FL
#Against the bulk of our brick and mortar banners, I don't necessarily see a big impact, because the level of distribution and product segmentation at both TSA and Sport Chalet is different than what we sell at the premium end.
I think there is a bit of pressure against the Eastbay business, as the cleated numbers that you hear, and I have no idea if the numbers that we hear are true or not, but there's some pressure against the cleated side and the performance side of the business.
But as it relates to back-to-school and what kids are buying, I don't see a lot of impact to our brick and mortar business, or brick and mortar brands, I should say.
I think we saw a little bit of impact on traffic on the day of the vote, but not much since then.
We do have a bit of a currency impact, in that we buy for that market in euros and sell in pounds.
And so we do what we can to hedge that currency difference.
I don't think we'll really see much, <UNK>, until the world starts to understand what it really means, and that's an ongoing debate at this point.
The consumer's back and shopping in the UK.
So we'll keep you posted, if we see things differently.
I spoke about the Kyrie shoe from Nike and the Curry shoe from Under Armour, both performed well in the quarter.
The KD 9 that launched, again, a different price value, a little bit of innovation in the upper, a great mid-sole and out-sole combination so the consumer responded to that.
The LeBron Soldier product that he wore in the playoffs sold well.
There's more work going on in basketball, and we'll wait until the vendors really bring that to market to talk about it.
I certainly would not think of preempting some of the good work that they're doing, and talking about it, before they talk about it.
Basketball, as <UNK> mentioned, was up nicely in the quarter.
Some of it is signature driven, some of it is lifestyle driven, but still good performance for us.
So we see good things in basketball in the back half of the year.
Well, we've said it many times, <UNK>, that our consumer's not driven by categories, they're driven by cool and sneaker culture.
So our buyers and our merchants do a great job of working with our vendor partners to bring in assortments that resonate with our consumers.
The consumer moves very quickly, so our team has to be very nimble and adjust on-the-fly, so-to-speak.
I'm less focused on categories.
We're less focused on categories than we are making sure that we have the assortment that is really stimulating the consumer's engagement with us as a brand.
So from an ASP perspective, they do a great job of managing that as well, and we're not talking about trading $200 signature basketball shoes for $49 shoes.
We're talking about a lot of these casual silhouettes still being elevated, and price points, and our focus is really on the premium area of sneaker culture, and the consumer is definitely responding to that.
So I don't ---+ <UNK>, you may want to comment on ASP mix, but I don't see any changes in the back half.
No.
The trend has been there for quite a while now.
ASPs have been up.
The customer has voted for these shoes, that they feel have really good price to value, and that price has been a bit elevated.
That, coupled with all of the really good work that we're doing on improving our allocation to get the right product to the right place, right time, and keeping control of the inventory growth.
That too has fueled lower markdowns.
Therefore, that is a bit of the higher ASP as well.
Our merchants are very thoughtful about the assortment across price points, to make sure that we're bringing compelling product, and it's not skewed to the point that we're pricing folks out.
We had a flat Q1, 40 in Q2, which was really driven by underlying merchandise margins.
We had a bit of a delever on occupancy.
We had this dynamic of some ---+ couple of properties here in New York that were closed.
So you got some sales and you got rent.
So a little bit of a delever there.
So as we look to full year, that 10 to 30 that we guided to still makes sense.
Well, <UNK>, the ASPs are ---+ I've said this for three or four quarters now, because that concern seems to be out there, but the ASP formula, algorithm, is really complex.
So a shift in basketball can be offset by lower markdowns.
It can be offset by elevated Stan Smiths or Superstars.
So our team, I can't give them enough credit.
They do a great job of mixing price points across footwear, across apparel, across accessories.
You combine the great assortments that they put in play across those price points, across those categories, and you combine that with great inventory management that <UNK> mentioned, and having the right product in the right store at the right time, so we don't have to mark as much product down, puts us in a position to continue to drive the premium end of the market, which keeps the ASPs at the level that we're at, and growing.
So I can't do much about the concern that you all see.
I can just rely on what our buyers, our merchants, and our vendor partners do to the mix of product, that we sell to our consumers.
That's one element, certainly.
