James Lance - Vice President, Corporate Finance and Investor Relations Lauren Peters - Chief Financial Officer and Executive Vice President Dick Johnson - Chairman, President and Chief Executive Officer

Camilo Lyon - Canaccord Genuity Christopher Svezia - Wedbush Jonathan Komp - Baird Tom Nikic - Wells Fargo Sam Poser - Susquehanna Kate McShane - Citi Eric Tracy - Buckingham Research Eric Johnson - Piper Jaffray Paul Trussell - Deutsche Bank Michael Binetti - Credit Suisse

Good morning, ladies and gentlemen. And welcome to Foot Locker's First Quarter 2018 Financial Results 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 of future events and financial performance. Management undertakes no obligation to update these forward-looking statements which 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 more fully in the company's press releases and in reports filed with the SEC, including the most recently filed Form 10-K or Form 10-Q. 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. Please note that this conference call is being recorded. I will now turn the call over to Jim Lance, Vice President, Corporate Finance and Investor Relations. Mr. Lance, you may begin.

Thank you, Dorothy. And welcome everyone to Foot Locker Inc.’s first quarter earnings conference call. As reported in this morning’s press release, the company reported net income of $165 million in the first quarter compared to $180 million in the first quarter of last year. On a GAAP basis, this year’s net income was $1.38 per share compared to $1.36 per share in the first quarter of 2017. Included in these results is an incremental $12 million charge related to the pension litigation we have spoken about in the past. Excluding this item, on a non-GAAP basis, first quarter earnings were $1.45 per share, a 7% increase compared to $1.36 last year. Unless otherwise noted, the figures and rates mentioned during our call today will be based on non-GAAP results. A reconciliation of GAAP to non-GAAP results is included in this morning’s press release. We will begin our prepared remarks with Lauren Peters, Foot Locker’s Executive Vice President and Chief Financial Officer, who will provide details on our first quarter financial results along with our financial outlook for the balance of the year. Dick Johnson, Chairman and Chief Executive Officer, who then will review the key drivers of our first quarter performance along with a progress report on our 2018 real estate and digital initiatives. Lauren?

