Good morning, ladies and gentlemen, and welcome to Foot Locker's Fourth 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.

Thanks Shelby. Welcome everyone to Foot Locker, Inc.'s fourth quarter and full year earnings conference call. As reported in today's press release, the company reported fourth quarter net income of $158 million compared to a $49 million loss for the 14-week fourth quarter last year. On a GAAP basis, this year's fourth quarter net income was $1.39 per share compared to a loss of $0.40 per share for the 14-week period last year. Included in these results is a pretax impairment charge of $19 million or $80 million after tax related primarily to Runners Point and Sidestep and a $1 million charge related to the pension matter we have previously disclosed. In addition, there were two large items affecting our tax expense, a $4 million write down in our deferred tax assets due to a change in Dutch tax rates, largely offset by $4 million tax benefit related to the U.S. tax reform legislation enacted in late 2017 as detailed in today's press release. A year ago, the fourth quarter included the following; a $128 million pre-tax charge or $81 million after tax for the pension matter. Pre-tax impairment charges totaling $20 million related to write downs of certain 602 and Runners Point Group assets. And tax items that totaled $109 million of expense, largely related to tax reform. Excluding these items, on a non-GAAP basis, fourth quarter earnings were $1.56 per share versus last year's $1.26 per share on a 14-week basis. Last year’s extra week produced earnings of $0.12 per share thus resulting in a 13-week non GAAP EPS of $1.14. Lastly, the 2018 full year 52-week non-GAAP earnings were $4.71 per share compared to $4.11 for the 53-week prior year. Excluding the impact of the 53rd week, earnings were $3.99 per share. Unless otherwise noted, the figures and rates mentioned during the call today will be based on non-GAAP results and for comparability; they will exclude the 53rd week impact from 2017. The reconciliation of GAAP to non-GAAP is included in today's press release. We'll begin our prepared remarks with Lauren Peters, Foot Locker’s Executive Vice President and Chief Financial Officer who will provide details on our fourth quarter financial results along with our financial outlook for fiscal 2019. Dick Johnson, Chairman and Chief Executive Officer will provide highlights from our fourth quarter performance along with an update on a recent strategic investments and our early thoughts on 2019. As a reminder, last month we announced that we will be hosting an Investor Meeting here in New York on March 28, at which time we will lay out our strategic priorities, growth initiatives and long term financial objectives. Therefore, during today's Q&A we would ask that you focus your questions on the fourth quarter results and the outlook for 2018. With that, I'll now turn it over to Lauren.

Thank you, Jim. Good morning to all of you and thank you for joining us this morning. I'm pleased to report that we delivered a very strong performance in the fourth quarter of 2018. We were able to improve on the top line momentum that we had built throughout the year, posting a 9.7% comparable sales gain. Including the fourth quarter results, our total sales for the year were $7.9 billion, a 3.3% increase over last year’s 52-week result of $7.7 billion. Comparable sales were positive throughout the quarter. November was up mid-single digits. December with incredible product heat and excitement during the holiday season was up double digits. January was up high single digits. Average selling prices were up double digits. Traffic was down low single digits overall with trends in North America better than international. In regard to channel, we delivered strong performances across stores and digital, across our geographies. As a group, our stores posted a 5.7% comparable sales increase, while our digital channels delivered a 29.7% comp gain. As a percent of total sales, DTC increased to 19.1% for the quarter, up from 16.1% a year ago. Our North American divisions all posted positive sales results. We saw impressive performances from East Bay, Foot Locker U.S. and Foot Locker, Canada with each banner posting double digit comp gains. Champs also delivered a strong performance, up high single digit. Kid's Foot Locker was up mid-single digits and Foot Action posted a low single digit comp gain. Internationally, our Foot Locker Pacific business had a terrific quarter, generating a double digit sales gain. Our Foot Locker Europe business continued to improve and was up high single digits, while Sidestep was down mid-single digits, and Runners Point decreased double digits. My family of business, footwear posted the strongest sales gain, up double digits overall in the quarter. Men's and women's footwear were both up double digits, while kids was up high single digits. By category, men's running and classic styles posted strong double digit gains, while men's basketball was down mid-single digits. Our apparel business continues to perform well posting a mid-single digit increase with gains driven by strong sales of branded tees and fleece from Champion, Nike and -- NBA apparel led by Lakers apparel, also sold through at good rates. Our children's apparel business was up strong double digit. Our men's apparel posted a mid-single digit gain, while women's was down low single digits, The trends that we saw throughout the year in our accessories business continued in Q4, with gains in bags more than offset by decreases in half from socks, resulting in a double digit comp sales decline. Moving down the income statement to gross margin. We produced an excellent 160 basis point improvement in the quarter to 32.4% of sales from 30.8% a year ago. This improvement was evenly split between merchandised margins and leverage on our relatively fixed buyer and occupancy expenses. The 80 basis points from increased merchandised margin were due primarily to lower markdowns across footwear, apparel and accessories. While all families of business contributed to the margin lift, apparel margins improved more than footwear margins in the quarter, and actually surpassed them. This consistent improvement in our apparel performance points to the great work by our apparel team and strong collaboration with our vendor partners. For the full year, our gross margin improved by 40 basis points to 31.8% better than the guidance we provided at the beginning of the year. Our SG&A rate increased by 70 basis points to 19.9% in the quarter, below the 100 basis point to 120 basis point increase we guided to on our last call. Our team did a good job managing our expenses during the quarter and flowing through the stronger top line sales. For the full year, SG&A came in at 20.3% up 100 basis points from 2017’s rate. The higher spend reflects the investments we made in our digital capabilities and logistics, and higher incentive compensation. Incentive compensation was about 50 basis points of the increase. Depreciation expense decreased slightly this quarter to $45 million from $46 million a year ago. For the full year, depreciation and amortization increased 3% to $178 million due to the ongoing investments in our stores, digital on supply chain capabilities, and improvements and other infrastructure. Our fourth quarter non-GAAP tax rate was 27.3% below last year's Q4 rate and in line with our expected run rate. Altogether, the fourth quarter was marked by an improving top and bottom line resulting in an impressive non-GAAP net income of $177 million, an increase of 27% over Q4, 2017. And non-GAAP net income of $547 million for the full year, a 7% increase over last year. During the quarter, we repurchased a total of 1.2 million shares for approximately $62 million bringing our full year total to 7.8 million shares at a cost of $375 million. We also returned $158 million of cash to our shareholders through our quarterly dividend in 2018, which brought our total return to shareholders for the year to $533 million. As we announced in February, our board increased our quarterly dividend payout rate to $0.38 per share and authorized a new three year $1.2 billion share repurchase program. We invested $187 million through our capital expenditure program in 2018, and funded $89 million of the $124 million to strategic investments that were announced during the year. I’ll let Dick cover the details of those investments in a moment, but suffice it to say that even with funding our internal initiatives as well as capitalizing on new strategic opportunities, we ended the year in a strong financial position with $767 million of cash net of balance sheet debt. Further, taken together, these actions demonstrate our confidence in Foot Locker's ability to continue to build upon the momentum of 2018, invest for the long term growth of the company and deliver enhanced returns to shareholders. Before I hand the call over to Dick, I'll take a moment to review our inventory, which is fresh and increasingly productive. At actual FX rate inventory ended the quarter down 0.7% compared to the 7.4% total sales increase. Using constant currencies, our inventory increased 1.3% within our standard when compared to the 8.8% total sales increase. This outstanding inventory performance combined with a strong top line results allowed us to increase inventory turns and ultimately achieve a turn greater than our long term target of three times. Increasing inventory productivity has been a company focus, and I can't say enough how proud I am of the team for the hard work and dedication it took to achieve this goal. Hurray! We did it. Well done. And with that brief moment of celebration, I'll now turn the call over to Dick, but I'll be back in a bit to provide you with our initial guidance for 2019.

