Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
This section of the Annual Report on Form 10-K generally discusses 2024 and 2023 detail and year-over-year comparisons between these years. For a comparison of our results for 2023 to our results of 2022 and other financial information related to 2022, refer to our Annual Report on Form 10-K for the year ended February 3, 2024 filed with the SEC on March 28, 2024.
Our Business
Foot Locker, Inc. is a leading specialty retailer operating 2,410 stores in 26 countries across the North America, Europe, Australia, New Zealand, and Asia. We also have a licensed store presence in the Middle East, Europe, and Asia. Results for fiscal year 2023 reflect 53 weeks of operations as compared with 52 weeks for all other years presented.
Foot Locker, Inc. has a strong history of sneaker authority that sparks discovery and ignites the power of sneaker culture through its portfolio of brands, including Foot Locker, Kids Foot Locker, Champs Sports, WSS, and atmos.
Overview of Consolidated Results
|
(in millions, except per share data) |
2024 |
2023 |
2022 |
||||||
|
Sales |
$ | 7,971 | $ | 8,154 | $ | 8,747 | |||
|
Sales per average square foot |
507 | 510 | 548 | ||||||
|
Licensing revenue |
17 | 14 | 12 | ||||||
|
Gross margin |
2,305 | 2,259 | 2,792 | ||||||
|
Gross margin rate |
28.9 | % | 27.7 | % | 31.9 | % | |||
|
Selling, general and administrative expenses ("SG&A") |
$ | 1,920 | $ | 1,852 | $ | 1,903 | |||
|
SG&A, as a percentage of sales |
24.1 | % | 22.7 | % | 21.8 | % | |||
|
Income from operations |
$ | 103 | $ | 142 | $ | 581 | |||
|
Income (loss) from continuing operations before income taxes |
51 | (423 | ) | 524 | |||||
|
Net income (loss) attributable to Foot Locker, Inc. |
12 | (330 | ) | 342 | |||||
|
Diluted earnings per share |
0.13 | (3.51 | ) | 3.58 | |||||
|
|
|
|
|
||||||
|
Adjusted net income (non-GAAP) |
130 | 134 | 473 | ||||||
|
Adjusted diluted earnings per share (non-GAAP) |
1.37 | 1.42 | 4.95 | ||||||
Summary of our 2024 financial performance:
|
|
2024 |
2023 |
2022 |
|||||||||
|
Sales (decrease) increase |
(2.2 | )% | (6.8 | )% | (2.4 | )% | ||||||
|
Comparable sales increase (decrease) |
1.4 | % | (6.7 | )% | (1.9 | )% | ||||||
| ● | Comparable sales increased in both of our channels during 2024, our direct-to-customers channel increased by 6.2% and the stores channel increased by 0.4%. | |
| ● | Total sales declined by 2.2% when compared with the 53 weeks of last year. Excluding the 53rd week of sales of $98 million, sales declined by 1.1%. | |
| ● | One of our strategic initiatives is improving our omni-channel capabilities. We are making ongoing investments in our omni-channel ecosystem, including our e-commerce experience and supply chain capabilities, in order to create seamless shopping experiences across all of our sales channels. During the year, we saw improvements in our e-commerce capabilities and the percentage of our direct-to-customers sales channel increased to 18.2% of total sales in 2024 as compared with 17.2% last year. | |
| ● | Our footwear sales represented 84% of total sales, while apparel and accessory sales were 16%, reflecting a 3% increase in footwear sales as compared with the prior year. |
|
● |
Gross margin, as a percentage of sales, increased to 28.9% as a result of decreased promotions during 2024 and occupancy rate leverage. We prudently managed markdowns to drive margin rate increases. |
|
| ● | Our enhanced loyalty program, FLX Rewards, was launched in the second quarter across North America, with plans to expand to other geographies. The FLX Rewards program introduced FLX Cash, enabling customers to use points towards a discount on purchases, and other member-exclusive benefits, including priority access to highly anticipated sneaker launches, exclusive sales, member-only events, free returns, upgraded birthday gifts, and continued complimentary shipping for members. We believe that our FLX Rewards Program is key to driving customer retention and engagement. This program provides a platform to engage with our customers on a regular basis, through personalized offers and targeted communications. |
|
● |
Our cost optimization program focused on driving efficiencies which allowed us to focus our SG&A dollars on strategic investments in technology and brand building, including our marketing partnership with the NBA. SG&A expenses were 24.1% of sales, an increase of 140 basis points as compared with the prior year. | |