Thank you, Jim. Good morning to all of you. As you may recall, when we last spoke to you in March, we expected 2018 to start off challenge with comparable sales similar to or slightly worse than we experienced in the second half of 2017. I am pleased to report that while we faced many of the challenges we anticipated, a 2.8% comparable sales decline in the first quarter was an improvement over the second half of 2017. And there are encouraging signs as Dick and I will tell you about as we move through 2018. Keeping to the first quarter for now, by month, February comparable sales were down high single-digits. March benefited from a shift in Easter and comp slightly positive, whereas April was negatively impacted by the shift and was down low-single digits. Total sales were up 1.2% with the impact of the weaker U.S. dollar contributing about $55 million to the top-line. Before we continue, I want to remind you that beginning this quarter, we are reviewing the business on the basis of integrated sales channels, both brick and mortar and digital. So, all of our commentary about our banners will be on an omnichannel basis. Moving on to the details of our results. There were some solid performances that stood out above the rest. Other areas where it will take some more time to improve our footings. Starting on a positive side of the ledger. Kids Foot Locker led our banners with a high-single digit comparable sales increase. Based on an improved availability of premium styles and kid sizes versus the year ago. Kids Foot Locker was followed by Foot Locker in the U.S. and East Bay both of which posted low-single digit comp gains. On the other side of the ledge, Foot Action, Champ Sports, Foot Locker Canada and Foot Locker Asia Pacific were each down mid-single digits. Foot Locker Europe posted a low-double digit comp decrease while Runners Point and Sidestep were both down double digits. Women's footwear was again adversely impacted by a lack of new on trend offering to offset last year's strong demand for Puma FENTY product and select Adidas silhouettes. The weaker footwear sales have the biggest impact of 602 which led to a double-digit comp decline for that banner. Breaking our comparable sales by channel. Our stores collectively posted a 3.1% decline, while comp sales at our direct-to-customer channel were essentially flat. As a percent of total sales, DTC was 13.9% for the quarter flat to last year. Overall store traffic was down low-single digits for the quarter with our U.S. banners experiencing stronger traffic than our international banners. By family of business, Footwear was down low-single digit. Apparel was an especially bright spot up double digits with gains across all genders, while accessories was down double digit due to weakness in socks, hats and insoles. Within footwear, men's and kids' comparable sales were down low-single digits. While women's footwear declined low double digits. Average selling prices in footwear were up while units were down. In apparel, both ASP and units were up reflecting our customers' steadily increasing demand for our more premium assortment. Turning now to the balance of the income statement. Our gross margin came in at 32.9% in the first quarter, down 110 basis points from last year's 34%. The lower rate reflects a 60 basis points decline in our merchandize margin rates and a 50 basis points of deleverage of our occupancy and buyers' compensation. The lower merchandise rates were primarily the result of higher markdowns as we continue to proactively manage our inventory. We are in slower moving styles, while maintaining a strong inventory position in new and exciting products. Despite the higher markdowns our overall gross margin came in better than the guidance we provided on our last call, which reflects our customer’s positive response to our improving position in more on trend styles, which Dick will be talking about in a moment. The progress in our margins was most evident in the U.S. Whereas I mentioned, Foot Locker and Kids Foot Locker posted positive comp sales. However, we did feel some additional pressure from Foot Locker Europe, where our merchants had to rely on increased promotions to move through from slower selling styles. Our SG&A expense rate rose in the quarter by 50 basis points to 19% of sales with higher FX rate contributing 20 basis points of that increase. The further 30 basis points of deleverage was attributable to the significant investments we are making to our digital operations, as well as wage pressures and legal settlement costs partially offset by about $5 million of Hurricane Maria related insurance proceeds. Depreciation expense increased to $45 million from $41 million in the prior year. This expected increase reflects the investments we have made and continue to make to elevate the customer experience in our stores and across our various digital channels as well as improvements in our logistics network and other infrastructure related project. First quarter tax rate on a non-GAAP basis was 28%, 500 basis points lower than last year and close to our expectations. Noted on our last calls, the lower rate reflects the new 21% rate on our federal income taxes combined with the impact from state, local and foreign taxes. Moving on to the balance sheet. We ended the quarter with $1.29 billion of cash and cash equivalents, a decrease of $20 million from the end of Q1 last year. During the first quarter, we repurchased 2.6 million shares for $112 million and paid out $41 million through our quarterly dividend. We also invested $64 million of capital in our business, which includes the opening of new Champs Sports flagship store in Times Square. Overall, we remain on track to spend the planned $230 million of capital in 2018. We ended the quarter with 3,284 company-owned stores, down 26 from the beginning of the year. This includes the opening of 11 new stores remodeling or relocating 43 stores and closing 37 stores. We continue to proactively manage our inventory hosting a 5.4% decrease in the quarter, compared to 1.2% increase in total sales. Using constant currencies, inventory decreased 7.1%, compared to a 1.5% sales decrease. Our inventory discipline, which included the use of markdown leaves us well positioned to flow in fresh and exciting products throughout the balance of the year. In terms of our financial outlook for the remainder of 2018, we see the top line aligned with the guidance we provided on our prior call. Beginning with the second quarter, we still anticipate comparable sales to be flat to up slightly and we are still planning for a low single digit comparable sales increase in Q3 and Q4 strengthening within that low single digit range as we progressed through the year. For the full year, we still expect a flat to low single digit comp sales gain. Second quarter gross margin is likely to improve by about 20 to 50 basis points driven by improved product flow we expect merchandised margins to begin to recover in the second quarter along with less deleverage in our occupancy cost due to the shift of about $50 million of sales into Q2 related to the impact of last year’s 53rd week. We expect our Q2 SG&A expense rate to increase as a percent of sales by 110 to 140 basis points which reflects the increased digital investments I discussed which is still ramping up. Our incentive compensation expense is also higher this year versus 2017. As you may recall, in Q2 2017 we reduced our bonus accruals in line with our updated outlook. For the full year, we continue to believe we can achieve solid double-digit EPS growth over the $3.99 we earned in 2017 on a non-GAAP 52-week basis. Gross margin also on a non-GAAP 52-week basis, is now likely to improve 10 to 30 basis points. Compared to last year’s 53-week growth margin rate, the range was plus 10 to minus 10 basis points. Our gross margin expectation reflects the improving performance in the US partially offset by the additional markdown pressure in Europe. SG&A is still projected to delever by 100 basis points for the full year. As a reminder, we are modeling due to the 53rd week shift around $60 million of sales will shift out of Q3 at about $20 million will shift out of Q4. I’ll now hand the call over to Dick to cover the product highlight in more depth along with an update on our 2018 real estate and digital initiatives. Dick?