Thanks Lauren and good morning everyone. I want to begin my remarks by recognizing all of the associates whose dedication to us, to the success of our company and whose passion for creating incredible experiences for our customers, wherever, and whenever they interact with us led to the stellar results Lauren just described. And to the momentum, we see in our business as we begin 2019. I am proud to be able to report the top and bottom line results met the high end of our expectations as we laid them out for you at the beginning of the year. With a comparable sales increase of 2.7% for fiscal 2018, total revenues reached $7.9 billion, a new record in our history as Footlocker Inc. And we were able to achieve non-GAAP earnings of $4.71 per share, an increase of 18% over the 52-week equivalent in 2017. In addition, as Lauren mentioned, we finished with an inventory turnover above our long term goal of more than three times. This is a meaningful accomplishment we have been working on for some time and a testament to our continuing focus on driving further productivity gains. In the next few minutes, I will touch on some of the drivers that fueled the business and the progress we made on several key initiatives. I will then give some color around our recently announced strategic investments and highlight some of the early energy from the NBA All-Star game. After that, I will turn the call back over to Lauren to update you on our outlook for 2019. Taking a look at our fourth quarter performance, the strong growth in footwear was fueled by the strength of a marquee business that is more diverse than ever, with a great mix of running and basketball styles. This included YEEZY from Adidas, a strong Jordan business and the continuing demand for Max Air. In addition, the strong performance in our women's and apparel businesses combined with the breadth and depth of exciting products from brands such as Fila, Vans and Champion as well as the addition of lifestyle brands such as UGG illustrates the great work our team has done to extend the reach of our company. As I did last quarter, I want to tell you about some of the things we are doing to share the excitement and energy of sneaker culture with people around the world. We are doing this in close collaboration with our strategic vendor partners and together, we continued to deliver great products with elevated storytelling and locally relevant experiences. With Nike, we celebrated the 20th anniversary of the iconic ‘Tuned Air’ silhouette, and exclusive to our Foot Locker Inc. Family. The fourth quarter also included the Home and Away collection, which focused on the vibrant sneaker communities of Houston, Atlanta and Miami. New iterations of the campaign will continue in early 2019, providing an opportunity to take pride in what makes each city unique. With Adidas, we partnered on the launch of their new “Asterisk Collective” an exclusive to Foot Locker that launched with the 90s inspired TRESC Run. This community focused campaign brought together six celebrity creators, and illustrated how each aim to make a difference in their respective communities through unique initiatives. For example Kansas City Chiefs quarterback Patrick Mahomes engaged in sports related events like viewing parties at local hospitals, while musician Kid Cudi helped kids experience healing through music, art, and design. An exciting program launched during the quarter was the bringing together of two iconic brands, Timberland and Champion with a footwear and apparel collection that connected our customers with the brand's history and ties to music. Foot Locker celebrated the launch with NBA player, Lance Stephenson and comedian Remy debating how the collaboration came to life. In another exclusive concept, Foot Locker partnered with Puma to release its 1980s inspired our RX platform with the toys and transformers collections during the holiday season. At our 34th Street Flagship, we transformed our Puma lab into a transformers theme, while the Optimus Prime truck visited our Marble Arch power store in London. We also announced the next phase of our strategic relationship with Adidas. Together, we created a revolutionary initiative powered by the Adidas Speedfactory that allows us to get closer to market and deliver Adidas made for shoes created from local and cultural insights. An exciting example of this was the launch of the AM4 Detroit, a new shoe designed by Detroit native, Kayla Donaldson. At the opening of our store, on Detroit's historic Eight Mile Road, our first iteration of a Power Store in North America. This store offers full family shopping with a woman Shop-in-Shop and Kids Foot Locker and brings together the excitement of local sneaker culture, art, music and sport. It features Detroit specific products, for example, pair of Detroit inspired Home and Away Air Force Ones, custom art from Detroit artist Desiree Kelly and it has a dedicated space for events and activations for the sneaker obsessed consumer. At the end of the quarter, we opened our second North America Power Store outside of Philadelphia, and now have five power stores open across the globe. We expect to open more than a dozen additional power stores in 2019 including new locations in Los Angeles, New York and Milan. 2018 was also a distinctive year for us as we invested $124 million into some innovative young companies at the forefront of change in our industry. We've talked on several calls now about the need to evolve with our consumer. We believe these investments will help us do just that, by opening opportunities to leverage innovative technologies, access new business segments and creative talent and expand the breadth of products and brands that we offer. And ultimately create a richer ecosystem for our customers that deepens their emotional connections to our brands. I will start with GOAT, a $100 million investment in this premier sneaker marketplace is truly a game changer for our industry. GOAT’s co-founders Eddy Lu and Daishin Sugano have created a platform that in a very short time has captivated sneaker culture. Together, the power of our global store footprint combined with GOAT’s digital capabilities will enable us to expand the sneaker ecosystem and create unmatched experience and