John Maurer - Vice President, Treasurer and Investor Relations Lauren Peters - Executive Vice President and Chief Financial Officer Richard Johnson - President and Chief Executive Officer

Christopher Svezia - Susquehanna Financial Group Omar Saad - Evercore ISI Michael Binetti - UBS Camilo Lyon - Canaccord Genuity Paul Trussell - Deutsche Bank Jonathan Komp - Robert W. Baird Katharine McShane - Citi Sam Poser - Sterne Agee

Good morning, ladies and gentlemen, and welcome to Foot Locker's Third Quarter Financial Results for 2015 Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. This conference call may contain forward-looking statements that reflect management's current views for 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 release and SEC filings. We refer you to Foot Locker's, Inc. 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 would now turn the call over to John Maurer, Vice President, Treasurer and Investor Relations. Mr. Maurer, you may begin.

Thank you, Chris [ph], and welcome to Foot Locker, Inc.'s Third Quarter Earnings Conference Call. As reported earlier this morning, Foot Locker, Inc. sustained its operating momentum in the third quarter by posting an 8.7% comparable sale gain. Non-GAAP net income was $141 million, equating to earnings of an even one dollar per share, a 20% increase over the $0.83 per share the company earned in the same quarter last year. Included in our GAAP results this quarter was a $100 million pre-tax charge related to pension plan litigation. Including this expense, which was $61 million after-tax, or $0.43 per share, our GAAP EPS was $0.57 in the third quarter. In September, the U.S. District Court ruled in favor of the plaintiffs in this case, which was initiated in 2007. The case relates to the communications to plan participants 20 years ago around changes to the benefits under Woolworths pension plan in 1996. As noted in our press release of September 30, the company disagrees with the court's decision and has filed a notice of appeal. Lauren will provide some context to the case a bit later, but because this litigation is pending, we will not be able to provide any additional information about the case in response to questions after our prepared remarks. A reconciliation of our GAAP to non-GAAP results is provided in the press release issued earlier today. For the first nine months of the year, the company has generated record net income of $440 million - $444 million or $3.14 per share on a non-GAAP basis. This EPS figure is 22% higher than the $2.58 per share earned in the first three quarters of 2014. Lauren Peters, Foot Locker's Executive Vice President and Chief Financial Officer; and Dick Johnson, our President and Chief Executive Officer, are with me here this morning and will now provide the details of our operating performance during the third quarter. Lauren?

