Jim Lance - VP, Corporate Finance & IR Lauren Peters - EVP & CFO Dick Johnson - Chairman & CEO

Paul Trussell - Deutsche Bank Kate McShane - Citigroup Sam Poser - Susquehanna Financial Group Michael Binetti - Credit Suisse

Good evening, ladies and gentlemen, and welcome to Foot Locker's Third 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 performances, 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 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, Vincent. Welcome everyone to Foot Locker, Inc.'s third quarter earnings conference call. As reported in today's press release, the company reported net income of $130 million in the third quarter compared to $102 million in the third quarter of last year. On a GAAP basis, this year's net income was $1.14 per share compared to $0.81 per share in the third quarter of 2017. Included in these results is an incremental pretax charge of $2 million related to the pension litigation matter we have previously disclosed, offset by $23 million of tax benefits from adjustments to the effects of several provisions of last year's U.S. Tax Reform Bill as detailed in today's press release. Included in last year's earnings per share is a $13 million pretax charge due to reducing and reorganizing our divisional and corporate staff. Excluding these items on an non-GAAP basis, third quarter earnings were $0.95 per share, a 9% increase versus last year's $0.87 per share. 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 today'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 third quarter financial results along with our financial outlook for the fourth quarter. Dick Johnson, Chairman and Chief Executive Officer, who will provide an update on our ongoing initiatives and provide some highlights from our third quarter performance. So with that, we have a lot to cover. So let's get started. Lauren?

