Economic Environment - The US effective tariff rate increase continues to create uncertainty in the market, with unclear long-term implications from the Trump administration [1] - The Volatility Index remains in the 20s, Treasury yields are fluctuating, and stock prices are nearing correction territory [2] Consumer Sentiment - Consumer confidence has declined, with cautionary guidance from companies during Q4 earnings calls [4] - The Johnson Redbook Index indicates steady year-over-year same-store sales growth in the 4% to 7% range since late 2023 [5] - Bank of America reported a 2.4% annualized increase in consumer spending for February 2025 [5] Corporate Performance - Delta Air Lines, American Airlines, and Southwest Airlines have lowered their earnings projections due to weaker travel demand [5][6] - Walmart reported strong Q4 earnings but provided guidance below market expectations, leading to a significant drop in its share price [6] - Lululemon is set to report Q4 earnings, with expectations of net revenue between $3.56 billion and $3.58 billion, reflecting an 11% to 12% increase year-over-year [11] Market Trends - Lululemon's stock has decreased from $423 to just above $325, mirroring broader retail sector weaknesses [10] - Disney's upcoming annual shareholder meeting is anticipated to provide insights into its streaming service and theme park performance, amid a 10% year-to-date stock decline [14][15] Future Outlook - The upcoming earnings reports from Lululemon and Disney are expected to shed light on consumer spending trends and overall economic health [16]

Group 1 - The investment strategy focuses on long-only investment, evaluating companies from an operational and buy-and-hold perspective, rather than market-driven dynamics [1] - The articles emphasize understanding the long-term earnings power of companies and the competitive dynamics within their industries [1] - The majority of recommendations will be holds, indicating a cautious approach to market conditions and a belief that only a small fraction of companies are suitable for buying at any given time [1] Group 2 - The articles aim to provide important information for future investors and introduce a healthy skepticism towards a generally bullish market [1] - There is a clear distinction made between the author's opinions and professional investment advice, highlighting the need for readers to conduct their own due diligence [2][3]

Financial Data and Key Metrics Changes - The company reported a total sales decline of 5.8% in the fourth quarter, primarily due to the lapping of the fifty-third week in 2023, foreign currency headwinds, and store closures [48] - Total comparable sales increased by 2.6%, marking the third consecutive quarter of positive comps [48] - Gross margin expanded by 300 basis points year over year to 29.6%, driven by lower markdown levels and cost optimization programs [49][50] Business Line Data and Key Metrics Changes - Global Foot Locker and Kids Foot Locker banners led the comp increase with a 3.6% rise, supported by strong holiday sales [7][48] - Champs Sports experienced a 1.8% comp increase, marking the second consecutive quarter of positive comps since its repositioning [7][42] - The footwear category saw high single-digit comp growth, driven by strong launches from brand partners like Jordan and Adidas [31][34] Market Data and Key Metrics Changes - North America overall comps were up 3.6%, with Foot Locker North America banner achieving a 5.5% comp increase [39] - European comps increased by 1.9%, despite a competitive and promotional environment [45] - Asia Pacific comps fell by 7.6%, reflecting competitive dynamics and the winding down of operations in South Korea [46] Company Strategy and Development Direction - The company is focused on executing its Lace Up plan, which includes enhancing customer experience through store refreshes and digital improvements [10][15] - Plans for 2025 include maintaining a disciplined approach to capital investments, prioritizing customer-facing initiatives that drive returns [15][56] - The company aims to optimize its real estate portfolio, having closed over 20% of its global doors since 2019 [21] Management's Comments on Operating Environment and Future Outlook - Management noted increased consumer caution and sensitivity, impacting business performance in early 2025 [14][66] - The outlook for 2025 includes expected ongoing comp sales growth and margin expansion, despite recognizing consumer uncertainties [52][55] - Management expressed confidence in the execution of the Lace Up plan and the potential