engagement. We enter this partnership understanding the greater responsibility that it comes with and are absolutely committed to delivering incredible benefits for the broader sneaker community. We also invested in two innovative companies focused in the children's space. First we invested $3 million in Super Heroic, an exciting and differentiated kid’s footwear brand. We are excited to collaborate with Jason Mayden, Super Heroics founder and a true visionary in the industry. The opportunity to leverage Super Heroics connection to communities through inspiring kids to play is something that deeply connects with our core values as a company, and we are beginning the work of bringing Super Heroic to life in our Kids Foot Locker banner. We also invested $12.5 million in “Rockets of Awesome” a high quality children's apparel business. Rockets has done an amazing job with its digitally native shopping and subscription model. We are delighted to partner with Rachel Blumenthal and her team as we look to broaden our kids offering and unlock insights to connect more deeply with kids and moms and dads with products, loyalty, and experiences including shop- in-shops with exclusive Rockets of Awesome assortments in our Kids Foot Locker banner. Next, we saw an opportunity to invest in the future of talent in the footwear industry. PENSOLE Footwear Design Academy led by D’Wayne Edwards is helping to curate the future of our industry through education and design. Along with our vendor partners, Foot Locker and PENSOLE will collaborate a new educational programs along with the design and manufacturing of exclusive products for the Foot Locker Inc. Family of brands. Shifting to a women's business, it's no secret that we've been on a mission to evolve and grow this important segment over the last several years. The impact, our female customer has on youth culture is undeniable and we continually evaluate the ways in which we can best serve her. With that in mind, we made the decision to wind down a relatively small 602 banner over the coming months, to more sharply focus our resources on building the existing women's business in each of our core banners. We learned much from our 602 team's efforts, including that when we create unique experiences and dedicated women's spaces within our current store footprint she responds well and the spaces are highly productive. That is our go-forward focus and will include in-store concepts, social, digital and community activations dedicated to her. In addition to these spaces, we will continue to nurture our investment in Carbon38. In fact, we made an additional $10 million investment shortly after year-end. Katie Johnson and her team have done a great job building a strong luxury active wear brand with a loyal customer base. We are continuing to partner with her to further develop the business. Of the many opportunities, we believe our strategic investment provides, perhaps the most exciting is the window into the broader women's consumer set Carbon38 serves, as we strive to accelerate and expand our connection with female shoppers. We often talk about investing in the right companies, but what's equally if not more important is investing in the right people. Whether it's Eddy and Daishin at GOAT, Katie at Carbon38, Jason at Super Heroic, Rachel at Rockets of Awesome or D'Wayne at PENSOLE, I couldn't be more proud or excited for our company to partner with such high-quality and diverse group of entrepreneurs. Our goal moving forward will be to empower their growth while harnessing the insights capabilities and innovation that can help shape our business for the future. Now the work of bringing these investments to life gets underway and our teams have many exciting things planned, some of which we'll share with you at our Investor Day on March 28. Turning now to fiscal 2019 we see a lot of energy, product innovation, and exciting events for the coming year. It all began with this year's NBA All-Star Game in Charlotte and the extension of our hashtag because sneakers created the platform which involves sneaker enthusiasts, passionate sneaker designer Jerry Lorenzo and L.A. Lakers player Lance Stephenson. The All-Star game brings together the excitement and passion of the sneaker obsessed at an annual celebration with sports music and style. To build on this energy, we took our House of Hoops, Courtside experience to this key basketball moment. We offered our customers access to exclusive footwear launches, player appearances, personalized footwear, as well as workshops and panel discussions. But we didn't stop there; we set up shop in the exclusive retail partner for Puma basketball in Charlotte. Also in the first quarter, we will have four more cities of our Home & Away collection, the debut of Young Guns, the new Nike program, as well as all the energy around Air Max Smart. We will also have another release from the Adidas “Asterisk Collective” and we will be launching exciting new concepts from Champion with mascots and Fila with, “Disrupt your Future”. And this is only the beginning of what is in store for 2019. Lastly, in early February, we announced a realignment of our organization into three distinct geographic regions. EMEA, Asia Pacific and North America. This new structure better aligns our resources across our international businesses as we at the same time develop an infrastructure to support our expansion plan in Asia. As part of the realignment, we announced some key organizational changes, highlighted by the appointment of Lew Kimble to Executive Vice President and CEO of Asia-Pacific and Vijay Talwar to Executive Vice President and CEO of EMEA. I would like to congratulate Lou and Vijay on their new roles. Jake Jacobs will continue to lead our North American divisions. I again want to thank the entire team for the passion and dedication of the company and its performance. To the investment community, I look forward to seeing you at the end of this month when we come together for our Investor Day, where the management team and I will share with you in greater detail how we plan to drive the business forward, our updated long term goals and strategies, and how we are building an even deeper connection with our global customer base. Lauren, back to you.