Thank you, Jim, and good evening everyone. I appreciate that all of you were able to join us tonight ahead of your holiday festivities. As noted in our press release this afternoon, the company generated a 2.9% comparable sales gain during the third quarter, our best results of the year, and in line with our previous guidance. This is a solid result, especially as it reflects the building momentum that we see in our business. It included more full price selling during the period with gross margin improvement above our expectations. Looking at the sales gains by month, we saw our comparable sales accelerate nicely as we move through the quarter with August up low single digits followed by mid-single digit comp gains in both, September and October. Our total reported sales declined slightly during the quarter; as we mentioned on our previous call in August, the 53rd week shift reduced sales in Q3 by about $60 million. In addition, the impact from foreign currencies is typically the stronger dollar reduced sales by $17 million. Excluding these factors, total reported sales would have been. I'm pleased to report that we produced solid gains across both channels with comps sales at our stores, up 2.4%, and digital, up 5.9%. This once again demonstrates the importance of connecting with our customers and serving them, however, they choose to shop. As a percent of total sales, DTC was 14.5% for the quarter, up from 13.8% last year. The story with traffic this quarter was also one of sequential improvement led by a modest increase at our U.S. store banners. Traffic at our international banners was down low single digits. While still a challenge, it was an improvement over the prior period trends with notable progress at Foot Locker Europe stores. Average selling prices continue to move higher, both in footwear and apparel; unit sales were also up in footwear while apparent units were down a few ticks. Looking at our families to business; footwear turned positive posting it's first comp gain in six quarters with a low single-digit increase. While the strong trend in apparel continued with a high single-digit comp gain fueled by branded assortments. Accessories such as hats and socks comp down double-digits. Within footwear our women's business was the strongest performer with comparable sales up double-digits. Men's was up low single-digits, and kids was up slightly. Men's running comps were up double-digits and while basketball was down mid-single digits, the trend did get better from the second quarter. Meanwhile casual including styles from [indiscernible] and seasonal assortment such as boots had another solid quarter, posting a mid-single digit comp gain. Turning to our apparel business; I mentioned that it was up high single-digits with strong gains across most of our geographies, banners and size ranges. Our children's apparel business with up strong double-digits, our men's apparel posted a solid high single-digit gain, while women's was up low single-digits. Shifting now to our banners; we saw strong performances across North America and international markets. In North America, Foot Locker U.S., Champ Sports and East Bay led the way, each up mid-single-digits. SIX:02 and Foot Locker Canada, each have low single-digit gains. Kids Foot Locker was down slightly while Foot Action was down mid-single digits, primarily due to the Jordan reset. In our international markets, we were pleased by the ongoing progress at Foot Locker Europe which generated a mid-single digit comp increase driven by gains across footwear and apparel. Foot Locker Pacific posted a low single-digit gain while Sidestep was down mid-single digit, and Runners Point declined high single-digit. Finally, well not included in our comp sales, we did see a lot of energy at the grand opening of our new Asia stores in Hong Kong and Singapore, along with some encouraging sales. Moving on to the rest of the income statement; the progress on our sales was coupled with gross margin expansion which exceeded our expectations with the rate improving by 60 basis points to 31.6% of sales from 31% a year ago. This was achieved with a strong merchandise margin which improved by 80 basis points. Our mostly fixed occupancy and buying compensation costs did delever by 20 basis points, this reflects the impact I previously mentioned of the sales shift due to last year's 53rd week. Excluding this impact we would have levered buying an occupancy. The biggest contributors to the progress in the merchandise rate were our U.S. banners which benefited from meaningfully lower markdowns. The progress was partially offset by lower initial market rate, and the continuing promotional environment in our European markets. The IMU pressure was due in part to the lower mix of private label offering. Our SG&A expense rate in the quarter rose by 170 basis points to 21.4% of sales from 19.7% last year. In addition to the impact of the 53rd week shift, many of the same drivers we have discussed with you previously drove the higher SG&A spend, including the investments we are making in our digital capabilities and logistics, and higher incentive compensation. As we previously called out, this year's SG&A includes more normalized bonus accruals. In comparison, last year we reversed some residual bonus expense due to the company's performance relative to our plan. On a year-to-date basis, the impact of the incremental bonus accruals is 40 basis points. Our depreciation expense was $44 million for the period, flat to last year. While interest income reached $2 million due to the higher interest rates our cash holdings. On a GAAP basis, our income tax rate came in at 10.8%, down from 34.7% last year. As Jim noted, this quarter benefited from adjustments related to last year's U.S. Tax Reform Bill, as well as the lower federal corporate income tax rate. On a non-GAAP excluding the benefits from those adjustments, our rate landed at 26.7% close to our expectations. A GAAP to non-GAAP reconciliation reflecting these tax adjustments is included in today's press release. Turning to the balance sheet; we ended the quarter with $748 million of cash and cash equivalents, a decrease of $142 million from the end of Q3 last year. We spent approximately $108 million in the quarter to repurchase about 2.2 million shares and $39 million on our quarterly dividends. Year-to-date we have repurchased almost 6.7 million shares for a cost of about $313 million, leaving $445 million available under our $1.2 billion share repurchase authorization. In addition, we have returned $120 million to our shareholders through our dividend program. Capital expenditures in the quarter were $38 million bringing our total through the first 9 months of the year to $153 million. We now expect to spend $210 million in 2018, down from our previous guidance of $230 million. The reduction is due primarily to changes in project timing with cost shifting from 2018 into 2019. Looking at the store fleet, we ended the third quarter with 3,266 company-owned stores, a decrease of 10 from the end of the second quarter. During Q3 we closed 20 stores and opened 10 new stores, including 3 in Singapore and 1 power store in Hong Kong, this brings the number of countries we operated in at the end of the quarter to 26. For the year we now expect to open about 45 stores, relocate or remodel a 124 stores and close approximately 140 stores. Inventory decreased 0.6% compared to an overall sales decrease of 0.5%. On a constant currency basis, inventory increased 0.5% compared to a 0.4% sales increase. Due to this year's holiday shift, Thanksgiving falls a week earlier than last year, we strategically slowed additional receipts and at the end of the third quarter to position us for the start of the holiday selling period, which for us began this past Saturday with the kick-off of our annual week of greatness. With that as the backdrop, we now expect the fourth quarter to unfold as follows: comparable sales are now expected to be up low to mid-single digits which is a slight increase over the prior low single-digit guidance. Gross margin is expected to improve by 100 to 130 basis points compared to a 13-week quarter last year. Spain fueled by expanding merchandise margins and leveraging occupancy and buyers compensation expenses, compared to last year's reported 14-week Q4, this equates to 40 to 70 basis point improvement. SG&A on a 13-week comparative basis is likely to increase by 100 to 120 basis points as a rate of sale. The equivalent of 14-week comparison is an increase of 110 to 130 basis points. For Q4, the expected impact from bonus accruals is 40 basis points, both on a 13-week and a 14-week basis. Bear in mind, the 53rd week shift will once again be a headwind for both, gross margin and SG&A, with $20 million shifting out of the fourth quarter. In total, this results in a solid double-digit EPS gain for the fourth quarter. Finally, we have seen our momentum building as we move through the year, including a slight gain in our year-to-date comparable sales. When you add our expectations for the fourth quarter to our year-to-date results, we remain on-track to achieve the annual top and bottom line guidance we gave you for 2018, including a low-single digit comparable sales increase and a double-digit EPS gain. With that, I'll now turn the call over to Dick.