for profitable market share gains [59] Other Important Information - The company achieved $100 million in savings as part of its cost optimization program in 2024, exceeding prior expectations [13][50] - The FLX Rewards program saw significant adoption, with loyalty penetration reaching 49% of sales in North America [25][26] Q&A Session Summary Question: Can you provide more color on what you're seeing quarter to date regarding consumer behavior? - Management observed that while there was strong momentum coming out of the holiday season, consumer uncertainty began to rise in February, leading to choppy performance [64][66] Question: What are the expectations for NIKE in the near term? - Management indicated that they are closely aligned with NIKE to optimize merchandise mix and inventory levels, anticipating positive outcomes from NIKE's innovation pipeline [76][82] Question: Why aren't there bigger cost savings reflected in SG&A? - Management acknowledged that while progress has been made, the current SG&A rate is not supportive of long-term profit targets, and they will continue to work on lowering it [71][72]

Financial Performance - Total sales for Q4 2024 decreased by 5.8% to $2,243 million compared to $2,380 million in Q4 2023, with a foreign exchange impact leading to a 4.6% decrease when adjusted[4]. - Comparable sales increased by 2.6%, with global Foot Locker and Kids Foot Locker combined comparable sales growth of 3.6%[5]. - Net income from continuing operations was $55 million, a significant recovery from a net loss of $389 million in the prior-year period[11]. - Non-GAAP EPS for Q4 2024 was $0.86, compared to $0.38 in the corresponding prior-year period[11]. - In Q4 2024, the company reported a pre-tax income of $77 million, a significant improvement from a loss of $524 million in Q4 2023[25]. - Adjusted net income (non-GAAP) for Q4 2024 was $82 million, compared to $36 million in Q4 2023, reflecting a 127.8% increase[25]. - The company achieved earnings per share (EPS) of $0.51 in Q4 2024, recovering from a loss of $4.13 per share in Q4 2023[25]. - Net income for 2024 was $12 million, a significant improvement from a net loss of $330 million in 2023[35]. Sales and Store Operations - The full-year 2025 sales outlook is projected to change between -1.0% to +0.5%, with comparable sales expected to grow by 1.0% to 2.5%[13]. - The company completed 160 store refreshes in Q4, bringing the total to over 400 for the year[5]. - The company plans to close all stores in South Korea, Denmark, Norway, and Sweden as part of its strategy to improve international operations[26]. - Total store count as of February 3, 2024, was 2,523, with 26 new stores opened and 139 closed[37]. - Foot Locker U.S. selling square footage decreased from 2,401 thousand in February 2024 to 2,337 thousand in February 2025[37]. - Foot Locker Europe had a total of 637 stores as of February 3, 2024, with 10 new stores opened and 39 closed[37]. Financial Position - Cash and cash equivalents increased to $401 million as of February 1, 2025, up from $297 million a year earlier[33]. - Total liabilities decreased to $3.839 billion as of February 1, 2025, compared to $3.978 billion a year earlier[33]. - The company’s total shareholders' equity increased to $2.909 billion as of February 1, 2025, compared to $2.890 billion a year earlier[33]. - Net cash provided by operating activities increased to $345 million in 2024, compared to $91 million in 2023[35]. - Total cash, cash equivalents, and restricted cash at the end of the period increased to $430 million from $334 million in the previous year[35]. Capital Expenditures and Investments - The company plans to focus on customer-facing investments, with capital expenditures estimated at $270 million for 2025[13]. - Capital expenditures for 2024 were $240 million, slightly down from $242 million in 2023[35]. - Net cash used in investing activities was $240 million in 2024, compared to $222 million in 2023[35]. - The company recorded a $35 million impairment charge related to a minority investment during fiscal year 2024[29]. - The company reported a fair value adjustment loss of $35 million on minority investments in 2024, compared to a loss of $478 million in 2023[35]. Inventory and Merchandise - Merchandise inventories increased by 1.1% year-over-year to $1,525 million, with a 2.5% increase when excluding foreign currency fluctuations[8]. - For fiscal year 2024, the company incurred $32 million in impairment charges related to underperforming stores and $26 million in reorganization costs for headquarters relocation[27].

