Good morning and welcome to Foot Locker's Third Quarter 2023 Financial Results Conference Call. [Operator Instructions] This conference call may contain forward-looking statements that reflect management's current views of future events and financial performance. Management undertakes no obligation to update these forward-looking statements, which are based on many assumptions and factors including the effects of global, economic and market conditions, currency fluctuations, customer preferences and other risks and uncertainties described more fully in the company's press releases and 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 this conference is being recorded. I would now like to turn the call over to Mr. Robert Higginbotham, Senior Vice President, FP&A, Investor Relations and Treasurer, Mr. Higginbotham, you may begin.

Thank you, operator. Welcome everyone, to Foot Locker, Inc.'s third quarter earnings call. Today's call will reference certain non-GAAP measures. A reconciliation of GAAP to non-GAAP results is included in this morning's earnings release. Note, we have a slide presentation posted on our Investor Relations website with information that will be referenced during the call. Today, we'll begin our prepared remarks with Mary Dillon, President and Chief Executive Officer. Frank Bracken, Executive Vice President and Chief Commercial Officer, will then give more detail on our operating results across our banners and geographies. And then Mike Baughn, Executive Vice President and Chief Financial Officer will review our quarterly results in more detail and provide color on our fourth quarter and updated 2023 guidance. Following our prepared remarks, Mary, Frank and Mike will respond to your questions. With that, I'll now turn it over to Mary.