Thank you, Lauren, and good evening, everyone. At the beginning of 2018, we laid out our expectations for sequential improvement through each quarter of the year, with comparable sales turning positive in Q2 and then accelerating in Q3 and Q4. I'm pleased that our team's strong efforts led to a third quarter performance in line with these expectations, and we believe position the company to deliver even stronger results in Q4. This positive momentum reflects the strategies we are pursuing to drive our top line and our continuing focus on increasing productivity and maintaining the strength of our bottom line. It all starts with our journey to inspire and empower youth culture. Yes, we had improved breadth and depth with some of the top trending footwear and apparel assortments. But beyond that, our strategic partnerships with the best brands in the world and our commitment to bringing incredible experiences to consumers, in-store, digital and even virtual are what differentiates us. Let me tell you about a few of the things we are doing; starting with the steps we are taking to share the excitement and energy of sneaker culture with our consumers. At the heart of these efforts is the array of brands that we sell, the diversity of consumers that we reach, and the locally relevant experiences that we create through all of our different properties and channels. The access to these great products and brands stems from the strategic relationships we have built with our vendor partners. First, the close collaboration with Nike allows us to deliver incredible and distinct products, services and experiences that are relevant to the consumers we serve. Recent examples include the Discover Your Air campaign, which is our new exclusive platform to showcase the best expression of the Max Air franchises. In the third quarter, this included the Origins and Frequency Packs, which were some of the periods best-sellers along with other 90s inspired packs that we released with great social media content and local activations. But that's not all, this holiday season is the 20th Anniversary of our exclusive Tuned Air franchise, which we are celebrating around the globe with a number of exciting iterations. This includes some past OG versions as well as some exciting new silhouettes that have never been seen before. Another collaboration is our in-store Nike Pro Athletes program. These Foot Locker associates who have been trained by Nike to be deeply knowledgeable and passionate about the Nike brand and premium products allow for an even more immersive customer connection and drive elevated experiences at Foot Locker, and they are delivering measurable results with incremental sales gains at stores where this program has been rolled out. Our consumers are looking for occasions that bring excitement and connectivity to those things they are passionate about. So, I'd like to tell you about two examples where we are working closely with Nike to deliver on this journey. These innovative experiences rolled out in L.A. leveraging the heat around the Lakers home opener and the brand's first game in the purple and gold. First, the House of Hoops Courtside experience is a mobile pop-up shop that will be used around the country during key basketball moments. It provides our basketball obsessed athletes and fans access to exclusive footwear launches from Nike, Jordan and Converse. This experience included a unique maker's customization space where consumers could deconstruct certain products with the Nike designer and then alter them right on the spot. The initial launch of the Courtside concept outside the Staples Centers generated great energy and we believe it presents an opportunity to reshape the excitement around basketball. The second example is our new Jumpman store in Los Angeles, a co-investment with our partners at brand Jordan. The store, which is located at a historic 1920s theater has over 25,000 square feet of retail and consumer activation spaces. It includes shopping space for curated Jordan collections, a footwear and apparel customization bar, a state-of-the-art training lab and performance center where consumers can get personal training sessions and a full size outdoor basketball court on the roof with seating for 150 spectators. This is something we have already leveraged with key local community events such as a slam dunk contest by local high school players. Our strategic partnership with Adidas also includes distinct concepts that are relevant to our consumers and that help us connect with them on a personal an experiential basis. The printed series featuring different cities printed on NMDs was the first time that boost had ever been printed on. [Indiscernible] concept brought back some of the most sought-after executions of Ultra Boost. The Never Made collection reimagined versions of past icons from Adidas with new innovative toolings and unexpected combinations. All of these concepts continue into Q4 in 2019. And that's only the beginning. So many brands are changing sneaker culture and our strategic relationship with a diversity of brands positions us to tell their stories. For example, in exclusive concept created with ASICS called East meets West celebrates the brand's Japanese and US routes. That was launched with the welcome to the Dojo pack, which was brought to life through a spoke anime inspired digital series starring Fashion Savant, Luka Sabbat and musicians Nokia and YFN Lucci. In another exclusive concept, Reebok teamed up with Foot Locker for its Alter the Icons campaign, which celebrates its history with new looks and unique twist to its icons. We are also leveraging our global market reach and our strong collaborative relationships with other trend right brands such as Champion, Vans and Fila to make their products newly accessible to people connected to us across our diverse markets and channels. Beyond these