Thank you, Lauren. Good morning everyone and thank you for joining us today. As I noted during our last earnings call consumers want new experiences, they want cool product with connected storage and they wanted of pack. Now this may be due to disruptive to the retail industry it is served to reaffirm and accelerate our efforts around connecting with youth culture in more relevant and powerful ways. These efforts include the significant investments we are making to elevate the digital experience across our brands as well as the ongoing in our store fleet testing innovative off mall retail formats and leveraging our vendor partnerships to create truly differentiated retail destinations. Furthermore, we remain confident in our strengths and positioning at the premium end of athletically inspired footwear and apparel. Taking a look at our first quarter comp performance through the product lens, men's footwear was down low single digits. This result was the combination of a growing running category, a somewhat improving but still down basketball category and a slight decrease in casual styles. Looking at these category results in depth, men's basketball was down low single digits as we are starting to see some of the benefits of Nike's tighter distribution of the Jordan brand across the marketplace along with improved full price sell through of Jordan Retros. As we have previously discussed the reduced allocations will continue to be top line headwinds over the next few quarters, but it will sequentially lessen as we progress through the year. While signature basketball was down overall, we continue to see strength in the Lebron business led by both the game shoe and the Soldier, additionally the PG posted healthy gains. Running continued its momentum with a low single digit comp increase, where we saw an influx of new innovative platforms through Nike such as the Air Max 270, VaporMax 2.0 and the Epic React as well as the Explorer Endura from Adidas. We also experienced solid gains in Nike Tuned Air, which as many of you know is exclusive to Foot Locker Incorporated. Within our casual business which was down slightly, there was a lot of heat around Vans Classic styles and Fila Disruptor but this was offset by softness in select styles from Adidas, Puma and Converse. A clear bright spot in the quarter was apparel which continues to benefit from a shift to more premium assortments. The strength in our apparel business was relatively broad base with gains across most of our geographies, channels and genders. These strong results were led by branded assortments from Nike and Adidas as well as through resurgence of 90s influence brands like Champion and Fila. In terms of our omni banner comp performance as Lauren mentioned, sales at Foot Locker in the U.S. were up low single digits. The positive results were fueled by the Nike Air Max platforms, Jordan Retro, Air Force Ones and Vans in footwear. Adidas, Nike NBA, Nike Tees and Jordan led the way in apparel. Given this performance, we are feeling good about how our league banners positioned for the remainder of the year. Another positive development was in our Kids Foot Locker banner which produced a high single digit comp gain. This was driven by strong double-digit gains in apparel and a mid-single digit increase in footwear. Kids Foot Locker benefited from many of the same trends that drove our men's business including strong Jordan Retro sell-throughs and the Air Max platforms. In apparel Champion was the standout amongst several brands that performed very well. The primary drivers of these solid results in apparel include tees, fleece, shorts and infant sets. Champs Sports and Footaction were both down mid-single digits. Both banners benefited from strong performance styles from Nike including Max Air and the Air Force Ones. Conversely, both banners were impacted by difficult Jordan Retro comparisons. On a positive note, both banners posted strong high single digit comp gains in apparel. Taking a look at Foot Locker Europe, sales were down low double-digits with footwear down low double-digits and apparel down low single-digits. As you may recall, Foot Locker Europe has historically experienced a higher penetration of Adidas than its US brothers. Furthermore, Adidas has been highly sought after over the past few years with Foot Locker Europe being the first to capture that increased demand. While Adidas is still a vibrant and exciting brand, the demand from our fast-moving consumer has come off that peak, which has led to a more promotional environment. Looking forward, Adidas has recently put some new listing to the marketplace like the Deerupt and we have seen some improving demand from this platform as we shifted into warmer weather. Foot Locker Europe also faced some headwinds in Puma, due in large part to the tough footwear comparisons against last year’s platforms and baskets programs. In line with our US banners, Foot Locker Europe has also seen growing excitement from other brand offerings, including the various iterations of Nike Air Max, Vans and Fila. While we expect these new offerings will drive more full price selling, we still have some work to do in Europe near term in order to clear through some of the slower moving styles. We anticipate that the Foot Locker Europe business will progress in the back half of the year as we improve the depth of upcoming styles from Nike, Adidas, Champion, Vans and Fila just to name a few. Next, I want to update you on our 2018 real estate initiatives, which support our commitment to elevating the customer experience and enhancing our footprint across the globe. In the US, Champs Sports opened its newest flagship store at 10 Times Square in March. This multi-level space celebrates sneaker culture and brings an immersive retail experience, combining prominent digital elements that showcase the best brand stories from our leading vendor partners. Across some of our key geographies, we will begin testing Power Stores, a new retail concept to inspire, build community and provide a seamless shopping experience for our customer. This concept is all about community with a hyper local approach. We believe the design and programming of the space will provide inspiration to our customers through premium product and experiences presented in unexpected ways. The first of these test concepts will open during the second quarter in London and Liverpool with plans to expand the test in US market later this year. Our two European Power Stores will be delivering enhanced customer experiences and engagement through various initiatives. Lastly, we are excited to be expanding into Asia. In the third quarter, we plan to open our first Power Store in Kowloon, Hong Kong. Later in the year, three stores are slated to open in Singapore, along with one store opening in Kuala Lumpur in Malaysia. In terms of building out our digital capabilities, we are being pragmatic in our efforts to convert our websites to our new platform. Several sites have already been upgraded to the new platform with the others scheduled to come on later this year. The new platform will provide brand specific features and functionality and allow for future updates to be rolled out seamlessly across all of our banner platforms. We also recently launched a new mobile app for Kids Foot Locker. We are now working to launch or relaunch other banner apps within the next few months. There is also a lot of work underway regarding our new loyalty program, which will be focused on maximizing our portfolio of brands. We currently anticipate rolling out the new program in the U.S. later this year. Longer term, we believe the power of these digital initiatives will position us to become even more connected with our customers while engaging and creating increased loyalty with them and enhancing our top and bottom line performance in an always connected omni world. In terms of the outlook for the balance of the year, we believe the product flow and depth in key styles will continue to progressively strengthen. The Air Max platforms are prime example of the innovative product coming from Nike which is driving a lot of the excitement and demand across our banners. Additionally, we will have depth in key brands like Adidas, Vans, Champion, Fila and Balance not to match them some of the exclusive offerings that should resonate with our customers. It is the combination of our outstanding product pipeline and our continued strategic focus on elevating the customer experience that gives us confidence that we can deliver on the top-line and bottom line results, to which we have guided throughout the balance of the year. In closing, I want to thank our outstanding team of associates for their continued focus, passion and the energy around the business as we continue to build upon and strengthen our position centered on inspiring and empowering youth culture. Doherty, please open up the line for questions now.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Camilo Lyon with Canaccord Genuity.

