Foot Locker(FL) - 2026 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This part covers unaudited financial statements, management's analysis, market risk, and internal controls Item 1. Financial Statements (Unaudited) This section provides unaudited condensed consolidated financial statements, including balance sheets, income statements, cash flows, and related notes Condensed Consolidated Balance Sheets (Unaudited) This section presents the company's financial position, detailing assets, liabilities, and shareholders' equity Condensed Consolidated Balance Sheets (Unaudited) | ($ in millions, except share amounts) | May 3, 2025 | May 4, 2024 | February 1, 2025* | | :--- | :--- | :--- | :--- | | ASSETS | | | | | Current assets: | | | | | Cash and cash equivalents | $ 343 | $ 282 | $ 401 | | Merchandise inventories | 1,665 | 1,659 | 1,525 | | Assets held for sale | — | — | 10 | | Other current assets | 359 | 414 | 323 | | Total current assets | 2,367 | 2,355 | 2,259 | | Property and equipment, net | 908 | 910 | 910 | | Operating lease right-of-use assets | 2,099 | 2,175 | 2,061 | | Deferred taxes | 41 | 114 | 143 | | Goodwill | 661 | 760 | 759 | | Other intangible assets, net | 230 | 392 | 365 | | Minority investments | 115 | 150 | 115 | | Other assets | 137 | 91 | 136 | | TOTAL ASSETS | $ 6,558 | $ 6,947 | $ 6,748 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | Current liabilities: | | | | | Accounts payable | $ 504 | $ 515 | $ 378 | | Accrued and other liabilities | 433 | 389 | 434 | | Current portion of debt and obligations under finance leases | 5 | 5 | 5 | | Current portion of lease obligations | 499 | 496 | 507 | | Liabilities held for sale | — | — | 6 | | Total current liabilities | 1,441 | 1,405 | 1,330 | | Long-term debt and obligations under finance leases | 440 | 441 | 441 | | Long-term lease obligations | 1,890 | 1,984 | 1,831 | | Other liabilities | 179 | 231 | 237 | | Total liabilities | 3,950 | 4,061 | 3,839 | | Commitments and contingencies | | | | | Shareholders' equity: | | | | | Common stock and paid-in capital | 808 | 787 | 802 | | Retained earnings | 2,131 | 2,490 | 2,494 | | Accumulated other comprehensive loss | (325) | (385) | (383) | | Less: Treasury stock at cost | (6) | (6) | (4) | | TOTAL SHAREHOLDERS' EQUITY | 2,608 | 2,886 | 2,909 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ 6,558 | $ 6,947 | $ 6,748 | Condensed Consolidated Statements of Operations (Unaudited) This section details the company's revenues, expenses, and net (loss) income, along with earnings per share Condensed Consolidated Statements of Operations (Unaudited) | ($ in millions, except per share amounts) | Thirteen weeks ended May 3, 2025 | Thirteen weeks ended May 4, 2024 | | :--- | :--- | :--- | | Sales | $ 1,788 | $ 1,874 | | Other revenue | 6 | 5 | | Total revenue | 1,794 | 1,879 | | Cost of sales | 1,280 | 1,335 | | Selling, general and administrative expenses | 458 | 461 | | Depreciation and amortization | 51 | 51 | | Impairment and other | 276 | 14 | | (Loss) income from operations | (271) | 18 | | Interest expense, net | (2) | (1) | | Other income (expense), net | 3 | (4) | | (Loss) income before income taxes | (270) | 13 | | Income tax expense | 93 | 5 | | Net (loss) income | $ (363) | $ 8 | | Basic (loss) earnings per share | $ (3.81) | $ 0.09 | | Weighted-average shares outstanding | 95.3 | 94.7 | | Diluted (loss) earnings per share | $ (3.81) | $ 0.09 | | Weighted-average shares outstanding, assuming dilution | 95.3 | 95.3 | Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) This section presents the company's comprehensive (loss) income, including net (loss) income and other comprehensive items Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) | ($ in millions) | Thirteen weeks ended May 3, 2025 | Thirteen weeks ended May 4, 2024 | | :--- | :--- | :--- | | Net (loss) income | $ (363) | $ 8 | | Other comprehensive (loss) income, net of income tax | | | | Foreign currency translation adjustment: | | | | Translation adjustment arising during the period, net of income tax benefit of $- and $-, respectively | 61 | (19) | | Hedges contracts: | | | | Change in fair value of derivatives, net of income tax benefit of $(1) and $(1), respectively | (3) | (1) | | Pension and postretirement adjustments: | | | | Amortization of net actuarial loss included in net periodic benefit costs, net of income tax expense of $1 and $1, respectively | — | 1 | | Comprehensive (loss) income | $ (305) | $ (11) | Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) This section details changes in shareholders' equity, including common stock, treasury stock, retained earnings, and comprehensive loss Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) | (shares in thousands, $ in millions) | Common Stock Shares | Common Stock Amount | Treasury Stock Shares | Treasury Stock Amount | Retained Earnings | Accumulated Other Comprehensive Loss | Total Shareholders' Equity | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Balance at February 1, 2025 | 95,094 | $ 802 | (148) | $ (4) | $ 2,494 | $ (383) | $ 2,909 | | Restricted stock issued | 467 | — | | | | | — | | Share-based compensation expense | | 6 | | | | | 6 | | Shares of common stock used to satisfy tax withholding obligations | | | (165) | (2) | | | (2) | | Net loss | | | | | (363) | | (363) | | Translation adjustment, net of tax | | | | | | 61 | 61 | | Change in hedges, net of tax | | | | | | (3) | (3) | | Balance