partnerships, we are hard at work making transformational strides on our digital and mobile platforms to bring better experiences to our global customer base. First, we completed the upgrade efforts of our North America store banners and to our new more responsive digital platform. This investment builds the foundation for an improved consumer experience with better storytelling, greater functionality and improved bandwidth for those key high-volume launches. We are also in the process of updating our mobile apps. Our Kids Foot Locker app was the initial launch, we have now released updates of the reimagined mobile apps for Foot Action and Foot Locker. Similar to the new websites, these new apps create a more seamless experience for our consumers, provide improved product presentation and other new and exciting features. We have also launched our first augmented reality initiative called The Hunt. This is a new feature within the Foot Locker app that uses augmented reality to create more engaging an interactive shopping experiences. The Hunt let's fans use their Foot Locker app to reveal geo targeted clues throughout the city that unlock the opportunity to buy coveted limited-edition sneakers. The Hunt gave our LA customers a chance to be one of the first to buy a pair of the new LeBron 16 game shoe, the one he wore during this first game as a Laker. Now turning to our investments in the store fleet. We remain committed to bringing sneaker culture to people all over the globe, both through our international expansion and investments in our local communities across North America, Europe and our Pacific regions. In Asia, we study the market, listen to the consumer and learn that in each of the countries we are entering, there is a strong and vibrant sneaker culture with a passion for athletic footwear and apparel. We took these insights to build a multi-branded experience that we believe will lift the market not only for us, but our brand partners too and drive a high level of customer engagement. During the quarter, we opened three stores in Singapore and our first Power Store in Hong Kong, the first truly premium multi-brand destination in the market. In addition to offering an impressive selection of premium sneakers and apparel from our global brand partners, this concept brings enhanced customer experiences to the region. This includes an experience zone currently featuring Xbox gaming stations, haircuts and styling by Black Rose barbershop, a House of Hoops concept shop and a mural painted by the Queen of Hong Kong street art scene Bao Ho. In addition, we opened our first store in Kuala Lumpur, Malaysia in early November. Beyond our physical stores, we also launched our digital channels in Singapore and Hong Kong in early November and made an initial digital entry into Mainland China with the limited offering through team. We are excited about the growth opportunities in each of these markets and channels. However, we are in the early days and have much to learn about what it will take to deliver long-term success across the geography. This is a marathon, and as always, we will be thoughtful about how we proceed and the investment dollars we spend as we move forward. Turning to the U.S., we are on-track to open our first Power Store along Detroit's historic 8 Mile Road later this quarter. The store will have many of the same innovative concepts we have added to our London, Liverpool and Hong Kong Power Stores such as activation spaces, gaming zones and other customer experience concepts. Similar to our other Power Store openings, this effort leverages our customer connected framework to create even deeper connections with the local communities that drive youth culture while also maximizing store productivity. Before we move on to the Q&A. I'm going to hit on a few of our third quarter highlights. I'm encouraged by the overall improvement across our businesses and geographies. Across North America, Foot Locker, Champs and Eastbay delivered solid results during the quarter. Within women's, we had strong performances across most of our banners, where improved footwear and apparel assortments are resonating with our consumers. Moving to Europe, we saw sequential improvement at our Foot Locker Europe banner driven by strong results across women's and kids' footwear and appeal. We also saw an improving men's business. Looking at the fourth quarter, we believe the strong product trends will continue into holiday and beyond, including the exciting product offerings available during this year's addition of the Week of Greatness along with further improvement in the breadth and depth of the on-trim premium styles from our global vendor partners, the progress in our business is also being powered by the cool and unique products that are coming to life to the many collaborations that I have described. In summary, the third quarter was a good one for us. We believe this positive performance should [indiscernible] fourth quarter as well. But we are not resting, we're excited about the long-term growth opportunities we are developing to drive a further emotional connection with our consumers. As I discussed, these include having the most sought-after assortments, partnering with the best brands in the world to deliver innovative products and storytelling and bringing incredible experiences to consumers through our improving digital capabilities and progress on making our stores even more unique and exciting destinations. With that, I want to thank all of our associates for their hard work and dedication. We are on a journey to inspire and empower youth culture and that would not be possible without all of our associates' passion for creating memorable customer experiences. I also want to thank all of you and wish you and your families a Happy Thanksgiving and happy shopping. Operator, you can now open up the call for questions.