|
● |
We continued to rationalize our portfolio to improve profitability by focusing on underperforming geographies. During 2024, we announced the shutdown of underperforming operations in South Korea, Denmark, Norway, and Sweden. In addition, we entered into agreements to sell our Greece and Romania businesses to a third party and entered into licensing agreements with the purchaser. We expect to close the sale in early 2025. |
| ● | In 2024, we closed 139 underperforming stores, as part of the Lace Up strategic plan to power up our portfolio. We have repositioned the Champs Sports banner, which delivered comparable sales growth in the second half of 2024. |
Highlights of our financial position for the year ended February 1, 2025 include:
|
● |
We ended the year with cash and cash equivalents of $401 million at February 1, 2025 as compared with $297 million at February 3, 2024. |
|
| ● | We returned to free cash flow generation, generating $105 million of free cash flow. | |
|
● |
Our merchandise inventories were $1.5 billion, an increase of 1.1%. Our inventory turns improved to 2.8 times in 2024, an increase of 5% as compared with 2023. |
|
● |
Net cash provided by operating activities was $345 million as compared with $91 million last year. This reflected lower payments for incentive compensation and income taxes, as well as changes in prepaid occupancy expense related to the timing of rent payments due to the 53rd week in 2023. |
|
● |
Cash capital expenditures during 2024 totaled $240 million and were primarily directed to the remodeling or relocation of 478 stores and the build-out of 26 new stores, as well as various technology and infrastructure projects. The new and remodeled stores included our Reimagined concept stores, which is the go-forward store expression of the Foot Locker brand. Our capital plans for 2025 will continue to focus on refreshing our store portfolio, with 80 additional Reimagined stores planned. |
Reconciliation of Non-GAAP Measures
In addition to reporting our financial results in accordance with generally accepted accounting principles ("GAAP"), we report certain financial results that differ from what is reported under GAAP. In the following tables, we have presented certain financial measures and ratios identified as non-GAAP such as Earnings (Loss) Before Interest and Taxes ("EBIT"), adjusted EBIT, adjusted EBIT margin, adjusted income before income taxes, adjusted net income, adjusted net income margin, adjusted diluted earnings per share, adjusted Return on Invested Capital ("ROIC"), and free cash flow.
We present these non-GAAP measures because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by excluding items that are not indicative of our core business or which affect comparability across fiscal periods. These non-GAAP measures are also useful in assessing our progress in achieving our long-term financial objectives.
Additionally, we present certain amounts as excluding the effects of foreign currency fluctuations, which are also considered non-GAAP measures. Throughout the following discussions, where amounts are expressed as excluding the effects of foreign currency fluctuations, such changes are determined by translating all amounts in both years using the prior-year average foreign exchange rates. Presenting amounts on a constant currency basis is useful to investors because it enables them to better understand the changes in our businesses that are not related to currency movements.
We estimate the tax effect of the non-GAAP adjustments by applying a marginal rate to each of the respective items. The income tax items represent the discrete amount that affected the period.
The non-GAAP financial information is provided in addition to, and not as an alternative to, our reported results prepared in accordance with GAAP. Presented below is a reconciliation of GAAP and non-GAAP results discussed throughout this Annual Report on Form 10-K. All adjusted amounts exclude the loss from discontinued operations. Please see the non-GAAP reconciliations for free cash flow in the "Liquidity and Capital Resources" section.
Reconciliation of Non-GAAP Measures
|
($ in millions) |
2024 |
2023 |
2022 |
|||||||||
|
Pre-tax income (loss): |
||||||||||||
|
Income (loss) from continuing operations before income taxes |
$ | 51 | $ | (423 | ) | $ | 524 | |||||
|