at May 3, 2025 | 95,561 | $ 808 | (313) | $ (6) | $ 2,131 | $ (325) | $ 2,608 | | Balance at February 3, 2024 | 94,284 | $ 776 | (60) | $ (2) | $ 2,482 | $ (366) | $ 2,890 | | Restricted stock issued | 417 | — | | | | | — | | Issued under director and stock plans | 239 | 5 | | | | | 5 | | Share-based compensation expense | | 6 | | | | | 6 | | Shares of common stock used to satisfy tax withholding obligations | | | (171) | (4) | | | (4) | | Net income | | | | | 8 | | 8 | | Translation adjustment, net of tax | | | | | | (19) | (19) | | Change in hedges, net of tax | | | | | | (1) | (1) | | Pension and postretirement adjustments, net of tax | | | | | | 1 | 1 | | Balance at May 4, 2024 | 94,940 | $ 787 | (231) | $ (6) | $ 2,490 | $ (385) | $ 2,886 | Condensed Consolidated Statements of Cash Flows (Unaudited) This section presents the company's cash flows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Unaudited) | ($ in millions) | Thirteen weeks ended May 3, 2025 | Thirteen weeks ended May 4, 2024 | | :--- | :--- | :--- | | From operating activities: | | | | Net (loss) income | $ (363) | $ 8 | | Adjustments to reconcile net (loss) income to net cash from operating activities: | | | | Tradename intangible asset impairment | 140 | — | | Impairment of goodwill | 110 | — | | Deferred income taxes | 69 | (5) | | Depreciation and amortization | 51 | 51 | | Impairment of long-lived assets and right-of-use assets | 23 | 7 | | Share-based compensation expense | 6 | 6 | | Gain on sales of businesses | (5) | — | | Change in assets and liabilities: | | | | Merchandise inventories | (110) | (158) | | Accounts payable | 118 | 151 | | Accrued and other liabilities | — | (3) | | Pension contribution | (20) | — | | Other, net | (22) | 1 | | Net cash (used in) provided by operating activities | (3) | 58 | | From investing activities: | | | | Capital expenditures | (58) | (76) | | Proceeds from sales of businesses | 6 | — | | Net cash used in investing activities | (52) | (76) | | From financing activities: | | | | Shares of common stock repurchased to satisfy tax withholding obligations | (2) | (4) | | Payment of obligations under finance leases | (2) | (2) | | Proceeds from exercise of stock options | — | 5 | | Net cash used in financing activities | (4) | (1) | | Effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash | 4 | 2 | | Net change in cash, cash equivalents, and restricted cash | (55) | (17) | | Cash, cash equivalents, and restricted cash at beginning of year | 430 | 334 | | Cash, cash equivalents, and restricted cash at end of period | $ 375 | $ 317 | | Supplemental information: | | | | Interest paid | $ 9 | $ 8 | | Income taxes paid | 10 | 11 | | Cash paid for amounts included in measurement of operating lease liabilities | 177 | 172 | | Cash paid for amounts included in measurement of finance lease liabilities | 2 | 2 | | Right-of-use assets obtained in exchange for operating lease obligations | 130 | 142 | | Assets obtained in exchange for finance lease obligations | — | 1 | Notes to the Unaudited Condensed Consolidated Financial Statements (Unaudited) This section provides detailed notes on accounting policies, revenue, segments, impairment, and other financial disclosures Note 1. Summary of Significant Accounting Policies This note outlines the company's significant accounting policies, including the basis of presentation and key estimates - Foot Locker, Inc. operates as a leading footwear and apparel retailer across North America, Europe, and Asia Pacific, utilizing integrated shopping channels including stores, websites, apps, and social channels[27] - The interim financial statements are prepared under U.S. GAAP, and management confirms all necessary adjustments for fair presentation are included, with no significant changes to accounting policies from the 2024 Annual Report on Form 10-K[28][29] - Significant estimates include valuation of goodwill and other intangible assets, loss contingencies, lease liabilities and right-of-use assets, and deferred tax asset valuation allowances[30] Note 2. Revenue This note provides a detailed breakdown of the company's revenue by sales channel, geography, and operating segment Sales by Channel (Thirteen weeks ended) | ($ in millions) | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | Stores | $ 1,455 | $ 1,554 | | Direct-to-customers | 333 | 320 | | Total sales | 1,788 | 1,874 | | Other revenue | 6 | 5 | | Total revenue | $ 1,794 | $ 1,879 | Revenue by Geography (Thirteen weeks ended) | ($ in millions) | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | United States | $ 1,250 | $ 1,272 | | International | 544 | 607 | | Total revenue | $ 1,794 | $ 1,879 | Sales by Banner and Operating Segment (Thirteen weeks ended) | ($ in millions) | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | Foot Locker | $ 735 | $ 759 | | Champs Sports | 261 | 267 | | Kids Foot Locker | 183 | 183 | | WSS | 160 | 160 | | North America | 1,339 | 1,369 | | EMEA (1) | 346 | 394 | | Foot Locker | 66 | 72 | | atmos | 37 | 39 | | Asia Pacific | 103 | 111 | | Total sales | $ 1,788 | $ 1,874 | Note 3. Segment Information This note details the company's operating segments, performance evaluation, consolidated results, and total assets by division - Foot Locker, Inc. operates as one reportable segment, with the CEO evaluating performance and allocating resources based on 'division profit,' which reflects (loss) income before income