Core Viewpoint - The article discusses the recent performance of the U.S. stock market, highlighting the impact of tariffs, inflation, and economic fundamentals on major indices, while focusing on specific companies like Costco and Foot Locker as potential investment opportunities and risks [2][3][21]. Market Overview - The U.S. stock market experienced volatility, with major indices showing monthly declines due to multiple negative factors, including tariff policies and inflation concerns. The S&P 500 index fell nearly 1% last week and 1.4% in February, while the Nasdaq Composite dropped 4%, marking its largest monthly decline since April 2024. The Dow Jones Industrial Average rose about 1% last week but still recorded a 1.6% monthly drop [2][3]. Economic Indicators - The upcoming non-farm payroll report is highly anticipated, with expectations of 156,000 new jobs and an unemployment rate holding steady at 4.0%. Additionally, several Federal Reserve officials, including Chairman Powell, are expected to speak this week [5]. Company Focus: Costco - Costco is set to release its Q2 earnings report for fiscal year 2024 on March 6, with the stock price expected to experience significant volatility, projected at 4.4% based on options market data [8][10]. - Analysts have generally optimistic views on Costco's performance, with 15 upward revisions to earnings expectations and only 5 downward adjustments prior to the earnings release [10]. - The market anticipates Costco's earnings per share (EPS) to reach $4.08, a 4.1% increase from $3.92 in the same period last year, with revenue expected to grow by 9.9% to $63 billion, driven by strong grocery sales and high membership renewal rates [13]. Company Focus: Foot Locker - Foot Locker is facing significant challenges, with analysts predicting an EPS of $0.72 and a revenue decline of 2.5% to $2.32 billion due to high inflation and reduced discretionary income affecting consumer demand [21]. - The company is expected to lower its earnings outlook for the upcoming quarter, as traditional retail models struggle against the shift towards online shopping and direct-to-consumer sales [22]. - Foot Locker's stock closed at $17.32, marking a 52-week low, with a year-to-date decline of 20.4%. The company has a financial stability score of 1.5 out of 5, indicating significant operational and financial challenges [22][23].

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: November 2, 2024 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 1-10299 (Exact name of registrant as specified in its charter) New York 13-3513936 (Stat ...

Financial Data and Key Metrics Changes - In Q3 2024, total sales decreased by 1.4%, while comparable sales increased by 2.4%, consistent with Q2 results but below expectations [64][65] - Gross margin expanded by 230 basis points year-over-year to 29.6%, driven by improved merchandise margins [66][67] - Non-GAAP earnings per share were $0.33, up from $0.30 last year but below the guidance of approximately $0.40 [12][64] Business Line Data and Key Metrics Changes - Foot Locker and Kids Foot Locker banners saw comparable sales increase of 2.8%, while Champs Sports and WSS banners returned to positive territory with increases of 2.8% and 1.8%, respectively [9][64] - The Apparel business faced challenges with comparable sales down in the low 20s, while Accessories comped up high-single digits [50][51] - Digital comparable sales increased by 3.6%, with digital penetration rising to 17.6% of total sales [38][53] Market Data and Key Metrics Changes - In North America, overall comparable sales were up 2.1%, with Foot Locker North America up 1.6% and Kids Foot Locker up 3.2% [54][55] - European comparable sales increased by 6.4%, while Asia-Pacific saw a decline of 7.3% [60][62] - The promotional environment was elevated, particularly in digital and apparel categories, impacting overall performance [61][64] Company Strategy and Development Direction - The company is committed to its Lace Up Plan, aiming for an EBIT margin target of 8.5% to 9% by 2028 [14][80] - Focus on expanding sneaker culture through partnerships with brands like Nike and Adidas, and enhancing store experiences with reimagined concepts [15][25] - The company plans to open 27 new stores while closing approximately 130, resulting in a projected 4% decrease in store count for 2024 [74][80] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding consumer spending behavior, noting a pullback in discretionary spending ahead of holiday events [10][12] - The company anticipates continued elevated promotional activity through the holiday season, impacting margin recovery [14][78] - Despite challenges, management remains optimistic about ongoing positive comparable sales and gross margin expansion [40][80] Other Important Information - The company completed 167 store