Again, if there were just a straight A plus B equals C formula, we might share that.
I'm not sure that we would.
But we might.
But certainly that's one way to look at it.
The great product that stimulates the customer to buy it at the premium price points is good for us, and the less markdowns that we have to spend to move out of product, whether it be seasonally or because of sales performance, the better that is for our gross margin line.
So when you combine all of that, certainly having great products across all of the price points is one of the things that allows our ASPs to stay elevated.
The IMU has really stabilized, and it has been pretty stable for the last several quarters.
We are past the point where shift in category and brand mix is impacting the IMU.
Obviously the results in the guidance that we give, we've factored in what we see happening with minimum wage, and change to overtime exemptions, et cetera.
The reason why we are pleased with our wage compensation structure, that includes the commission element that's helpful to our store associates, it rewards those who are better salespeople.
They have the ability to determine their wage, and significantly earn above minimum wage, if they are good sales folk.
That helps us manage that.
But also, the reason that we continue to invest in things that give us some productivity advantages in the store, things like the processing of inventory, trying to make that more efficient, so that we can focus the hours on sales activity as opposed to stock keeping activity.
All of those are things that we work on to be able to manage that wage rate.
And as I described, we felt very good about how selling wages came out, and the leverage that we had on that.
Well, we are on a nice run with adidas, absolutely, <UNK>, and getting the allocations relates to the great relationship that we have with all of our vendor partners.
And right now in several markets, no matter what retailer you talk to, they would tell you they don't have enough of the best product.
But that's one of the things that our vendor partners really do, is they control the scarcity model, they pump in the appropriate number of shoes.
Our merchants would always like more.
They like to feed at the trough when something's hot, but the vendor partners do a good job of controlling the flow into the marketplace, and keeping that ever-present demand out there, and I think it helps to keep the heat in our industry.
It helps to keep the consumer excited about getting the next.
By and large, it's a good thing.
And we continue to work with all of our vendor partners to increase our allocations, and the story telling that we do in the store to connect better with the consumer, and connect them with the product stories.
We have a very balanced approach to our capital allocation.
The number one priority is investing in our business, hence what we have described as elevated capital with our remodel program and digital efforts, around giving the customers a great store experience, whether they come into the stores or digital.
And that investment is part of what we're doing to get after our long-term objective.
So priority number one is that investment, but we are very committed to returning cash to our shareholders, in both a strong dividend program and an active share repurchase.
At this point, we have $361 million remaining on our $1 billion share repurchase authorization.
It is not formulaic, so I can't describe something to you that would help you with that model.
But you can see, we recognize good value.
Sure.
From a store count perspective, <UNK>, we've announced or we talked about the last few quarters that we slowed down our store development here in 2016, because we've got two very significant properties that we're going to open in New York City, to give our SIX:02 banner a real presence in the city, and that's the 34th Street store that we'll see open in the next couple weeks, and then Times Square, which will have a SIX:02 shop within it, that will open hopefully by the end of the year.
So that was a decision that we made to slow down the store rollout, to make sure that we get those two doors right.
The SIX:02 team has done a great job of bringing in some new brands, catching up with the lifestyle side of the equation.
Again, this female consumer that we're after is very discerning in that she's expects all of the performance elements to be present in every piece that she buys, everything that she buys, but it's got to be very stylish.
And we've got some great new brands, the best place to see and measure the progress, if you're not near a SIX:02 store, is on SIX02.com and you can see some of the great showcase product that we've got there.
The intent would be to make sure that we've got the assortment right with some of the exciting things that we're going to see in 34th Street and Times Square.
We've got the physical space right.
We'll likely accelerate door count when we get into 2017.
We said all along that this is a very competitive marketplace.
The fashion is changing.
The look is changing.
The response and reaction to some of the asset-driven models are changing.
So she's a very discerning, very quick moving customer, and we're trying to capture her interest, and get her engaged with the SIX:02 brand.
It's been a little bit difficult with only 30 doors, so I'm a firm believer that the excitement that's going to be generated out of the doors here in the city will certainly give a big momentum push, as will some of the good work that we're going to do with some of our key vendor partners in the SIX:02 space, to drive real energy around that banner.