Thank you, Rob. Good morning, everyone, and thank you for joining us today for a discussion of our third quarter financial results, our outlook for the holiday season and an update on the advances our team continues to make on our Lace Up initiative. While the operating environment remains uncertain, momentum behind the Lace Up plan is beginning to unlock wins as our team executes in a customer and brand partner focused, collaborative and agile manner. It's been over a year since I joined Foot Locker, and while we recognize that we have work ahead of us, I'm encouraged by the progress we've been making in this reset year. I continue to be confident that we're executing the right strategies as we simplify and focus our business and invest in the capabilities that will enable Foot Locker to be the best omnichannel retailer at the intersection of sneakers and sneaker culture, as we say in our new brand platform, The Heart of Sneakers. In the third quarter, comps declined 8%, including a 3-point comp headwind from the repositioning of our Champs Sports banner. We delivered earnings per share ahead of our expectations at $0.30. Trends in the quarter accelerated from our first half run rate, driven by a strong back-to-school in our Kids Foot Locker banner. We also delivered sequential improvement in our conversion rates across stores, and our digital channel outperformed our expectations, including a positive trend in October. Importantly, we continue to exercise disciplined expense management and made further progress in executing our cost savings plan. Based on the results we've generated year-to-date, combined with our outlook for the fourth quarter, we are narrowing our bottom-line guidance to $1.30 to $1.40 for the full year as we balance early successes in our Lace Up initiatives with the uncertainty we're seeing in the external environment and our internal inventory goals. As we enter the fourth quarter, our teams have stayed agile as we learn from and build upon recent progress. We know we're buying for wallet share with a value-conscious consumer this holiday season. While our customers remain discerning with their discretionary dollars and we expect that will continue through the season, we're also seeing them respond to newness at key moments. Quarter-to-date, we've been pleased with the trends as consumers respond to our full-price holiday assortments in addition to our compelling deals. As a team, we continue to make strides as our customer-facing and support teams are well synced and executing at an elevated level into the holiday season. Over the Thanksgiving week period, we saw solid traffic levels and conversion gains in our stores and online. While customers have responded to our competitive offers, we also saw nice gains in ticket and basket size as our customer is willing to pay full price when the product is new, compelling and trend right. While we're encouraged by our building momentum, we acknowledge that much of the holiday season is still ahead of us, and we factored in our quarter-to-date performance into our fourth quarter plans. While there is still uncertainty in the macro backdrop, we're encouraged by the building momentum against our strategic initiatives, as I'll discuss in more detail in a few moments. To summarize, however, we name a few key wins, including solid strides in our digital performance, including improving conversion levels and double-digit gains in new customer acquisition, increases in our already high brand awareness levels, suggesting our top of funnel marketing and brand building efforts are resonating, stabilizing conversion trends in stores as product flows resonate and our in-store execution improves, strides in Champs Sports with banner comps actually outperforming our original plans from the start of the year, and finally, early positive readout of our loyalty pilot launch in Canada. All in, looking ahead, we know that by continuing to lean into our Lace Up plan, we're on the right path towards longer-term shareholder value creation. Now before we dig into our Lace Up progress, I want to take a moment to talk specifically about our basketball business. Sneaker culture has long been influenced by sports and specifically basketball, and that's why we are so excited about our recent agreement with the NBA for Foot Locker to serve as an official league marketing partner here in the U.S. Foot Locker and the NBA have a nearly 25-year history of working together, and we're thrilled to be building on that in the years to come with this new partnership. This season, you'll see Foot Locker and the NBA collaborate around exciting content, on-court virtual signage featuring our iconic Striper logo and activations around marquee events such as the NBA All-Star game. We'll also be focused on social engagement, and we're excited about reaching the NBA's 84 million followers on Instagram, along with other platforms with our brand building and commerce driving content. We'll focus on creating collaborative content, highlighting our basketball products and point of view. The NBA will connect directly into our loyalty FLX program and will provide additional benefits and access to our customers in new and exciting ways. Our kick-off to announce the partnership featured a special basketball activation event in Times Square that featured over 50 members of our Striper Hype crew. In early November, we also rolled out our new global brand platform, the Heart of Sneakers, which is uniting our vision around the Foot Locker brand. This was a global launch with all our regions going live simultaneously and the response has been amazing. To-date, we've earned over 1 billion media and influencer impressions since the campaign's launch. Our first campaign with the platform is our holiday campaign called Hype for the Holidays, which includes a star-studded roster of NBA All Stars. We know that when we win basketball, it's good for us and importantly, it's good for our brand partners. We've been thrilled by the support they're showing in response to our basketball initiatives. Another key example of our basketball focus is the rollout of our new home court experience at our Foot Locker banner. This is a unique multi-branded basketball experience with elevated merchandising, storytelling and experiences. While still early days and in only a handful of our top basketball doors, early response by our customers has been very positive, and we're continuing to invest in the concept. We will have more to report on in basketball in future quarters, but I hope you're taking away from my comments today how much all of us here at Foot Locker are looking forward to further enhancing our customers' experiences and strengthening our already dominant basketball leadership in the months and years ahead. I'd like to now provide more details on the progress we're making within our Lace Up plan and the early wins we're achieving both in stores and online. As you know, there are 4 strategic pillars to Lace Up. So let me walk you through the momentum we're building in each of them. Our first is to expand sneaker culture by serving more sneaker occasions, providing more choice and driving greater distinction. A key part of servicing our customers is making sure we're strong partners to all the brands we work with. This means collaborating with them on multi-year growth plans and consumer-facing marketing ideas while also investing to mutually grow our businesses. Within Nike, we're seeing strong partnership between our teams as we build growth plans around our key pillars, basketball, kids and sneaker culture. As I noted earlier, we believe the future of basketball is bright for Foot Locker, and we're encouraged that the culture of basketball also continues to connect with consumers through models like the Air Force 1, Air Jordan 1 and Nike Dunk. Retro sell-throughs remained solid in the third quarter, albeit with lower units compared to last year. We're also celebrating key moments with Nike, including the 25th anniversary launch of the Nike Tuned Air franchise, one of our key exclusives with Nike and a core anchor in sneaker culture, especially across EMEA, where there is a rich heritage with this franchise. With Adidas, we continue to build momentum with their Terrex and Skate franchises, including the Samba, Gazelle and Campus. Together with our exclusive Anthony Edwards basketball shoe launch this December, we have some powerful holiday moments ahead with Adidas. And as we think about strengthening our position in basketball, we were pleased with the recent launch of the PUMA x LaMelo 3, and we're also excited about Puma's renewed collaboration with Rihanna which will be launching in stores and online tomorrow. New Balance continued its strong run as we once again achieved well over 100% year-over-year sales increase in the third quarter with multiple franchises performing well across men's, women's and kids. We continue to see door expansion opportunities in New Balance as we build on the share gains we've seen in this exciting brand. Within