[Operator Instructions] Your first question comes from the line of Tom [ph] from Wells Fargo.

I guess I'd like to talk about Europe for a bit. Your North America business was pretty good, but Europe, I was surprised to see how much it improved versus the trend we've seen the last couple of quarters. And there's been a lot out there about broader apparel and footwear trends in Europe being a little bit soft and some of the big European based sneaker brands has had some cautious commentary about the market in Europe. So, if you could just give us a little bit of color about the drivers of the European business, and how you were able to see some improvement in Q3, whereas a lot of other European based apparel and footwear businesses are sort of struggling a little bit? Thanks.

So really, it's the same story that we've talked about, we saw the turn happening, we expected it to be in the back half, we've been a little bit out of sync with our inventory, the team over in Europe has done a good job of flipping their inventory and getting in the right styles that are driving right now, they were on things like they Fila Disruptor early, their improvement in the Nike Max Air business has been a real positive. And it's not perfect, yet we still ran higher markdowns as Lauren mentioned, we ran higher markdowns in Europe than we'd like, but certainly saw some positives, women's and kids' were the strongest, we saw a nice apparel business. So a lot of things moving the right direction in our Foot Locker Europe banner.

And if I could just follow up with one more, there's been a lot of talk about the marketization of the Easy brand from Adidas and obviously they're starting to put more pairs into the marketplace. Can you just talk a little bit about that and if you see that as a potential driver of the business over the next 12 months or so? Thanks.

I think we've been clear all along that scarcity is what really drives our consumer. So, you have to control the throttle on scarcity and I think and the Adidas brand is doing that with the Easy product and certainly making it a bit more accessible is positive for the business. We look at it and we've had the easy launch internationally a week ago and here in North America over the last weekend, and as we have peers, the customer's demand continues to increase. So I think seeing -- finding that right model of scarcity with availability is the key and I think Adi is doing a really good job of sort of controlling that throttle, suddenly opening it up a little bit going into this holiday season.

Paul Trussell from Deutsche Bank is on the line with a question.

Just talk a little bit more about improvement in the breadth and depth of some of the key assortment, you know what really drove the improvement as the quarter went along and gives you the confidence to kind of up the guidance here for 4Q, you know I'm particularly interested in thoughts around apparel in basketball and any other kind of categories are standouts worth noting?

I hit on a lot of the positives that we see continuing into Q4. You know, the Max Air platform from Nike, our singular platform to launch Your Air concept is important. Obviously, the Origins Pack and Frequency Pack in Q3 were some of our best sellers, but Vapor Max, Max 270s and I'm probably most excited as a company about the 20th anniversary of Tuned Air, right, I mean, we've sold over the 20 years millions upon millions of pairs of Tuned Air. And we're going to celebrate that appropriately around the globe and we've got passionate Tuned Air buyers in virtually every market that we do business in. So those things are very positive, we've seen some secondary brands if you will, really important brands to us but smaller in total volume, Vans, K-Swiss, Fila, all those brands are starting to have some resonance with our consumer, we're also testing a lot of things on the apparel front, the Champion Apparel has been very positive, we've seen some improvement in our Graphic T business, the Fleece business is off to a great start, so there's just a lot of really green shoots heading into the fourth quarter and we see that pipeline continuing to flow from a breadth and depth of product across our geographies. So that's the confidence to pick up a little bit on that comp line that Lauren mentioned.

We are partnering really well with our suppliers to bring unique product that our customers can find just anywhere and combining it with really powerful storytelling about why that product as special, so that delivers on some meaningful product and experiences to our customer.

And then Lauren, you mentioned fourth quarter guidance for double-digit earnings growth. Just wanted to get some more details of clarification on that, is that 13, the 13 weeks, if you can just expound upon that? And then bigger picture, just where are we may be from an inning standpoint as we think about the investments taking place in digital capabilities, in store remodels, in marketing, just as we try to form some thoughts around SG&A growth and getting back to a point of leverage going forward?

Paul, we try to be helpful with the Q4 guidance by giving you the elements on gross margin and SG&A on both 13-week and 14-week basis that should get to our guidance on the EPS double-digit 13-week basis. So, your questions around innings on investments in digital, I don't know how to frame it up in terms of innings. We have a young customer, their digital-lean native, I know they practically born with a screen in their hands. They just don't get more connected and we need to make sure that we're providing them an experience that delivers on their expectations and beats their expectations, quite frankly, so we can deliver things like -- that's pretty cool stuff and it resonates with our customer. So, the investments are being made, as we've described. And in 2018, I would describe it as really two buckets, things that were foundational to get our websites and our mobile capabilities up to speed and allow us to really provide for the volumes that we see in the future, also allowing our developers to develop enhancements for when brand and ripple it across for all of the brands efficiently. So that's another foundational stuff. But then also delivering on some capability enhancements and as you've gone out to our website and I hope you've gone onto the app, I hope you're experiencing some of that. But I can't describe inning, because I think it's got to continue for as long as our customer is attached to a screen now seeing into that [ph], we got to keep going on that front.