Thank you, John, and let me thank all of you for joining us on our call this morning in New York. We are very pleased to be reporting such strong sales and earnings for our third quarter. As we continue to build on our successful model of delivering to our customers the most innovative athletically-inspired footwear and apparel in the market. Our success has been remarkably consistent across multiple geographies, banners, families of business, and product categories. We drove strong top and bottom line performance in both our stores and digital segments. Demonstrating once again the importance of connecting with, and serving our customers however they choose to shop. As mentioned during our previous call in August, the back-to-school season shifted later this year. Our comps were running at mid-single digits at the time of our call, which is where August landed in total. As many kids held back shopping until later in the season, our September sales accelerated nicely to low double-digits and are momentum carried over into October which increased just shy of double-digits. We've continued to drive solid comparable sales gains since then with our November and month-to-date cop gains towards the high end of mid-single digits. Let's start our review of the third quarter with our store segment which in total posted an 8% comparable sales increase. The gains were led by Foot Locker Europe which generated an outstanding increase in the high teens. Foot Locker Europe generated double-digit gains in almost all countries and in all major categories, including men's, women's, and kids, footwear, apparel, and accessories, and in running, basketball, and classic styles. Runners [indiscernible] and sidestep, however, did not participate in the strength experience by Foot Locker in Europe with comp sales declining low double digits. Dick will provide more color on the dynamics behind this result during his comments. The rest of our international business was strong with a high single digit come again in Canada and yet an even stronger result in Asia-Pacific where comp sales increased low teens. Our domestic stores executed very well too, with Foot Locker and Kids Foot Locker both up high single digit. Champs sports and Lady Foot Locker 602 were both up low single digits. While Footaction ended the quarter with a slight comp decline. Footaction actually posted a mid-single-digit overall sales increase, but its comp and traffic were negatively impacted by some big stores that were temporarily closed for remodeling. Footaction as of the same early stage of remodeling its store fleets that the Foot Locker and Champs sports banners were a couple of years ago but not enough remodeled scores experiencing a sales lift to compensate for several weeks that certain key stores start remodeling. Those Footaction stores that have been remodeled are, in fact, doing quite well. Our direct to customer segment posted another fine performance in the third quarter with an overall comparable sales gain of 13.4%, Eastbay was up mid-single digits while our domestic store banner.com businesses collectively increased almost 30%. Our international direct businesses, which are much smaller than the U.S., were also up close to 30% with strong gains in Foot Locker Europe and Canada partially offset by weakness in runners client. Direct to customer sales increased to 12.4% of total sales, up from 12.1% a year ago. Overall, footwear continued to be our strongest category posting another low double-digit sales increase, while apparel maintained its pace of the mid-single-digit sales increase, partially offset by certain accessory categories which continued to face difficult comps. Within footwear, running was the strongest category with a mid-teens gain, while basketball was up mid-single digits. The other leg of my footwear stool, including boots and classics, was also very strong. Dick will provide more details about all of these categories in a few minutes. Comparable sales of men's and women's footwear were both up high single digits and kids footwear sales increased in the teens. Similar to the prior quarters of 2015, reported sales were reduced by about $90 million in Q3 due to the impact of weaker FX rates this year compared to rates in effect a year ago. Thus our 8.9% total sales gain translated into a reported sales increase of 3.6%. Our strong third quarter sales results were joined by a strong gross margin performance with the rate improving 60 basis points to 33.8% of sales from 33.2% a year ago. Of note, this quarter was the first in a long time that our initial market rate did not decline as spender and category mix have stabilized. Merchandise margin improved about 70 basis points on a constant currency basis. A bit of the gain related to the final liquidation of CCS inventory in our results last year, although the bigger contributor was an incrementally lower markdown rate. Fixed cost leverage also contributed 10 basis points to our improved gross margin rate while FX rates took away 20 basis points. Effectively leveraging our shared service model for most support functions, we continue to be very disciplined in managing our expenses. Helped by FX, our reported SG&A dollars were again down slightly in the quarter with our expense rate improving 80 basis points to 19.6% of sales from 20.4% last year. Our income tax expense rate landed better than planned on a non-GAAP basis, due primarily to releasing reserve in a jurisdiction where a statute of limitation expired. On a GAAP basis, our tax rate was lowered significantly due to the fact that the litigation charge reduced our U.S. income where our tax rates are highest. Our inventory continued to be very well positioned at the end of October with a year-over-year increase of just 0.9% compared to our 3.6% reported sales increase. On a constant currency basis, inventory was up 4.5% compared to our 8.9% sales increase. Our inventory is very fresh heading into the holiday season, and we are excited to get going on this year's best ever Week of Greatness that starts tomorrow. We also maintained our balanced capital allocation strategy during the quarter. First, we invested $57 million of capital into our business, bringing our total year-to-date capital expenditures to $173 million. Second, we paid another $0.25 dividend, totaling $35 million. And finally, we spent just shy of $111 million to repurchase 1.56 million shares of our stock. That brought our year-to-date total share repurchase to $316 million, a reduction in shares outstanding of more than 3%. And we did all of that while still ending the quarter with $878 million of balance sheet cash, down a bit from a year ago. The story with traffic this quarter was the same as last quarter, with a modest decline in U.S. traffic offsetting strong traffic trends internationally, producing a small overall increase in traffic. As mentioned in Q2, we believe that the different traffic patterns here and abroad relate to the significantly stronger dollar this year, which has led, in particular, to less tourist traffic in the U.S. Average selling prices continued to increase both in footwear and apparel. Unit sales were also up in footwear but down in apparel as we continue to transition our assortments towards more premium styles. Conversion also ticked up as the investments we are making in exciting store environments, merchandise systems, training programs for associates, and really terrific marketing programs all have combined to increase the chances of our shoppers leaving our stores with a bag or two full of the innovative shoes and apparel that our vendors continue to deliver. So as we head into the holidays, we still see Q4 potentially shaping up as follows: a mid-single-digit comparable sales gain, perhaps at the high end of that range. 30-40 basis points of improvement in both gross margin and SG&A, and a double-digit EPS gain. Before I hand the call to Dick for a product and strategy review, I want to put in perspective the litigation charge that John mentioned that the beginning of this call. Most importantly, I want to emphasize that we have a very strong balance sheet and a well-funded pension plan. The company's reasonable estimate of the litigation expense is a range between $100 million and $200 million with no amount within that range more probable than any other. In accordance with U.S. GAAP therefore, we recorded a $100 million accrual. We believe our pension plan is sufficiently well-funded today to absorb a liability of $100 million or more, without requiring any cash contributions by the company to the plan in the near term. Thus discharge does not change our ability to invest in the business to reach the 2020 goals we laid out at the beginning of the year, and to return cash to shareholders just as we intended to before this litigation charge.