Performance Running, we continue to push ahead with our growth plans on On and HOKA. On is now in 420 doors ahead of our earlier plans for 350 doors this year as together, we accelerated expansion plans to meet the strong consumer response to their unique and innovative products. With HOKA, we've added 50 doors since last quarter, bringing our total door count to 150 ahead of holiday. We remain bullish on our partnership with these exciting newer brands, and we're planning for even more door count expansion across these 2 brands next year. At the same time, we also continued to achieve strong gains with brands like Asics and Brooks in Performance Running. And we're seeing gains from brands such as Crocs and UGG on the more lifestyle side as our customers are looking to us to offer brands that fit their whole lifestyle needs. Helping to drive distinction for Foot Locker, our exclusive's penetration in the quarter was 15%, similar to last year, led by key franchises such as Nike's Tuned Air and Puma's LaMelo Ball. Finally, in our quest to meet our customers' desire for multiple brands across multiple occasions, the diversity of our brand mix outside of our top brand, Nike, increased to 36% of sales from 32% last year, making good progress towards our goal of over 40% by 2026. Our second imperative, Power Up the Portfolio is about transforming our real estate footprint through new formats and shifting off mall, while also simplifying our portfolio of banners and creating clear lanes for each of them. On real estate transformation, we opened or converted 13 new Foot Locker community and Power stores across the globe in the third quarter, giving us 198 stores in these newer formats. We continue to see comp trends in these locations outperform the remainder of the fleet with higher levels of traffic, conversion and ticket. We also see a double-digit e-commerce halo in the markets around these locations. All-in, our new formats now represent approximately 13% of our global square footage, up from 10% last year and making progress against our 2026 target of 20%. Additionally, we're making strides with our overall shift to more off-mall exposure. Penetration reached 36% of North American square footage, up 3 points from a year ago and making progress towards our goal of 50% by 2026. As to WSS, our off-mall banner that is the leading retailer focused on athletic footwear for the Latino family, this year, we're on track to open 26 net new locations with 4 new locations in the third quarter and 5 year-to-date in the Miami, Florida market. Lastly, as part of our real estate transformation, we closed 14 underperforming stores during the quarter. Within simplifying and creating distinct lanes, during the quarter, we announced the closure of our 3 U.S. atmos stores and its website, which will be wound down in January. And as we think about the Lace Up framework of simplifying and investing to grow, this applies to Atmos as we focus its growth in its core market. At Champs, we continue to make headway with our repositioning work. While comps declined by approximately 20% in the third quarter, the banner is actually tracking better than we originally expected at the beginning of the year, including a meaningful improvement in the October exit rate compared to the first half trend. The team is getting even sharper with Champs' positioning towards the active athlete, including positive early results from store refreshment in the third quarter that has planned for an accelerated rollout into year-end. With a more distinct store experience and an even sharper viewpoint on its assortment buys into the spring, we remain optimistic about the Champs Sports' potential in the marketplace. Our third pillar is deepening our relationship with our customers, which is focused on building brand equity, reaching a broader set of customers and enhancing our loyalty program and overall CRM capabilities. On building brand equity, we are better articulating and celebrating our brand proposition via our brand building, storytelling and marketing. In fact, we've seen gains in our unaided brand awareness, showing that our top of the funnel marketing and brand-building efforts are resonating and driving greater mindshare with consumers. I noted earlier the launch of our global brand platform and our Hype for the Holidays campaign, which was named one of the best campaigns for holiday this year by Adweek. In the campaign, you'll see globally shared content featuring our Stripers as a hype crew dedicated to boosting up every day sneaker lovers with the help of some very high-profile NBA athletes such as Kevin Durant, Anthony Edwards, LaMelo Ball and Steph Curry, along with international recording artist, Enisa. The campaign kicked off to tremendous success. As I noted earlier, we've seen over 1 billion impressions since our campaign launch. We're already seeing brand perception lift against key attributes such as trend, style and service since the media launch. This work we're doing around greater top of funnel marketing, including incremental marketing investment is driving consideration and customer acquisition at strong incremental returns. Case in point, once again, our online customer acquisition grew strong double digits in the third quarter in North America and helped fuel our digital outperformance in the quarter. On loyalty, 23% of our sales in the third quarter were through our current loyalty program compared to 22% last year. We're excited to launch our FLX Cash test pilot in Canada in September, and we've been pleased with the early results. Encouragingly, we've seen a rise in active members, higher average order values versus non-loyalty and a significant number of FLX Cash redemptions by first-time users, suggesting broader appeal as we refocus it to offer benefits beyond primarily launch access. As we learn from our pilot here in 2023, we're making progress on our plans to roll it out to the remainder of North America in 2024 and globally in 2025. And our final pillar is to be best-in-class omni, which means improving our digital presence as well as better integrating our channels with each other. Our digital penetration in the quarter increased to 17%, up 150 basis points year-over-year when excluding East Bay, which we closed late last year. For the second consecutive quarter, combined digital comps, we're positive in our Foot Locker and Kids Foot Locker banners in North America. And given our improved digital execution, especially in mobile and traction with new customers, company-wide, we saw an accelerating nicely positive comp for all of global e-commerce in the month of October. Our focus on site experience enhancements continues to generate significant wins, adding up to nearly $80 million in projected incremental annual sales with reduced friction points and improved experiences and features. Moving forward, we'll continue to upgrade our site experience with improvements to our product listing and detailed pages through elevated content, merchandising and badging. Our plans for 2024 include the rollout of a new Foot Locker app with a new design intended to enable smoother, cleaner shopping experiences. We are focused on improving the product launch experience, driving greater connectivity with the stores and greater loyalty integration. This work in combination with our marketing efforts gives us increasing confidence in our ability to achieve 25% e-commerce penetration over time. Switching to stores. When you think about Foot Locker, our Stripers are essential to the overall customer experience. They are product and service experts who create a positive in-store experience with our NPS in stores already above 90%. We want to maintain and even increase their passion and impact, which is why we keep them engaged in learning and ensure they have the tools they need to serve our customers. In the third quarter, we were pleased to launch a collection of new trainings and tools for our Stripers across the globe, specifically focused on driving advanced omni-selling behaviors with a mantra of Always On, Never No. While fully launched later in the quarter, we're beginning to see improved engagement and conversion in the stores. We also finished a rollout or upgraded handheld to all North American stores. The technology gives our Stripers improved visibility on inventory, access to product information and ability to check out customers and improve in-store conversion. To sum up, while the retail environment remains dynamic, our teams are focused on staying nimble, particularly through this important holiday season. Even as we focus on supporting our top line and closely managing our inventory through the near term, we're continuing to go after the big future opportunities we see for our business. I'm confident we're evolving Foot Locker to truly be all things sneakers and to be a competitive omnichannel retailer that can drive sustainable and profitable long-term growth and shareholder value. Now let me hand it over to Frank to provide more detail on our performance by banner.