taxes, impairment and other, corporate expense, interest expense, net, and other income (expense), net[40] Consolidated Results (Thirteen weeks ended) | ($ in millions) | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | Sales | $ 1,788 | $ 1,874 | | Other revenue | 6 | 5 | | Total revenue | 1,794 | 1,879 | | Less: | | | | Cost of merchandise (1) | 1,037 | 1,086 | | Occupancy and buyers' compensation (2) | 243 | 249 | | Store employee wages (3) | 198 | 205 | | Marketing expenses (4) | 41 | 47 | | Technology expenses (5) | 67 | 70 | | Other division expenses, net (6) | 181 | 179 | | Division profit | $ 27 | $ 43 | | Less: Impairment and other (7) | 276 | 14 | | Less: Corporate expense (8) | 22 | 11 | | (Loss) income from operations | (271) | 18 | | Interest expense, net | (2) | (1) | | Other income (expense), net (9) | 3 | (4) | | (Loss) income before income taxes | $ (270) | $ 13 | Total Assets by Division (May 3, 2025 vs. May 4, 2024) | ($ in millions) | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | Division | $ 6,110 | $ 6,411 | | Corporate | 448 | 536 | | Total assets | $ 6,558 | $ 6,947 | Note 4. Impairment and Other This note details the impairment and other charges recognized, including goodwill and tradename impairments, and reorganization costs Impairment and Other Charges (Thirteen weeks ended) | ($ in millions) | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | Tradename intangible asset impairment | $ 140 | $ — | | Goodwill impairment | 110 | — | | Impairment of long-lived assets and right-of-use assets | 23 | 7 | | Reorganization costs | 3 | — | | Legal claims | — | 7 | | Total impairment and other | $ 276 | $ 14 | - Goodwill impairment of $110 million was triggered by a reduction in the Company's stock price and market capitalization, coupled with general macroeconomic factors[48] - The company recorded $8 million in accelerated tenancy and lease termination charges due to global headquarters relocation and the shutdown of businesses in South Korea, Denmark, Norway, and Sweden[48] Note 5. Other Income (Expense), net This note provides a breakdown of other income and expense items, including divestiture gains and minority investment losses Other Income (Expense), net (Thirteen weeks ended) | ($ in millions) | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | Foot Locker Greece and Romania divestiture | $ 5 | $ — | | Share of losses related to minority investments | (1) | (2) | | Pension and postretirement net benefit expense, excluding service cost | (1) | (2) | | Total other income (expense), net | $ 3 | $ (4) | - The sale of Greece and Romania businesses in April 2025 for $11 million (net of cash) resulted in a $5 million gain[50] Note 6. Cash, Cash Equivalents, and Restricted Cash This note reconciles cash, cash equivalents, and restricted cash, explaining the nature of restricted cash balances Cash, Cash Equivalents, and Restricted Cash Reconciliation | ($ in millions) | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $ 343 | $ 282 | | Restricted cash included in other current assets | 6 | 4 | | Restricted cash included in other non-current assets | 26 | 31 | | Cash, cash equivalents, and restricted cash | $ 375 | $ 317 | - Restricted cash primarily relates to amounts held in escrow for various leasing arrangements in Europe[52] Note 7. Goodwill and Other Intangible Assets, net This note discusses impairment testing for goodwill and other intangible assets, detailing triggering events and charges recorded - A triggering event in Q1 2025 (reduction in market capitalization due to stock price decline and macroeconomic environment) led to goodwill and intangible asset impairment testing[54] - The quantitative analysis resulted in a full impairment of $29 million for the EMEA reporting unit and a partial impairment of $81 million for the Asia Pacific reporting unit, while the North America reporting unit's fair value exceeded its carrying value by 9%[56] - A $140 million impairment was recorded on the WSS tradename due to recent operating results and a decline in future cash flow projections[57] Note 8. Accumulated Other Comprehensive Loss This note details the components of accumulated other comprehensive loss and their changes for the reported periods Accumulated Other Comprehensive Loss (AOCL) Components | ($ in millions) | May 3, 2025 | May 4, 2024 | February 1, 2025 | | :--- | :--- | :--- | :--- | | Foreign currency translation adjustments | $ (147) | $ (192) | $ (208) | | Hedge contracts | (3) | (3) | — | | Unrecognized pension cost and postretirement benefit | (175) | (190) | (175) | | Total | $ (325) | $ (385) | $ (383) | Changes in AOCL (Thirteen weeks ended May 3, 2025) | ($ in millions) | Foreign Currency Translation Adjustments | Hedge Contracts | Items Related to Pension and Postretirement Benefits | Total | | :--- | :--- | :--- | :--- | :--- | | Balance as of February 1, 2025 | $ (208) | $ — | $ (175) | $ (383) | | OCI before reclassification | 61 | (8) | (1) | 52 | | Reclassification of hedges, net of tax | — | 5 | — | 5 | | Amortization of pension actuarial loss, net of tax | — | — | 1 | 1 | | Other comprehensive (loss) income | 61 | (3) | — | 58 | | Balance as of May 3, 2025 | $ (147) | $ (3) | $ (175) | $ (325) | Note 9. Income Taxes This note explains the effective tax rate, valuation allowances on deferred tax assets, and non-deductible impairment charges - The effective tax rate for Q1 2025 was negative 34.4% ($93 