products, Brooks and others? I mean, are you seeing that also start to gain some momentum?

Yes, I think the ZX Flux is a great example. I mean, that's got a lot of Heritage running characteristics in it, and we're seeing that start to pick up. The team in Europe is certainly getting an awful lot of Heritage running, think about a silhouette like the Max 90 that we talked about, called out earlier, one of the classic Heritage running silhouettes.

And does that -- are you seeing a shift in that Heritage product away from very few people who shop at Foot Locker running the shoes, so they're buying it as fashion. Are you seeing that sort of that fashion look going from that more bright color performance into that more classic styling in a general sense?

Well, the color is important and whether it's a flash of color or a wild vibrant color or it's the OG [ph] color ways in some of the Heritage running. There's always the necessity for color and it just varies by shade, I think, Sam.

I guess, I mean, from that real bright flashy stuff that was out over the last year or so.

Yes, I think there's a bit of a tone down from what it was with the old Brooks, but that's part of just the style trend. And actually, the nice thing is that now they get a flash or one splash of color and so it's blue, and the other one they had a whole bunch of colors. Now they've got to buy some red because they're wearing red. So they got to buy another shoe, which is to Dick's point about you seeing people buying a couple of different shoes in the same style so that they can hook up better.

Our last question comes from Chris Svezia from Susquehanna Financial.

So first question, not to beat a dead horse here, but just on the apparel piece, particularly in Europe, maybe I missed it, but can you just explain what the specific issue is? Is it private label versus branded? I mean, what it is and what the timing is potentially on maybe seeing some light at the end of the tunnel in that business in Europe?

Yes, so some of it is a mixed situation, Chris, but some of it is just some key silhouettes that have been very successful that have shifted a bit. There's a movement to bottoms that the team is on top of, so we expect to see some good things in Q3. Will that be enough to get the business on the plus side? Too early to tell yet. There's been a little bit of a change from a graphic tee perspective, and the graphics have changed a bit on the tables. So it's -- I think private label versus branded, getting that mix right and getting the silhouettes right, we had a bit of a miss on a short that the finish, the fabrication and the look, the style was a little bit off from what the customer wants. So those things, little things that add up to make a miss.

Is it fair to say, Dick, that it gets less bad, hopefully, in the back half of the year based on some of the changes that you're making or you don't anticipate any improvement?

Well, we certainly haven't just been there and seen where the assortment is in back-to-school. I'm expecting to see some improvement in Europe's apparel number.

Okay. Lauren, just on the merchandise allocation system, when exactly does it go in again? You said in the fall, and I assume it has absolutely no benefit for this year, but in theory, that should help offset the pressure [indiscernible] . Is that fair to say going to next year?

We'll begin to bring categories onto the tool here in the fall, so over Q3, Q4. And you're right, that the longer it's in, the more benefit we get because it influences product that sometimes, that's the right order. So the benefits grow with time.

And it's a learning system, so as it learns and develops, it gets better. But we literally, in the next couple of weeks, will start our testing, but it's a phased rollout. We're not going to put everything at risk as we introduce the new system. You guys know me well enough to know I have a tendency to -- like to do things thoughtfully, incrementally, but we keep doing them, we keep moving forward and so far, it's working.

Okay. Okay, and that certainly showed in the results. The last question I've had -- or I have here is, just for the third quarter, just for -- when you think about gross margin, does the pressure from CCS, which I assume is small, but the liquidations will be significant, does that prevent you, based on the mid-single-digit comp, from showing any gross margin improvement, or you should still see gross margin improvement based on all the other drivers to the business?

Yes. So factoring in CCS, we are looking for the 20 to 40 over the back half.

We said there was more leverage opportunity in the fourth quarter than the third quarter.

Okay. But it doesn't prevent you from showing some improvement in gross margin in the third quarter.

Yes, it just makes it tougher because that's when the liquidation is.

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 21, following the release of our third quarter and year-to-date earnings earlier that morning. Thanks, again, and goodbye.

Thank you.

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