Thanks Dick. We have indeed built momentum in our business, and are optimistic about our positioning as we begin 2019. We have a lot of opportunities to seize upon, to drive the business both in the near and long term. And we look forward to outlining the details of those initiatives later this month at our Investor Day. But first, let's take a look at how we see the current year unfolding. Starting with the top line, for 2019, we believe, we can achieve a mid-single digit comparable sales gain, and a double-digit percentage earnings per share increase. But foreign currency is weaker now, relative to the U.S. dollar than they were at the same time last year. Our total sales will have a slight headwind in the first half of the year. We are planning for an improvement in our gross margin rate of 20 basis points to 40 basis points for the full year, mostly driven by leverage of our buyer and occupancy cost. While we continue to work on initiatives that support full price, sell through and logistics efficiencies, our markdown rates are nearing personal best, hence our plans look for more from top line leverage. For the on-going investments we are making in our digital capabilities, which come with both a capital and operating expense impact, our SG&A expense rate is expected to be up between 40 basis points to 60 basis points year-over-year. This annual SG&A guidance also incorporates all known minimum wage rate increases and continuing upward trends in health care costs. Looking at our capital expenditures, we are now planning this year capital program to be $275 million. The higher capital spend this year reflects our intention to continue investing in ways to elevate the customer experience across our physical and digital touch points and to continue to invest in our supply chain and other infrastructure projects. We plan to spend approximately $175 million to improve our store fleet in 2019, including 80 new stores with over a dozen new power stores, further expansion in Asia, and approximately 190 remodels or relocations of existing stores. In addition, we plan to close about 165 stores. The store closures will be across our geographies with the greatest concentration in Foot Locker and Lady Foot Locker in the U.S. 602, the Foot Locker and Runners Point in Europe. There are also the investments in our digital customer experience and supply chain capabilities I mentioned, including investments and personalization, a reimagined membership program, the rollout of our global point of sale software platform and our international markets and the upgrade of our international websites to our new platform to name a few. With this level of investment, we expect depreciation and amortization expense to be in the range of $185 million in 2019. We are planning interest income to be relatively flat to the $9 million of income in 2018, and we are continuing to plan our effective tax rate to be approximately 27.5% in 2019. Our guidance of a double digit percentage increase in earnings per share also assumes a lower share count, based on the continued opportunistic execution of our share repurchase program. Although we are planning a mid-single digit comp gain in each quarter, we are keeping an eye on the impact on the top line from the slower pace of checks refunds combined with the lower average refund size compared to a year ago. Also the FX headwinds I mentioned will have the greatest impact on the first quarter. I think that covers the highlight of 2019. So, I’ll end there and ask Shelby to open up the call to your questions.