million expense) compared to 38.4% ($5 million expense) in Q1 2024[16][62] - A $117 million valuation allowance was recorded on deferred tax assets related to net operating loss carryforwards and other net deferred tax assets of certain European businesses due to market weakness[62] - No tax benefit was recognized for the $110 million non-deductible goodwill impairment charge[62] Note 10. Fair Value Measurements This note provides information on assets and liabilities measured at fair value, including recurring and nonrecurring measurements for impaired assets Assets and Liabilities Measured at Fair Value on a Recurring Basis | ($ in millions) | As of May 3, 2025 | As of May 4, 2024 | | :--- | :--- | :--- | | | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | | Assets | | | | | | | | Available-for-sale security | $ — | $ 6 | $ — | $ — | $ 6 | $ — | | Foreign exchange forward contracts | — | 1 | — | — | 2 | — | | Cross-currency swap contract | — | 9 | — | — | 9 | — | | Total assets | $ — | $ 16 | $ — | $ — | $ 17 | $ — | | Liabilities | | | | | | | | Foreign exchange forward contracts | $ — | $ 9 | $ — | $ — | $ — | $ — | | Total liabilities | $ — | $ 9 | $ — | $ — | $ — | $ — | - Nonrecurring fair value measurements for impaired assets (WSS tradename, goodwill) use Level 3 inputs, relying on significant estimates and assumptions like future growth, royalty rates, and discount rates[67][68] - Cumulative impairments on minority investments totaled $566 million as of May 3, 2025[69] Note 11. Earnings Per Share This note presents the calculation of basic and diluted earnings per share, including the impact of anti-dilutive share-based awards Basic and Diluted EPS (Thirteen weeks ended) | (in millions, except per share data) | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | Net (loss) income | $ (363) | $ 8 | | Weighted-average common shares outstanding | 95.3 | 94.7 | | Dilutive effect of potential common shares | — | 0.6 | | Weighted-average common shares outstanding assuming dilution | 95.3 | 95.3 | | (Loss) earnings per share - basic | $ (3.81) | $ 0.09 | | (Loss) earnings per share - diluted | $ (3.81) | $ 0.09 | - Anti-dilutive share-based awards of 4.0 million (2025) and 2.6 million (2024) were excluded from diluted EPS calculation[74] Note 12. Share-Based Compensation This note details share-based compensation expense, including restricted and performance stock units, and related unrecognized costs Share-Based Compensation Expense (Thirteen weeks ended) | ($ in millions) | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | Restricted stock units and performance stock units | $ 6 | $ 5 | | Options and employee stock purchase plan | — | 1 | | Total share-based compensation expense | $ 6 | $ 6 | | Tax benefit recognized | $ 1 | $ 1 | RSU and PSU Activity (Thirteen weeks ended May 3, 2025) | | Number of Shares (in thousands) | Weighted Average Remaining Contractual Life (in years) | Weighted Average Grant Date Fair Value (per share) | | :--- | :--- | :--- | :--- | | Nonvested at beginning of year | 1,603 | | $ 30.65 | | Granted | 2,370 | | $ 16.40 | | Vested | (466) | | $ 29.50 | | Forfeited | (28) | | $ 26.07 | | Nonvested at May 3, 2025 | 3,479 | 1.8 | $ 21.13 | | Aggregate value ($ in millions) | $ 74 | | | - As of May 3, 2025, there was $58 million of total unrecognized compensation cost related to nonvested awards[79] Note 13. Legal Proceedings This note describes the company's involvement in routine litigation and management's assessment of its potential financial impact - The company is involved in ordinary, routine litigation and pre-litigation demands, including commercial, intellectual property, customer, environmental, and employment-related claims[80] - Management does not believe that the outcome of any pending legal proceedings would have a material adverse effect on the company's consolidated financial position, liquidity, or results of operations[81] Note 14. Subsequent Event This note discloses the subsequent merger agreement with DICK'S Sporting Goods, Inc., including terms and expected closing timeline - On May 15, 2025, Foot Locker entered into a Merger Agreement with DICK'S Sporting Goods, Inc. for acquisition[82] - Shareholders can elect to receive either $24.00 in cash or 0.1168 shares of DICK'S common stock per share[84] - The transaction is subject to Foot Locker shareholder approval and regulatory approvals, with an expected closing in the second half of 2025[85] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of financial condition, operating results, non-GAAP measures, liquidity, and critical accounting policies Business Overview This section provides an overview of the company's retail operations and the recently announced merger agreement with DICK'S Sporting Goods, Inc - Foot Locker, Inc. is a leading footwear and apparel retailer, operating through brands like Foot Locker, Kids Foot Locker, Champs Sports, WSS, and atmos, with a strong omni-channel presence[87][88] - A merger agreement with DICK'S Sporting Goods, Inc. was announced on May 15, 2025, pending shareholder and regulatory approvals, with an expected closing in the second half of 2025[89] Store Count This section presents the company's total number of stores at various reporting dates Store Count | Date | Number of Stores | | :--- | :--- | | May 3, 2025 | 2,363 | | February 1, 2025 | 2,410 | | May 4, 2024 | 2,490 | Licensed Operations This section details