Thanks, Lauren. That's a very important point to make as we focus on the future. Good morning, everyone. We really appreciate your interest in our company, which has now generated 23 consecutive quarters of meaningful sales and profit growth. We've talked a lot over the last several years about how we have diversified the business. The strength of our different banners and channels, the global reach of our footprint, strong businesses in men's, women's, and kids, and the multiple legs to our product category store. Basketball, running, and classic sneakers along with apparel. This quarter, and in fact the entire year to date, represents a perfect illustration of how building that diversity has helped us sustain record-setting growth over multiple quarters and years. True, not every one of our initiatives has performed up to our expectations, and I will touch on those. But we have so many outstanding examples of success that I could easily fill up this entire call talking about them. But I know you'll have plenty of questions, so I'll make sure to leave the usual time for those at the end. First, Europe. The Foot Locker banner there turned in an exceptional performance with strong double-digit gains in both running, and basketball footwear as well as in classic sneakers. Running was led by lifestyle products such as Huarache and Roshe and Nike, and Max Air from Nike and ZX Flux from Adidas. White Basketball was driven by Jordan. Classic styles were highlighted by superstars in Stan Smiths from Audi and Air Force ones from Nike. Boots, led by Timberland, were also up double-digit. Apparel in Europe was even stronger than footwear, with both Nike and Audi doing quite well along with our own private label business. As proud as we are of the success Foot Locker is having in Europe right now, we're certainly not satisfied. First, we are still below the peak productivity levels we reached before the great recession. Second, we believe that the systems, remodeling, and associate training initiatives we have put in place globally in the recent years can lift our European results to new record productivity levels in the future. On top of that, our Kids Foot Locker business in Europe is doing very well with growth opportunities both in terms of cap gains and adding productive new Kids Foot Locker stores. Finally, Foot Locker's online business in Europe is still quite under penetrated, so as we enhance the digital connections with our customers there, we see tremendous opportunity for even better performance. Right now, our runners point and sidestep banners are not participating in the momentum seen at Foot Locker. We're still working through our market segmentation strategy in Germany. The initial tests last year of that strategy, which was to take Runners Point back to its roots of being all things running and positioning Sidestep as a true lifestyle banner, were very encouraging. However, the athletic market in Germany has set it a bit, reviewing in hindsight an overreliance on a few key styles that are no longer as relevant for those banners' consumers. We still believe in our segmentation strategy, but we have work to do to build enough diversity into that product assortment at both banners to ensure that we can respond to fashion shifts more nimbly than we have so far this year. Now turning to the U.S., our Foot Locker and Kids Foot Locker banners both turned in excellent quarters. Here's a perfect example of how the product diversity that we have developed, really a focus on delivery the coolest premium sneakers to our customers across categories, helps us ensure we can generate strong results despite fashion shifts that in the past may have caused our products to [indiscernible]. Because what led the performance this quarter was running, court classics, and boots. We have developed a leadership position in lifestyle running in the U.S., and in fact, all of our markets, including Max Air, Roshe, and Huarache from Nike, ZX Flux from Adidas. Meanwhile, we continued to build bigger lifestyle programs with Puma, New Balance, Sockany, and ASICS. As in Europe, exciting new executions of classic court shoes such as Air Force Ones, Superstars and Jordans also performed very well in the U.S. Recognizing that our boot business is more about fashion than the weather, we brought in bigger quantities and more styles of Timberland and Nike boots for back-to-school, and the results were terrific. Finally, let's not forget about the U.S. basketball business because we have an increase there, too. Signature basketball witnessed a shift with gains in [indiscernible] at Nike and Steph Curry at Under Armour, not to mention strong gains in Jordan, creating a solid marquee basketball business overall despite what we believe is a temporary slowdown in sales of the more established player shoes. Meanwhile, lifestyle basketball styles sold very well and some of the performance business has also shifted into the court classic styles I just mentioned. The end result of all the shifts in footwear in the U.S. we believe is more balanced product portfolio and vendor mix. It helps keep the legs of our product stool steady, positioned for consistent sales growth. Our kids business continues to perform very well, not just in Kids Foot Locker but in virtually all our banners that sell children's product. The merchandise highlights here were mostly the same as at the Big Brother Foot Locker banner as we capitalized on the same trends. We also continue to open new Kids Foot Locker stores both in the U.S. and overseas as we look to solidify our leadership position in kids in our key geographic markets. Lauren mentioned a couple of reasons why Footaction's comp was down slightly. What drove Footaction's total sales to actually be up mid-single digits was the opening of several new power stores this year such as the one in Del Amo Fashion Center south of L.A. and of course the new flagship store on State Street in Chicago. This exciting new Footaction store also includes a Nike Kicks lounge and a Flight 23 shop, creating the premier Jordan brand experience. Lady Foot Locker 602 produced a sixth consecutive comparable sales gain, a solid achievement as we continue our work to develop 602 into our primary women's brand. Just this week, we are opening our 28th and 29th 602 stores, and last week we conducted our second annual It's Your Time 602 6K race in Dallas, a fun event that combined a competitive 6K race with special post-race style events. Footwear was strong at Lady Foot Locker 602, led by several lifestyle running celebs. The Nike Flyknit performed well as did the PUMA Creeper, a good example of an active lifestyle fashion success story. Apparel, on the other hand, was a bit challenging this quarter. A nice pickup in Adi and Nike lifestyle apparel was not enough to offset declines in some of the more basic branded performance shorts and bras. We're working with our key vendors, all of whom have called out women's athletics apparel as an important focus for them to develop special programs and styles for our athletically active customers in 602. In the meantime, our women's business and our other banners continued to be strong with sales of women's footwear up low double-digits. We have heightened our focus on the female uses for each banner, a process we went through much earlier with our men's businesses, leading to having more of the right product assortments for her in the different banners in which she chooses to shop. Turning to our digital business, it remains very robust and is on pace to be our next billion dollar business. Better yet, we have tremendous opportunity to accelerate growth, especially in our international markets where our digital penetration remains low. We have in place our new digital platform in Europe that we're just beginning to take full advantage of and a relatively new website gaining traction in Canada. We have created excellent connections with are core customers online, connections that start well in advance of their developing an intention to buy anything from us. Whether that is our Foot Locker app with innovative shoe emojis, the lunch calendar feature on Champs sports, links to our outstanding ads on YouTube, or simply the store locator function on all of our sites, our customers are interacting with us 24/7. Although roughly 80% of transactions start with some sort of digital interaction, 88% are still completed at a store, demonstrating how critical it is to have both great digital content and exciting places to actually go touch, feel, and try on the product and experience our brand. We will continue to invest meaningfully in both digital and bricks and mortar. Let me stop the business review there, because we want to get to your questions. But before we do, one last thing. One dollar per share of earnings in the quarter was another outstanding effort and performance by everyone on the Foot Locker Inc. team. Yes, it's a tough retail environment out there. We hear that all the time. But in my experience, retail is a challenging game even at the best of times. But by focusing on the customer, creating exciting places to shop and buy, investing in our people and processes, living by our core values, and partnering with the best suppliers in the world, we have a very real chance of continuing to have a lot of happy customers and to win every day. I want to thank all of our associates here and around the world who once again pulled together to set a new standard of excellence in our financial and operational performance in Q3. I can't wait to see it happen again this quarter. As we head into the holiday season, we want to wish all of you the very best and remember every holiday outfit looks best with a brand-new pair of sneakers. Chris [ph], please open the call to questions now.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] One moment, please, for the first question. Our first question comes from the line of Mitch Kummetz [ph] with B. Riley. Please go ahead.