Thank you, Mary, and good morning, everyone. Now let me comment on our third quarter performance. By category, footwear comped down high single digits, while apparel fell mid-teens, and accessories comped positive low single digits. Starting with basketball, we are seeing continued strength in court classics and retro styles from Nike and Jordan. This includes Jordan Retro, AJ 1, Air Force 1 and Dunk, which provided a meaningful connection to the culture of basketball for our men's, women's and our kids consumer during the back-to-school season. Our signature basketball business also started to rebound in the third quarter. Puma's Melo Ball 2 led our signature business in Q3 and was flanked by strong performance from the Nike JA 1, LeBron and Jordan's Tatum 1. Switching gears to the running category. New Balance continues to drive impressive growth across all banners and geographies. Importantly, this growth is fueled by multiple footwear franchises and is registering across our men's, women's and kids' consumer. We were pleased to once again gain market share with the New Balance brand in Q3 and fully expect that trend to continue into the holiday season. We also remain excited about our consumers' continued response to the HOKA brand and On Running. We continue to see these brands bring new customers into sneaker culture, while our banners help bring younger, more multicultural consumers to their brands. We expanded our door base with both brands in Q3 ahead of the holiday season, enabling access to more consumers. And we are excited to partner with HOKA as they became the presenting sponsor of our 44th Annual Foot Locker Cross Country Championships. Thousands of elite high school runners have been treated to footwear and apparel kits from HOKA, and we partner to create on-site activations and content creation to fuel our social channels. Meanwhile, challenges remain within some lifestyle running platforms. It was in these areas that we remain promotional and working through inventory levels to get cleaned by the end of the year. While we still have work to do, I was encouraged by our results in the first weeks of November and especially during a strong Black Friday week. From a lifestyle standpoint, UGG played a meaningful role in our business this back-to-school, especially for our female consumers. With a compelling assortment and must-have styles such as the Tasman, UGG quickly became one of our top footwear vendors for the quarter. Their strong brand connection to the fashion-forward consumer gives us confidence that this trend will continue through the holiday season. Moving to apparel. We continue to see the consumer reacting positively to key items like Nike Tech Fleece and Nike Club Fleece, and our private label brands, [ LCKR ] and CSG, also delivered strong sales productivity. However, the consumer has many options when it comes to apparel, and we will continue to be appropriately promotional this holiday season as we work through inventory and adjust our assortment strategies for 2024. As we look ahead to this holiday season, we are enthusiastic about a number of premium footwear opportunities we are seeing resonate with our consumers, including the scaling of Nike and Jordan Signature Basketball models at holiday and the excitement around our new NBA marketing partnership and the storytelling platform that it brings. The December launch of the Jordan Retro 11 gratitude, the exclusive launch of Anthony Edwards signature basketball shoe with Adidas, the AE 1, enhanced brand presentation, inventory levels and marketing with the New Balance brand, Rihanna's newest collaboration with Puma, the Fenty Creeper Phatty launching tomorrow, both online and in stores, increased supply of trend-right Adidas models like Samba, Gazelle and Campus, seasonally relevant concepts and classics from UGG and the continued momentum that we are experiencing and running through the HOKA and On brands. By channel, comparable sales in our stores decreased 8.5%. Traffic remained down year-on-year, and we continue to see some pressure on average ticket. Encouragingly, our conversion levels while still down year-on-year, saw steady sequential improvement each month of the quarter as customers responded to our promotional efforts as well as our flow of premium must-have items. Digital comps fell by 5.6%. However, excluding East Bay, the digital-only banner we wound down last year, digital comps were up 0.4%, including positive digital comps in October as our top of funnel marketing and efforts to improve conversion drove gains. We're also pleased that our Foot Locker North America and Kids Foot Locker banners once again saw combined positive digital comps in the quarter. By banner in geography, in North America, overall comps declined by 9.5%, including a 3.8% negative impact from the Champs Sports repositioning efforts in the region. At Foot Locker North America, comps fell by 4.9%, driven by ongoing consumer and product headwinds in lifestyle running and apparel, offsetting strength in the culture of basketball and running innovation. Encouragingly, our power and community stores continue to outcomp the balance of chain in Q3, reinforcing our confidence in those new concepts. Kids Foot Locker comps were up 5%, led by a strong back-to-school in August in both stores and online. With a compelling assortment and strong back-to-school marketing, our KFL banner clearly connected with the youth consumer and their parents this season as well as the teen girl. With best-in-class partnerships with Nike, Jordan, New Balance and UGG, KFL is well positioned to finish the year strong as we enter the holidays. At Champs Sports, comps were down 20% as we preferred the Foot Locker banner for key launches and constrained supply of Nike, Inc. products during the reset. We were pleased to see comps at Champs Sports improve from first half trends, especially into the month of October. In fact, as Mary noted, the banner comped ahead of our internal plans last quarter. Each season, the Champs team continues to sharpen its positioning as the home of sports style where they've used sport-inspired apparel, sneaker essentials and performance to serve the needs of the sport-inspired consumer. Looking ahead to the holiday quarter, we're encouraged by the early reads from recent capital light store refresh activity and are accelerating that work later in the fourth quarter. In fact, by year-end, we expect over 240 of the Champs Sports locations will be refreshed. We are also slightly adjusting our store closure plans for 2024. We will still close approximately 85 doors by the end of the year. However, we will push about 30 store closures into Q1 and Q2 next year so that we can continue to liquidate inventory and also spread some of the operational burden of those store closures over a slightly longer time period. Moving to WSS. The banner saw comps down 9.4% in Q3 as the macro environment continues to weigh on that lower-income consumer or WSS over indexes. During the quarter, we opened 3 new doors, bringing our total to 129 and are on track to open 26 net new stores for the year or growth of approximately 20%. With still roughly 2/3 of stores in California, we continue to see regional growth opportunities for WSS over time. This holiday, the WSS team launched an integrated marketing campaign themed More Joy for Everyone. This is the first-ever integrated WSS campaign to include online to offline content and connection points, including several connected TV and digital spots during key customer moments. While the short term remains challenged due to macroeconomics, we remain confident in our WSS banner, which is squarely positioned against the fastest-growing consumer segment in America. Turning to Europe. Overall comps were down 4.2%. As the macro environment remains challenging across many parts of Europe, the team is focused on improving the in-store experience, conversion levels and inventory management. The European team is also focused on reigniting the Foot Locker brand in key markets. And like here in the U.S., we're seeing traction with our global brand campaign, our holiday assortments as well as the store refreshes that we've completed thus far. In Asia-Pacific, comps were down slightly at a negative 0.5%. The Foot Locker banner saw comps down 1.2% owing to the promotional marketplace dynamics and lower consumer confidence, especially in Australia. And finally, at atmos compete were up 0.8% as the business continues to connect with sneaker enthusiasts and delivers compelling innovation and brand stories from our partners. Finally, we hope you saw this morning's announcement about our expansion into India in 2024. We're thrilled to be bringing our multi-brand sneaker experience to India's rapidly growing consumer class with the help of our new partners, Metro Brands Limited and Nykaa Fashion. This new partnership will enable the renowned Foot Locker brand and Striper to further expand sneaker culture, one of our core Lace Up strategies in a capital-efficient manner while also generating incremental licensing royalties. So in summary, while the environment remains dynamic, our teams continue to balance the delivery of must-have full-price premium assortment this holiday alongside strong omnichannel marketing programs, while at the same time, remaining extremely vigilant about our inventory and gross margin management. I'll now hand the call over to Mike to go over the financials and guidance in more detail.