I'll tell you, I'm encouraged, because where we brought this customer the special product, she has really responded to it well.
Absolutely.
I think that the team is on to some good stuff.
There's always ---+ I've talked about it before, <UNK>, that the level of patriotism and the focus around sport and the excitement is driven by things like the Olympics, like the World Cup, like the NBA playoffs.
It may or may not be a direct connection or correlation to the product.
A lot of the product that you're seeing on the Olympians' feet and bodies will certainly be commercialized in the back half of the year and into next year, maybe not at the same price points that the special product for the Olympians has been built to, but at price points that are meaningful and commercializable in our stores.
There's excitement around the Olympics, certainly.
We have some very clear country-related and Olympic colored product in the stores, and there's been great response to that, but that's not what really moves the needle.
It's the after-effect and you'll see some of the great ---+ if you've been watching any of the track and field, there's an awful lot of great Nike product on the feet of a lot of the sprinters and distance runners that will certainly be in the Eastbay catalog.
Same thing with stuff from adidas and Puma.
Obviously Puma with Usain Bolt and the great performance that he's had.
The branding presence that you've seen from Under Armour, all those things are going to be positives to the business in the back half of the year.
The consumer that we're really trying to attract into SIX:02, she expects the performance elements to be built in.
So again, she's still very active.
She wears it to the classes that she goes to, whether it's yoga, spin, out for a run, whatever.
It just is more fashion led.
There's influence from some of the style leaders out there in the marketplace today that require it to be more than just a basic garment.
It's got to perform.
That's the expectation.
But it's got to look great and help her project that athletic fashion image that she's really after.
Makes a lot of sense.
If she's wearing it everywhere, she wants it to look really good and special.
And looking to us as a specialty retailer, we've got to bring her special.
It needs to be something different that she can't find everywhere else.
And while our core athletic brands are certainly making a lot of progress in that area, there's brands like Alala, and Koral, and Spiritual Gangster that are in SIX:02, that really bring the fashion twist to this performance product.
So it's not a lack of performance, or a real shift from the performance, it's just that the performance expectation is built into her mindset, when she buys the garment.
<UNK>, it's a good question.
The facts are that most of the basketball shoes that we sell never see a basketball court.
Most of the running shoes that we sell never see the roads or the trails or the track to run in.
They just look really good, and they're part of the sneaker culture that we really support.
So as our vendors continue to bring heat across the categories, whether it's deemed a performance shoe or a lifestyle shoe, our core consumers, the people that we really ---+ that are the sharp point of our muse work, they don't really distinguish things like that.
They're really more focused on how does it look, what message does it send to the people that I hang out with, et cetera.
So as long as people are talking about and wearing and in love with sneakers, we continue to support the sneaker culture, that certainly across the markets that we're in, is a significant part of today's pop culture.
And I think will be going on.
It's self-perpetuating, too.
You think about adults today grew up with sneakers.
They are getting ever-more discerning at an earlier age about the nuances between the different sneakers.
I think you see that in the results in our Kids business.
They fall in love at an early age, and they're not falling out of love with the category.
It's a good question, <UNK>.
And certainly Q2 I would chalk up part of the toughness to the market in Germany, because none of our banners performed well in the economy, with some of the traffic issues that we saw.
But from a broader perspective, we're repositioning both Runners Point and Sidestep, and we did some ---+ you know how we operate.
We test things pretty significantly before we go ahead and roll them out, and the tests that we saw back in 2014, when we positioned Runners Point was all things running, and Sidestep more on the lifestyle end of the spectrum, with our Foot Locker banner right in between.
The results in 2014 were pretty positive, and it convinced us that we could go ahead with that.
In hindsight, what he we found was there were a couple of really significant silhouettes that were driving the running side of the business, especially in Germany.
Each market in Western Europe is different.
Germany was definitely locked on to a couple of key silhouettes that have fallen out of favor a bit.
So it really caused ---+ first we fired a bunch of customers from Runners Point, because we took out the vulcanized shoes, we took out the skate shoes, we took out the boots, and we really focused it on the running consumer.
And then that running consumer moved off a couple of the key silhouettes that had really been propping up the results.
