Foot Locker(FL) - 2026 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive loss/income, changes in shareholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, revenue breakdown, segment information, impairment charges, and the pending merger agreement Condensed Consolidated Balance Sheets (Unaudited) Condensed Consolidated Balance Sheets (Unaudited) - Key Figures ($ in millions): | Item | August 2, 2025 | August 3, 2024 | February 1, 2025 | | :-------------------------------- | :------------- | :------------- | :--------------- | | ASSETS | | | | | Total Current Assets | $2,372 | $2,343 | $2,259 | | Property and equipment, net | $899 | $905 | $910 | | Operating lease right-of-use assets | $2,052 | $2,173 | $2,061 | | Goodwill | $655 | $764 | $759 | | Total Assets | $6,507 | $6,953 | $6,748 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | Total Current Liabilities | $1,489 | $1,412 | $1,330 | | Total Liabilities | $3,929 | $4,056 | $3,839 | | Total Shareholders' Equity | $2,578 | $2,897 | $2,909 | Condensed Consolidated Statements of Operations (Unaudited) Condensed Consolidated Statements of Operations (Unaudited) - Key Figures ($ in millions, except per share amounts): | Item | Thirteen weeks ended Aug 2, 2025 | Thirteen weeks ended Aug 3, 2024 | Twenty-six weeks ended Aug 2, 2025 | Twenty-six weeks ended Aug 3, 2024 | | :---------------------------------- | :------------------------------- | :------------------------------- | :--------------------------------- | :------------------------------- | | Total revenue | $1,857 | $1,900 | $3,651 | $3,779 | | (Loss) income from operations | $(26) | $(9) | $(297) | $9 | | Loss before income taxes | $(30) | $(14) | $(300) | $(1) | | Net loss | $(38) | $(12) | $(401) | $(4) | | Basic loss per share | $(0.39) | $(0.13) | $(4.20) | $(0.04) | | Diluted loss per share | $(0.39) | $(0.13) | $(4.20) | $(0.04) | Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) - Key Figures ($ in millions): | Item | Thirteen weeks ended Aug 2, 2025 | Thirteen weeks ended Aug 3, 2024 | Twenty-six weeks ended Aug 2, 2025 | Twenty-six weeks ended Aug 3, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :--------------------------------- | :------------------------------- | | Net loss | $(38) | $(12) | $(401) | $(4) | | Other comprehensive (loss) income, net of income tax | $(2) | $15 | $56 | $(4) | | Comprehensive (loss) income | $(40) | $3 | $(345) | $(8) | Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) - Key Figures ($ in millions): | Item | Balance at Feb 1, 2025 | Net loss (26 weeks) | Other comprehensive income (26 weeks) | Balance at Aug 2, 2025 | | :------------------------------------ | :--------------------- | :------------------ | :------------------------------------ | :--------------------- | | Common Stock & Paid-In Capital | $802 | $15 | — | $817 | | Treasury Stock | $(4) | $(3) | — | $(5) | | Retained Earnings | $2,494 | $(401) | — | $2,093 | | Accumulated Other Comprehensive Loss | $(383) | — | $56 | $(327) | | Total Shareholders' Equity | $2,909 | $(401) | $56 | $2,578 | Condensed Consolidated Statements of Cash Flows (Unaudited) Condensed Consolidated Statements of Cash Flows (Unaudited) - Key Figures ($ in millions): | Item | Twenty-six weeks ended Aug 2, 2025 | Twenty-six weeks ended Aug 3, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Net cash provided by operating activities | $2 | $126 | | Net cash used in investing activities | $(102) | $(133) | | Net cash used in financing activities | $(3) | $(5) | | Net change in cash, cash equivalents, and restricted cash | $(102) | $(12) | | Cash, cash equivalents, and restricted cash at end of period | $328 | $322 | Notes to the Unaudited Condensed Consolidated Financial Statements (Unaudited) 1. Summary of Significant Accounting Policies This section outlines the Company's operational structure and the key accounting principles applied in preparing the financial statements - Foot Locker, Inc. operates as a leading footwear and apparel retailer across North America, Europe, and Asia Pacific, utilizing an integrated omni-channel approach including stores, websites, apps, and social channels. All operating segments are aggregated into one reportable segment due to shared customer base and similar economic characteristics[28] - The financial statements are prepared in accordance with U.S. GAAP and SEC rules, relying on management estimates for goodwill, other intangible assets, loss contingencies, lease liabilities, right-of-use assets, and deferred tax assets[29][31] 2. Revenue This section provides a detailed breakdown of the Company's revenue by sales channel, geographic region, and operating banner Sales Disaggregated by Channel ($ in millions): | Sales by Channel | Thirteen weeks ended Aug 2, 2025 | Thirteen weeks ended Aug 3, 2024 | Twenty-six weeks ended Aug 2, 2025 | Twenty-six weeks ended Aug 3, 2024 | | :----------------- | :------------------------------- | :------------------------------- | :--------------------------------- | :------------------------------- | | Stores | $1,517 | $1,594 | $2,972 | $3,148 | | Direct-to-customers | $334 | $302 | $667 | $622 | | Total sales | $1,851 | $1,896 | $3,639 | $3,770 | | Other revenue | $6 | $4 | $12 | $9 | | Total revenue | $1,857 | $1,900 | $3,651 | $3,779 | Revenue by Geography ($ in millions): | Revenue by Geography | Thirteen weeks ended Aug 2, 2025 | Thirteen weeks ended Aug 3, 2024 | Twenty-six weeks ended Aug 2, 2025 | Twenty-six weeks ended Aug 3, 2024 | | :------------------- | :------------------------------- | :------------------------------- | :--------------------------------- | :------------------------------- | | United States | $1,247 | $1,225 | $2,497 | $2,497 | | International | $610 | $675 | $1,154 | $1,282 | | Total revenue | $1,857 | $1,900 | $3,651 | $3,779 | Sales by Banner and Operating Segment ($ in millions): | Banner/Segment | Thirteen weeks ended Aug 2, 2025 | Thirteen weeks ended Aug 3, 2024 | Twenty-six weeks ended Aug 2, 2025 | Twenty-six weeks ended Aug 3, 2024 | | :------------- | :------------------------------- | :------------------------------- | :--------------------------------- | :------------------------------- | | Foot Locker | $764 | $754 | $1,499 | $1,513 | | Champs Sports | $269 | $268 | $530 | $535 | | Kids Foot Locker | $165 | $154 | $348 | $337 | | WSS | $147 | $155 | $307 | $315 | | North America Total | $1,346 | $1,332 | $2,685 | $2,701 | | EMEA | $401 | $445 | $747 | $839 | | Asia Pacific | $104 | $119 | $207 | $230 | | Total sales | $1,851 | $1,896 | $3,639 | $3,770 | 3. Segment Information This section details the Company's operating segments and how management evaluates their performance and allocates resources - The Company operates one reportable segment, with the CEO evaluating performance and allocating resources based on 'division profit,' which is income before income taxes, impairment, corporate expense, interest, and other non-operating items[41] Segment Results - Division Profit ($ in millions): | Item | Thirteen weeks ended Aug 2, 2025 | Thirteen weeks ended Aug 3, 2024 | Twenty-six weeks ended Aug 2, 2025 | Twenty-six weeks ended Aug 3, 2024 | | :------------- | :------------------------------- | :------------------------------- | :--------------------------------- | :------------------------------- | | Total revenue | $1,857 | $1,900 | $3,651 | $3,779 | | Division profit | $2 | $17 | $29 | $60 | | (Loss) income from operations | $(26) | $(9) | $(297) | $9 | | Loss before income taxes | $(30) | $(14) | $(300) | $(1) | 4. Impairment and Other This section details the impairment charges and other significant non-recurring costs incurred by the Company Impairment and Other Charges ($ in millions): | Item | Thirteen weeks ended Aug 2, 2025 | Thirteen weeks ended Aug 3, 2024 | Twenty-six weeks ended Aug 2, 2025 | Twenty-six weeks ended Aug 3, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :--------------------------------- | :------------------------------- | | Tradename intangible asset impairment | $— | $— | $140 | $— | | Goodwill impairment | $— | $— | $110 | $— | | Impairment of long-lived assets and right-of-use assets | $(2) | $9 | $21 | $16 | | Acquisition-related costs | $15 | $— | $15 | $— | | Reorganization costs | $2 | $— | $5 | $— | | Legal claims | $— | $— | $— | $7 | | Total impairment and other | $15 | $9 | $291 | $23 | - For the twenty-six weeks ended August 2, 2025, the Company recorded significant non-cash impairment charges: $140 million for the WSS tradename and $110 million for goodwill, triggered by a reduction in stock price, market capitalization, and macroeconomic factors. Additionally, $15 million in acquisition-related costs and $5 million in reorganization costs were incurred[50][52] 5. Other (Expense) Income, net This section presents the Company's other non-operating income and expenses, including divestiture gains and pension costs Other (Expense) Income, net ($ in millions): | Item | Thirteen weeks ended Aug 2, 2025 | Thirteen weeks ended Aug 3, 2024 | Twenty-six weeks ended Aug 2, 2025 | Twenty-six weeks ended Aug 3, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :--------------------------------- | :------------------------------- | | Foot Locker Greece and Romania divestiture | $1 | $— | $6 | $— | | Pension and postretirement net benefit expense | $(1) | $(1) | $(2) | $(3) | | Share of losses related to minority investments | $— | $— | $(1) | $(2) | | Other | $(1) | $(1) | $(1) | $(1) | | Total other (expense) income, net | $(1) | $(2) | $2 | $(6) | - The Company recognized a $6 million gain from the divestiture of its Greece and Romania businesses, with $1 million recognized in Q2 2025 due to working capital adjustments. Other expenses primarily include pension and postretirement net benefit expenses and losses from minority investments[53] 6. Cash, Cash Equivalents, and Restricted Cash This section provides a breakdown of the Company's cash, cash equivalents, and restricted cash balances Cash, Cash Equivalents, and Restricted Cash ($ in millions): | Item | August 2, 2025 | August 3, 2024 | | :------------------------------------ | :------------- | :------------- | | Cash and cash equivalents | $299 | $291 | | Restricted cash included