Thank you. Ladies and gentlemen the lines are now open.

Shelby, this is Dick. Before we get to the first question, I just want to take a moment to acknowledge the passing of Jon Epstein. Jon was, I would say, the epitome of a shoe dog, who had just incredible passion for sneaker culture. Jon was a true friend of mine and partner of Foot Locker Incorporated, and he will be missed by all. Our thoughts and prayers certainly go out to his wife, Carol, and to Gene Yoon and the entire Fila family. So, with that, Shelby, back to you for some Q&A.

We will now begin the question and answer session. [Operator Instructions] Your first question comes from Matt McClintock of Barclays.

Hi. Yes. Good morning everyone.

Hi, Matt.

Dick. Two questions. The first one is just -- there's clearly a lot going on at Foot Locker. And now it's definitely a good time to have an Investor Day to tell us the details on it. But just, it seems like in the last month, you've done more things than you've done in the last 10 years. And I was just wondering if you could give us, like, a little bit of a background into the timing of the acquisitions, how you went about going through the process there, how you went about shutting down 6:02, all of that, because it's just so much to be had in a matter of a couple of weeks, that seems like you just decided, woke up one day and you're just going to clearly change things?

Well, I don’t know that we woke up one day and decided to change, Matt. I understand the thought, but if you go back to August of 2017 when we acknowledge that our customer was moving fast and we need to change the way that we did business. We started the evaluation process both in internal and in external view of some of the capabilities that we might be lacking, some of the opportunities that were out there. And as we look across the various opportunities, the fact that we’ve mentioned, we called out and made the investment. And the nearly one was Carbon38. That was about a year ago when we first invested. We've had a long-term relationship with D'Wayne and the folks at PENSOLE. We decided to formalize that and invest to make sure that we're giving back to the industry that fuels us. As we looked at Jason and the team at Super Heroic, they've got a great concept. It's about getting kids active and playing, which again drives our core community effort, and connects really well with our Kids Foot Locker effort, as does Rockets of Awesome with Rachel and her team. And the kids business is really something that's important. Last time, we saw those two opportunities to expand the product and the way that we speak with that consumer. And then go -- the secondary market is something that's highly critical to sneaker culture. And Eddy and Daishin have done a great job of creating, what I think is the leading marketplace in the secondary market. And the relationship that we can have to extend benefits to the entire sneaker culture with GOAT is tremendous. So, yes, it's all been announced over a relatively short period of time. It came to bear fruit over a short period of time, but it's work that we've been doing for 10, 12, 18 months in some cases.

Yes. I would eco that, because when you make a decision to make an investment, it comes after very thoughtful conversations about whether the goals are aligned and if we mutually see things that will be favorably received by our customer. I understand the perspective, it all seems to come at once, but its not.

Well, its good to see that you’re investing because that’s the only way where it stay at top of changing marketplace. Second question just to Dick, you are always pretty consistent saying that, the heat, the product is getting better as we gone to the back half of this year going into next year and you’re getting better allocations et cetera, yet you’re now implying a mid-single-digit comp for the full year. Does that imply that you just don’t see the same level of heat as what are seeing today?

Not by any stretch, Matt. Again, the comp numbers are sometimes what you’re up against – it’s the flow of holidays, the flow of money into the marketplace. So there's a lot of variables when it comes to the guidance in the comp. But we see a tremendous amount of innovation from our partners across the industry. The heat continues to come. So we’re – I’m comfortable with a mid-single digit comp. We’ve got a lot of work to do that, right. It’s – every day we have to come in and the team has to lace up their sneakers and go to work hard because it’s difficult out there and there's a lot of competition. But we think we are well positioned with our vendor partners and the collaboration that we’ve got to continue to lead the industry.

Thanks for the color guys. Great quarter and I wish you best of luck.

Thanks Matt.

Your next question comes from Chris Svezia of Wedbush.

Good morning everyone. Congratulations on a really strong finish to the year.

Thanks Chris.

I guess, first, just on Europe for a moment. You've seen a nice sequential improvement throughout 2018. I'm curious about how you think about that region as you move forward. And I guess, more specifically on the margin, I know it's been promotional there. Just sort of where that stands at this point and any thoughts about Brexit? I know, from a supply chain perspective, you're based in Rotterdam and just how that might affect movement of product to the U.K. that kind of thing. Just any color on that, Europe would be great?

There’s a lot of questions in one, Chris. We feel good about the moment that we’ve seen across our Foot Locker banner in Europe. They’ve done a good job of getting the assortment shifted. Took a little bit longer than of us sort of like, but I think they’re in a really strong position heading into 2019. We are full priced business, right. So, the market place is promotional, probably a little promotional than it has been. But the fact is that we are building deep connections with our customers, right. The power stores that we opened and Liverpool and Marble Arch in London, show us that the consumers got tremendous appetite and as we create exciting product and content they enjoys shopping and they’re willing to pay full price. So, our focuses on full price selling and we’ll continue to be. When we think about Brexit, there’s lack of clarity still what it's going to mean, but undoubtedly it will change the flow of products a bit, which means we have to think differently about shipping from the continent to the U.K. we will likely end up with a distribution point in the UK that helps us moderate some of the impact of Brexit. But as much as I wanted to be resolved, I think there’s still a lot of work to be done based on all that I’ve read it here. So, we’ll continue to evaluate the opportunities with Brexit and what it means to our European business.

Or best to be as nimble as possible.

Understood. Thank you. And then just on – my second question is on the apparel business, the comments about margin finally surpassing that on footwear. Congratulations, but I guess sort of the question is, where does it go from here, do you feel like does that can continue to accelerate based on your visibility? And how does that play into your sort of 20 to 40 basis points improvement in gross margin on the year?

We don’t really break gross margin down by product category, but we feel comfortable with the work that apparel team is doing, right. But we want our footwear margins to get better too by the way, but the team did a great job with some collaborations and putting exciting product into the market place. And as we get better with apparel and they manage the life cycle of the apparel better we continue to believe that there’s upside in the margin. So, again, all of the categories sort of come together when you talk about improving product margin, we need to get our accessories business a little bit healthier when we do that we’ll see that will add a couple of bps to the mix as well. So our apparel team has done a tremendous job complementing the great work that our footwear team is doing. So from a margin perspective they’ll keep working way at that.

Okay. Thank you and congratulations.

Thanks Chris. Thank you.

Your next question comes from Sam Poser of Susquehanna.

Thank you for taking my questions. Some of the questions have been answered and you answered a lot on the call. Just a quick housekeeping and then I’ll have another one. Lauren, what do you think the tax rates are going to be for next year within this year within your guidance?

27.5 would be our guidance on that.

That’s high.