refreshes in Q3, with a goal of approximately 400 for the year [28] - A $25 million non-cash impairment charge was taken against the atmos tradename, reflecting moderated growth expectations [71][73] - The loyalty program accounted for 27% of sales in Q3, up 4 points from the previous year [35] Q&A Session Summary Question: Can you speak to the balance between sales and margin in the quarter? - Management acknowledged progress on the Lace Up Plan but noted that performance fell below expectations due to macroeconomic factors and elevated promotions [82][86] Question: Did weather impact apparel sales? - Management indicated that while weather was not a significant factor, the apparel category lacked innovation, which affected sales [90][92] Question: What should be considered for fourth quarter guidance? - Management confirmed that the fourth quarter guidance aligns with recent trends, with expectations for improved launch calendars and continued promotional activity [99][103] Question: What is working for Champs and WSS? - Champs has seen positive results from its repositioning towards active athletes, while WSS is focusing on value propositions for lower-income consumers [108][112]

[Financial & Operational Highlights](index=1&type=section&id=Financial%20%26%20Operational%20Highlights) Foot Locker reported a 1.4% decrease in total sales year-over-year for the third quarter of 2024, but saw a 2.4% increase in comparable sales. The company achieved a significant 230 basis point expansion in gross margin and reduced inventory by 6.3%. Despite these gains, the company posted a GAAP loss of $0.34 per share, though Non-GAAP earnings were positive at $0.33 per share. Consequently, the full-year 2024 outlook for sales and Non-GAAP EPS has been updated Q3 2024 Key Metrics | Metric | Value | Change (YoY) | | :--- | :--- | :--- | | Total Sales | $1,958 million | -1.4% | | Comparable Sales | N/A | +2.4% | | Gross Margin | N/A | +230 bps | | GAAP EPS | -$0.34 | Down from $0.30 | | Non-GAAP EPS | $0.33 | Up from $0.30 | | Inventory | $1.7 billion | -6.3% | [Management Commentary](index=1&type=section&id=Management%20Commentary) CEO Mary Dillon acknowledged that Q3 top and bottom-line results fell short of expectations due to softened consumer spending post-Back-to-School and a highly promotional environment. Despite this, she highlighted progress on the 'Lace Up Plan,' including the 'Home Court' experience with Nike and a new partnership with the Chicago Bulls. Due to a cautious view on consumer demand outside of key holiday periods, the company is lowering its full-year outlook but remains confident in its long-term strategy to achieve an 8.5-9% EBIT margin by 2028 - Q3 performance was below expectations, attributed to softer consumer spending and increased promotional activity after the Back-to-School season[3](index=3&type=chunk) - Strategic progress continues under the 'Lace Up Plan,' highlighted by the rollout of the 'Home Court' store concept with Nike and a new partnership with the Chicago Bulls[3](index=3&type=chunk) - The full-year sales and earnings outlook is being lowered due to a more cautious view on consumer demand, despite a positive sales acceleration during Thanksgiving week[3](index=3&type=chunk) [Third Quarter 2024 Financial Performance](index=1&type=section&id=Third%20Quarter%202024%20Financial%20Performance) In Q3 2024, total sales declined 1.4% to $1,958 million, while comparable sales grew 2.4%. Gross margin improved by 230 basis points due to reduced markdowns, but SG&A expenses also rose by 210 basis points as a percentage of sales, driven by technology and brand investments. The company recorded a net loss of $33 million ($0.34 per share) on a GAAP basis, compared to a net income of $28 million in the prior year, primarily due to impairment charges. Non-GAAP net income was $31 million ($0.33 per share) [Sales and Comparable Sales](index=1&type=section&id=Sales%20and%20Comparable%20Sales) Total sales for Q3 2024 were $1,958 million, a 1.4% decrease from $1,986 million in Q3 2023. On a constant currency basis, sales decreased by 2.2%. However, comparable sales showed positive momentum, increasing by 2.4%, with notable growth from Foot Locker and Kids Foot Locker (+2.8%), Champs Sports (+2.8%), and WSS (+1.8%) Q3 2024 Sales Performance | Metric | Q3 2024 (in millions) | Q3 2023 (in millions) | % Change | Constant Currency % Change | | :--- | :--- | :--- | :--- | :--- | | Total Sales | $1,958 M | $1,986 M | -1.4% | -2.2% | - Comparable sales increased by **2.4%**, driven by positive performance across key banners: Foot Locker and Kids Foot Locker (**+2.8%**), Champs Sports (**+2.8%**), and WSS (**+1.8%**)[5](index=5&type=chunk) [Profitability and Margins](index=2&type=section&id=Profitability%20and%20Margins) Gross margin expanded by 230 basis points year-over-year, primarily