And we have to make sure that we energize our stores as well. So, some of the Power Store things that we've done in Liverpool in London and Hong Kong, we're excited about the opening of the 8 Mile store. We know that they have an impact on the communities where they're based, but they have a much greater reach than that because the consumer is so digitally connected. So, while the investments will ebb and flow, we're going to have to continue to invest to stay current with this consumer. I mean, it's part of the opportunity that we face transforming a legacy business to stay relevant with this fast moving consumer.

But we remain focused on making sure that our investments deliver return. Just as we invest in the fleet when we invest in technology, we're looking for it to provide a return.

Kate McShane from Citi is on the line with a question.

With regards to the Vans Fall [ph] category, in your prepared remarks, it sounds like it improved sequentially, is that driven still by all the styles that have been working like the Curry, or have you seen an improvement in more of the portfolio?

Kate, we don't focus or fixate on specific categories. So we have -- while we have seen some sequential improvement, part of that is the heat that we're trying to add back. When you talk about the work that the team did in LA around the opening of the Lakers season and in our Nomadic House of Hoops concept that was a huge success, driving people to find the opportunity to buy the Lebron XVI, there's just some heat starting to come back, and it's important that our consumer sees it is an exciting vibrant category and part of that's product related, but part of it is certainly experience related and we're trying to work with our partners to -- our brand partners to develop great product and great experiences for the consumers who have an interest in those basketball silhouettes.

And if I could ask a second question on inventory, it sounds like overall inventories in very good shape being down year-over-year, but just wondering if you could update us on the composition of the inventory. If there are any areas that still need to be addressed. I think you said the markdown levels in Europe are a little bit higher than you would have liked, how should we think about that going into Q4?

We are very focused on our inventory discipline across the geographies, across the banners and we feel good about the freshness heading into the holiday season. We see an improving situation in Europe, and you know, of course there are many of the markets that are regulated as to when they can be on promo the next period that they would be in would be at the very end of Q4, post-holiday. So we read and react, we feel good about where we are heading into the season.

Sam Poser from SFG is on the line with a question.

Two questions; one, the loyalty program, you've now got your store is up digitally, where are we on the roll out of that and how is that all going to be integrated and when?

We're continuing to develop the program, Sam and the anticipation is that we will test the program late Q4, more likely Q1 of 2019 in a couple of our smaller banners, as well as you know, in a country or two in Europe. And from there, we should be able to roll the program out. We want to make sure that we've got all the bugs out in that it functions from a loyalty perspective and a reward perspective and it's less about loyalty than it is about membership and what we can bring our members from a unique point of view. So, making good progress and never goes as fast as any of us would like, but the team is doing a lot of heavy lifting to make this thing work.

And just a follow-up, on the CRM, I mean I assume you also have updated your CRM and all of that, is the all happening -- is this all part of the same thing?

Our POS rollout has allowed us to do a little bit of an improvement in our CRM and to CRM program in terms of capturing names and putting them into a position in our data lake where we can communicate with them, but it's all sort of Interwoven into the membership program and obviously when we can deliver benefits to our members that's where we start to get the biggest bang for the buck of that investment.

And then, you're closing a few more stores than I thought you were. Can you give us any look into fiscal '19 for how you're thinking about store openings and closings?

We've worked hard to try to build as much flexibility into the portfolio as possible and our real estate team and our store development team has done a great job of that. So as we build our 2019 plans, we haven't given guidance and we'll certainly do that when we get into our fourth quarter call, but we've had a pretty consistent path, right? We look at under-productive stores, we look at malls that are at risk and we try to adjust appropriately based on the flexibility that we've built in. So not a preview into the plan for 2019, but we'll clearly provide some in-depth guidance when we get to our Q4 call.

Let me ask you in a more general sense, do you foresee closing as many stores that -- the net closings, do you foresee them being as many next year as this year or do you see that gap tightening between that?

On the surface, I wouldn't expect it to be quite as big, but again we have malls that deteriorate far quicker than we expect, we have closures that are forced upon us, in some cases. So, I would expect it to tighten up a little bit in 2019, but again that's based on what we know today, November 20.

Camilo [ph] from Canaccord Genuity is on the line with a question.