Thanks, good morning guys. Dick, you've talked a lot about the product improving. And you clearly are making strides on working down the slower turning skews that’s out. I'm wondering if you could just articulate how do you feel about the receipt that you have coming through the pipeline. If we should expect to see continued pressure on the product if you don't have on hand, but you expect to see and you talked about that a little bit happening in Europe, but how does the U.S. market look from that perspective?

Thanks for the question. We feel good about the product pipeline. As we've talked about in the fourth quarter and now on this call, the outlook of the product the things that are driving excitement, there is a breadth and it is combining with the depth that we've talked about earlier, that we feel good about the U.S. marketplace. We feel good about the European marketplace as well, but we do have some overhang there that we still have to clear through. So again, I think the strength of the product lies in the things that we mentioned earlier on the call and getting an increased depth across those key silhouettes.

Great. And then my follow up question is for Lauren. Specifically, it relates to gross margin and your commentary around Q2 gross margin. You have clearly the easiest comparison in Q2 from last year. You're only looking for a fairly modest assumption of gross margin recovery. Could you just help us understand the puts and takes around that especially given the incremental benefit on the top-line from the $50 million of the shift in the weeks. Which is I would have thought that they would been a little bit strong over gross margin recovery in the second quarter?

No. I think it’s relates to what just took us to around the product puts and takes by geography. So, we’ve got disability in to how that product flows across the period and we factor all of that into that guidance.

And then just finally for me, just on the digital platform you spoke about, new platforms coming online later this year. Any sense as to which platforms you expect and the timing of those launches?

We’re moving all of our websites, our digital sites to a common platform. We’ve been on a legacy platform in to this project that we’ve been working on. We’ve been very pragmatic about moving the sites over to the new platform and making sure that it functions and does everything that we expect it to. So that will continue throughout this year. Well then have everybody on the common platform, the newer platform and that will allow us to make subsequent changes more effectively and efficiently across the coming platforms. So again, some of the banners have already moved over, other banners are in progress as we speak today and some of them will be a little bit later in the year.

So, customer facing changes won’t happen until next year. Is that the right way to think about it?

Some of the customer facing changes are happening as we speak, right. Ideally, it's a listing shift over to the new platform. But we’re adding functionality, we’re adding some look and feel differences that KFL that I mentioned this brand new. So, there is constantly both legacy backend things that are being updated as well as the customer facing front end.

Our next question comes from the line of Chris Svezia with Wedbush.

I guess, first just look back on the gross margin, specifically Lauren for you. The 20 to 50 basis points improvement in Q2, maybe more specifically how much of that is actually merchandise margin improvement? You mentioned an inflection, that you're expecting that to actually turn positive. And I think for the year, I mean on the last call, you called out 30 to 40 basis points in total for the year. I think here you said 10 to 30 and then something about the 50, on a 52 and 53-week basis. Maybe a bit of a clarity about that on the annual, maybe why it’s a little bit different than before?

Okay. Why don’t I take it again through the full year guidance? Because models, we want to make sure that you are understanding 52-week non-GAAP versus 53 depending upon how your model works. So, on a 52-week basis full year, we’re looking for 10 to 30 basis points of improvements. If you’re doing your modeling off of a full 53-week last year, it looks like a range of plus 10, minus 10 around that foothold last year. And so that would intend to give you some clarity.

And the second quarter between merchandise margin and occupancy cost?

I don’t want to parse that out but we are thinking through that as we obviously get a little bit leverage out of that topline shift impact and we’ve got this situation with the merged margins of improving US full price sale through, we’ve got challenges in the international as we work through our slower-moving styles.

And just a reminder, in Europe most of the sale period falls in the second quarter so from a mark down perspective it’s an opportunity for us to push some of the slower moving products so we can get them into a fresher inventory position.

Okay. And just on Western Europe I know in the second quarter I think you are up against negative high single and then it turns to negative low double digits for the back half of the year from a comp perspective. Where comp by region or geographic region but would you anticipate at all significantly now in the GAAP you seen a turn to positive in North America which is encouraging for Foot Locker but maybe give us some timeline or thought process as to how we think about where that inflection can take place maybe in Western Europe and is it just strictly products driven at this point?