the number of licensed stores and recent transitions of operations to licensing partners Licensed Store Count | Date | Number of Licensed Stores | | :--- | :--- | | May 3, 2025 | 236 | | February 1, 2025 | 224 | | May 4, 2024 | 206 | - During Q1 2025, operations in Greece and Romania were transitioned to a licensing partner[91] Results of Operations This section outlines performance evaluation and presents key operating results, including sales, division profit, and income before taxes - Performance is evaluated based on 'division profit,' which is income before income taxes, impairment and other charges, corporate expenses, non-operating income, and net interest expense[92] Operating Results (Thirteen weeks ended) | ($ in millions) | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | Sales | $ 1,788 | $ 1,874 | | Other revenue | 6 | 5 | | Total revenue | $ 1,794 | $ 1,879 | | Operating Results | | | | Division profit | $ 27 | $ 43 | | Less: Impairment and other (1) | 276 | 14 | | Less: Corporate expense (2) | 22 | 11 | | Income from operations | (271) | 18 | | Interest expense, net | (2) | (1) | | Other income (expense), net (3) | 3 | (4) | | (Loss) income before income taxes | $ (270) | $ 13 | Reconciliation of Non-GAAP Measures This section reconciles GAAP financial measures to non-GAAP measures, providing adjusted income and EPS for comparability - Non-GAAP measures (e.g., sales excluding foreign currency, adjusted income, adjusted EPS) are presented to provide a more direct comparison of performance by excluding items not indicative of core business or comparability[96][98] Reconciliation of GAAP and Non-GAAP Pre-Tax (Loss) Income (Thirteen weeks ended) | ($ in millions, except per share amounts) | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | Pre-tax (loss) income: | | | | (Loss) income before income taxes | $ (270) | $ 13 | | Pre-tax amounts excluded from GAAP: | | | | Impairment and other | 276 | 14 | | Other expense / income, net | (4) | 2 | | Adjusted income before income taxes (non-GAAP) | $ 2 | $ 29 | Reconciliation of GAAP and Non-GAAP After-Tax (Loss) Income and EPS (Thirteen weeks ended) | ($ in millions, except per share amounts) | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | After-tax (loss) income: | | | | Net (loss) income | $ (363) | $ 8 | | After-tax adjustments excluded from GAAP: | | | | Impairment and other, net of income tax benefit of $39 and $3 million, respectively | 237 | 11 | | Other expense / income, net of income tax expense of $- and $- million, respectively | (4) | 2 | | Tax valuation allowance and deferred tax cost write off | 124 | — | | Adjusted net income (non-GAAP) | $ (6) | $ 21 | | Earnings per share: | | | | Diluted (loss) earnings per share | $ (3.81) | $ 0.09 | | Diluted per share amounts excluded from GAAP: | | | | Impairment and other | 2.48 | 0.11 | | Other expense / income, net | (0.05) | 0.02 | | Tax valuation allowance and deferred tax cost write off | 1.31 | — | | Adjusted diluted earnings per share (non-GAAP) | $ (0.07) | $ 0.22 | Segment Reporting and Results of Operations This section describes the company's operating segments and their aggregation into a single reportable segment - The company has three operating segments: North America (Foot Locker, Champs Sports, Kids Foot Locker, WSS), EMEA (Foot Locker, Kids Foot Locker), and Asia Pacific (Foot Locker, atmos)[104] - These operating segments are aggregated into one reportable segment due to their shared customer base and similar economic characteristics[104] Sales This section analyzes total sales and comparable sales performance, broken down by channel and operating segment - Total sales decreased by $86 million (4.6%) to $1,788 million for the thirteen weeks ended May 3, 2025, with comparable sales decreasing by 2.6%[106][108] Sales Metrics by Channel (Thirteen weeks ended) | | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | Store sales | $ 1,455 | $ 1,554 | | $ Change | (99) | | | % Change | (6.4)% | | | % of total sales | 81.4 | 82.9 | | % Comparable sales decrease | (4.3) | (3.0) | | Direct-to-customers sales | $ 333 | $ 320 | | $ Change | 13 | | | % Change | 4.1% | | | % of total sales | 18.6 | 17.1 | | % Comparable sales increase | 5.4 | 4.0 | | Total sales | $ 1,788 | $ 1,874 | | $ Change | (86) | | | % Change | (4.6)% | | | % Comparable sales decrease | (2.6) | (1.8) | Sales Metrics by Segment (Thirteen weeks ended May 3, 2025) | | Constant Currencies | Comparable Sales | | :--- | :--- | :--- | | Foot Locker | (2.6)% | (0.9)% | | Champs Sports | (2.2) | 0.5 | | Kids Foot Locker | — | 3.4 | | WSS | — | (4.6) | | North America | (1.9) | (0.5) | | EMEA (1) | (13.2) | (10.2) | | Foot Locker | (4.2) | (0.8) | | atmos | (7.7) | (6.4) | | Asia Pacific | (5.4) | (2.8) | | Total sales | (4.5)% | (2.6)% | Gross Margin This section analyzes changes in gross margin rate, detailing the impact of merchandise margin and occupancy and buyers' compensation Gross Margin Analysis (Thirteen weeks ended) | | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | Cost of merchandise | 1,037 | 1,086 | | $ Change | (49) | | | % of total sales | 58.0% | 57.9% | | Effect on gross margin rate in basis points | (10) | | | Occupancy and buyers' compensation | 243 | 249 | | $ Change | (6) | | | % of total sales | 13.6% | 13.3% | | Effect on gross margin rate in basis points | (30) | | | Total cost of sales | 1,280 | 1,335 | | $ Change | (55) | | | Gross