It's great to see the progress you're making. I was hoping that you could give us an update on where you stand with respect to the product with cycling, the product headwinds that really manifested in 2017 to a great extent, the superstars [ph], Mr. Jordan the Boost, all those platforms that flowed that you had to cycle this year, if you could just update us on where that cycling process is? And then my second question is on brand Jordan, and how did that perform during the quarter? And when do you expect that brand to return to growth?

I would -- I'm not sure that I can give you a direct answer on the cycling, Camilo. I think the fact that we were up comp positive, we saw footwear gains across the geographies, across the channels tells you that our team is doing a tremendous job with our brand partners cycling through inventory, right, and cycling through programs where some have slowed down, we've accelerated in other places. And that's fundamentally the job of a merchant, right is to move through those things that slowdown, trying to cause as little damage as possible as you ramp up the things that you think the consumer will have a bigger appetite for and I think our team did a tremendous job setting up the back half as we talked about and finding some success in Q3. You know, the Jordan folks, the team is really strong there, they understand the pull market, they understand the scarcity market and they've retrenched appropriately and we're starting to see success with sell-throughs, which tells me that we've got the right quantities in the marketplace today and that the consumers got their appetite and I expect that the Jordan brand team will work with our team to slowly ratchet up the availability, but continuing to run a pull market and run a scarcity model, it continues to have heat around that very important brand.

If I could follow up with -- on your first comment about the anniversarying effect and the jobs as a merchant now really starting to flow through and chasing that better selling product. So it seems like the momentum that you're now seeing and also talking about in the fourth quarter with the stronger product view going into '19, suggest that the business is now on a pretty steady path that likely -- that is probably difficult to articulate that would change trends from what you're starting to see now given all of the headwinds that have manifested over the past four to six quarters. Is that a fair characterization of how the positioning of the inventory sits today and what you're seeing coming down the pipeline from innovation perspective?

I think it's fair to say that our customers still finding a lot of excitement in the category of sneakers and they are finding their cool there, they're finding the creativity there, that backdrop is strong.

And we have to continue to deliver against that appetite that the consumer has and we've guided to Q4 and we talked about some of the things that we expect to continue into '19, the consumer moves quickly as we well know.

And then just last one if I could sneak it in; your inventory has been incredibly well managed, I think you've now had declines in inventory for the past six quarters, do you feel that you're in a position to start growing inventory?

We love to make our inventory more productive, right, I mean that's what the key is and the higher that we can get our churn number up, the appropriate level of churn, the more productive we can be. And while we continue to believe that we're a growth story where part of that growth is attributed to productivity and productivity of that big asset, which is inventory is critical to our success. So, as we've controlled inventory and I appreciate you calling it up, because again I think the team has done a tremendous job controlling it, we've also reduced store count. So those closures have an impact on the total inventory amount, we've tried to ratchet up our turns which is critical to our success. So, we'll continue to balance the growth needs of the sales line, with the productivity that we need to see from the inventory to make sure -- make certain that we continue to deliver.

Jonathan Camp [ph] from Baird is on the line with a questions.

I just first wanted to follow up on the guidance for the fourth quarter on the same-store sales, understanding you raised the target there a little bit, but I guess I just wanted to understand, I know the last two months of the third quarter, you're running up mid-single digits. So is there anything in the fourth quarter that would imply some of that was unsustainable or maybe just how you're thinking about the guidance of low to mid-single digits?

We are contemplating the quarter as a whole and I'll reiterate our guidance, low-single digits to mid-single digits.

Is there any perspective you can share on kind of the -- some of the launches coming up, I know, there's some press around like the Jordan 11 and some of the buzz there, but any other perspective on what you're expecting for some of the major launches?

Well, I get excited about launches, but I get more excited about the collaborations that we've got with our great vendor partners. We -- middle of this month, we launched a Timberland x Champion collaboration, which again important in this market, but we've got store takeovers and performances with artists in London and Milan later this month. We've come together with Nike to present the Gold Room that was in New York, the last couple of days, really connected to the Nike Gold Pack. So, the visitors to the Gold Room had access to the Air Max 97, the Air Mix Plus or Tuned Air, our Vapor Max Plus, some things that we're really excited that gallery which is portable will also be featured in locations in Toronto. So, again very cool things. The partnership that we've got with Adidas, they're doing a takeover in Hollywood and Highland, the futures of [indiscernible] the scape sort of scenario. So again, great product, the consumers get to come in and have a great experience. We've got a great 3:00 AM activation with Reebok that's going to take place in Paris again unique shoe designs that are all about that classic brand. Later this month, we've got a Puma Transformer collaboration with a takeover in London in Liverpool in our Power Stores. So, the launches are important, the Retro 11 you talked about, certainly critical, the Easy launches that were mentioned earlier in the Q&A, all important, but the great work that our team is doing with all of our brand partners really is what gets me excited about the holiday period. And I believe we'll get our consumers, our customers, excited about the holiday period.