Thank you, Frank, and good morning, everyone. Now turning to third quarter results. Starting with revenue, our total sales fell by 8.6% on a comp decline of 8%, which was better than both our first half trend and our prior annual outlook of comps down 9% to 10%. As noted previously, the repositioning of Champs Sports represented a 3-point comp headwind witnessed in the quarter. By month, August comps were down high single digits, September also was down high single digits and October declines moderated to down mid-single digits. While traffic and conversion remain headwinds year-over-year in the third quarter, we saw steady improvements in our conversion. This was especially true in September and October as customers responded to our promotional efforts and importantly, as our efforts to drive greater digital and in-store conversion took hold. While we saw our launch business be less of a headwind in the third quarter versus the second quarter trend, we also saw some stabilization in our base business as customers responded to our fresh fall receipts in addition to our compelling promotions. Moving down the income statement. Gross margin for the quarter declined 470 basis points to 27.3%. Merchandise margins fell by 370 basis points, with the majority of the decline driven by higher promotions to move through inventory and to reach our price-sensitive shopper. We also continued to see elevated shrink levels. Outside of merchandise margin, occupancy costs deleveraged by 100 basis points on the sales decline. Approximately $5 million of gross margin savings from our cost optimization programs helped offset a portion of the pressure from promos, shrink and occupancy deleverage. For the third quarter, our SG&A rate came in at 22.5%, representing deleverage of 100 basis points with savings from the cost optimization program of approximately $25 million, more than offset by deleverage on the sales decline, inflation and investments in frontline wage and technology. Collectively, our cost optimization program generated total savings of approximately $30 million in the third quarter, and we still expect to capture approximately 40% of the total $350 million targeted savings within this year. Finally, non-GAAP earnings came in at $0.30, above our initial expectations as improving conversion levels, especially on digital, drove a better-than-expected comp decline in addition to our cost savings measures. Moving on to our outlook for the full year and the fourth quarter. Given the trends we are seeing in November, we are narrowing our full year non-GAAP EPS to a range of $1.30 to $1.40 from $1.30 to $1.50 previously. Our outlook now embeds an $0.11 EPS contribution in the fourth quarter from the 53rd week, down from $0.15 previously as we've refined our [ view ] and finalized our commercial planning assumptions around the extra week. With the extra week adding approximately a 1 percentage point lift to sales, total sales for the 53rd week year are expected to fall by 8% to 8.5%. Overall, our store count will be down approximately 7% in 2023 with square footage down approximately 2% as we convert more stores to larger formats. Within the fourth quarter, our outlook embeds non-GAAP earnings per share in the range of $0.26 to $0.36. Our outlook assumes a comp of down 7% to down 9%. Note, the lower end continues to contemplate macro risk this holiday season and the upper end continues to reflect ongoing positive response to our holiday assortments and the wins we are seeing from our strategic initiatives. On gross margin, we expect declines of approximately 290 to 310 basis points towards a range of 27.0% to 27.2%. On expenses, we expect deleverage of approximately 40 to 70 basis points toward a range of 22.7% to 23.0% on the sales declines. Finally, our CapEx outlook for the year is now at $275 million, down from $290 million previously due to the timing of real estate projects. Turning to the balance sheet. We ended the quarter with $187 million of cash and total debt of $449 million. At quarter end, our inventories were 10.5% above last year, down slightly from the 11% level at the start of the quarter. It's important to note that our inventory balance includes an approximate 6-point impact from the strategic pull-forward of inventory to ensure smooth product flows ahead of the holiday season. We are reaffirming our expectation to end the year with inventory flat to slightly down versus last year. In terms of shareholder distributions within the quarter, we paid $38 million in dividends and did not repurchase any stock. As we announced last quarter, our Board made the decision to pause dividends beyond the third quarter's payment to ensure financial flexibility and support of our strategic projects. We still expect to update investors around our longer-term capital allocation goals and financial targets when we report fourth quarter results early next year. And with that, operator, please open the call for questions.