margin rate | 28.4% | 28.8% | | Basis point change | (40) | | - Merchandise margin rate decreased by 10 basis points due to increased promotions to clear inventory in exited countries, partially offset by better margins in other banners and higher vendor allowances[115] - Occupancy and buyers' salary rate deleveraged by 30 basis points due to the fixed nature of these costs relative to the decline in sales[115] Selling, General and Administrative Expenses (SG&A) This section discusses changes in SG&A expenses and their impact as a percentage of sales, reflecting cost optimization SG&A Expenses (Thirteen weeks ended) | ($ in millions) | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | SG&A | $ 458 | $ 461 | | $ Change | $ (3) | | | % Change | (0.7)% | | | SG&A as a percentage of sales | 25.6% | 24.6% | - SG&A decreased by $3 million (0.7%) due to cost optimization and expense discipline, offset by technology investments[116] - SG&A as a percentage of sales increased by 100 basis points to 25.6% due to deleverage on sales decline[116] Depreciation and Amortization This section explains the stability of depreciation and amortization expense, attributing it to offsetting factors Depreciation and Amortization (Thirteen weeks ended) | ($ in millions) | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | Depreciation and amortization | $ 51 | $ 51 | | $ Change | $ — | | | % Change | —% | | - Expense was flat as increased depreciation from capital expenditures was offset by fewer operating stores and reduced amortization from fully amortized WSS and atmos customer list intangible assets[117] Impairment and Other This section details significant non-cash impairment charges, including those for tradename and goodwill, and reorganization costs incurred - Non-cash impairment charges totaled $276 million in Q1 2025, including $140 million for WSS tradename and $110 million for goodwill[118] - Goodwill impairment was triggered by a reduction in stock price and market capitalization, coupled with macroeconomic factors[118] - Incurred $8 million in accelerated tenancy and lease termination charges due to global headquarters relocation and shutdown of businesses in South Korea, Denmark, Norway, and Sweden[118] Corporate Expense This section discusses the increase in corporate expense, primarily driven by ongoing investments in information technology Corporate Expense (Thirteen weeks ended) | ($ in millions) | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | Corporate expense | $ 22 | $ 11 | | $ Change | $ 11 | | - Increase primarily due to ongoing investments in information technology to modernize customer-facing and support capabilities[120] Operating Results This section analyzes the division profit and its margin, explaining the decrease due to lower gross margin and SG&A deleverage Division Profit (Thirteen weeks ended) | ($ in millions) | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | Division profit | $ 27 | $ 43 | | Division profit margin | 1.5% | 2.3% | - Division profit margin decreased due to a lower gross margin rate and deleverage in SG&A expenses[121] Interest Expense, Net This section details the net interest expense, attributing the increase to lower interest income on cash and cash equivalents Interest Expense, Net (Thirteen weeks ended) | ($ in millions) | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | Interest expense | $ (6) | $ (6) | | Interest income | 4 | 5 | | Interest (expense) income, net | $ (2) | $ (1) | - Increase in net interest expense primarily due to lower interest income on cash and cash equivalents[122] Other Income (Expense), Net This section explains the components of other income (expense), net, including gains from divestitures and losses from investments Other Income (Expense), Net (Thirteen weeks ended) | ($ in millions) | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | Other income (expense), net | $ 3 | $ (4) | - The $3 million other income, net, for Q1 2025 includes a $5 million gain from the sale of Greece and Romania businesses, partially offset by pension and equity method investment losses[124][125] Income Taxes This section discusses the income tax provision and effective tax rate, including valuation allowances and non-deductible impairment charges Income Tax Provision and Effective Rate (Thirteen weeks ended) | ($ in millions) | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | Provision for income taxes | $ 93 | $ 5 | | Effective tax rate | (34.4)% | 38.4% | - A $117 million valuation allowance was recorded on European deferred tax assets due to recent market weakness, making their utilization less likely[127] - No tax benefit was recognized for the $110 million non-cash impairment charge on non-deductible goodwill[128] Liquidity and Capital Resources This section discusses the company's primary liquidity sources, capital spending plans, and cash flows from operating, investing, and financing - Primary liquidity source is cash flow from operations, used for inventory, working capital, capital expenditures, retirement plan contributions, and interest payments[131] - Expected full-year capital spending is $300 million, including $270 million for capital expenditures and $30 million for software-as-a-service implementation costs[132] - Capital spending includes $185 million for updating, remodeling, or relocating stores (80 'Reimagined' stores, 300 refreshes) and $85 million for technology and supply