So it's an assortment mix.
It's a brand mix.
I think the team in Recklinghausen is addressing it as quickly as they can, with the vendor partners.
Then the other piece is on the Sidestep side of the house, making sure that we've got the right lifestyle piece of it and a little bit more fashion forward.
So we've got work to do there, but the team is diligently working on it.
We spent a little time over in Germany this summer, and we see some progress.
But we do definitely have work to do.
We're definitely committed to the SIX:02 brand and the amount of capital, <UNK>, we'll figure out as we keep moving forward.
We have to get a little brand recognition out there.
We have to make sure that we've got our target muse, and the right asset led, and scarcity model.
She's not that different from our male consumer, once we get the right product assortment in.
We have found when we bring the right product assortment in that's asset led and it's a little bit scarce, she's very reactive to that, and very much in those moments she looks very much like our male consumer.
But we have to win her every day, and that's where the shifts that you refer to, that we have talked about, are critical that our team is on those.
So from a ---+ we're certainly supportive and 100% behind the SIX:02 brand.
We'll get more brand recognition and momentum as we get through these openings in New York City, and 2017 and 2018 will look different from a capital investment perspective for her, I'm sure.
I think we have time for just one more question.
Well, couple of things, <UNK>, going back to the first part of your question.
We don't break out the exact performance of the remodels because each of them performs a little bit differently.
But it's ---+ I can tell you that the remodels outperform the balance of the chain, and in totality they surpass all of the hurdles that we have from a financial point of view, from a capital investment point of view.
So again, ideally we'd want to stop remodeling at that first one that doesn't pass all of those hurdles appropriately.
I'm not sure that anybody in the organization has that good a crystal ball, to tell us which one that's going to be.
We continue to be investing in that program, as <UNK> talked about.
And I guess I'd also point out that beyond the House of Hoops, that's certainly our biggest partnership program with our vendors, but we've got vendor partnerships across multiple brands.
We've got The Armoury with Champs Sports and Under Armour.
We've got Flight 23 and Jordan shops with Footaction.
We've got the Fly Zone with KFLs and Nike.
Those are open around the globe.
We've got The Collective with adidas.
They're all committed to bringing fresh, new, exclusive product into those spaces.
So I'm not going to get into the amount of exclusives that we've got in each of those, but the commitment that we've made, we signed the lease, we share the build-out costs, they deliver great product, some of it exclusive, some of it with time leads, et cetera.
We do the servicing and the story telling in the stores, and we have great partnerships that continue to fuel sneaker culture.
So they're all working and we're very positive about the vendor partnerships.
Well, we've had a great run in fleece on the high end, the tech fleece, et cetera, not so much in Q2, but still the kid was buying ---+ our consumer was buying fleece, even in Q2.
We've got a great position in wind wear going into the fall, and we've seen good early results from that.
So we're positive about that.
We've got the licensed product business in Champs Sports, at the level that we want to it to be, and they're having a nice run with licensed product where they're able to chase and fill in on the right team, the right player, et cetera, the right sport moment.
Dad hats are a winner on the accessories side.
So there's a lot of things that are interesting the consumer right now.
Graphic tees, the right graphic tees, some of them are sport moment led, some of them are culturally led, and some of them are just brand reads that our consumers are after.
The apparel is so much different in each of our banners that there's winners, and obviously some things that aren't quite as positive in each of the banners.
But it goes across the full spectrum.
Our merchants are doing a great job of really tuning into their local customer, and what appeals to that local customer in apparel, and assorting to it.
I think that's one of the things that we're seeing show up in the apparel results.
<UNK>, before you jump in I just want to make sure that we call out and have the people of Louisiana in our thoughts.
We've got a bunch of teammates down in Louisiana that have been flooded out, and we know that they're working hard to put their lives back to normal, but it's something we should all think about and remember, so ---+
Okay.
Thanks, <UNK>.
Thanks for everybody's participation today.
If we didn't get to your question, or you if you have a follow-up, I'll be back at my desk shortly.
Please join us for our next earnings call, which we anticipate will take place at 9:00 AM on Friday, November 18, following the release of our third-quarter results earlier that morning.
Thanks again and good-bye.