Pre-tax adjustments excluded from GAAP: |
||||||||||||
|
Impairment and other (1) |
97 | 80 | 112 | |||||||||
|
Other expense / income, net (2) |
37 | 548 | 41 | |||||||||
|
Adjusted income before income taxes (non-GAAP) |
$ | 185 | $ | 205 | $ | 677 | ||||||
|
|
|
|
|
|||||||||
|
Calculation of Earnings (Loss) Before Interest and Taxes (EBIT): |
||||||||||||
|
Income (loss) from continuing operations before income taxes |
$ | 51 | $ | (423 | ) | $ | 524 | |||||
|
Interest expense, net |
8 | 9 | 15 | |||||||||
|
EBIT |
$ | 59 | $ | (414 | ) | $ | 539 | |||||
|
|
|
|
|
|||||||||
|
Adjusted income before income taxes |
$ | 185 | $ | 205 | $ | 677 | ||||||
|
Interest expense, net |
8 | 9 | 15 | |||||||||
|
Adjusted EBIT (non-GAAP) |
$ | 193 | $ | 214 | $ | 692 | ||||||
|
|
|
|
|
|||||||||
|
EBIT margin % |
0.7 | % | (5.1 | )% | 6.2 | % | ||||||
|
Adjusted EBIT margin % |
2.4 | % | 2.6 | % | 7.9 | % | ||||||
|
After-tax income: |
||||||||||||
|
Net income (loss) attributable to Foot Locker, Inc. |
$ | 12 | $ | (330 | ) | $ | 342 | |||||
|
After-tax adjustments excluded from GAAP: |
||||||||||||
|
Impairment and other, net of income tax benefit of $22, $18, and $21, respectively (1) |
75 | 62 | 91 | |||||||||
|
Other expense / income, net of income tax (benefit) expense of $-, ($142), and ($9), respectively (2) |
37 | 406 | 32 | |||||||||
|
Net loss from discontinued operations, net of income tax benefit of $2, $-, and $1, respectively (3) |
6 | - | 3 | |||||||||
|
Tax reserves benefit / charge (4) |
- | (4 | ) | 5 | ||||||||
|
Adjusted net income (non-GAAP) |
$ | 130 | $ | 134 | $ | 473 | ||||||
|
|
|
|
|
|||||||||
|
Earnings per share: |
||||||||||||
|
Diluted EPS |
$ | 0.13 | $ | (3.51 | ) | $ | 3.58 | |||||
|
Diluted EPS amounts excluded from GAAP: |
||||||||||||
|
Impairment and other (1) |
0.80 | 0.66 | 0.95 | |||||||||
|
Other expense / income, net (2) |
0.38 | 4.31 | 0.33 | |||||||||
|
Net loss from discontinued operations (3) |
0.06 | - | 0.04 | |||||||||
|
Tax reserves benefit / charge (4) |
- | (0.04 | ) | 0.05 | ||||||||
|
Adjusted diluted EPS (non-GAAP) |
$ | 1.37 | $ | 1.42 | $ | 4.95 | ||||||
|
|
|
|
|
|||||||||
|
Net income (loss) margin % |
0.2 | % | (4.0 | )% | 3.9 | % | ||||||
|
Adjusted net income margin % |
1.6 | % | 1.6 | % | 5.4 | % | ||||||
|
(1) |
For 2024, 2023, and 2022, we recorded impairment and other of $97 million ($75 million after tax), $80 million ($62 million after tax), and $112 million ($91 million after tax), respectively. See the "Impairment and Other" section for further information. |
|
(2) |
During 2024, 2023, and 2022, we recorded other expense of $37 million ($37 million after tax), $548 million ($406 million after tax), and $41 million ($32 million after tax), respectively. These adjustments represent fair value and other changes in our minority investments, the 2023 pension settlement charge, and gains on sales of properties and businesses. See the "Other (Expense) Income, net" section for further information. |
|
(3) |
We recognized a charge to discontinued operations of $8 million ($6 million after tax) during the fourth quarter of 2024 and $4 million ($3 million after tax) during the fourth quarter of 2022 related to legal matters of a business we formerly operated. |
|
(4) |
In the first quarter of 2023, we recorded a $4 million benefit related to income tax reserves due to a statute of limitations release. In the second quarter of 2022, we recorded a $5 million charge related to our income tax reserves due to the resolution of a foreign tax settlement. |
Return on Invested Capital
ROIC and Adjusted ROIC are presented below. Adjusted ROIC represents a non-GAAP measure and is calculated as adjusted return after taxes divided by average invested capital. We believe Adjusted ROIC is a meaningful measure because it quantifies how efficiently we generated operating income relative to the capital we have invested in the business, excluding items that are not indicative of our core business or which affect comparability.
ROIC using U.S. GAAP amounts is the most comparable measure to Adjusted ROIC. ROIC increased to 0.4% in 2024, as compared with (5.1)% in the prior year. This increase reflected net income in 2024 as compared with net loss in 2023. Adjusted ROIC increased to 4.1% as compared with 3.8% in the prior year due to a decline in average invested assets in 2024, as we continued to focus on working capital improvements.