Yeah, thanks for taking my questions. I want to start, Dick, on the basketball side. It declined sequentially from where it had been the prior quarter. And forgive me, but I think Lauren said it was either a low or mid-single, I am not sure which one. But if you could talk a little bit about what's happening, particular with some of the signature shoes from some of the more established players and why you think that that business comes back?

It was up mid singles is what Lauren said in her comment, and we look at the basketball category in total, and certainly there's a lot of excitement around somebody players with Steph Curry, Kyrie Irving, Anthony Davis, was Hardigg going over to Adidas, we believe that there will continue to be a lot of excitement around the signature player shoes. We also look at some of the more established players and the customers voted a little bit said we like the excitement with some of these new guys, and we continue to work with our key vendors to make sure that there's excitement across their entire basketball range and across the entire set of price points. So I'm confident that as we roll into 2016, the established players will continue to sell well and probably get back to where they have been in the past.

Okay. Then just a second question on runners point, sidestep, you mentioned that some styles were no longer as relevant there. Could you just elaborate on that and what changes are you making to adjust to that? Is there any really change in strategy to kind of the segmentation that you are doing in those stores?

There is no change to the strategy. We're working hard on the segmentation strategy to make sure that runners point is positioned as the destination for all things running, from the lifestyle running to the performance running. And that sidestep is really more of a casual lifestyle fashion led footwear destination. The fact is we fired some customers when we moved to bulk shoes and the boots et cetera out of runners point, and as we looked at the test results, there were a couple of running silhouettes that were very dependent - that runners point was very dependent on, in the German market in particular, and those have softened a little bit with Nike FREE being one of them in that particular market. So the merchant team and wrecking housing is working hard to find replacements for those silhouettes, they are working hard with our vendor partners again to make sure that we've got the right mix of product and that we can react quickly when we do see some of those trends start to change.

Got it.

The runners point team is hard at work establishing a connection with the runner in the local communities and seeing success with that. We've opened up a couple of flagship stores that have really resonated well.

Okay. Thanks. Good luck.

Thanks, Mitch.

Our next question comes from the line of Christopher Svezia with Susquehanna Financial Group. Please go ahead.

Good morning, everyone, thanks for taking my question, and nice job in the quarter.

Thanks, Chris.

Sure. I was wondering if you could just elaborate a little bit on Europe for a moment just given the sustainability and the momentum there as you see it playing out. Maybe how much you really think is being driven by tourism versus just sort of the product momentum. And also I'm just curious when you mentioned bringing some styles that are working in Europe like I think superstar and something you are doing with the Air Force One et cetera. How is that helping you to drive the U.S. business to a degree to bring some those more casual lifestyles products to the U.S.?

Sure. Well, we certainly think that the business in Europe is sustainable, Chris. I think that the team there has done a great job of maximizing product trends, working with Thunder partners to create excitement in the stores. Our remodels over there are having a tremendous effect, the website platform that we referenced in our prepared comments, we have now got the Runners Point team and the Foot Locker Europe team on the same platform, so we're leveraging that digital content and that experience. So we think that there is great opportunities to continue to grow the business in Western Europe, both through comp gains and store expansion. We haven't got to the point of really taking Runners Point and sidestep very far outside the German unit. One of the stores that Lauren mentioned with Runners Point is in Vienna, so we are starting to expand that, but we haven't really begun the march across Europe with that yet. So as they look and identify styles, we have the benefit of seeing what's going on style-wise in Western Europe. Our teams are on a video call every Monday morning talking about what's working around the globe. And as we see things working, we can work with our vendor partners to make sure that those styles get adopted into the North American range if they are not, or vice versa, when things are working in the U.S. that they get adopted into the Western Europe branch. One of the classic examples is the Teropant from Adidas that the Europeans started selling between two and three years ago and had a pretty good run with it. We brought it over to the U.S. at that time, the cuff bottomed pant, and really, the U.S. market wasn't ready for it. But the Europeans continued to have great success with it. We bought it back over about 12, 14 months ago. It was the hottest item over the last year. So our global reach, that global penetration really allows us to see what's working in other markets and allows us to adopt those products across geographies in a much quicker fashion.