in other current assets | $4 | $3 | | Restricted cash included in other non-current assets | $25 | $28 | | Cash, cash equivalents, and restricted cash | $328 | $322 | - Restricted cash primarily relates to amounts held in escrow for various leasing arrangements in Europe[55] 7. Goodwill and Other Intangible Assets, net This section details the Company's goodwill and other intangible assets, including impairment charges and changes in balances - A triggering event in Q1 2025, driven by a decline in market capitalization and macroeconomic factors, led to a quantitative impairment analysis. This resulted in a full impairment of $29 million for EMEA goodwill and a partial impairment of $81 million for Asia Pacific goodwill. Additionally, a $140 million impairment was recorded on the WSS tradename due to lower forecasted cash flows[57][58][59] Changes in Goodwill ($ in millions): | Item | August 2, 2025 | | :-------------------------- | :------------- | | Goodwill at beginning of year | $759 | | Impairment | $(110) | | Foreign currency fluctuations | $6 | | Goodwill balance | $655 | 8. Accumulated Other Comprehensive Loss This section provides a detailed breakdown of the components of accumulated other comprehensive loss and their changes Accumulated Other Comprehensive Loss (AOCL) ($ in millions): | Item | August 2, 2025 | August 3, 2024 | February 1, 2025 | | :------------------------------------ | :------------- | :------------- | :--------------- | | Foreign currency translation adjustments | $(154) | $(183) | $(208) | | Hedge contracts | $1 | $1 | $— | | Unrecognized pension cost and postretirement benefit | $(174) | $(188) | $(175) | | Total AOCL | $(327) | $(370) | $(383) | Changes in AOCL for the twenty-six weeks ended August 2, 2025 ($ in millions): | Item | Foreign Currency Translation Adjustments | Hedge Contracts | Pension and Postretirement Benefits | Total | | :------------------------------------ | :------------------------------------- | :-------------- | :---------------------------------- | :---- | | Balance as of February 1, 2025 | $(208) | $— | $(175) | $(383) | | Other comprehensive income | $54 | $1 | $1 | $56 | | Balance as of August 2, 2025 | $(154) | $1 | $(174) | $(327) | 9. Income Taxes This section details the Company's income tax expense (benefit) and effective tax rate, including factors influencing these figures Income Tax Expense (Benefit) and Effective Tax Rate ($ in millions): | Item | Thirteen weeks ended Aug 2, 2025 | Thirteen weeks ended Aug 3, 2024 | Twenty-six weeks ended Aug 2, 2025 | Twenty-six weeks ended Aug 3, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :--------------------------------- | :------------------------------- | | Income tax expense (benefit) | $8 | $(2) | $101 | $3 | | Effective tax rate | (25.5)% | 14.9% | (33.5)% | n.m. | - The effective tax rate for the twenty-six weeks ended August 2, 2025, was negative 33.5%, primarily due to a $117 million valuation allowance recorded on deferred tax assets related to European businesses' net operating loss carryforwards and a $110 million non-deductible goodwill impairment charge[64][138][139] 10. Fair Value Measurements This section describes the Company's assets and liabilities measured at fair value, distinguishing between recurring and nonrecurring measurements Assets and Liabilities Measured at Fair Value on a Recurring Basis ($ in millions): | Item | As of August 2, 2025 (Level 2) | As of August 3, 2024 (Level 2) | | :------------------------------------ | :----------------------------- | :----------------------------- | | Available-for-sale security | $6 | $6 | | Foreign exchange forward contracts (assets) | $3 | $1 | | Cross-currency swap contract (assets) | $14 | $12 | | Total assets | $23 | $19 | | Foreign exchange forward contracts (liabilities) | $5 | $1 | | Total liabilities | $5 | $1 | - Nonrecurring fair value measurements include $140 million impairment on the WSS tradename and $110 million impairment on goodwill, both measured using Level 3 inputs based on discounted cash flow methods. Cumulative impairments on minority investments totaled $566 million as of August 2, 2025[68][69][70] 11. Earnings Per Share This section presents the Company's basic and diluted earnings per share calculations Earnings Per Share (EPS) ($ in millions, except per share data): | Item | Thirteen weeks ended Aug 2, 2025 | Thirteen weeks ended Aug 3, 2024 | Twenty-six weeks ended Aug 2, 2025 | Twenty-six weeks ended Aug 3, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :--------------------------------- | :------------------------------- | | Net loss | $(38) | $(12) | $(401) | $(4) | | Weighted-average common shares outstanding | 95.6 | 95.0 | 95.4 | 94.8 | | Diluted loss per share | $(0.39) | $(0.13) | $(4.20) | $(0.04) | | Anti-dilutive share-based awards excluded | 4.3 | 4.0 | 4.1 | 4.0 | 12. Share-Based Compensation This section details the share-based compensation expense recognized by the Company and the shares available for future grants Share-Based Compensation Expense ($ in millions): | Item | Thirteen weeks ended Aug 2, 2025 | Thirteen weeks