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Foot Locker Seeks Strategic Alternatives

Foot Locker said it plans to strengthen its business operations with a number of initiatives.

ATLANTA — Foot Locker said it plans to strengthen its business operations with a number of initiatives that include a possible sale of the $5.75 billion specialty athletic retailer, closing about 250 U.S. stores this year, opening more stores in Europe and naming a new president for Foot Locker U.S.

The company said it had retained Lehman Brothers as an advisor to help evaluate strategic alternatives, including inquiries received from private equity firms.

Keith Daly, president and CEO of Foot Locker Europe since 2005, was promoted to president of Foot Locker U.S., with responsibility for the Foot Locker, Footaction and Kids Foot Locker stores in the U.S. He succeeds Nick Grayston, who is leaving the company, and reports to Richard Mina, president and CEO, Foot Locker, Inc. USA.

The New York-based company, which unsuccessfully attempted to acquire Genesco this past spring, reported a weak first quarter in May, and is about to report an even weaker second quarter. Net income fell more than 70 percent to $17 million in the first quarter, compared to $59 million in the year-ago quarter, and comp-store sales decreased 5.1 percent.

Foot Locker warned that it expects to report a loss in the range of 17 to 20 cents per share in the second quarter, which will be revealed on Aug. 22. It also expects comp-store sales for the quarter to decrease 7 to 8 percent. Foot Locker said the loss reflects increased markdowns in its U.S. stores of approximately $55 million at cost, or approximately 22 cents per share, versus the same period last year to liquidate slow-selling merchandise.

Matthew D. Serra, chairman and CEO, said the primary reason for the projected net loss comes from the company’s decision to liquidate slower-selling merchandise in U.S. stores more aggressively than it had planned in order to improve its inventory position before the fall season starts.

He added that Foot Locker expects international units to product a double-digit division increase in profit. The retailer plans to open up to 30 new stores in the Europe and surrounding markets during fiscal 2008.

The closing of 250 U.S. stores this year is about twice the number of unproductive U.S. units Foot Locker had originally planned to close. Foot Locker said it believes profitability of its U.S. store base will be enhanced as a result.

As part of the key management changes, Dick Johnson, president and CEO of Footlocker.com since 2003, succeeds Daly as president and CEO of Foot Locker Europe. Foot Locker is currently searching for someone to replace Johnson. Dowe Tillema, was promoted to executive vice-president of Footlocker.com and will continue in his role as CFO of the division.

Additionally, Foot Locker confirmed last week that it would shutter its three-month-old Footquarters athletic footwear and apparel operation. The 31 units will be converted into either Foot Locker or Champs Sports outlets.