due to lower markdown levels, though performance was below expectations. Conversely, SG&A expenses as a percentage of sales increased by 210 basis points, reflecting investments in technology and brand-building, which were partially offset by cost optimization savings - Gross margin increased by **230 basis points** compared to the prior-year period, led by reduced markdowns[6](index=6&type=chunk) - SG&A as a percentage of sales rose by **210 basis points**, driven by investments in technology and branding[7](index=7&type=chunk) [Net Income and Earnings Per Share (EPS)](index=2&type=section&id=Net%20Income%20and%20Earnings%20Per%20Share%20%28EPS%29) The company reported a Q3 net loss of $33 million, or $0.34 per share, a significant shift from the $28 million net income, or $0.30 per share, in the same period last year. On a Non-GAAP basis, which excludes items like impairment charges, net income was $31 million ($0.33 per share), slightly up from $28 million ($0.30 per share) in Q3 2023. Key non-GAAP exclusions included a $25 million impairment of the atmos tradename and a $35 million impairment of a minority investment Q3 2024 Net Income and EPS (GAAP vs. Non-GAAP) | Metric | Q3 2024 (in millions) | Q3 2023 (in millions) | | :--- | :--- | :--- | | Net (Loss) Income (GAAP) | ($33 M) | $28 M | | Diluted (Loss) EPS (GAAP) | ($0.34) | $0.30 | | Net Income (Non-GAAP) | $31 M | $28 M | | Diluted EPS (Non-GAAP) | $0.33 | $0.30 | - Non-GAAP results exclude significant charges, including a **$25 million** impairment of the atmos tradename and a **$35 million** impairment on a minority investment[10](index=10&type=chunk) [Financial Position and Store Base](index=2&type=section&id=Financial%20Position%20and%20Store%20Base) As of November 2, 2024, Foot Locker maintained a solid balance sheet with $211 million in cash and $445 million in debt. Merchandise inventory was effectively managed, decreasing 6.3% year-over-year to $1.7 billion. The company continued to optimize its retail footprint, closing a net of 14 stores during the quarter to end with 2,450 stores globally, while also remodeling, relocating, or refreshing 187 locations Balance Sheet and Inventory Summary (as of Nov 2, 2024) | Metric | Value (in millions) | Change (YoY) | | :--- | :--- | :--- | | Cash and cash equivalents | $211 million | +12.8% | | Total debt | $445 million | +0.5% | | Merchandise inventories | $1.7 billion | -6.3% | - In Q3, the company opened **10 new stores** and closed **24**, ending the quarter with **2,450 stores** in **26 countries**[13](index=13&type=chunk) - The company continued its store refresh program, remodeling or relocating **20 stores** and updating **167 stores** to new design standards[13](index=13&type=chunk) [Updated 2024 Financial Outlook](index=3&type=section&id=Updated%202024%20Financial%20Outlook) Foot Locker has lowered its full-year 2024 guidance, reflecting a more cautious outlook on consumer spending and a promotional environment. The company now expects a total sales decline of 1.5% to 1.0% (previously -1.0% to +1.0%) and comparable sales growth of 1.0% to 1.5% (down from 1.0% to 3.0%). The gross margin forecast is reduced to 28.7%-28.8%, and the Non-GAAP EPS range has been significantly lowered to $1.20-$1.30 from the previous $1.50-$1.70 Full-Year 2024 Guidance Update | Metric | Prior Guidance | Updated Guidance | | :--- | :--- | :--- | | Sales Change (%) | -1.0% to +1.0% | -1.5% to -1.0% | | Comparable Sales Change (%) | +1.0% to +3.0% | +1.0% to +1.5% | | Gross Margin (%) | 29.5% to 29.7% | 28.7% to 28.8% | | EBIT Margin (%) | 2.8% to 3.2% | 2.3% to 2.5% | | Non-GAAP EPS (USD) | $1.50 to $1.70 | $1.20 to $1.30 | - The reduction in gross margin guidance is attributed to expected promotional pressure[15](index=15&type=chunk) [Consolidated Financial Statements](index=5&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements provide a detailed view of Foot Locker's performance. The Statement of Operations shows a Q3 total revenue of $1,961 million and a net loss of $33 million. The Balance Sheet indicates total assets of $6,862 million and total liabilities of $3,994 million. The Statement of Cash Flows reveals net cash provided by operating activities of $98 million year-to-date. Detailed tables also break down sales by banner and track changes in store count and square footage [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) For the third quarter ending November 2, 2024, total revenue was $1,961 million, down from $1,989 million in the prior year. Higher SG&A and impairment charges led to an income from operations of $12 million, a sharp decrease from $47 million YoY. After accounting for other expenses and taxes, the company reported a net loss of $33 million, compared to a net income of $28 million in Q3 2023 Q3 2024 Statement of Operations Highlights (in