And, Lauren, just a question for you. It looks like from a long-term goal perspective based on the guidance you will be roughly at that 12.5% operating profit goal potentially at the end of this fiscal year, just several years ahead of plan. Any thoughts in and around that and the ability to go above and beyond that?

I suspect we're going to get a few I told you so. There's just no doubt. We've done a terrific job on getting after the gross margin improvement, levering the fix there, and just done an excellent job of managing the expenses in line with the top line growth. So I have confidence in this team that we will continue to focus on that kind of productivity and flow-through. I guess that's a long way of me signing that [indiscernible] I think there's still upward potential.

Okay. All the best on the holiday. Thanks.

Thank you.

Thanks, Chris.

Our next question comes from the line of Omar Saad with Evercore ISI. Please go ahead.

Thanks. Good morning. Great job again, of course. Wanted to ask a question on the ASPs. I know it's been a benefit to you guys and some of the vendors in the space. I don't know. You guys have a better insight probably into the future product pipeline than we do, of course. Do you think that innovation is there, the product is there, the technology that is there to continue that positive AUR ASP trend that has been benefiting you and others in the sector? And that I have one follow-up. Thanks.

Yeah, the ASPs will continue to rise. I think there's a study innovation pipeline that continues to bring excitement to the product mix. And going into 2016, we're looking at an Olympic year where innovation becomes very important across many, many footwear categories, certainly, and apparel categories. One of the other things that's changing is we're creating a more premium apparel assortment, so as we look at total ticket, our apparel prices are rising as well. So there is certainly the opportunity to continue to increase ASPs.

[indiscernible] also controlling markdowns and we have some less commercial and that has the effect of increasing ASPs.

Yeah, definitely. No, absolutely. You guys have done a great job at that. And then on the inventory real quick, you guys have been running so lean, really well-controlled. Do you feel like you're missing sales at all? Or is it, are you really happy to kind of keep this very lean level of inventory and manage the markdowns, as you mentioned? Or do you think there's an opportunity to boost the inventory level given the demand for the products you're selling?

I'm looking across the table at Lauren and she's got a big smile on her face. One of the things that we have to do is continue to increase our turns. So it's about the flow of product. And we installed a new merchandise allocation system which is helping us flow the product into our stores on a more timely basis. We're giving the benefit of that. Operating inventory, clean is one of the objectives that we've had internally for a long time. I think the work is paying off. Our inventory is fresh, it's clean, and I don't believe that we're missing sales. I think our store managers are surprised that right as they're selling out of product, the next product shipment is getting there, which is the way that it's supposed to work.

That's great. Thanks a lot. Have a happy Thanksgiving.

Thanks, Omar.

Our next question comes from the line of Michael Binetti with UBS. Please go ahead.

Hey. Good morning, guys. Let me add my congrats. Great job on tough quarter.

Thank you.

Lauren, a question for you. Buying and occupancy, I think you said was maybe 10 basis points of leverage. Obviously, a little bit below what we would've expected on a nine comp. Maybe, I don't want to lead you to an answer but it reminds me of when you guys started accelerating the remodel program a few years ago in the U.S. and that upside slowed a little bit. Would you mind just letting me know if I'm wrong a right on that, or if there's something you could point to as to whether there's a change in the leverage point there?

I can confirm that you're absolutely right on that analysis [indiscernible] we had in the third quarter as opposed to the first half more dark rent periods with [indiscernible] stores closed for remods. Yeah, so no top line while that's happening. So [indiscernible] we think it's anomaly to the third quarter.

Contained to the third quarter, hopefully?

Yes.

Okay. Then help me marry two comments together please. You're been talking about mid-single digits for a while but delivering high single-digits pretty easily. But then as we think about how important you are to the basketball customer, the slowdown you talked about there, if the slowdown to mid-single digits in basketball doesn't end up being temporary, excluding any other changes, do you think at this point your position in the other categories to continuing delivering the upside to that mid-single-digit range?

Yes, we are. And I think the third quarter was a classic example of that where our job isn't to be the number one basketball seller in the world. That's one category that we drive. And I know that some folks have us pegged as the basketball guy, but we're far more than that. And this quarter proved that with a really strong quarter in running, a strong quarter in casual shoes, our merchant team taking a risk bringing boots in early and having great success through the back-to-school period, and selling an awful lot of basketball shoes. So the work that we've done to diversify the business across product categories to create and a strong solid stool doesn't mean that every leg of the stool is going to work every quarter. And our merchant team is like a money manager; they move the money around to make sure that we are bringing the best product assortment to the customers and appealing to the customers' needs based on trends. And historically, when basketball was a much bigger chunk of our business, the stool was very uneven. Right now, our stool has four very powerful legs between basketball, running, casual shoes, and as our apparel business continues to get better, that's the fourth solid leg of the stools.

Thanks a lot, guys. Congrats again on a great quarter.

Thanks, Mike.

[Operator Instructions] Our next question comes from the line of Camilo Lyon with Canaccord Genuity. Please go ahead.