|
|
2024 |
2023 |
2022 |
|||||||||
|
ROIC % |
0.4 | % | (5.1 | )% | 5.6 | % | ||||||
|
Adjusted ROIC % (non-GAAP) |
4.1 | % | 3.8 | % | 9.2 | % | ||||||
Calculation of ROIC
|
($ in millions) |
2024 |
2023 |
2022 |
|||||||||
|
EBIT |
$ | 59 | $ | (414 | ) | $ | 539 | |||||
|
- Income tax adjustment (1) |
(35 | ) | 91 | (184 | ) | |||||||
|
+ Net loss attributable to noncontrolling interests |
- | - | 1 | |||||||||
|
= Return after taxes |
$ | 24 | $ | (323 | ) | $ | 356 | |||||
|
Average total assets (2) |
$ | 6,808 | $ | 7,388 | $ | 8,021 | ||||||
|
- Average cash and cash equivalents |
(349 | ) | (417 | ) | (670 | ) | ||||||
|
- Average non-interest bearing current liabilities |
(803 | ) | (927 | ) | (1,109 | ) | ||||||
|
- Average merchandise inventories |
(1,517 | ) | (1,576 | ) | (1,455 | ) | ||||||
|
+ 13-month average merchandise inventories |
1,681 | 1,804 | 1,569 | |||||||||
|
= Average invested capital |
$ | 5,820 | $ | 6,272 | $ | 6,356 | ||||||
|
ROIC % |
0.4 | % | (5.1 | )% | 5.6 | % | ||||||
|
(1) |
Represents the income tax provision adjusted for the tax related to interest expense. |
| (2) | Represents the average total assets on the balance sheet for the current and preceding fiscal year. |
Calculation of Adjusted ROIC
|
($ in millions) |
2024 |
2023 |
2022 |
||||||
|
Adjusted EBIT (non-GAAP) |
$ | 193 | $ | 214 | $ | 692 | |||
|
+ Interest component of straight-line rent expense (1) |
139 | 133 | 136 | ||||||
|
Adjusted net operating profit |
332 | 347 | 828 | ||||||
|
- Adjusted income tax expense (2) |
(93 | ) | (107 | ) | (244 | ) | |||
|
+ Net loss attributable to noncontrolling interests |
- | - | 1 | ||||||
|
= Adjusted return after taxes (non-GAAP) |
$ | 239 | $ | 240 | $ | 585 | |||
|
Average invested capital - as calculated above |
$ | 5,820 | $ | 6,272 | $ | 6,356 | |||
|
Adjusted ROIC % (non-GAAP) |
4.1 | % | 3.8 | % | 9.2 | % | |||
|
(1) |
Represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as finance leases. Calculated using the discount rate for each operating lease recorded as a component of rent expense. Operating lease interest is added back to adjusted net operating profit in the ROIC calculation to account for differences in capital structure between us and our competitors. |
|
(2) |
The adjusted income tax expense represents the marginal tax rate applied to adjusted net operating profit for each of the periods presented. |
Segment Reporting and Results of Operations
We have determined that we have three operating segments, North America, EMEA, and Asia Pacific. Our North America operating segment includes the results of the following banners operating in the U.S. and Canada: Foot Locker, Champs Sports, Kids Foot Locker, and WSS, including each of their related e-commerce businesses. Our EMEA operating segment includes the results of the Foot Locker and Kids Foot Locker banners operating in Europe, including each of their related e-commerce businesses. Our Asia Pacific operating segment includes the results of the Foot Locker banner and its related e-commerce business operating in Australia, New Zealand, and Asia, as well as atmos, which operates primarily in Asia. We have further aggregated these operating segments into one reportable segment based upon their shared customer base and similar economic characteristics.
As previously announced, during the third quarter of 2024, we entered into agreements to sell our Greece and Romania businesses and entered into license arrangements with the purchaser for the rights to operate Foot Locker stores in Greece and Romania and six other countries in Europe.
Sales
Comparable sales is a key performance indicator for us. All references to comparable-store sales for a given period relate to sales of stores that were open at the period-end and had been open for more than one year. The computation of consolidated comparable sales also includes direct-to-customers sales as a result of our omnichannel strategy. We view our e-commerce business as an extension of our physical stores. Stores opened or closed during the period are not included in the comparable-store base; however, stores closed temporarily for relocation or remodeling are included. Computations exclude the effect of foreign currency fluctuations. In fiscal years following those with 53 weeks, including 2024, we calculate comparable sales on a 52-week basis by comparing the current and prior-year weekly periods that are most closely aligned. There may be variations in the way in which some of our competitors and other retailers calculate comparable or same store sales.
In 2024, sales decreased by 2.2% to $7,971 million from sales of $8,154 million in 2023. Excluding the effect of foreign currency fluctuations, sales decreased by 1.9% as compared with 2023. Sales decreased by $31 million from foreign currency fluctuations related primarily to the weakening of the Japanese yen, Canadian dollar, and euro against the U.S. dollar. Results from 2023 include the effect of the 53rd week, which represented sales of $98 million. Excluding sales from the 53rd week of 2023, sales decreased by 1.1%.