millions) | Line Item | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Total Revenue | $1,961 | $1,989 | | Gross Profit (Revenue - Cost of Sales) | $583 | $546 | | Income from Operations | $12 | $47 | | Net (Loss) Income | $(33) | $28 | [Sales by Banner](index=7&type=section&id=Sales%20by%20Banner) In Q3 2024, the North America region generated $1,405 million in sales, a 3.7% decrease on a constant currency basis, though comparable sales grew 2.1%. The EMEA region performed strongly with sales of $445 million, representing a 6.1% increase in constant currency and 6.4% comparable sales growth. The Asia Pacific region saw sales decline by 11.8% in constant currency to $108 million Q3 2024 Sales Performance by Region (in millions) | Region | Sales | Constant Currency % Change | Comparable Sales % Change | | :--- | :--- | :--- | :--- | | North America | $1,405 | -3.7% | +2.1% | | EMEA | $445 | +6.1% | +6.4% | | Asia Pacific | $108 | -11.8% | -7.3% | [Consolidated Balance Sheets](index=8&type=section&id=Consolidated%20Balance%20Sheets) As of November 2, 2024, Foot Locker's total assets were $6,862 million, down from $7,420 million a year prior. The decrease was driven by reductions in minority investments and other intangible assets. Total liabilities also decreased to $3,994 million from $4,215 million. Shareholders' equity stood at $2,868 million Balance Sheet Summary (in millions) | Account | Nov 2, 2024 | Oct 28, 2023 | | :--- | :--- | :--- | | Total Current Assets | $2,386 | $2,374 | | Total Assets | $6,862 | $7,420 | | Total Current Liabilities | $1,432 | $1,459 | | Total Liabilities | $3,994 | $4,215 | | Total Shareholders' Equity | $2,868 | $3,205 | [Consolidated Statement of Cash Flows](index=9&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows) For the thirty-nine weeks ended November 2, 2024, net cash provided by operating activities was $98 million, a significant improvement from the $98 million used in the same period last year. Net cash used in investing activities was $185 million, primarily for capital expenditures. Financing activities used $6 million. The company ended the period with $242 million in cash, cash equivalents, and restricted cash Year-to-Date Cash Flow Summary (in millions) | Activity | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | | Net cash from operating activities | $98 | $(98) | | Net cash used in investing activities | $(185) | $(145) | | Net cash used in financing activities | $(6) | $(120) | [Store Count and Square Footage](index=10&type=section&id=Store%20Count%20and%20Square%20Footage) Year-to-date as of November 2, 2024, Foot Locker's total store count decreased from 2,523 to 2,450, a net reduction of 73 stores. The company opened 19 new stores while closing 92. The North America region saw the largest net decrease with 54 store closures. Total gross square footage decreased from approximately 13.1 million to 12.8 million - The company's total store count decreased by a net of **73 stores** year-to-date, ending the period with **2,450 stores**[38](index=38&type=chunk) - During the first three quarters of 2024, the company opened **19 stores** and closed **92** across its global operations[38](index=38&type=chunk) [Non-GAAP Financial Measures and Reconciliation](index=5&type=section&id=Non-GAAP%20Financial%20Measures%20and%20Reconciliation) The company provides Non-GAAP financial measures to offer a clearer comparison of core business performance across periods by excluding items considered non-recurring or unusual. For Q3 2024, key adjustments to reconcile GAAP to Non-GAAP earnings included a $38 million pre-tax charge for impairment and other costs (including the atmos tradename impairment and reorganization costs) and a $35 million pre-tax impairment charge on a minority investment. These adjustments transformed a GAAP pre-tax loss of $25 million into a Non-GAAP pre-tax income of $48 million - Non-GAAP measures are used to exclude items not indicative of core business performance, such as gains/losses on minority investments and impairment charges, to assist investor comparison[22](index=22&type=chunk)[24](index=24&type=chunk) Q3 2024 GAAP to Non-GAAP Reconciliation (in millions) | Line Item | Amount | | :--- | :--- | | (Loss) income before income taxes (GAAP) | $(25) | | Impairment and other | $38 | | Other income / expense (minority investment) | $35 | | Adjusted income before income taxes (Non-GAAP) | $48 | - Major Q3 2024 non-GAAP adjustments included a **$25 million** impairment of the atmos tradename, **$7 million** in reorganization costs, and a **$35 million** impairment of a minority investment[30](index=30&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: August 3, 2024 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 1-10299 (Exact name of registrant as specified in its charter) New York 13-3513936 (State ...