[Operator Instructions] Today's first question comes from Cristina Fernandez with Telsey Advisory Group.

2 questions. First one, I wanted to see if you could talk further about the improvement that you've seen in October. It seems a lot of it is company specific versus the consumer better. So if you look at the product allocation that you're getting or execution or response to promotions, I guess, how would you rank what's driving the business? And then the second question I had was, if you could talk about the composition of the inventory. As you look at where you expect to end the year, I guess, how much clearance promotional activity you expect to continue in 2024?

Great. Cristina well, let me start with, we did exit the third quarter with improved trends. And I think one of the highest for us was the positive digital comps that we saw globally in October, and that really was driven by really, I think, some traction we're seeing with our Lace Up initiatives and some of the improvements that we're making in digital. And as we got into the Black Friday weekend, I'll just say what we're continuing to see is we saw solid traffic levels and conversion improvements. We're seeing customers come out -- you asked about assortment. I'd say it's both for great holiday promotional deals as well as our full price holiday assortment. So the assortment is working well. But we're particularly pleased with our conversion trends online. I think as I said, we're doing a better job of converting the solid traffic levels that we have with an improved customer experience. So we see the customer remaining pretty discerning and event-driven and responding both to holiday promotions as well as full price signature key items that are selling well. In terms of the inventory strategy, let me just start and maybe Mike, you can add. I'd say we talked about this, we certainly have made a deliberate effort to be vocal around our holiday promotions to continue to move through our inventory. As Mike mentioned, we also made the decision to pull forward some inventory buys into the third quarter to make sure we have a smooth product flow during the holiday weeks of some of these key in-demand items. And again, that's allowing us to capture both deal-seeking customers and those looking for innovation and on trend. The bottom line is we are confident with the guidance range and our inventory targets, which is to end the year flat to slightly down.

Yes Mary the only thing I'd add, as we look at the trend throughout the quarter, I think interestingly, as we look at October versus some of the other retailers, we saw the trend improvement come through footwear. Within our business, apparel was actually a slightly trend softening versus August and September. As we think through our inventory composition today, the majority of our plus 10.5% is concentrated in footwear. Apparel is only up slightly. And then as we think through our guidance for this year, we've kept the promotional levels intact really to help continue to make progress on inventory and the year flat to slightly down. We feel that's a good level of inventory to operate going into next year. And obviously, as we think through 2024, a lot of promotional activity will be dependent on how the overall customer is performing and inventories in the channel in general.

The next question is from Alex Straton with Morgan Stanley.

Perfect. Congrats on some improvement here in the quarter. I wanted to focus on the sales guidance quickly here. Just it looks like it assumes the underlying trend might get worse quarter-over-quarter. That's how it looks, but I asked because it doesn't seem to contemplate the 53rd week benefit. So maybe if you can just walk us through the puts and takes there as you arrived at that. It would be super helpful. Then I've just got one follow-up.

Sure, Alex. This is Mike. From a top line guidance perspective into Q4, we called out in the prepared remarks that our low end really is just continuing to acknowledge that there is some macro and customer risk and that the high end of how we're approaching things really is reflecting the momentum we're seeing within the Lace Up plan tied to our strategic initiatives and continue to improve conversion and items like that. I think we continue to expect this holiday to be competitive and promotional. As we looked at the quarter, as we go into December here, obviously, we've said we feel good about the trajectory of our business right now. We're also acknowledging we're against a tougher compare in the month of December, which is inclusive of a launch headwind as well. So that was everything we took into consideration there, but I feel we've appropriately bracketed our performance in Q4.

Great. And then just one quick one on inventory, just a follow-up. I want to make sure I understand in terms of your use of getting new flow versus using promos, like how do you feel about the assortment now compared to 3 months ago? Have you cleared through more of the excess that you've had the promo or not? And then also on that, I think one of the comments around Champs is that you could be liquidating into the first half. So should I interpret that as you'll have inventory as a pressure point through the first half of next year? Or how do I think about that?

Yes. This is Frank. I'll jump in here. So I think we're operating really at 2 dimensions here. We talked, I think, already about how we're using our promotional engine and demand creation to continue to liquidate through inventory that needs a little bit of help and a little bit of encouragement with consumers. At the same time, the majority, if not all, of the receipt pull forward and the composition of our holiday assortments are the strongest that we've had all year. And that's what gave us the confidence to do some of the pull forward and also substantiates the guidance that we're going in here to year-end. I'd add on to that versus 90 days ago, we've also been able to secure some additional vendor support on the back end, which gives us confidence that we are going to, in fact, deliver against our end-of-year inventory targets and start off '24 from a position of strength. As it relates to Champs, it's really less a reflection of inventory management and more around the fact that because we are having a strong and busy holiday season, we want to smooth out a little bit of the wind down of some of those stores to take off some of that burden on our store ops team so that we can be very thoughtful about moving goods around redeploying our Stripers and our Champs associates appropriately and being very empathetic there, but also capturing some of the strong demand at the same time. So hence, the change in the strategy there.