As I talked about in our remarks the we see the Western Europe business progressing through the back half of the year and there are some headwinds against some of the slower moving products that we have to get through the flow of new innovative products and in depth that we talked about is improving in the back half. I’m not going to call out a specific inflection point other than to say that we do see it getting better in the back half of the year.

Okay, final question just on apparel. We had good momentum in apparel, it seems like it's accelerating a little bit here just sort of your thoughts about how you think about for the balance of the year relative to the kind of flat to low single digit comp for the total company.

Our apparel I think this is seven quarters in a row that we’ve had comp positive gains in apparels. So, our apparel team has done a really, really go job in terms of turning the inventory and giving it fresh with the consumers. So, there is a tremendous buzz around some of this 90s influence so Champions has been out in a great run, Fila has been on a great run, we expect that to continue and as we work with those vendor partners to get increased depth so that we can cover a broader store base we feel good about our apparel business in the back half and it had a great first quarter and as the inventory I know the inventory is in great shape. So, we have some time for the apparel in the back half. That’s offset by a continuing weakness in our accessories business and we usually lump those together in a lot of cases and we’re continuing to trying to get the sack business right sized. Headwear's become less important to our customer. So, we’ve got to keep that in balance but feel good about the actual apparel side of the business.

Okay, sounds good. Thank you and all the best.

Thank you.

Your next question comes from the line of Jonathan Komp with Baird.

Yeah, hi thank you. Lauren I was hoping that maybe first just to clarify on the gross margin guidance for the year you gave kind of that two different ways. Did that change versus the prior view and I’m just wondering, I know you over delivered in Q1 and it sounds like a lot of US is improving. So, I’m just trying to understand any moving parts there?

Yes, it does reflect an update when we gave our guidance in March, really looking to 40 basis points to 60 basis points. Yeah, we didn’t call out at that point 53 versus 52. Hence our desire to make sure that you understood with that additional week last year, how we were thinking about it, GAAP and non-GAAP about the 53rd week.

Okay, great. Thank you for clarifying. And then a bigger picture question going back to looking at trends in Europe versus the U.S. and I guess maybe a little different question, but I'm wondering how much of the divergence is, a sign that some of what's starting to work in the U.S. is working or not over there versus some of the issues that you're facing in Europe, getting worse, I'm wondering if you can give me more clarity on where you're seeing it, specifically I’m wondering if the new Nike product where you're getting more depths that expect to is, is having any varying degrees of success here versus in Europe?

Well, the consumer these days Jonathan that once they see if they want it. So, the things that are working here are beginning to work in Europe as well. The difficulty that Western Europe faces is that they have a historically had a much bigger penetration of Adidas products, they were the first to catch that wave on the way up, the road is hard, you got to be a big part of the business. And as certain silhouettes have slowdown, they’re facing some headwinds from it and as they reposition, some of that product as they get the right amount of Nike receipts that's why I have some confidence that it will get somewhat better in the back half, but again the things that work generally speaking work all over, if we have access to it, you have to remember that assortments vary by geographies from our vendor partners as well.

Okay, great. And maybe one other question as you look at the pipeline coming out. Would you characterize it more as broadening depths of what we currently see in the marketplace in terms of the new styles or are you expecting more new releases that are obviously that you’ve had in the marketplace and I guess that's a global question kind of across brands what you're seeing?

It’s combination of both, Jonathan, right, I mean we’ve talked about in the last couple of calls but we see the depth of key styles, increasing as we get to the back half of the year, so whether that be scaling VaporMax, celebrating the 20th anniversary of Tuned Air, some really exciting things that we see going on, it maybe new color ways, it maybe new compilations of materials on the upper and that may be new silhouettes but we feel good about the product heat from a lot of our key vendors, lot of our top vendors.

Okay, great. Thank you

Your next question comes from the line of Tom Nikic with Wells Fargo.

Hey good morning everyone. Thanks for taking my question. I was wondering, Lauren, I believe you said that the DTC comps were only flat in the quarter, I guess was a little bit surprise even late last year when you’re comping worse overall, you still sort of had positive DTC comps, I was kind of wondering, what exactly happened there?

Well, I'll take the question, Tom. A lot of things that impacted, certainly the stores impacted even to a greater degree than the digital business. So, some of the pullback in the Jordan brand, had a huge impact to our digital business because we sold and sell a lot of launch product through the digital sites. And while they may not have sold out day of the year ago, we have a long tail that we were able to sell online. So, as we saw some of the allocations, difficult back, but it certainly had a disproportionate impact on our digital business. As we look to move through some of the slower-moving silhouettes, where we're very channel agnostic with that and try to leverage the power of the digital business. So, we were fairly aggressive in situations in terms of moving through some of those -- the markdown products. So, while you get some impact, you don’t get the same top-lines if you were selling full priced products. So, there is -- structurally the team has done a great job of taking on the omni-channel work. Our GMs are responsible for their brands now in their entirety and are very channel agnostic. So, it’s about driving excitement with the consumer. So, we see that accelerating as we get through some of the allocation challenges and we get through some of this markdown issues.