ended Aug 3, 2024 | Twenty-six weeks ended Aug 2, 2025 | Twenty-six weeks ended Aug 3, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :--------------------------------- | :------------------------------- | | Restricted stock units and performance stock units | $6 | $6 | $12 | $11 | | Options and employee stock purchase plan | $1 | $1 | $1 | $2 | | Total share-based compensation expense | $7 | $7 | $13 | $13 | | Tax benefit recognized | $1 | $1 | $2 | $2 | - Shareholders approved an increase of 4,300,000 shares available for grant under the 2007 Stock Incentive Plan. As of August 2, 2025, 7,186,512 shares were available for issuance. Total unrecognized compensation cost related to nonvested awards was $46 million[77][81] 13. Legal Proceedings This section provides an overview of the Company's involvement in legal matters and management's assessment of their potential impact - The Company is involved in ordinary, routine litigation incidental to its business, including commercial, intellectual property, customer, environmental, and employment-related claims. Management does not believe the outcome of these proceedings will have a material adverse effect on the consolidated financial position, liquidity, or results of operations[82][83] 14. Merger Agreement This section details the Company's pending merger agreement with DICK'S Sporting Goods, Inc., including key terms and expected closing date - On May 15, 2025, the Company entered into a Merger Agreement with DICK'S Sporting Goods, Inc. Each share of common stock will be converted into the right to receive either $24.00 in cash or 0.1168 shares of DICK'S common stock. Foot Locker shareholders approved the merger on August 22, 2025, and all regulatory approvals have been received. The transaction is expected to close on September 8, 2025[84][85][86] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance, including a business overview, detailed analysis of operating results, liquidity and capital resources, and critical accounting policies. It highlights the impact of macroeconomic factors, strategic initiatives, and the pending merger with DICK'S Sporting Goods Business Overview This section provides an overview of Foot Locker, Inc.'s business model, brand portfolio, and the status of its pending acquisition by DICK'S Sporting Goods - Foot Locker, Inc. is a leading footwear and apparel retailer, leveraging an omni-channel strategy through its portfolio of brands (Foot Locker, Kids Foot Locker, Champs Sports, WSS, and atmos). The Company is set to be acquired by DICK'S Sporting Goods, with the transaction expected to close on September 8, 2025, following shareholder and regulatory approvals[88][89][90] Store Count: | Store Type | August 2, 2025 | February 1, 2025 | August 3, 2024 | | :----------------- | :------------- | :--------------- | :------------- | | Operated Stores | 2,354 | 2,410 | 2,464 | | Licensed Stores | 243 | 224 | 213 | Results of Operations This section analyzes the Company's financial performance, including revenue, gross margin, expenses, and profitability, for the reported periods Operating Results Summary ($ in millions): | Item | Thirteen weeks ended Aug 2, 2025 | Thirteen weeks ended Aug 3, 2024 | Twenty-six weeks ended Aug 2, 2025 | Twenty-six weeks ended Aug 3, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :--------------------------------- | :------------------------------- | | Total revenue | $1,857 | $1,900 | $3,651 | $3,779 | | Division profit | $2 | $17 | $29 | $60 | | (Loss) income from operations | $(26) | $(9) | $(297) | $9 | | Loss before income taxes | $(30) | $(14) | $(300) | $(1) | Reconciliation of Non-GAAP Measures This section provides reconciliations of non-GAAP financial measures, such as adjusted pre-tax income and adjusted net income, to their most directly comparable GAAP measures Adjusted Pre-tax (Loss) Income (Non-GAAP) ($ in millions): | Item | Thirteen weeks ended Aug 2, 2025 | Thirteen weeks ended Aug 3, 2024 | Twenty-six weeks ended Aug 2, 2025 | Twenty-six weeks ended Aug 3, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :--------------------------------- | :------------------------------- | | (Loss) income before income taxes (GAAP) | $(30) | $(14) | $(300) | $(1) | | Impairment and other | $15 | $9 | $291 | $23 | | Other expense / income, net | $(1) | $— | $(5) | $2 | | Adjusted (loss) income before income taxes (non-GAAP) | $(16) | $(5) | $(14) | $24 | Adjusted Net (Loss) Income and EPS (Non-GAAP) ($ in millions, except per share amounts): | Item | Thirteen weeks ended Aug 2, 2025 | Thirteen weeks ended Aug 3, 2024 | Twenty-six weeks ended Aug 2, 2025 | Twenty-six weeks ended Aug 3, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :--------------------------------- | :------------------------------- | | Net loss (GAAP) | $(38) | $(12) | $(401) | $(4) | | Impairment and other, net of tax | $11 | $8 | $248 | $19 | | Other expense / income, net of tax | $(1) | $— | $(5) | $2 | | Tax valuation allowance and deferred tax cost write off | $1 | $— | $125 | $— | | Adjusted net (loss) income (non-GAAP) | $(27) | $(4) | $(33) | $17 | | Diluted