The next question comes from Janine Stichter with BTIG.

Congrats on the progress. I wanted to ask your insights into what you're seeing with the lower income consumer where you have pretty significant exposure. Wondering if you're seeing it get a bit better there. And then also, I recall when you talked at the Analyst Day, there was some discussion around growing your exposure with middle income consumers. So wondering if you're seeing any change in your consumer cohorts.

Yes, Janine. I'd start with a general view of the consumer. There certainly is a lot of different factors coming at people, I think, of any household income, right? So persistent inflation, higher interest rates, some reduced savings, student loan repayments. We have -- our customer, 50% of our customers are under $50,000 or so household income. So the monthly pressure is real. But having said that, what we're seeing is people just all year being pretty discerning on how and when to spend being event-driven, things like back-to-school, things like Black Friday, Cyber Monday, but also seeing indication that there's a lot of interest and demand in key items that are full price as well. I would say that we're -- we feel that we're in a good place in terms of our assortment and our promotions planned as we get through holiday and feel that, in fact, we're actually seeing some indication that some of our customers are more willing to cut back on experiences than our category. So we'll see how it plays out. I think it's a little early to say that we've changed -- had much impact on income cohort, but certainly, our proposition appeals to people of all income levels. But we feel we've got a good handle on how our customer is feeling and also how they're responding positively to what we're offering.

The next question is from Lorraine Hutchinson with Bank of America.

I wanted to focus on the NBA agreement. Are there financial obligations that Foot Locker will have to cover that?

Lauren, this is Frank. Yes, so it is a multiyear agreement. There are contractual obligations on both sides. One, obviously, from a cash and a media commitment standpoint on our side, and in turn, from the NBA, the commitment and access to content creation to events and activations and to collaborations to bring really great compelling storytelling and consumer experiences. So one of the tenets of our Lace Up plan behind Foot Locker is reaffirming our basketball leadership. And we think that the brand Foot Locker and the NBA brand sort of go hand in glove. And so we're very excited to reestablish that relationship, which has a 25-year history. I think it will be a very compelling proposition for our consumers. The outreach and the support we've already gotten from our brand partners has been terrific. And you'll already see some of our activations here heading into the end of the year as we get into the holiday games and into All-Star Weekend in February of 2024. So we're very excited about this partnership.

Yes. And I would only add that a great part of the value of this partnership is media value. And so even just for example, exposure to NBA's Instagram followers, which is 84 million people, right, so it gives us an amazing platform to amplify the natural partnership between Foot Locker and the NBA. And we're already seeing some real positive traction.

And then just a follow-up then, you've got a lot of costs out over the past year or so. As you think about SG&A next year and in the coming years, how do you see the trade-offs between further cost cuts or building back some of these marketing and other buckets?

Yes, Lorraine, this is Mike. So from a cost standpoint, I think we've highlighted that we think in total, there's $350 million that we can take out, and we're still very confident that this year, we'll take out about 40% of that total. As we think about SG&A going forward, there is -- about 2/3 of that will be reinvested back into the business as we think through both technology and then marketing and brand building and items like that. So I think as we get back and return to growth here, there's an opportunity for us to continue to leverage SG&A, and that's how we're thinking about it going forward.

The next question is from Tom Nikic with Wedbush Securities.

Tom, you might be on mute. Operator, we can take the next call. Operator, we can take the next question.

And our next question today will come from Tom Nikic of Wedbush Securities.

Can you hear me now?

We were waiting for you. Thank you.

I'm sorry. I apologize for that. I wanted to ask about the Nike relationship. And I know, Mary, at the Investor Day later this year, you talked about reinvigorating that relationship. Should we still think that you resume growth with Nike next year in 2024?

Thank you, Tom. Yes, listen, our relationship with Nike is strong, and I'd say we're very aligned on the areas that we can complement each other in the marketplace and drive growth. So you've heard us talk about basketball, kids and sneaker culture, especially with the young multicultural customer base that Foot Locker brings to the marketplace. So in Nike as well as all of our brand partners, I think, appreciate the investment that we're placing in the Lace Up plan, which is simply raising our game as a retailer of the ecosystem. So we're focused on leading with -- focus on customer insights and how we can uniquely drive growth together, elevating the customer's retail experience, and you heard us talk about our store refreshes, power, community doors, all out-comping rest of the fleet. The third focus is elevating our digital and loyalty experiences, and then, of course, which Frank just commented on, investing in our brand and specifically our basketball leadership position. So the NBA partnership, The Heart of Sneakers, Home Court. In fact, I think Nike, like other brand partners, was pleased to hear about our partnership, and they immediately partnered with us to provide one of their premier NBA partners, Kevin Durant, for our Heart of Sneakers campaign. So that said, all of that said, we're still in the midst of a reset year. And together, we're looking forward to 2024 and beyond, stabilizing and returning to growth. We're in the early planning stages. And I'd say we'll be in a better position to get more specific as we report our fourth quarter results and talk about '24 and beyond.

The next question is from Michael Binetti with Evercore ISI.