Yes.

Okay.

Remember, we’ve got a mix of internationals business in that, Sam that, we don’t get the complete benefit of just being a U.S. base business.

Got you. And then, thank you. And then also could you give us – you’ve got apparently a lot of pairs of the YEEZYs in the fourth quarter. Could you us some idea of sort of how you think about that a month from -- months from now. And could you tell us sort of how you -- where you are on loyalty program and changing sort of the way you flow product versus where you really what to be?

Look, in terms of YEEZY, you’re right, we certainly benefited from some YEEZY business in the fourth quarter as there were some really great launches across that particular model. We expect Kanye and Adidas will continue to bring heat across the YEEZY platform. So, you weather the launches all line up perfectly. I mean, that’s one of the challenges of the business as you know, Sam, that we look at comp days, but we’re were happy when we can find the right launch change [ph] with our vender partners. So, again I’m confident that our merchant team is working with Adidas to make sure that we’ve got the Yeezy flow correct for our business. In terms of loyalty, we are continuing to drive on our membership program. We’ll share more details with that later in March as we go through our Investor Day, but it will be an exciting program for the industry I believe. And the product flow, I feel pretty good about where we’re at from a product flow perspective, Sam. I’m not exactly sure what the question around that was, but as it relates to the various geographies the rhythms feels pretty good one now.

Thank you. I was really discussing sort of the flow, the flow of product versus sort of how quickly the kid is changing his mind on your sneaker. The fans are changing their minds, but you need to flow less -- I mean, arguably, less pairs of more product more frequently.

Yes. No, you're absolutely right. And again, our core consumers moving faster than ever. And we've talked about that on a number of calls and we don't expect that to slow down. So the great work that our product and marketing teams are doing to connect with the vendors to flow the product appropriately, things like the initiatives we've talked about in the prepared remarks, with Adidas and the Speedfactory, which allow us to do some very localized product for various events. Those are all things that connect with this fast-moving consumer, but I don't expect the consumers' preferences to slow down, their changes and preferences to slow down.

Thanks. And then one last thing. For the first – you talked about the headwinds in the first quarter, but from a comp basis, I mean, given the comparison and all and coming out of the quarter, I mean, would you expect comps in the mid-single digit range to be better, let’s say, in the first half of the year -- first quarter versus the second half of the year just given the comparison?

Yes. I mean, I reiterate the guidance we gave. Mid-single digit comps and we’re seeing that across the quarters watching Q1, as the tax money flows.

Okay. Thanks very much.

Thank you, Sam.

Your next question comes from Camilo Lyon from Canaccord Genuity.

Hi. Good morning, everyone. I’ll add my congrats on a quarter.

Thank you.

I was looking to give a little bit more color on your basketball business. I think you said it was down mid-single in a quarter. Maybe think you just parse out what you’re seeing from Jordan as well as some signature and how that flow should evolve in 2019? And what composition of -- what expectations do you have for that business for 2019 and how that flows into comp?

Yes. I’ll provide little bit of color, Camilo, but my feeling continues to be the same, that our kid has motivated by the coolest product. There are far less category dependent or respondent than they are just around cool. So one of the hard issues in the marketplace today is the AJ1, right, which is classic basketball shoe. It may get classified in some cases as a classic and then some people may call it a basketball shoe, but right now it's got a lot of heat behind it, as does the Air Force 1. We’re seen some sparks of heat around some of the signature product from LeBron specifically and little bit from Tyreke. So again, I think that there is great momentum around the coming basketball and I think the reenergizing of the House of Hoops that we've seen through our mobile effort in Charlotte. Certainly, when we did the Hampton, the effort out in Los Angeles around LeBron's first game as a Laker, there's still a lot of energy around basketball and we're confident that the product flow will be there to support it. Again, I'm less riveted about one basketball comps positive because our kid cares about the coolest products. And we're going to continue to drive heat through cool products.

Thanks for that. Can you say if Jordan was positive for you in the quarter?

The Jordan sell-through numbers were improved over a year ago. So the Jordan team and Nike does a great job controlling the flow into the marketplace and we believe that we get – I don’t know fair share is the right word, because fair is a not a word that works in business that often. But I saw – we saw great sell-throughs on the Jordan product that we brought into the marketplace, and a healthy sell-through with Jordan is what really motivates the heat and motivates the kid in our category to come to the stores and shop online with us.

Got it. And then, just my next question, I – if you could take it up Lauren, this comp performance 97 [ph] was the best comp put out since 2015. And during that period your EBIT margins were substantially higher than where they landed out this year. Is there anything structurally preventing you from getting back to that low double-digit, low teens margin rate over time as we have discontinued kind of product laid, in-store laid sort of momentum that’s driving this continued comp strength?

I appreciate the question and we’re going to get to March 28 and we’re going to talk about all of those stuff that we got going on for the long term and what that means to us financially. I could ask you to hold that. We’ll have lots of opportunity to talk about all the good things that we’re working on in the financial results.

I think Lauren’s guidance around 2019 was pretty clear to where we -- where your model will get us to, but we’ll talk more long-term when we get to the 20th.

Okay. Maybe if I can just ask it a different way from the perspective of the spent and the initiatives that you talked about for this year. This showing a lot that you're going after as you rightly should be. If you were to classify where you’re at on this investment cycle? Can you give us some sort of context?

Well, I don’t know about investments as we’ve talked about before coming. I don't know that the investments really…

Your question is around CapEx?