loss per share (GAAP) | $(0.39) | $(0.13) | $(4.20) | $(0.04) | | Adjusted diluted (loss) earnings per share (non-GAAP) | $(0.27) | $(0.05) | $(0.34) | $0.18 | Segment Reporting and Results of Operations This section describes the Company's operating segments and how their performance contributes to the overall results of operations - The Company has three operating segments: North America (Foot Locker, Champs Sports, Kids Foot Locker, WSS), EMEA (Foot Locker, Kids Foot Locker), and Asia Pacific (Foot Locker, atmos). These are aggregated into one reportable segment due to shared customer base and similar economic characteristics[105] Sales This section analyzes the Company's sales performance, including total sales, comparable sales growth, and sales metrics by channel Total Sales and Comparable Sales Growth ($ in millions): | Item | Thirteen weeks ended Aug 2, 2025 | % Change | Twenty-six weeks ended Aug 2, 2025 | % Change | | :------------------------------------ | :------------------------------- | :------- | :--------------------------------- | :------- | | Total sales | $1,851 | (2.4)% | $3,639 | (3.5)% | | Total sales (excluding FX) | $1,781 | (3.7)% | $3,625 | (4.1)% | | Comparable sales (combined channels) | (2.0)% | | (2.3)% | | Sales Metrics by Channel: | Item | Thirteen weeks ended Aug 2, 2025 | % Change | % of Total Sales | Twenty-six weeks ended Aug 2, 2025 | % Change | % of Total Sales | | :------------------------------------ | :------------------------------- | :------- | :--------------- | :--------------------------------- | :------- | :--------------- | | Store sales | $1,517 | (4.8)% | 82.0% | $2,972 | (5.6)% | 81.7% | | Store comparable sales | (4.3)% | | | (4.3)% | | | | Direct-to-customers sales | $334 | 10.6% | 18.0% | $667 | 7.2% | 18.3% | | Direct-to-customers comparable sales | 10.3% | | | 7.8% | | | - Comparable sales decreased in stores due to macroeconomic headwinds, lower consumer discretionary spending, and reduced demand for key basketball footwear styles. This was partially offset by increased direct-to-customer sales, driven by improved digital product launches and technology investments. North America saw constant currency sales increases in Foot Locker, Kids Foot Locker, and Champs Sports, but WSS declined. EMEA and Asia Pacific experienced negative constant currency sales due to macroeconomic uncertainty and store closures[112][113][114][115] Gross Margin This section analyzes the Company's gross margin performance, including the gross margin rate and factors influencing its changes Gross Margin Analysis ($ in millions): | Item | Thirteen weeks ended Aug 2, 2025 | % of Total Sales | Thirteen weeks ended Aug 3, 2024 | % of Total Sales | Twenty-six weeks ended Aug 2, 2025 | % of Total Sales | Twenty-six weeks ended Aug 3, 2024 | % of Total Sales | | :------------------------------------ | :------------------------------- | :--------------- | :------------------------------- | :--------------- | :--------------------------------- | :--------------- | :------------------------------- | :--------------- | | Cost of merchandise | $1,105 | 59.7% | $1,123 | 59.2% | $2,142 | 58.8% | $2,209 | 58.6% | | Occupancy and buyers' compensation | $244 | 13.2% | $250 | 13.2% | $487 | 13.4% | $499 | 13.2% | | Total cost of sales | $1,349 | | $1,373 | | $2,629 | | $2,708 | | | Gross margin rate | 27.1% | | 27.6% | | 27.8% | | 28.2% | | | Basis point change | (50) | | | | (40) | | | | - The gross margin rate decreased by 50 basis points for the thirteen weeks and 40 basis points for the twenty-six weeks ended August 2, 2025, primarily due to increased promotional activity, markdowns to manage inventory, and lower vendor allowances. For the twenty-six weeks, occupancy and buyers' compensation deleveraged due to fixed costs against declining sales[118][119] Selling, General and Administrative Expenses (SG&A) This section analyzes the Company's selling, general, and administrative expenses, including changes in absolute amounts and as a percentage of sales Selling, General and Administrative Expenses (SG&A) ($ in millions): | Item | Thirteen weeks ended Aug 2, 2025 | % Change | % of Sales | Twenty-six weeks ended Aug 2, 2025 | % Change | % of Sales | | :------------------------------------ | :------------------------------- | :------- | :--------- | :--------------------------------- | :------- | :--------- | | SG&A | $468 | (1.7)% | 25.3% | $926 | (1.2)% | 25.4% | | SG&A (excluding FX) | $461 | (3.2)% | | $919 | (2.0)% | | - SG&A expenses decreased by $8 million (1.7%) for the thirteen weeks and $11 million (1.2%) for the twenty-six weeks, primarily due to cost optimization and expense discipline, partially offset by technology investments. As a percentage of sales, SG&A increased by 20 basis points and 50 basis points, respectively, due to sales decline[120] Depreciation and Amortization This section details the Company's depreciation and amortization expenses and the factors influencing their stability Depreciation and Amortization Expense ($ in millions): | Item | Thirteen weeks ended Aug 2, 2025 | Thirteen weeks ended Aug 3, 2024 | Twenty-six weeks ended Aug 2, 2025 | Twenty-six weeks ended Aug 3, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :--------------------------------- | :------------------------------- | | Depreciation and amortization | $51 | $51 | $102 | $102 | | % Change | —% | | —% | | - Depreciation and amortization expense remained flat for both periods, as increases from capital expenditures were offset by fewer operating stores and lower depreciation/amortization from prior impairment charges. The full amortization of WSS and atmos customer list intangible assets by Q3 2024 also contributed to reduced expense[122] Impairment and Other This section details the impairment charges and other significant non-recurring costs incurred by the Company during the reported periods - For the thirteen weeks ended August 2, 2025, the Company incurred $15 million in acquisition-related costs for the pending DICK'S merger, a net credit of $2 million for impairment (including a $9 million benefit from South Korea lease terminations offset by $4 million in long-lived asset impairment and $3 million accelerated tenancy), and $2 million in reorganization costs[123] - For the twenty-six weeks ended August 2, 2025, non-cash impairment charges included $140 million for the WSS tradename and $110 million for goodwill, triggered by stock price decline and macroeconomic factors. Additionally, $15 million in long-lived asset impairment and $8 million in accelerated tenancy/lease termination charges were recorded due to global headquarters relocation and business shutdowns in South Korea, Denmark, Norway, and Sweden[124] Corporate Expense This section analyzes the Company's corporate expenses, including changes and the factors driving them Corporate Expense ($ in millions): | Item | Thirteen weeks ended Aug 2, 2025 | Thirteen weeks ended Aug 3, 2024 | Twenty-six weeks ended Aug 2, 2025 | Twenty-six weeks ended Aug 3, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :--------------------------------- | :------------------------------- | | Corporate expense | $13 | $17 | $35 | $28 | | $ Change | $(4) | | $7 | | - Corporate expense decreased by $4 million for the thirteen weeks due to lower incentive compensation, partially offset by IT investments. For the twenty-six weeks, it increased by $7 million, primarily driven by ongoing IT investments, also partially offset by lower incentive compensation[126][128] Operating Results This section summarizes the Company's division profit and its margin, highlighting factors impacting profitability Division Profit ($ in millions): | Item | Thirteen weeks ended Aug 2, 2025 | Division Profit Margin | Twenty-six weeks ended Aug 2, 2025 | Division Profit Margin | | :------------------------------------ | :------------------------------- | :--------------------- | :--------------------------------- | :--------------------- | | Division profit | $2 | 0.1% | $29 | 0.8% | - Division profit margin decreased to 0.1% and 0.8% for the thirteen and twenty-six weeks, respectively, due to lower sales, reduced gross margin, and SG&A deleverage. Underperformance of the WSS banner and European Foot Locker stores negatively impacted results, prompting management to evaluate strategic initiatives for profitability improvement[129] Interest Expense, Net This section details the Company's net interest expense (income) and the factors influencing its changes Interest Expense, Net ($ in millions): | Item | Thirteen weeks ended Aug 2, 2025 | Thirteen weeks ended Aug 3, 2024 | Twenty-six weeks ended Aug 2, 2025 | Twenty-six weeks ended Aug 3, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :--------------------------------- | :------------------------------- | | Interest expense | $(5) | $(5) | $(11) | $(11) | | Interest income | $2 | $2 | $6 | $7 | | Interest (expense) income, net | $(3) | $(3) | $(5) | $(4) | - Net interest expense was unchanged for the thirteen weeks but increased by $1 million for the twenty-six weeks ended August 2, 2025, primarily due to lower interest income on cash and cash equivalents[130] Other (Expense) Income, Net This section details the Company's other non-operating income and expenses, including divestiture gains and equity method losses Other (Expense) Income, Net ($ in millions): | Item | Thirteen weeks ended Aug 2, 2025 | Thirteen weeks ended Aug 3, 2024 | Twenty-six weeks ended Aug 2, 2025 | Twenty-six weeks ended Aug 3, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :--------------------------------- | :------------------------------- | | Other (expense) income, net | $(1) | $(2) | $2 | $(6) | - Other (expense) income, net, for the twenty-six weeks ended August 2, 2025, included a $6 million gain from the sale of Greece and Romania businesses, partially offset by $2 million in pension and postretirement expenses and a $1 million loss on equity method investments[132][133] Income Taxes This section analyzes the Company's provision for income taxes and effective tax rate, including the impact of valuation allowances and recent tax legislation Provision for Income Taxes and Effective Tax Rate ($ in millions): | Item | Thirteen