The information shown below represents certain sales metrics by sales channel:
|
($ in millions) |
2024 |
2023 |
2022 |
|||||||||
|
Store sales |
$ | 6,517 | $ | 6,751 | $ | 7,219 | ||||||
|
$ Change |
$ | (234 | ) | $ | (468 | ) |
|
|||||
|
% Change |
(3.5 | )% | (6.5 | )% |
|
|||||||
|
% of total sales |
81.8 | % | 82.8 | % | 82.5 | % | ||||||
|
Comparable sales increase (decrease) |
0.4 | % | (6.5 | )% | 3.7 | % | ||||||
|
Direct-to-customer sales |
$ | 1,454 | $ | 1,403 | $ | 1,528 | ||||||
|
$ Change |
$ | 51 | $ | (125 | ) |
|
||||||
|
% Change |
3.6 | % | (8.2 | )% |
|
|||||||
|
% of total sales |
18.2 | % | 17.2 | % | 17.5 | % | ||||||
|
Comparable sales increase (decrease) |
6.2 | % | (7.4 | )% | (21.2 | )% | ||||||
|
Total sales |
$ | 7,971 | $ | 8,154 | $ | 8,747 | ||||||
|
$ Change |
$ | (183 | ) | $ | (593 | ) |
|
|||||
|
% Change |
(2.2 | )% | (6.8 | )% |
|
|||||||
|
Comparable sales increase (decrease) |
1.4 | % | (6.7 | )% | (1.9 | )% | ||||||
Combined stores and direct-to-customer sales metrics for 2024 as compared with the corresponding prior-year period are presented below.
|
|
Constant Currencies |
Comparable Sales |
||||||
|
Foot Locker |
0.9 | % | 3.5 | % | ||||
|
Champs Sports |
(11.3 | ) | (3.2 | ) | ||||
|
Kids Foot Locker |
1.5 | 3.4 | ||||||
|
WSS |
3.1 | (3.4 | ) | |||||
|
North America |
(1.4 | ) | 1.3 | |||||
|
Foot Locker (1) |
2.5 | 4.4 | ||||||
|
Sidestep |
(100.0 | ) | n.m. | |||||
|
EMEA |
0.9 | 4.4 | ||||||
|
Foot Locker |
(14.0 | ) | (6.6 | ) | ||||
|
atmos |
(16.3 | ) | (6.8 | ) | ||||
|
Asia Pacific |
(14.7 | ) | (6.7 | ) | ||||
|
Total |
(1.9 | )% | 1.4 | % | ||||
|
(1) |
Includes sales from 13 and 7 Kids Foot Locker stores operating in Europe as of February 3, 2024 and February 1, 2025, respectively. |
Comparable sales increased by 1.4% as compared with the prior year. By operating segment, North America and EMEA had increases of 1.3% and 4.4%, respectively, while Asia Pacific was a decline in comparable sales of 6.7%. Comparable sales increased in both our stores and direct-to-customer channels in 2024, resulting from a positive customer response to product offerings, enhancements in stores and online, marketing activities, and strategic promotions. From a product perspective, comparable sales increased within the footwear and accessories categories driven by growth and momentum from a broad portfolio of our brand partners and the positive customer response to our refreshed assortments. These increases were partially offset by a decrease in the apparel category. For the combined channels, sales excluding foreign currency fluctuations declined in North America and Asia Pacific, partially offset by an increase in EMEA.
Our North America comparable sales were 1.4%, however total sales, excluding foreign currency fluctuations, were negatively affected by our strategic decision to close underperforming stores in our Foot Locker, Kids Foot Locker, and Champs Sports banners, as 89 fewer stores were operating at year end as compared with the prior year. Over the past two years, we repositioned the Champs Sports banner, which resulted in expected total sales and comparable sales declines due to the transition. As of the end of 2024, the repositioning is substantially complete as we rationalized the number of stores operating over the last two years by over 20%. Champs Sports sales declined by $148 million on a constant currency basis as compared with the prior year. During the second quarter, we launched our new Champs Sports brand platform, garnering positive results and improved comparable sales trends. This new brand platform, "Sport For Life" is a celebration of the powerful connection between sports and everyday life serving the sports-style enthusiast. Champs Sports exited the year with sustained momentum with comparable sales growth of 2.8% and 1.8% in the third and fourth quarters, respectively. Our WSS banner benefited from new store growth, as they operated 10 additional stores since the prior year end, however comparable sales were negatively affected by general economic and geopolitical conditions that disproportionately affected our value-based consumers.
Constant currency sales for EMEA increased, reflecting improved product assortments coupled with a positive response to media campaigns in a continued highly promotional marketplace. This was partially offset by the loss of sales from the Sidestep banner, which closed in the second quarter of 2023 resulting in a decrease of $26 million.