Thanks. Great job, guys. My question is going to center around apparel. The first part is if you could just update us on how the apparel transition is unfolding at the Champs banner, and when you expect that to fully kind of cycle and see more traction there on the sell throughs. And then just broadly speaking on apparel, you talked about a mix to more premium product. We've noticed a greater proportion of higher end Nike sportswear in the stores, particularly at Foot Locker. Could you just help us understand r give us some insights as to is the consumer responding to that more premium product and how you think about evolving that product across more of those banners?

Sure. The Champs business, apparel continues to get better. We're still rationalizing against a much bigger licensed product business a year ago. So while the business wasn't positive at Champs for the quarter, they continue to make progress, and as we get into Q4 and then on the Q1 of 20 16, we should have cycled through most of the licensed changeover. Their private label business has been fantastic. So again, it's making sure that we've got the right branded mix, the right private label mix, the right mix of licensed to be appropriate in Champs, and then to get all of the accessories categories working as well. And as a relates to the second question, Camilo, on the mix, the change to premium, the customer is definitely responding positively. The [indiscernible] from Nike, the Teropants from Adi, and some of the Under Armour product that we've got in stores, customers around the globe are responding to the product mix that we've got. I think it's a great step that our merchant team has taken. We sold a lot of cotton by the pound in the past, and as we continue the transition away from $9.99 T-shirts to $24.99 T-shirts with great graphics on them, the customer is responding very positively with, I would say, Europe sort of serving as the flagship right now. The business there has done a complete turn and the merchant team in Western Europe has got the right mix of branded, controlled brands and private label, and a little bit of licensed product that really is working. And they were double digits in apparel for the quarter. In the U.S., you see the premium apparel certainly led by Tech Fleece and all of our banners, but each of the banners has a little bit different diversification of product to make that piece of their puzzle in each assortment puzzle in each store be unique. Some of the work that the Footaction team is doing with what they call the seventh avenue garmentals where they can get in and out a product very quickly because it's fashion right has really changed the dynamic in the Footaction apparel as well.

The customer is looking for something special from us, and that's what we're trying to deliver with the apparel mix changes.

So, Lauren, with that momentum across the different manners in apparel, does that mean that 2016 could finally be the year where apparel margins succeed those footwear margins and trend to where they normally should be?

We continue to believe that ultimately the apparel margins go ahead of the footwear margins. I can tell you that we narrowed the gap in the third quarter, but we still have this case of a chase going on where we are improving margins and footwear and apparel and they haven't kept - those apparel margins of not yet gone ahead. So, yes, we still believe that, that will longer term, be a boost to the margin rate.

Okay. All the best during the holiday season. Thanks, guys.

Thanks.

Our next question comes from the line of Paul Trussell with Deutsche Bank. Please go ahead.

Good morning, guys.

Morning, Paul.

Great quarter.

Thank you.

You checked all the boxes, frankly, this third quarter with good product and vendor diversity. You sound confident headed into the week of greatness and the holidays, and as you mentioned, next year is an Olympic year which may bring on some innovation. But stepping back from all of that, Dick, if you can just really remind us what is driving the strength overall in sneaker sales? It's gone on for a number of years, and your guidance suggested it can't continue throughout the next few years. Just put a little bit of context on us on what is driving this sustained, robust growth?

Sure. The younger generation is definitely above casualization, and they are perfectly comfortable wearing sneakers all the time. I was on train the other day and a young gentleman that doesn't work for Foot Locker was sitting on the train in a suit, suit and tie, dressed to the nines, with a beautiful pair of Nike air Max 2015's on. And I looked at him and said you were sneakers every day? He says, I wear sneakers every day because they are more comfortable than anything else I could wear. And that's really the attitude. There is a generation of dads that have grown up during the sneaker revolution, if you will. They're comfortable with their kids in sneakers, as are moms comfortable their kids in sneakers, that's going to continue. I don't see kids putting leather shoes back on, dress shoes back on, to go to the office, to go to work, to go anywhere. So there is this generation and this feeling of comfort in a casual environment with sneakers, and using sneakers as dress sneakers. Now have dress sneakers and casual sneakers in that they're comfortable all the time. So I'm an advocate of that. I'm a believer of that. I wear sneakers every day no matter where I am. It's part of my job of course but I think that the young generation, even getting into the middle-aged folks, are finding out that sneakers are really, really comfortable.

Got it. And if we can just touch on some of the banners actually just to get a little more detail on kind of updated thoughts of where we are, specifically Footaction, if you could just help us understand what are the changes going on with the remodels, with 602 just in terms of the outlook for future growth and then just Champs, as that did underperform the core Foot Locker banner. Thanks.

