Eric Cohen

Eric Cohn inquired about the current promotional landscape and whether the merchandise margin benefited from a mix shift to brands like Nike. He also asked for an update on the performance of different consumer income cohorts.

Answer

CEO Steve Lawrence described the promotional environment as stable, with higher customer take rates on deals. He noted that a significant margin mix benefit did not occur in Q2 due to balanced performance across categories. He confirmed that traffic from higher-income consumers accelerated to double-digit growth, a trend expected to continue.

Eric Cohen asked about the current promotional environment, given consumers' value consciousness and event-driven shopping, and whether the merchandise margin was benefiting from a favorable mix due to the expansion of higher-margin Jordan and Nike assortments. He also followed up on consumer cohorts, asking if the positive comps from upper-income consumers had accelerated, and whether this group is expected to drive back-half comp growth, or if the middle-income consumer might also inflect positively.

Answer

CEO Steve Lawrence described the promotional environment as slightly more promotional year-over-year but still below pre-pandemic levels, noting a higher customer take rate on promotions. He stated that while the goal is for apparel/footwear growth to improve mix, Q2 didn't see dramatic mix shifts as performance was consistent across divisions. Mr. Lawrence confirmed that traffic from the top two income quintiles ($100,000+) accelerated to double-digit growth in Q2 compared to Q1. He expects this trend to continue and accelerate in the back half, more than offsetting continued pressure on lower-income consumers, while the middle-income quintile held share.

Eric Cohen from Gordon Haskett Research Advisors asked how the company would ease concerns about increased risk from a heavier concentration in the footwear category following the Foot Locker acquisition. He also inquired if the performance of House of Sport stores varied by market size.

Answer

President & CEO Lauren Hobart addressed the concern by calling footwear 'the engine that pulls the train,' emphasizing its importance to both performance and lifestyle trends. CFO Navdeep Gupta noted they were excited that even smaller markets have been able to productively support House of Sport locations, which expands the concept's future potential.

Eric Cohen, on for Chuck Grom, asked if the incremental SG&A investments are a pull-forward from 2025 or entirely new spending, and inquired about the quantifiable impact of House of Sport conversions and the Olympics.

Answer

CFO Navdeep Gupta described the SG&A investments as a combination of both pull-forwards from 2025 and new incremental spending, timed ratably across Q3 and Q4. He reiterated that the Olympics is primarily a brand-building event with no significant sales impact and noted the House of Sport conversion benefit was in line with previous expectations for the first half.

Eric Cohen asked if the growth in brands like On and HOKA is attracting new customers or simply shifting sales from existing ones. He also questioned if the new FLX loyalty program is bringing in new shoppers and how their spending habits compare to non-members.

Answer

EVP and CCO Frank Bracken explained that the growth is from 'some of both,' as existing customers broaden their brand choices while brands like HOKA and On also attract 'net new consumers' to Foot Locker. Regarding the FLX program, he stated it is converting existing shoppers and attracting new ones, with members showing higher spend, basket size, and units per transaction, along with early positive signs in shopping frequency.

Eric Cohen asked if Ollie's growing scale is resulting in better deals and new vendor relationships, particularly from competitors like Big Lots. He also inquired about the current status of inventory shrink and its potential future impact on gross margin.

Answer

CEO John Swygert confirmed that deal flow is 'great' and they are adding new vendor relationships but did not comment on specific competitor situations. CFO Robert Helm stated that shrink has 'hit a plateau' and that the company's model is to reinvest any potential margin upside from improvements back into price to benefit the consumer, rather than targeting a gross margin above 40%.