chain initiatives (new distribution center, global headquarters)[132] Operating Activities This section analyzes net cash (used in) provided by operating activities, detailing the factors contributing to changes in cash flow Net Cash (Used in) Provided by Operating Activities (Thirteen weeks ended) | ($ in millions) | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $ (3) | $ 58 | | $ Change | $ (61) | | - Decrease in cash from operating activities primarily reflected lower net (loss) income (adjusted for non-cash items), a $38 million increase in rent payments, a $24 million increase in incentive bonus payments, and a $20 million pension contribution[136] Investing Activities This section analyzes net cash used in investing activities, detailing the impact of capital expenditures and proceeds from business sales Net Cash Used in Investing Activities (Thirteen weeks ended) | ($ in millions) | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | Net cash used in investing activities | $ (52) | $ (76) | | $ Change | $ 24 | | - Decrease in cash used in investing activities primarily reflected an $18 million reduction in capital expenditures and $6 million in proceeds from the sale of Greece and Romania businesses[137] Financing Activities This section analyzes net cash used in financing activities, detailing the impact of share repurchases and stock option exercises Net Cash Used in Financing Activities (Thirteen weeks ended) | ($ in millions) | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | Net cash used in financing activities | $ (4) | $ (1) | | $ Change | $ (3) | | - Increase in cash used in financing activities reflected a $5 million reduction in proceeds from stock option exercises, partially offset by a $2 million reduction in share repurchases for tax withholding obligations[138] Free Cash Flow (non-GAAP measure) This section defines and reconciles free cash flow, a non-GAAP measure, to net cash from operating activities - Free cash flow is defined as net cash provided by operating activities less capital expenditures, used to evaluate cash generated from underlying operations[139] Free Cash Flow Reconciliation (Thirteen weeks ended) | ($ in millions) | May 3, 2025 | May 4, 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $ (3) | $ 58 | | Capital expenditures | (58) | (76) | | Free cash flow | $ (61) | $ (18) | Critical Accounting Policies and Estimates This section discusses critical accounting policies and estimates, focusing on goodwill, intangible asset recoverability, and deferred tax valuation allowances Recoverability of Goodwill and Indefinite-Lived Intangible Assets This section details impairment testing for goodwill and indefinite-lived intangible assets, including triggering events and recorded charges - Goodwill and indefinite-lived intangible assets are reviewed for impairment annually or more frequently if indicators arise, using qualitative or quantitative assessments[143][148] - A Q1 2025 triggering event (stock price decline, macroeconomic environment) led to a quantitative analysis, resulting in a $29 million full impairment for EMEA goodwill and an $81 million partial impairment for Asia Pacific goodwill[145][146] - A $140 million impairment was recorded on the WSS tradename due to declining future cash flow projections, using a discounted cash flow method based on the relief-from-royalty concept[150] Valuation Allowances for Deferred Tax Assets This section discusses valuation allowances on deferred tax assets, particularly for European businesses, and conditions for their potential release - A $117 million full valuation allowance was recognized in Q1 2025 on European deferred tax assets (net operating loss carryforward and other net deferred tax assets) due to recent market weakness, indicating non-realization is more likely than not[152] - Valuation allowances may be released in future years if sufficient positive evidence emerges to support their realization[152] Recent Accounting Pronouncements This section states that no new accounting pronouncements are expected to materially affect the company's financial statements - No new accounting pronouncements are believed to have a material effect on current or future consolidated financial statements, other than those disclosed in the 2024 Annual Report on Form 10-K[154] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states no significant changes in primary risk exposures or market risk management from the most recent Annual Report on Form 10-K - No significant changes in primary risk exposures or market risk management from the 2024 Annual Report on Form 10-K[155] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls were effective, with no material changes in internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[156] - No material changes in internal control over financial reporting occurred during the quarter ended May 3, 2025[158] PART II - OTHER INFORMATION This part covers legal proceedings, risk factors, equity security sales, and other miscellaneous information Item 1. Legal Proceedings This section refers to Note 13 of the financial statements, indicating routine litigation with no anticipated material adverse effect - Information on legal proceedings is provided in Note 13 of the financial statements, indicating no material adverse effect is expected from pending litigation[159] Item 1A. Risk Factors This section highlights no significant changes to risk