Congrats on the comments on Thanksgiving. It's nice to hear. I guess just as I kind of think back about some of the questions that have been asked here on the Nike reset, when that can become less of a headwind in some of the moving parts here, it seems at least some of the comp improvement you've seen lately is coincidence to you guys driving your promotional levers to the consumers responding. But it didn't sound like your answer to, I think, Alex, before meant that you want us to believe inventories are necessarily going to be high to suggest promos will need to be elevated into early '24. But you did lower your expectations for the very last week of the year, the 53rd week in January. I'm just wondering how do you think about the path to positive same-store sales that the consensus models are thinking about for next year, if you think that inventories will dictate lower promotions as we get into 2024 and the other moving parts that you've spoken about in Q&A.

Michael, this is Mike. From our standpoint, I think as we look at Q4, again, we expect things to remain promotional, and we've accounted for that within our guidance. As within the 53rd week specifically, really, as we got closer to the fourth quarter here, we finalized our commercial planning, and the update there is really a reflection of that. I think what we're committing to today is that you will see inventory continue to progress down throughout this quarter and will be flat to slightly down, which we feel is in a good position to operate heading into 2024. And then as we think through 2024 expectations and how we're approaching that, we'll come back on that in a couple of months and update you.

Okay. And if I could ask one just near term on the model in fourth quarter the gross margin, can you speak a little bit to how we should think about the merch margin versus buying occupancy? Any reason occupancy won't be similar to down 100 basis points on the negative 8 comp in the third quarter or maybe a little better with an extra week?

So we do get some occupancy benefits within gross margin due to the 53rd week. I think we -- I think the year-over-year change of $290 million to $300 million from a merch margin standpoint, occupancy would be less of a pressure because of the 53rd week is how I'd model it.

The next question comes from Bob Drbul with Guggenheim.

I was just wondering if you could share a little bit more on the exclusives, the roadmap from 15% to 25%. And are there any early wins either this holiday or early next year that you could share with us around just the drivers for that exclusive increase?

Yes, Bob, it's a great question. So a couple of examples. Exiting the third quarter, we celebrated the 25th anniversary of the Nike Tuned air franchise, which was a global celebration and has long been an exclusive position for Foot Locker and some incredible consumer activation sell-through and, ultimately, great commercial results out of that franchise. As we head into the fourth quarter, I can note the launch of the Puma Melo 3, which has also been our #1 signature athlete for the second season straight here. And then we're looking very much forward in December to the launch of the Adidas Anthony Edwards 1, AE 1 as it's called. And so, he's been playing incredibly well, and we think he's going to be a great ambassador and another weapon in the signature arsenal portfolio. So those are some of the examples in the near term as it relates to holiday that we feel very, very strongly about.

The next question is from Adrienne Yih with Barclays.

It's Paul Kearney on for Adrienne. Can you speak to the margin performance of the overall business, excluding Champs? Clearly, the occupancy deleverage is more Champs? Are you seeing merchandise margin pressure even across banners? And I guess bottom line, are you seeing an improvement in merchandise margin at core Foot Locker? And then I have a quick follow-up.

I guess -- Paul, good morning, this is Mike. From our standpoint, I mean, I would consider that as you look through the promotional activity that we've been taking on, we are doing it pretty consistently across banners. I think when we talk to a lot of the wins we're seeing within full price selling and a lot of the key items, a lot of that is focused within the Foot Locker banner.

And a quick follow-up was, I think you just mentioned that you're seeing increased levels of vendor support. Was that increased levels relative to last year, and is that both in footwear and apparel?

Yes, Paul, this is Frank. So the comment I made was in regards to inventory management and some of the relief and support that we're going to get at the end of the year to help with some of our aging and some of our lesser performing goods. So that's an increase both to last year as well as a new point of view from 90 days ago. So we continue to flow in new and positive receipts, but also know that our partners are also along for the journey with us here to make sure that we end the year clean.

Our last question today comes from Gaby Carbone with Deutsche Bank.

Just was wondering if you can talk to any changes in store expansion plans beyond this year? I understand the shift in Champs. But is there anything else that we should be thinking about beyond '23?

Well, I mean, I guess I would say we'd reiterate that part of our Lace Up plan is really re-shifting the portfolio, right? Investing in key banners. And actually what I'd say mainly the big difference being Foot Locker, increasing the number of stores that we have off-mall as a percent of total as well as our new formats of community and the Power doors. So we're -- as well as House of Play for Kids Foot Locker. So there is format shifts that we are still on the path on for our Lace Up plan that early indications are that they're actually outperforming the rest of the comp, the fleet, which is great. We also mentioned that we're doing some store refreshes right now that we're pulling forward as rapidly as we can to really increase just the overall visual storytelling inside the store, the shopability. And that's early days, but we're actually seeing that as quite positive, and in the case of Champs, also realigning and really focusing on the active athlete. So we're doing kind of many things in process in terms of refreshing the current store fleet as well as continuing to introduce new formats consistent with the Lace Up plan targets that we communicated before.

I would like to turn the call back to Mary Dillon for closing remarks.

Thank you for joining us today. And I'd just like to close by thanking our over 45,000 Foot Locker employees, in particular, our Striper community as they get our stores, website and DCs ready for the remainder of the holiday season. We look forward to updating you on our progress next quarter and happy holidays to everybody listening. Thank you.

This concludes today's conference. Thank you for participating. You may now disconnect.