Asia Pacific's sales, excluding foreign currency fluctuations, decreased primarily as a result of the prior-year closures of our operations in Hong Kong and Macau and the sale of our Singapore and Malaysia operations to our licensing partner in the second quarter of 2023. These businesses represented a decline in sales of $30 million. Additionally, sales decreased from our operations in Australia and New Zealand due to macroeconomic headwinds and a highly competitive marketplace. Sales from our atmos banner declined by $40 million due to the weakening of the Japanese yen to the U.S. dollar, reducing sales by $11 million. Excluding foreign currency fluctuations, atmos' sales declined by $29 million and was primarily due to our decision to accelerate shifts to our own digital site and away from less profitable third-party digital platforms, in addition to the closing of our U.S. atmos operations at the end of the fourth quarter of 2023, which represented a decline in sales of $13 million.
Licensing Revenue
We have license agreements with unaffiliated third-party operators located in the Middle East, Europe, and Asia. In 2024, licensing revenue increased to $17 million from $14 million of licensing revenue in 2023. The increase was driven by the net increase of 22 licensed stores as compared with the prior year.
Gross Margin
|
($ in millions) |
2024 |
2023 |
2022 |
|||||||||
|
Cost of merchandise |
$ | 4,674 | $ | 4,866 | $ | 4,920 | ||||||
|
$ Change |
(192 | ) | (54 | ) | ||||||||
|
% of total sales |
58.7 | % | 59.7 | % | 56.3 | % | ||||||
|
Effect on gross margin rate in basis points |
100 | (340 | ) | |||||||||
|
Occupancy and buyers' compensation |
$ | 992 | $ | 1,029 | $ | 1,035 | ||||||
|
$ Change |
(37 | ) | (6 | ) | ||||||||
|
% of total sales |
12.4 | % | 12.6 | % | 11.8 | % | ||||||
|
Effect on gross margin rate in basis points |
20 | (80 | ) | |||||||||
|
Total cost of goods sold |
$ | 5,666 | $ | 5,895 | $ | 5,955 | ||||||
|
$ Change |
(229 | ) | (60 | ) |
|
|||||||
|
Gross margin rate |
28.9 | % | 27.7 | % | 31.9 | % | ||||||
|
Basis point change |
120 | (420 | ) |
|
||||||||
Gross margin is calculated as sales minus cost of sales. Cost of sales includes the cost of merchandise, freight, distribution costs including related depreciation expense, shipping and handling, occupancy and buyers' compensation. Occupancy costs include rent (including fixed common area maintenance charges and other fixed non-lease components), real estate taxes, general maintenance, and utilities.
The gross margin rate increased in 2024 by 120 basis points as compared to the prior year as we were less promotional in 2024 despite the highly promotional marketplace and the liquidation of inventories in the geographies that we are closing. The markdown pressure was partially offset by vendor allowances, which improved our gross margin rate by 20 basis points as compared with the prior year. Our focus on inventory management allowed us to compete competitively while achieving this improvement. During the second quarter, we launched our loyalty program, which converted existing points to a more valuable proposition for our customers and the cost of the program improvement pressured the gross margin rate by 10 basis points for the year. The leverage in the occupancy and buyers' compensation rate was primarily related to rent renegotiations and our ongoing optimization of our store portfolio.
Selling, General and Administrative Expenses (SG&A)
|
($ in millions) |
2024 |
2023 |
2022 |
|||||||||
|
SG&A |
$ | 1,920 | $ | 1,852 | $ | 1,903 | ||||||
|
$ Change |
$ | 68 | $ | (51 | ) |
|
||||||
|
% Change |
3.7 | % | (2.7 | )% |
|
|||||||
|
SG&A as a percentage of sales |
24.1 | % | 22.7 | % | 21.8 | % | ||||||
SG&A increased by $68 million, or 3.7%, in 2024, as compared with the prior year. As a percentage of sales, the SG&A rate increased by 140 basis points as compared with 2023. Excluding the effect of foreign currency fluctuations, SG&A increased by $75 million, or 4.0%, as compared with the prior year.
The increase in SG&A, as a percentage of sales, primarily reflected investments in technology and brand-building, as well as higher inflation and incentive compensation expense. These increases were partially offset by savings from the cost optimization program, store closures, and ongoing expense discipline.
Depreciation and Amortization
|
($ in millions) |
2024 |
2023 |
2022 |
|||||||||
|
Depreciation and amortization |
$ | 202 | $ | 199 | $ | 208 | ||||||
|
$ Change |
$ | 3 | $ | (9 | ) | |||||||
|
% Change |
1.5 | % | (4.3 | )% |
|
|||||||
Depreciation and amortization increased by $3 million as compared with the prior year. Excluding the effect of foreign currency fluctuations, depreciation and amortization increased by $4 million primarily due to our capital expenditures, partially offset by operating fewer stores, the full amortization of our customer list intangibles, and lower depreciation and amortization associated with impairments recorded in the current and prior year.