And we get some of the benefit from the investments that we are making in the capabilities.

Absolutely.

And just a quick follow up on real estate. I think on the Q4 call you called for 40 openings, up to 10 closures this year, and we still sort of think that that’s the general framework. Just bigger picture, I mean you’ve been a long-term net closer of stores in the US I think something like 11 years in a row, do you have any sense as to sort of how long that continues, what your sort of ultimate store opening looks like, anything like that would be helpful?

Well the anticipation is we will probably have the opportunity to close a few more stores than we guided to originally. I would tell you we’d likely be in the 120 plus sort of range. We look for opportunistic times to close those stores and some of its mall demise, some of it’s our choice to move. The openings will be about where we talked about around the 40 mark. And over time this concept of Power Stores bigger square footage really locally connected to the community will sort of alter the portfolio a bit. So, I am really excited to get a chance to test these out in London and in Liverpool and then in the US market later this year. So, we will see a continued management of the portfolio. And we look at it long-term. Our real estate team and our lease team has done a great job of building flexibility in. So, we have the opportunity to extract some lower rents in some cases and to build flexibility into our ability to get out of some of the stores that we need to get out of.

Your next question comes from the line of Sam Poser from Susquehanna.

First of all, on loyalty program, you talked about a change there. Can you give us some details as to what that is?

Sorry Sam not ready to give any details yet other than to tell you that we are completely reimagining our loyalty program and it will leverage the power of our portfolio as we think about loyalty in the future. But not ready to talk about it in detail yet.

I mean to just follow real quick, if that implied the Champs loyalty program will be intertwined with Foot Locker loyalty program. Is that the good way to think about it?

That's certainly one scenario that you could think about it in. The portfolio is a powerful, powerful thing with all of the digital sites and the brands that we got. And we'll have more to talk about later this year.

Our customers are really enamored as this category look to our different brands for different shopping indication. You know that they do cross brand shopping. And we want to make sure that we're recognizing and reporting that.

Thank you. And then secondly, I mean, could you talk a little bit about Nike, Adidas and others have talked about the flow of their product and how they're going in the shorter time frame. With what you see? How are you -- I guess are you buying product with for less weeks of supply so you can move from one thing to the other more in step with how quickly many of your core customers are evolving their pace I guess.

We're certainly trying to adapt to way our consumer moves and the way that our vendors move product into the marketplace. There are some things that you continue to buy very much the way that you've always brought a White Air Force One for example, which you have great marketability and is very consistent. There is a pattern with how we buy that. When you think about some of the excitement that comes in and pops and then goes away quickly, we do buy as aggressively as we can but we know that we're going to be out of that. We've talked for long time about how the peak of product receptivity of our consumers is much, much faster from the old days of seed to scale. We need to go see the scale quicker and we're working with our vendor partners to do that. Ultimately you have across the assortments and we have fewer weeks of coverage so that you can get into the next thing quicker.

Thank you. And then lastly, it looks as if based on your guidance and based on your inventory levels and the accordance accounts payable. It looks like your accounts payable is up disproportionately. Does that mean that a lot of the change a lot of the influx of the new product really showed up right towards the end of the quarter? And that due products what's gives you confidence of the improvement in same store sales relative to the old stuff that you were working on clearing. I realized just are still clearing goods in Europe. But is that sort of generally the right way to think about that?

There was some impact of products flow and again with a 53rd week shift or a little bit of that too. But the bigger impact on that '18 number was that a year they would have been more credit for RTVs in that number reducing the APs and -- this year. So that's the bigger difference.

Your next question comes from the line of Kate McShane from Citi.

Hi, good morning. Thanks for taking my question. Just wanted to check in on a couple of tests that you're running. I think last quarter, you've told us about a test in 9 stores that you're looking at with athletes and then also the power stores that you mentioned on this call. Just wondering what the expectations are for this cash been. Will it be something that replaces current formats and will it be lower off mall?

We continue to work with Nike and bringing Nike athletes in and working on the in-store experience with Nike and our other vendor partners. So, we’ve seen positive results, we continue to expand that out a bit. And obviously for our core consumer today, it’s all about the in-store experience. So, power stores that we’ve mentioned a couple of times will provide us an opportunity in some cases to pivot off mall, right. It’s the locations, where we know that the customer is there. We want to provide great excitement in the store and we haven’t been able to necessarily get the right flexibility in the malls, so the malls happen to be going away. So, it could be strip mall, it could be a power mall, it could be off the pad. But it will allow us the opportunity to do more on the street if you will. Of course, in Western Europe, we’ve got about half of our fleet at high street base. So, it’s not a truly new concept for us to be off mall or on the high street but taking some bigger spaces and creating experiential sort of retail is where we’re really talking this power store concept.