Sure. Well, Footaction is relatively new in its remodel process. We've got the garden state format is what we call their new format, and where we've opened the doors, they're really performing well as Lauren mentioned in her comments. And it was a little bit of a leap of faith. We took footwear off the sidewalls and we put footwear along the back with some real highlight fixtures that call out the great footwear that the team buys, but in order to get to the footwear, we have our core consumer then walking through a lot of really fantastic apparel. And one of the biggest changes in foot action is the apparel mix that we've seen. And that's made a big difference to that consumer. Also, the partnership spaces that we've got with Nike, we've got Nike kicks lounges, we've got Flight 23 shops that are connected to several of our Footaction GSP remodels. So good progress being made there. But as Lauren mentioned, they've got some dark days. It takes a number of weeks to get these stores completely remodeled, so as we ramp up and get more of them open, we would expect to see that performance moderate a bit. 602, as I mentioned, we opened our 28th and 29th stores. I think we've got one more to go this year, so we should end the year at 30. We're looking at the opportunities for next year. We've got a couple of flagship stores that will open here in New York, one next year on 34 Street and one early in 2017 up on Times Square. 602 will be a significant part of that. We continue to work with our vendor partners as we mentioned in the prepared remarks to get that something special on the apparel front to really drive that consumer. And we are seeing where we attach the right assets, if you well, the right people to product, much like the support that Rihanna gave to the Creeper from PUMA. We are seeing real success. So she response to that active lifestyle fashion led environment. And we've been straight up all along that we are going to make sure that we've got 602 right before we press the full acceleration and we see that in late 2016, beginning of 2017. So comfortable where we are at, continue to get better with 602, and Champs actually while it underperformed the Foot Locker banner, it actually over performed where it's been sequentially the last couple of quarters. So they were up low single digits, the apparel mix there is really important as we get through some of this licensed product challenge. It's funny, we haven't talked about Major League Baseball, but as we got into sort of the league finals, we had four teams, and they all produced great sales results for the Champs banner and a little bit of licensed headwear and some T-shirts, et cetera. Of the four, we would have certainly have preferred to see Toronto win because we have a great Toronto following at Champs, but that didn't happen, and we took advantage of the Kansas City win. So they are making a lot of steps forward, Paul, with Champs, and the fact that they were part of it in and up low single digits this quarter shows that there got a strong footwear business and an improving apparel business.

Thank you. Best of luck, guys.

Thanks, Paul.

Our next question comes from the line of Jonathan Komp with Robert W. Baird. Please go ahead.

Yeah, hi. Thanks. Dick, I wanted to follow up on some your comments. I know you talked about a lot of factors you think are driving your own fact strength for the Foot Locker banner. And maybe want to ask more on a relative basis, it looks like your relative performance gap continues to improve recently. I just want to ask if you have any high-level thoughts on maybe why that might be. If it's the strength of your relationship with the vendors, if it's the - really the broader view of the consumer and the different styles of footwear that you're offering or if it's the merchandising initiatives, or any thoughts of what's driving the relative performance?

The thing I really like, Jonathan, is when guys answer their own questions. So you hit on a lot of the real keys to what I think is driving our performance. And we really worry about what we do, we focus on what we do. We've developed great relationships with our vendor partners around the globe. We've got a global view, as I mentioned earlier, which I think really helps us. So as we see something start to work in one of our geographies, we can pass that information around all of our banners, all of our geographies and see how we can leverage that while remaining diversified in each of our U.S. and European banners. So I think that really helps our positioning across the marketplaces. The vendor relationships are important. I think our global reach is important. I think just the strength of our team is really what drives it home. We've got people that are driven to win. They really do worry about winning every single day, and it's a testament to their resolve. Every morning they get up and they know that the scorecard is reset overnight at 0-0, and they've got to go out and win. Our team does that better than any in the Mall. And we're not afraid to invest in that business. Lauren talked about the amount of capital, something over $170 million that we've spent on our stores this year alone. So we invest, we've got a great team, we've got great relationships. And that drives our relative performance I think in the marketplace.

And all of this absolutely riveted on our customer with a very clear understanding of who the customer is for each of our banners. Great store environment for them, great merchandise for them, and a digital experience that makes sense for us, all of that with great marketing that keeps our brands at the forefront.

Great. And maybe just a follow up on the customer portion, thinking specifically about the basketball business and some of the discussion about the established basketball marquee platforms, maybe seeing a little less momentum recently. Do you have any signs when you look at your data for that customer who was buying the LeBron or the KD, are they shifting their purchases to some of the newer styles, or is that customer just slowing down their frequency altogether and you're seeing a newer customer buy some of the younger-players styles or any thoughts on based on the data you see?

It's really a mix, I think, Jonathan, where the excitement right now, the customer happens to be in Kyrie and Steph Curry and they're really responding to that. They're looking at some of the other shoes on the shelf and saying that we need a little bit more innovation, we need a little bit better price/value relationship, we need a little bit more out of a couple of the other signature players that you mentioned. But the fact that our basketball business in totality continues to be up tells me that the basketball consumer and the basketball silhouette is still very relevant to our core consumers. And as I mentioned earlier, I look at our merchant team really as money managers and making sure that they get they're open to buy dollars invested in absolutely the right categories to motivate this customer to be excited about the product assortment and do business with us.

Great. Thanks. If I could just sneak one more, Lauren, any thoughts on any SG&A pressures from wages going forward? Much appreciated. Thank you.

Yes. We've talked about before, and we have for our sales associates a base plus commission structure. So they get to determine their wage and the better sales they are, the higher their wage, the higher their take-home pay. And that has worked well for us. So we're very much as we're focused on sales per square foot, we're focused on sales per payroll hour and making sure that that compensation structure rewards really great salespeople. So we're feeling good about our ability to navigate what's happening in the U.S. on wages and we'll make sure that we remain competitive.