Operating Results
Division profit was $250 million, or 3.1% of sales in 2024. This compares with $264 or 3.2% of sales, for the prior year. The decline in store sales coupled with higher SG&A expenses, despite our cost-cutting program benefits and improved gross margin rate, negatively affected division profit results. See Note 3, Segment Information for additional information.
Impairment and Other
For 2024, impairment and other included impairment charges of $32 million from a review of underperforming stores and accelerated tenancy charges on right-of-use assets for the shutdown of operations in South Korea, Denmark, Norway, and Sweden, and the New York headquarters relocation. We will close all stores operating in South Korea, Denmark, Norway, and Sweden as we focus on improving the overall results of our international operations. Additionally, we incurred reorganization costs of $26 million primarily related to the announced closure and relocation of our global headquarters and the shutdown of our operations in South Korea, Denmark, Norway, and Sweden. This year also included intangible asset impairment of $25 million on an atmos tradename and a $14 million loss accrual for legal and other matters. We routinely monitor claims and record provisions for losses when claims become probable and the amount is estimable.
For 2023, impairment and other charges included $30 million of impairment of long-lived assets and right-of-use assets and accelerated tenancy charges on right-of-use assets for closures of the Sidestep banner, certain Foot Locker Asia stores, and our U.S. atmos stores. Additionally, we incurred $27 million of transformation consulting expense, $17 million of reorganization costs primarily related to a severance and the closures of the Sidestep banner, certain Foot Locker Asia stores, and a North American distribution center. We also incurred intangible asset impairment of $9 million on an atmos tradename, partially offset by a $4 million reduction in the fair value of the atmos contingent consideration.
See Note 4, Impairment and Other for additional information.
Corporate Expense
|
($ in millions) |
2024 |
2023 |
2022 |
|||||||||
|
Corporate expense |
$ | 50 | $ | 42 | $ | 151 | ||||||
|
$ Change |
$ | 8 | $ | (109 | ) | |||||||
Corporate expense consists of unallocated general and administrative expenses as well as depreciation and amortization related to our corporate headquarters, centrally managed departments, unallocated insurance and benefit programs, certain foreign exchange transaction gains and losses, and other items. The allocation of corporate expense to the operating divisions is adjusted annually based upon an internal study.
Depreciation and amortization included in corporate expense was $35 million and $36 million in 2024 and 2023, respectively. Excluding the changes in depreciation and amortization, corporate expense increased primarily due to higher performance-based incentive compensation expense.
Interest Expense, net
|
($ in millions) |
2024 |
2023 |
2022 |
|||||||||
|
Interest expense |
$ | (24 | ) | $ | (24 | ) | $ | (24 | ) | |||
|
Interest income |
16 | 15 | 9 | |||||||||
|
Interest expense, net |
$ | (8 | ) | $ | (9 | ) | $ | (15 | ) | |||
|
Weighted-average interest rate (excluding fees) |
4.2 | % | 3.9 | % | 3.8 | % | ||||||
We recorded net interest expense of $8 million in 2024, compared to $9 million in 2023. Interest income increased primarily due to higher interest rates earned on our cash and cash equivalents.
Other (Expense) Income, net
|
($ in millions) |
2024 |
2023 |
2022 |
|||||||||
|
Other (expense) income, net |
$ | (44 | ) | $ | (556 | ) | $ | (42 | ) | |||
This caption generally includes non-operating items, of which the following items are excluded to arrive at our non-GAAP results, impairment charges and changes in fair value of minority investments measured at fair value or using the fair value measurement alternative, gains on sales of businesses or assets, and the pension settlement charge. Additionally included in this caption are the changes in the market value of our available-for-sale security and net benefit expense related to our pension and postretirement programs excluding the service cost component.
During 2024, we recorded a $35 million non-cash impairment charge related to a minority investment that is accounted for using the fair value measurement alternative, which is cost, adjusted for changes in observable prices minus impairment under the practicability exception. We assess the carrying value of this investment for impairment whenever events or circumstances indicate that the carrying value may not be recoverable and consider factors including, but not limited to, expected cash flows, underperformance relative to its plans and continued losses of the investee. We estimated the fair value using a discounted cash flow approach, which considered forecasted cash flows provided by the investee's management, as well as assumptions over discount rates and terminal values. Other expense also included our share of losses related to our equity method investments of $2 million and expense of $7 million related to our pension and postretirement programs.