Yes. Absolutely CapEx and then how that obviously affects – going to affect the P&L from a SG&A perspective, so clearly you're always going to be investing and there is no shortage of things to invest in. But there will be years in which you invest more than others and where project start to create that leverage and give the returns that you hope that they would do. So, any sort of articulation as to where that investment cycle is, would be great?

Yes. So, clearly we are still investing in our fleet. We know a physical experience is important to our customer. And again we’re going to tell you lots about the things that we’re doing and we described. That excitement and experience look like in the fourth quarter pretty completely. And it gets just through the Q1 sorts of thing. So those come to life in a physical way and therefore we continue to invest on the fleet. We also describe more new doors than we had in 2018. So, as you open a new door you get better leverage on that investment over the longer term. But we also described a fair chunk in the CapEx that relates to a digital and other infrastructure logistic, so, this two bear fruit over the longer term. You’re going to get a better picture for what all of that looks like when we talk at the end of the month. The digital initiative -- some bit of that as we’ve described before foundational in its nature, so that when you look to a longer term you get passed. But we’re working on some exciting forward stuff that’s also reflected in that spent.

Sounds great. Looking forward to the Analyst Day for more color. Thanks and good luck guys.

Thank you.

Your next question comes from Jay Sole of UBS.

Great. Thank you. Dick, it sounds like your digital business grew almost 30% of growth, sounds of like an accelerating point, can you talk about some of the key drivers were in that part of the company?

We’ve been talking about quarter after quarter, Jay, right. We’ve invested in the new platform. We’ve reorganize so the team is thinking about it from an omni point of view. We’re utilizing our stores as opportunities to leverage the inventory that sits in stores even though you’re shopping online. So it’s a ton of work that’s going on for a long time that really is starting to bear fruit. And I think -- I don’t know how to prioritize those things, but they’re all important and we continue to believe that there will be improvements in that along the way. As our team thinks more from an omni point of view as we leverage more efficient supply chain, as we figure out more ways to connect with this consumer, but we are true believers that it’s a physical and the digital presence that really extends us, help separate us in the marketplace. Our consumer’s likes to be in our stores, learn, talk about traffic being down a little bit, but we firmly believe that our traffic is better than the traffic in the malls, and that we are destination for these kids. So it’s a real marriage of the digital and physical that’s making the difference.

Now, that’s just so synergistic. We give the comps split out between the two, but when you really focus on from a customer journey, the channels are synergistic.

Got it. And may Lauren, if I can follow-up with one more, just on the inventory, you give inventory position for the NBA All-Star game in February when tax refunds are supposed to come. Is that – which are the tax refunds that are starting to get better now. Would they show up in the next few weeks? Is that inventory still is relevant to the consumer if they had money sort of like in the first part of March versus the last part of February or do you getting into situation where just because that inventories maybe couple weeks older than you thought it was going be where people are coming in there is sort of mark down pressure?

Thankfully the lifecycle is not that short. So, our team does an excellent job of figuring out flow of that product and what they think our customers going to response to and thankfully you don’t measure the lifecycle of product. That short, I do measure in weeks, but not that short.

Thank you.

Thanks, Jay.

Your next question comes from Erinn Murphy of Piper Jaffray.

Great. Thanks. Good morning and let me add my congratulations.

Thanks, Erinn.

I guess couple of questions. First from a double-digit ASP growth, could you help us think about how much was driven by product mix versus to like-for-like pricing? And then I guess, Lauren, you alluded this markdown control is almost a record high, but just curious on those three major components that drove the double digit APS growth?

Well, again, we haven’t really segmented out the three pieces Erinn, specifically, but we had a great mix of product. When you think about the price point of the Yeezy that were mentioned earlier on the call. When you think about Timberland, Champion Collab that we had when you think about premium fleece that we sold in the store, when you think about the benefit of some elevated kids pricing, all of those things contributed ASPs. Lauren talked in her remarks about our markdowns being almost record lows for us, personal best that she put it. That’s good inventory management which allows us to some more for price cuts [ph]. It’s a combination of all of them, right, I mean, it’s a pretty complex model when you get to our ASP model.

Okay. Fair enough. And then just kind of carrying that through to 2019 guidance from a mid-single digit comp, what’s your assumption for traffic versus kind of ticket or pricing as you think about mid-single?

Yes. Of course we think through all of that, but again, we’ve described it is combination of physical and digital, so when you think about traffic, you really think about it across the channels. The customer is responding to this compelling product where they find value in it, where we’re bringing them something different. It supports these ASPs which add on to Dick’s commentary that our merchants are very, very thoughtful about the offering across the price point, but we really want to make sure that we have compelling product across the spectrum. And when they respond to it at a full price you get this final list on ASPS.

Got it. And then just last question for me, on that relationship with Gold, I’m curious if you guys have assets to use their data, there’s quite about 11 million users. And then in your due diligence process what was the overlap? Could you see any overlap between your loyal members versus their users? Thank you.

Yes. We’re not going get into the specifics of the relationship Erinn. They have a ton of sneaker lovers. We have a ton of sneaker lovers. And it is about delivering a great experience to the broader sneaker market. And we will be able to learn from them. They will be able to learn from us and get beyond that. I believe the consumer, the sneaker consumer will benefit.

Fair enough. Thank you.

Thanks Erinn.

Our next question comes from John Kernan of Cowen.

Good morning guys and congrats on a fantastic finish to the year.