factors from the 2024 Annual Report, except for new risks related to the pending acquisition by DICK'S - No significant changes to risk factors from the 2024 Annual Report on Form 10-K, except for new risks related to the pending acquisition by DICK'S Sporting Goods, Inc[160][161] Risks Related to the Pending Acquisition by DICK'S This section outlines risks associated with the pending acquisition, including impacts on business relationships, operational restrictions, and employee retention - Customers, vendors, suppliers, landlords, and other business partners may delay or defer business decisions or seek alternative relationships due to the pending acquisition[162] - Restrictions imposed by the Merger Agreement may prevent the company from pursuing certain opportunities or taking actions without DICK'S approval[162] - Challenges in attracting, recruiting, retaining, and motivating employees due to uncertainty about future roles post-acquisition, and diversion of management's attention from day-to-day operations[162] The failure to complete the transaction could have a material and adverse effect on our business, results of operations, financial condition, cash flows, and stock price. This section details the material adverse effects on business, financial condition, and stock price if the proposed acquisition fails - Failure to complete the transaction could lead to a decrease in stock price, decline in investor confidence, shareholder litigation, adverse impact on business relationships, and difficulties in hiring/retaining key personnel[164][167] - Significant costs incurred for the proposed transaction, including professional services fees, would be unrecoverable if the merger is not consummated[167] - Regulatory approvals may be delayed, not obtained, or impose conditions that could affect the transaction terms or timing[165][166] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details share repurchase activities, primarily for tax withholding, with approximately $1.1 billion remaining under the existing program Shares Purchased (Thirteen weeks ended May 3, 2025) | Date Purchased | Total Number of Shares Purchased (1) | Average Price Paid Per Share (1) | Total Number of Shares Purchased as Part of Publicly Announced Program (2) | Dollar Value of Shares that may yet be Purchased Under the Program (2) | | :--- | :--- | :--- | :--- | :--- | | February 2 to March 1, 2025 | 1,525 | $ 17.96 | — | $ 1,103,814,042 | | March 2 to April 5, 2025 | 163,315 | 15.63 | — | 1,103,814,042 | | April 6 to May 3, 2025 | — | — | — | 1,103,814,042 | | Total | 164,840 | $ 15.65 | — | | - Shares acquired were primarily in satisfaction of tax withholding obligations for restricted stock units[169] - Approximately $1.1 billion remains authorized under the $1.2 billion share repurchase program approved on February 24, 2022, with no expiration date[170] Item 3. Defaults Upon Senior Securities This item is marked as not applicable for the reporting period, indicating no defaults upon senior securities occurred - This item is not applicable[171] Item 4. Mine Safety Disclosures This item is marked as not applicable for the reporting period, indicating no mine safety disclosures are required - This item is not applicable[172] Item 5. Other Information This section confirms no director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No director or officer adopted or terminated a 'Rule 10b5-1 trading arrangement' or a 'non-Rule 10b5-1 trading arrangement' during the quarter ended May 3, 2025[173] Item 6. Exhibits This section provides a comprehensive list of all exhibits filed with the Form 10-Q, including the Merger Agreement and certifications Key Exhibits Filed | Exhibit No. | Description | | :--- | :--- | | 2.1 | Agreement and Plan of Merger, dated May 15, 2025, by and among Foot Locker, Inc., DICK'S Sporting Goods, Inc. and RJS Sub LLC | | 10.1†* | Form of Amendment to Offer Letter | | 10.2†* | Restricted Stock Unit Award Agreement (Executive) Under The Foot Locker 2007 Stock Incentive Plan | | 10.3†* | Restricted Stock Unit Award Agreement (Non-Employee Director) Under The Foot Locker 2007 Stock Incentive Plan | | 10.4†* | Performance Stock Unit Award Agreement (Financial Metrics) Under The Foot Locker 2007 Stock Incentive Plan | | 10.5†* | Performance Stock Unit Award Agreement (TSR) Under The Foot Locker 2007 Stock Incentive Plan | | 10.6† | Foot Locker, Inc. 2007 Stock Incentive Plan (Amended and Restated as of March 22, 2023, and as further amended effective as of May 21, 2025) | | 31.1* | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | 31.2* | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | 32** | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | 101.INS* | Inline XBRL Instance Document | | 101.SCH* | Inline XBRL Taxonomy Extension Schema | | 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase | | 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase | | 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase | | 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase | | 104* | Cover Page Interactive Data File (embedded within the Inline XBRL datafile and contained in Exhibit 101) | SIGNATURE This section contains the official signature of the Executive Vice President and Chief Financial Officer, confirming the report's submission - The report is signed by Michael Baughn, Executive Vice President and Chief Financial Officer, on June 11, 2025[177]