And maybe just last one from me for Lauren, just given your discussion about some of the investments and expecting a payback on the actions you're taking, I'm wondering how soon you might be able to return to a scenario where the overall fixed cost leverage point and comps might be more in that low-single digit range going forward?

As you call out by inference, the lever point is still mid-single digit, we do look for these investments to pay off, right? And we'll come back to it again. I think I've covered the digital fairly thoroughly. But on the marketing side, it is an advantage to having greater technological capabilities because it allows you to be really more thoughtful about your marketing efforts and measure the return on it, both what you do digitally and the ability to connect the digital with driving traffic into the store. You can measure that back to specific marketing events. So, I'm optimistic that as we get ever smarter about that, that we'll be at a place where that marketing, we could demonstrate the return on it very straightforward.

I just think to clarify one thing I've said that the gold room was portable, it was actually featured both in Toronto and New York at the same time, it's not movable, so sorry about the confusion there.

Understood. Well, thank you for clarifying that and best of luck.

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

So, I was going to ask you about the -- as you look at Nike's stated strategy to shift large amounts of sales away from undifferentiated retailers in the US, they've talked about. The question is kind of where those sales go? Have you -- do you have any examples in your business that you think are a clear reflection of Nike starting to put that strategy into play where you say you see what you think is a lift to your sales in a given market as that transformation starts with your biggest vendor?

Look at the business that we've talked a lot about, you know the business that we've talked a lot about already, the Air Max platform successes that we're seeing, if you talk about the Frequency Pack and the Origins Pack that we launched in Q3, those units come to us through this great partnership that we've got, I don't specifically see that they're taking product x away from vendor y and giving it to us. It's more about how we can create energy together in the marketplace both around product and experiences. So, the Nike Pro Athletes that we talked about adding to our stores to our physical environments, your collaborating on things like the House of Hoops Courtside event that we did out in Los Angeles, those things are all indications to me that the strategy is strong partnerships with people that are willing to invest and differentiate the retail experience for the end consumer.

Let me ask you about -- you mentioned the Power Center stores. I know you're testing some of these in smaller markets, so I am kind of curious how you're going to land, how you see this strategy landing in smaller markets, and you've talked about -- it sounds like you're building a nice pipeline of experiences that you're working on, but -- and it sounds like you've -- we talked in the quarter, you're testing some Power Centers that have two or three of the banner side by side with some shared space in the middle that can be used for community events. Can you just speak to what the big ideas there? How -- you cited some big markets where you're testing that, but obviously the small markets are -- you've told us in the past say we have may have a store in a C or D mall, where the malls are just going away uncontrollable by you, but I think you make a good margin in those malls suggesting that those markets are still viable for you. If you're -- if you have to shift your Power Center strategy, what's the big financial goal with those strategies and how close are you to thinking you have a prototype that can work in those markets?

Well, you know how we operate, we do prototype and test things. So, we need to get it right in the big markets, we need to find things to work from activations and we'll continue to iterate that until we get what we feel is a model that works. When you talk about C and D malls, it's not usually that we're willing to pivot out of the mall, many times those malls are just so at risk that we need to move out of the mall to service the consumer that continues to live near those malls. So, some of those are smaller markets, some of them are suburban big markets, the malls have deteriorated as people have shifted where they live. So our real estate team and our store portfolio management team does a great job of looking at each opportunity case by case, market by market, to make the right decision of whether we simply pivot into an off-mall location or we build a bigger entity that might have a couple of our banners side by side are connected, those are all one-offs. I don't know that there is a formula that I can tell you that we'll follow in a market by market sort of roll out.

But we recognize that it is a strategic advantage to have this portfolio of brands and there's a lot of power and the collection of them to make a statement about being at the epicenter of sneaker culture and youth culture.

I would like to turn the call back to Mr. Lance for closing remarks.

Thank you for joining us today. Please join us again for our next earnings call, which we anticipate will take place at 9.00 AM on Friday March 1. The call will follow the release of our fourth quarter results earlier that morning. Thanks again, and goodbye.

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