Financial Data and Key Metrics Changes - Total sales increased by 1.9%, with comparable sales (comps) up 2.6%, slightly ahead of prior guidance of flat to slightly positive [46][51] - Gross margin expanded by 50 basis points to 27.6%, with merchandise margins down 20 basis points but occupancy leverage contributing positively [46][47] - Non-GAAP earnings per share was a loss of $0.05, including a $0.09 impact from a non-recurring charge related to the FLX program [9][49] Business Line Data and Key Metrics Changes - Global Foot Locker and Kids Foot Locker banners led comps growth at 5.2%, while Champs Sports saw a comp decline of 3.9%, showing improvement from the previous quarter [8][39] - The apparel business faced challenges with comps down mid-teens, while accessories comped up mid-single digits [35][37] - Digital penetration increased to 15.9%, up 40 basis points year-over-year, with global digital comps up nearly 4% [25][37] Market Data and Key Metrics Changes - North America comps were up 1.7%, driven by Foot Locker North America at 5.9% [38] - Europe saw strong comps growth of 7.6%, while Asia-Pacific comps were down 4.5%, with Foot Locker banner down 2.2% [43][44] - WSS comps declined by 6.2%, impacted by inflationary pressures affecting discretionary spending [41] Company Strategy and Development Direction - The company is focused on its Lace Up Plan, which aims to simplify and optimize operations, including winding down underperforming banners and transitioning to a licensed model in certain regions [10][11] - Plans to relocate corporate headquarters to St. Petersburg, Florida, and open new stores in India, indicating a strategic shift towards higher growth markets [13][12] - The company aims for an EBIT margin target of 8.5% to 9% by 2028, with ongoing investments in technology and brand building [10][51] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in returning to positive sales and comp growth, with strong momentum heading into the back-to-school season [27][51] - The company anticipates continued gross margin expansion and is reaffirming its full-year non-GAAP EPS guidance of $1.50 to $1.70 [51][52] - Management acknowledged challenges in the consumer environment, particularly for lower-income households, but noted positive trends in customer engagement and loyalty [60][62] Other Important Information - The company completed 67 store refreshes in the second quarter, with plans to elevate approximately two-thirds of its global stores to the Reimagined brand standard by the end of 2025 [21][22] - The FLX rewards program saw 24% of sales through loyalty, up 200 basis points year-over-year, indicating strong customer engagement [24] Q&A Session Summary Question: What is driving the acceleration in comps while pulling back on promotions? - Management noted broad-based improvement across income cohorts and regions, with controlled inventories and better execution meeting customer needs [58][59] Question: Can you elaborate on the decisions regarding international operations? - Management emphasized simplification and optimization, focusing on markets with better growth potential and profitability, leading to the closure of certain operations [66][67] Question: How are gross margins tracking in North America? - Management indicated that while there are challenges in international and WSS, North American margins are progressing as planned, with expectations for meaningful acceleration in Q3 and Q4 [69][70]