Great. Thanks again.

[Operator Instructions] Our next question comes from the line of Kate McShane with Citi. Please go ahead.

Hi. Thank you. Good morning.

Good morning, Kate.

You had mentioned that you'd start getting the benefit of entering into an Olympic year next year. Can you just remind us how the Olympics works for Foot Locker in terms of some of the product maybe that's introduced pre-the Olympics or during the Olympics? When you start to see that in the store? And how much of a preview to that do you have?

Our vendor partners are all focused on the Olympics and the product pipeline to support the Olympics and probably the first place that gets a taste of real Olympic product is our Eastbay banner where some of the early track and field shoes, some the football cleats that will be used on the soccer picture are debuted there, actually pre or just pre or just post-Olympics, so right around that timeframe. Some of the other technologies flow into the commercial lines a little bit later, right? Flyknit was the innovation in conjunction with Lunar when you go back and look at 2012 in London, we see Flyknit, it's taken a while to get commercialized, but now it's one of the hottest things that we've got going in our stores. So there's a little bit of a curve with it, Kate, but we expect to start to see Olympic color waves, Olympic connections going into the second quarter, and then the commercialization more so after the Olympics.

Okay. Great. Thank you. And then my second question was I think mentioned before by Nike and by Under Armour, Nike is pursuing an initiative with Jordan sportswear, and Under Armour has the ARMOURY in one of your Champs stores. Can you update us on those two initiatives?

Sure. We're opening Flight 23 shops in conjunction with Footaction across a number of stores. So as we remodel Footaction, some of them - like 34th Street here in New York, certainly Del Amo out in California, State Street in Chicago have fantastic Jordan shops that open up along with Nike Kicks lounges as well. So we'll continue to expand that with Nike as we roll out more - and brand Jordan as we roll out more of our Footaction remodels. The ARMOURY is a one store buildout in the Champs doors right now but we've got plans to expand that in 2016. We've also taken some of the - we've taken it down to some wall units inside the store. So we've got a number of stores with units that look different on the wall to take some of the elements the Armory and bring it into more Champs stores. And that effort will also continue as we roll into 2016. We operate, Kate, we have a prototype and we test some things. We test different geographies. We test different size stores. We test different markets. And once we get a level of confidence with our vendor partners, we accelerate the rollouts. But both of those are great initiatives with two really important partners.

Thank you.

Thanks, Kate.

Our next question comes from the line of Sam Poser with Sterne Agee. Please go ahead.

Thank you for taking my question. Good morning. I've got a few here still. One, where are you - you mentioned the allocations - can you hear me?

Yeah, we're already at 10:00. So make it short.

All right. Just real quick, where are you with the allocation systems? The U.S. brick-and-mortar business sounds like it was up mid-single digits. Want to confirm that. And then, Dick, when you look at your consumer, I think you're just sort of saying this, you're sort of totally ambivalent. You don't care if you're selling a basketball shoe, a running shoe, a casual shoe. You're just trying to get the right stuff for your consumer. Is that a fair point? And lastly, when you look into the holiday season with the big Jordan launches post-Thanksgiving and right before Christmas, how you feel about those two shoes relative to what happened to the big shoes you had last year?

Well, Sam, I get to be a little bit ambivalent in that the categories are somewhat driven by our consumer, not driven by me. So I really have a tremendous amount of respect for the work that our merchants do to get the right product to our consumers. and one of our strengths is that we are so laser focused on that consumer by banner and as the consumer moves a little bit, as some of those lifestyle preferences change a little bit, as the bottoms that they're choosing to wear, whether it be a [indiscernible] pant or a denim jean, that drives a lot of the sneaker choices. Sometimes basketball is the perfect silhouette, sometimes running is the perfect silhouette. But our team does a really, really good job of getting those categories and those products merchandised appropriately. So I like to drive sales. I like the customer to wear what they're most comfortable wearing. We don't have a bounty on any specific category, to say the least. We want to drive them all. I look at our Week of Greatness, which starts tomorrow, Sam, and I know you talked about some of the launches that are upcoming. I like the way the calendar lines up for us. The Week of Greatness has got some fantastic shoes that actually start today with the Curry 2 and then roll out significantly over the next week. Great shoes across our markets each day of the season or of the Week of Greatness, I should say. And then when we get to the pre-Christmas launches, again, I like the way the calendar lines up and the way the shoes line up. So we have a degree of confidence certainly going into the holiday season.

And then about the allocation?

Yeah, [indiscernible] the allocation is [indiscernible] is up and running and has been for the better part of a year for the North American business and Europe. The next phase of it is the order of planning module that lets us impact the orders that we write, and that is an early 2016 pilot.

Thank you very much. Continued success.

Thank you.

Okay. Operator, I think that's all we have time for today. We appreciate everybody's participation on our call today, and we look forward to having you join us on our next call which we currently expect with take place at 9:00 a.m. on Friday, February 26, following the release of our fourth quarter and full year earnings results earlier that morning. Please note that's one week earlier than we have traditionally announced full year results. Happy holidays. Thanks again, and goodbye.

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