weeks ended Aug 2, 2025 | Effective Tax Rate | Thirteen weeks ended Aug 3, 2024 | Effective Tax Rate | Twenty-six weeks ended Aug 2, 2025 | Effective Tax Rate | Twenty-six weeks ended Aug 3, 2024 | Effective Tax Rate | | :------------------------------------ | :------------------------------- | :----------------- | :------------------------------- | :----------------- | :--------------------------------- | :----------------- | :------------------------------- | :----------------- | | Provision for income taxes | $8 | (25.5)% | $(2) | 14.9% | $101 | (33.5)% | $3 | n.m. | - The current year's effective tax rate was significantly impacted by a $117 million valuation allowance on European deferred tax assets and a $110 million non-deductible goodwill impairment charge. The 'One Big Beautiful Bill Act' (OBBBA) signed on July 4, 2025, is being evaluated for its effects, with anticipated enhancements to near-term cash flows due to permanent extension of 100% bonus depreciation and elimination of Section 174 capitalization[138][139][142] Liquidity and Capital Resources This section discusses the Company's sources and uses of liquidity, capital expenditure plans, and overall financial flexibility - Primary liquidity sources are cash flow from operations, used for inventory, working capital, capital expenditures (store updates, technology, supply chain), retirement plan contributions, and interest payments. The Company expects full-year capital spending of $230 million, plus $20 million for software-as-a-service implementation, totaling $250 million. This includes $150 million for store refreshes/relocations and $80 million for technology/supply chain initiatives[143][144] Operating Activities This section analyzes the net cash provided by or used in the Company's operating activities Net Cash Provided by Operating Activities ($ in millions): | Item | Twenty-six weeks ended Aug 2, 2025 | Twenty-six weeks ended Aug 3, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Net cash provided by operating activities | $2 | $126 | | $ Change | $(124) | | - The $124 million decrease in cash from operating activities primarily reflects a higher net loss adjusted for non-cash items, a $50 million increase in rent payments, a $24 million increase in incentive bonus payments, and a $20 million pension plan contribution[147] Investing Activities This section analyzes the net cash provided by or used in the Company's investing activities Net Cash Used in Investing Activities ($ in millions): | Item | Twenty-six weeks ended Aug 2, 2025 | Twenty-six weeks ended Aug 3, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Net cash used in investing activities | $(102) | $(133) | | $ Change | $31 | | - The $31 million decrease in cash used in investing activities was driven by a $25 million reduction in capital expenditures and $6 million in proceeds from the sale of Greece and Romania businesses[148] Financing Activities This section analyzes the net cash provided by or used in the Company's financing activities Net Cash Used in Financing Activities ($ in millions): | Item | Twenty-six weeks ended Aug 2, 2025 | Twenty-six weeks ended Aug 3, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Net cash used in financing activities | $(3) | $(5) | | $ Change | $2 | | - The $2 million decrease in cash used in financing activities was due to a $4 million reduction in debt issuance costs and a $2 million reduction in common stock repurchases for tax withholdings, partially offset by a $4 million reduction in proceeds from stock option exercises[149] Free Cash Flow (non-GAAP measure) This section presents the Company's free cash flow, a non-GAAP measure, and its components Free Cash Flow (Non-GAAP) ($ in millions): | Item | Twenty-six weeks ended Aug 2, 2025 | Twenty-six weeks ended Aug 3, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Net cash provided by operating activities | $2 | $126 | | Capital expenditures | $(107) | $(132) | | Free cash flow | $(105) | $(6) | - Free cash flow, a non-GAAP measure, was negative $105 million for the twenty-six weeks ended August 2, 2025, a significant decrease from negative $6 million in the prior-year period, reflecting reduced cash from operations[153] Critical Accounting Policies and Estimates This section highlights the Company's accounting policies that require significant management judgment and estimation - The Company's critical accounting policies involve significant judgment, particularly in assessing the recoverability of goodwill and indefinite-lived intangible assets, and establishing valuation allowances for deferred tax assets[154][162] Recoverability of Goodwill and Indefinite-Lived Intangible Assets This section describes the Company's policy for evaluating and recognizing impairment of goodwill and indefinite-lived intangible assets - Goodwill and indefinite-lived intangible assets are reviewed for impairment annually or more frequently if indicators arise. A Q1 2025 triggering event (stock price decline, macroeconomic changes) 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. A $140 million impairment was also recorded