Thank you.

Can you talk about Europe and what you're seeing over there? Obviously, trends have improved significantly at adi. Adi went through a period of contraction in terms of their overall growth rate within that region. So, I'm just wondering what you're seeing overall in Europe, and then also Asia sounded like it was pretty strong as well. So if you can give us some more detail on international that would be great?

Well, I'll start with Asia because it's relatively small, right. We just stood up five stores across three countries and the Power Store in Hong Kong is off to a fantastic start in our presence as certainly being felt in the marketplace being a premium destination of multi-brand opportunities and the consumer across Kuala Lumpur, Singapore and Hong Kong are all responding well. So again we're excited about that and we'll be accelerating the growth, but we're going to be pragmatic about it. We've got a lot to learn about the region and the geography. But the shift in our organization to put Lou directly over just the Asia Pacific business will allow us to focus our resources in that marketplace. When you talk about Europe it's still is a market that's driven by the running silhouette, so the chunky midsole, the Fila Disruptor etcetera, those shoes have been very positive over there and we've seen a tremendous resurgence of Nike Air Products over there. The 20th anniversary of Tuned Air which really has been a strong product across those 20 years in the European market brought a lot of heat in the fourth quarter and throughout the year and we expect the positive nature of the Max Air product to continue. The team over there is working on collaborations as well that are unique to the marketplace and bring a lot of heat. So, we're seeing a lot of the right signals in Western Europe certainly and we believe that we can be strong there.

Got it. And then I think on this call you've talked a lot about some of the smaller up and coming brands whether it's Barnes, fetlock, you mentioned Timberland, Champion. Can you talk about how much interest in traffic and how much these brands are contributing more than they were in the past? And as you know obviously Nike remains an enormous portion in the business, but I'm just wondering it feels like you're talking more about some of the newer brands that you're introducing to consumers and going through collaborations within partnerships with and so. Just talk about some of the other brands other than Nike and Adi and the performance there?

Well, don't break out the performance. You know when we file our K you’ll see the big performers listed, but the truth in any quarter is our team has done a tremendous job of finding energy with some of these secondary brands to complement the great heat that Nike and Adidas and Jordan bring to the marketplace. So when you think about a Timberland, Champion Collab, right, I mean, something that's unexpected our consumer responds quickly and passionately about those sort of opportunities. We think about some of the things that brand [ph] has done. They create a tremendous amount of heat in the marketplace and the consumer wants to be part of that. So, the thing that's really changed or accelerated I think is continues to be the digital presence that all of those brands have and the work that everybody does to fuel the sneaker culture in our consumers, right at the heart of that.

They are hyper informed and they want to be part of it. And I think their receptivity to brands discovering brands being part of that is for the highest I've seen in my career.

All that being said, we know that our big brands continue to drive tremendous heat across the marketplace and our consumer response to that as well.

Got it. Well congratulations on a great year and best of luck with forward to the Investor Day in a few weeks.

Thanks John. We've got time for one more question I think.

Your final question comes from Michael Bonetti of Credit Suisse.

Hey guys. Let me add my congrats on nice quarter. Thanks for getting our question in here. Just a quick model modeling question. Just the rough framework you gave, Lauren, mid-single digit comps, I think that EBIT margins down a little bit, get back a little bit on the operating line. So with the tax rate you gave to Sam earlier it looks like a lot of the EPS growth comes from share repurchases this year. Is that – am I thinking about the components there correctly?

Reiterate mid-single digit top line comps 20 to 40 bps of expansion in gross margin, 40 to 60 declines in the reins [ph] on SG&A and so more pressure. And tax rate 27.5 and expectation we execute opportunistically on share repurchase double digit EPS growth.

Okay. Let me ask you I think on the margin, Lauren, you mentioned the gross margin to be up this year. You just give us the numbers again and it will be largely from buying an occupancy, but you did see markdowns on you peak merchandise margin as we track quarter clearly isn't. I'm trying to follow you there. I don't see a significant distortion in the mix of categories or geographies and you even said apparel margins had some momentum. Is there some change in the merchandise margin within the footwear category that would limit margins from going back to the historical levels?

Again, our markdowns which is the biggest lover. We're at personal best or getting close to them. Quietly it's different by geography and some mix question to some degree. But as we think about it you know the focus is that at your personal best on markdowns then the other lovers would what would create longer term opportunities. So we're looking at what we've got. Logistically that would help us flow the product effectively etcetera. But again these are things longer term that we can give you more color on at the end of the month.

Okay. let me just one last one in there on the SG&A growth implied in the margin leverage you gave there. There’s a lot of investment. I certainly understand why you'd want to claw back some of the top line momentum here to keep that going. Can you just help us think about the leverage point on the SG&A this year how much of that could be more leverageable if you can drive comps above that mid-single digit range?

Well, I think if you look back to 2018 you can see that we're very thoughtful about the expenses and levering anything incremental to the bottom. So within SG&A they’re biggest expenses are selling wages certainly well first and what's happening with that and marketing. But it's one of the beauties of all this data is that you can get ever smarter about how they use those marketing dollars more effectively. Those are the bigger lever points.

Okay. Thanks a lot. And congrats again look forward to seeing you guys a few weeks.

Thank you.

We have no further questions at time.

Okay. Thank you for joining us today everyone. Please join us again for next earnings call which we insist will take at 9 am on Friday May, 24th. The call will follow the release of our first 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.