And then my second question is on women’s footwear. I just wondered in terms of the guidance, the overall comp guidance what your views on any improvement within women’s footwear for the year?

Well, we feel better about women's going into the back half space. Some of the miss on the women's side is really very, very high-level launch specific from last year. The fancy product from Puma last year, the Rihanna product was phenomenal. And they’re just as nothing, there is replacing in the marketplace right now. But that exposure goes down as we get later in the year and with some of the great Max Air platforms that are coming with some of the Adidas product that’s coming, she is very much into Vans these days. So, we feel very good about the women’s footwear business getting better in the back half.

Your next question comes from the line of Eric Tracy with Buckingham Research.

I guess Dick for you. Just a little bit bigger picture as you think about exclusivity. And exclusives here in in-store or digital in this ever-evolving sort of landscape. You’re confidence around Foot Locker participating be it basketball or running. Just around the lost schedule. We’ve seen, not only the brands going direct, but using social media platforms now some exclusives. Just big picture wanted to talk through your confidence level and Foot Locker maintaining is not increasing on the exclusive side?

Well, we know that’s what motivates are consumer Eric, right. They want what’s cool, they won’t what we’re able to work on with our vendor partners. There is a lot of collabs that are out there, that, there is not always a ton of product available, but they drive a tremendous amount of heap. And our team is focused and working with our vendor partners to continue to create exclusives and it's not shop a lot of different ways right I mean a kind will response to a great colorway but it's really more about creating a concept around the product, it's about engaging that -- connecting that product with an engaging stories that our customers understands and then driving that to a scalable model and that I think is really the key that for us you know we’ve had a lot of customers that shop a lot of different ways and we have to work with our vendor partners to bring this heat to a scalable level. And that’s the work that goes on, our team spends an awful lot of time with vendor partners to get that accomplished. But we do believe that that exclusivity and unique connectivity sometimes it's very hyper local things that we want to do but our team is absolutely focused on that.

That’s really a competitive advantage of ours because we can’t beat a strategic partner to our suppliers on developing this unique product and doing it at a scale that makes sense for them to produce it forth.

Yeah, and then just shifting a little bit more in for years, we think about SG&A certainly depreciate, if comps inflect positively fixed cost leverage but as you think about the investments behind digital as we move though the year and even bigger than next year just the opportunity to better leverage and or you know moderation of some of that spend?

Yeah, well this customer is connected 24x7 so I’m making sure that our digital offering is complimentary to that bench of there is a very, very important hence the investment. But you know it's certainly as you’ve seen when we look back at our history we are very responsible stewards of the expense and when we get to comp positive, we can really lever that topline results.

Okay. Thank you all, best of luck.

Thanks Eric.

Your next question comes from the line of Erin Murphy with Piper Jaffray.

Hi guys it's Eric for Erin and thanks for taking our question. I just want to ask around digital priorities in terms of what you’ve been most impactful in your view for your key customers whether that’s -- and how do you prioritize between shipping speed, web interface, checkout speed, supply chain systems, free shipping threshold. What are your biggest focus areas that have kind of investments that you guys are taking on this year?

Well we’re tracking on it all quite honestly, the consumer really won’t let us sort of peace meal without, so we’re doing some really heavy lifting around the foundational work that’s going to be done, so the pipes have to be made bigger, the plumbings got to be in place and we’re doing all that and we’re improving our apps and we’re building the digital business a direct to consumer business for 20 plus years. So, we understand free shipping thresholds and we understand what free shipping does to the model our financial model the model is different for some pure plays. We have great experiences in stores, so being able to leverage the store business with the digital business is one of the competitive advantages that we bring along consumers to pick products up in the store making all of our inventory readily available to wherever the consumer happens to be browsing and shopping and engaging with us. So, we’ve got work streams behind it all and it will mature at different levels, the platform work as I said is in progress today with the platform -- with some of our sites already on the new platform, the digital work from an apps perspective, the team is doing some really heavy lifting there as well. So, it's all really interconnected.

Great, thanks. And then just one more on, it looks like, rent expense was up almost $50 million year-on-year last year, I’m just curious how much of that was sort of dark rent for new headquarter or new flagships and what is the kind of underlying core kind of rent run rate we should be thinking about and is there any opportunity for reductions or getting more aggressive on that line?

I think you hit on it, in regard to that some of the bigger properties that we've invested and we’ve had some flagship openings over the recent period. The dynamics of accounting for the rent is on a straight-line basis, so it’s moves that over the period of the lease. All right. So that’s been part of that dynamic.

Your next question comes from the line of Paul Trussell with Deutsche Bank.

So, the first quarter showed good execution and progress from the second half of ’17, just want to push you guys a little bit, going from 1Q, there’s still a negative comp to the second quarter guidance, there’s still a little bit of a leap forward as we now have our eye set on positive comps. So, could you just give us a little bit maybe more clarity or color around what is driving that sequential progression, for example, how should we think about the Europe business and the ability to show any improvement quarter-over-quarter, has the U.S. store business already showcased an acceleration quarter-to-date, is there any expectation of the Jordan headwinds to alleviate or is this all about additional SKUs of 270s another innovation, just looking for clarity there. Thank you.