on the WSS tradename[154][156][157][161] - Future decreases in reporting unit fair values or sustained declines in market capitalization could lead to additional goodwill impairments. Similarly, deterioration in WSS or atmos performance beyond current projections may necessitate further intangible asset impairment charges[159][161] Valuation Allowances for Deferred Tax Assets This section explains the Company's policy for establishing valuation allowances against deferred tax assets and the factors considered - A full valuation allowance of $117 million was recognized in Q1 2025 for European businesses' net operating loss carryforwards and other net deferred tax assets, as it was determined that realization was 'not more likely than not.' These allowances may be released in future years if sufficient positive evidence emerges[163] Recent Accounting Pronouncements This section addresses the impact of recently issued accounting pronouncements on the Company's financial statements - No other recently issued accounting pronouncements, beyond those disclosed in the 2024 Annual Report on Form 10-K, are believed by management to have a material effect on the Company's present or future consolidated financial statements[32][165] Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no significant changes in the Company's primary market risk exposures or management strategies since the 2024 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[166] Item 4. Controls and Procedures Management, under the supervision of the CEO and CFO, evaluated the effectiveness of the Company's disclosure controls and procedures, concluding they were effective as of August 2, 2025. No material changes to internal control over financial reporting occurred during the quarter - The Company's CEO and CFO concluded that disclosure controls and procedures were effective as of August 2, 2025[167] - No material changes in internal control over financial reporting occurred during the quarter ended August 2, 2025[168] PART II - OTHER INFORMATION Item 1. Legal Proceedings Information regarding the Company's legal proceedings is consistent with the details provided in Note 13 of the Financial Statements - Legal proceedings information is consistent with Note 13 of the Financial Statements[169] Item 1A. Risk Factors This section updates risk factors, primarily focusing on those related to the pending acquisition by DICK'S Sporting Goods. It highlights potential adverse effects on business results due to the announcement and pendency of the merger, and the significant risks associated with the transaction's failure to complete - The announcement and pendency of the acquisition by DICK'S Sporting Goods may adversely affect business results by causing customers, vendors, and employees to delay decisions or seek alternatives, imposing operational restrictions, and diverting management's attention[171][172] - Failure to complete the transaction could materially and adversely affect the Company's business, financial condition, operating results, cash flows, and stock price, leading to decreased investor confidence, potential litigation, and continued business disruptions[173][174][179] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details shares of common stock acquired in satisfaction of tax withholding obligations for restricted stock units during the quarter ended August 2, 2025. It also references the ongoing $1.2 billion share repurchase program approved in February 2022 Shares of Common Stock Acquired (Thirteen weeks ended August 2, 2025): | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :-------------------- | :------------------------------- | :--------------------------- | | May 4 to May 31, 2025 | 2,022 | $23.77 | | June 1 to July 5, 2025 | 6,409 | $24.26 | | July 6 to August 2, 2025 | 621 | $24.65 | | Total | 9,052 | $24.18 | - These shares were acquired to satisfy tax withholding obligations for vested restricted stock units. The Company has an ongoing $1.2 billion share repurchase program, approved on February 24, 2022, with no expiration date, and $1,103,814,042 remaining under the program[176][177] Item 3. Defaults Upon Senior Securities This item is not applicable to the Company for the reporting period - Not applicable[178] Item 4. Mine Safety Disclosures This item is not applicable to the Company for the reporting period - Not applicable[180] Item 5. Other Information During the quarter ended August 2, 2025, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter[181] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and Inline XBRL documents Key Exhibits: | Exhibit No. | Description | | :---------- | :---------- | | 31.1* | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) | | 31.2* | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) | | 32** | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 | | 101.INS* | Inline XBRL Instance Document | | 104* | Cover Page Interactive Data File | SIGNATURE - The report was duly signed on behalf of Foot Locker, Inc. by Michael Baughn, Executive Vice President and Chief Financial Officer, on September 2, 2025[184][185]