Well, we hit on a lot of it, Paul. I think it’s clear that we're improving in the big foot banner in the U.S. that we talked about, right. We don't give quarter-to-date guidance. So, I’m not going to go there, but as I think Lauren mentioned in her commentary that reaffirmed in mind, we're seeing some real progress in North America. So, there is certainly a bit of headwind around the Jordan allocation numbers, but we’re seeing better sell throughs and nobody does, market allocation better than that brand and they is doing what's right for the market place. So, we see that improving in the back half. The depth of the SKUs, some of SKUs that you mentioned whether it be 270s, whether it be selling VaporMax access to better quantities and some of the apparel brands that we mentioned from Champion and Fila, our relationship with Vans continues to improve. So, there's more depth coming across key and that’s really what we see power in the U.S. The same things will be going on in Western Europe. The issue with Western Europe is a little bit of the overhang that they’ve got from getting through some of the slower moving silhouettes. They go into their sale period across many of the countries in the second quarter which they'll be able to take advantage of and move through some of that product, that’s why I see it getting better in the back half. So absolutely we feel that the sequential improvement based on the things that we have talked about, based on some of the things that you called out, we definitely see as very possible in the back half.

Got it. And then just quick follow ups, just what is the ASP outlook for the balance of the year and what was it in the first quarter? And then also obviously the apparel business is doing well, if you can just discuss the margin profile of that business today?

Well ASPs were up in Q1. We continue to see the ability especially at this premium apparel and footwear mix that we’ve got for ASPs to continue to improve throughout the year. Some of that really is being driven by the apparel business that you called out. As we up our assortments and we sell more premium apparel, that certainly has a very positive impact on our overall ASPs. We still do some private label business which is also beneficial for a lot of our customers but we have seen our customers migrating to a much more premium apparel position. As we get through some of this markdown pressure, it also is additive to the ASP calculation. So, we see that as being positive and we see ASPs able to grow throughout the year. From a margin perspective, we are certainly seeing margin improvement on the apparel front. I think that’s -- we have been talking about it for a long time. We want the apparel margins to get ahead of footwear. We are getting closer but we are not there yet but definitely moving in the right direction Paul.

Your next question comes from the line of Michael Binetti with Credit Suisse.

Continuing on Paul’s question on the composition of the footwear comps, is that interesting to look back at your commentary on ASPs and how it’s positive, I think all of last year has moved through much high clear sell rolls and negative total comps, you said that ASPs were higher this quarter and units were lower again. But can you talk us through that, is that intuitive to that ASPs remained positive last year and do you think there’s a path back to positive units as you build towards the positive sales growth in the back half?

Well ASPs we’ve talked about it many times, Michael, it’s a pretty complex calculation, right. I mean we have a lot of things going on across a lot of categories. So, the price of T-shirts going up, going from X for Y sort of offer to $25 $35 each sort of T-shirts. Premium fleas certainly drives things up. Is it intuitive that even during the markdown period ASPs went up? Not completely intuitive but again I think that shows you some of the complexity of the ASP model. So certainly, as we see traffic improvements, as we see our ability to utilize our digital sites better, I’d love to see units go up as well. That certainly is an objective. But we can be successful with this accelerating ASP growth in everything that we do on, the increase on the unit side of things, should just be incremental positives.

And then could you just -- I know we beat up Europe up a little bit, but maybe I could ask it a little bit in different way. Can you speak to I guess the slow-moving inventory in Europe? Lauren, it looks like you ratcheted down the gross margin for the year. I'm looking at about roughly 30 basis points. If you saw something in first quarter that didn't away side in Europe. Can you help us understand it sounds like from Dick's comments, that there is going to be a big focus on promotion in the second quarter and then it clears out? Is that really -- you saw in the first quarter the product we had in stores was not working and we're going rip the band aid off so quickly as you through most of that merchandize inventories in Europe and through the much cleaner position into the second half as well?

So, Michael thank you for asking one more time at the gross margin for the full year as you gave me the opportunity to correct to myself. When we gave the guidance in March for the full year it was 30 to 40 basis points. And we updated it on a 52-week basis now to 10 to 30. So that gives you a feel for the incremental difference that we're talking about. And yes, we've got to deal with the inventory in Europe and taking advantage as Dick described of the sale period that happened here in Q2 a great opportunity to do that. So, as we see the flow of product and getting the breadth and depth into the stuff that the customers responding to both in the U.S. and Europe that's why we're encouraged in the back half of the situation will look a little different and be improved.

Okay thank you for joining us today. If we didn't get your question or if you have any follow up questions, I'll be back at my desk shortly. Please join us again for our next earnings call which we anticipate will take place at 9 am on Friday August 24. The call will follow the release of our second quarter results earlier that morning. Thanks again. And good bye.

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