During 2023, we recorded an impairment of $478 million on a minority investment. In addition, as part of efforts to reduce our pension plan obligations, we transferred approximately $109 million of our U.S. Qualified pension plan registered assets and liabilities to an insurance company through the purchase of a group annuity contract, under which an insurance company is required to directly pay and administer pension payments to certain of our pension plan participants, or their designated beneficiaries. In connection with this transaction, we recorded a non-cash pretax settlement charge of $75 million, which accelerated the recognition of previously unrecognized losses. Additionally, 2023 also included a $3 million gain from the sale of a North American corporate office property, a $3 million gain from the sale of our Singapore and Malaysian Foot Locker businesses to a license partner, and our share of losses related to equity method investments of $1 million. Additionally, we recorded expense of $8 million related to our pension and postretirement programs.
See Note 5, Other (Expense) Income, net for additional information.
Income Taxes
|
($ in millions) |
2024 |
2023 |
2022 |
|||||||||
|
Income tax (benefit) expense |
$ | 33 | $ | (93 | ) | $ | 180 | |||||
|
Effective tax rate |
64.6 | % | 22.0 | % | 34.3 | % | ||||||
We recorded income tax expense of $33 million in 2024, or an effective rate of 64.6%, as compared with an income tax benefit of $93 million or 22.0% in 2023. The change in the effective tax rate reflected several factors, including the effects of non-deductible losses, other valuation allowance and reserve adjustments, coupled with changes to the level and geographic mix of income. During the current year, related to the impairment of a minority investments, we increased our valuation allowances related to capital losses as we do not believe we will generate capital gains to utilize these losses. In addition, the effective tax rate in 2023 included a 200-basis point deferred tax asset adjustment which negatively affected the tax rate.
We regularly assess the adequacy of provisions for income tax contingencies in accordance with the applicable authoritative guidance on accounting for income taxes. As a result, reserves for unrecognized tax benefits may be adjusted due to new facts and developments, such as changes to interpretations of relevant tax law, assessments and settlements with taxing authorities, and lapses of statutes of limitations. During 2024, we recognized tax benefits of $5 million from reserve releases due to various statute of limitations expirations on our foreign income taxes. We recorded a $4 million reserve release in 2023 from a statute of limitations expiration on our foreign income taxes, as well as other various reserve releases totaling $4 million due to settlements of international tax examinations.
The Organization for Economic Co-operation and Development ("OECD") Pillar II guidelines published to date include transitional safe harbor rules around the implementation of the Pillar II global minimum tax of 15%. Certain jurisdictions where we operate have implemented select provisions of the OECD directive effective in 2024. Based on current enacted legislation, the implementation did not significantly increase our tax expense in 2024. We are monitoring developments and expect additional guidance or legislation to be issued by the OECD and various jurisdictions during 2025, which could affect any minimum tax we owe in future periods.
Liquidity and Capital Resources
Liquidity
Our primary source of liquidity has been cash flow from operations, while the principal uses of cash have been to pay down liabilities and other working capital requirements; finance capital expenditures related to store openings, store remodelings, internet and mobile sites, information systems, and other support facilities; quarterly dividend payments; and interest payments; and fund other cash requirements to support the development of our short-term and long-term operating strategies. We generally finance real estate with operating leases. We believe our cash, cash equivalents, future cash flow from operations, and amounts available under our credit agreement will be adequate to fund these requirements.
We may also repurchase our common stock through open market purchases, privately negotiated transactions, or otherwise, including through Rule 10b5-1 trading plans. Such repurchases if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material. In 2022, the Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $1.2 billion of its common stock. The share repurchase program does not have an expiration date and as of February 1, 2025, approximately $1.1 billion remained available. The Board's authorization of the share repurchase program does not obligate us to acquire any particular amount of common stock, and the repurchase program may be commenced, suspended, or discontinued at any time.
Any material adverse change in customer demand, fashion trends, competitive market forces, or customer acceptance of our merchandise mix and retail locations, uncertainties related to the effect of competitive products and pricing, our reliance on a few key suppliers for a significant portion of our merchandise purchases and risks associated with global product sourcing, economic conditions worldwide, the effects of currency fluctuations, as well as other factors listed under the heading "Disclosure Regarding Forward-Looking Statements," could affect our ability to continue to fund our liquidity needs from business operations.
The Board of Directors regularly reviews the dividend policy and rate, taking into consideration the overall financial and strategic outlook of our earnings, liquidity, and cash flow.
Maintaining access to merchandise that we consider appropriate for our business may be subject to the policies and practices of our key suppliers. Therefore, we believe that it is critical to continue to maintain satisfactory relationships with these key suppliers. We purchased 85% and 84% of our merchandise from our top five suppliers in 2024 and 2023, respectively. Approximately 59% and 65% was purchased from one supplier, Nike, Inc., in 2024 and 2023, respectively.
Planned capital expenditures in 2025 are $270 million, of which $185 million is dedicated to real estate projects designed to elevate our customers' in-store experience. This includes the planned opening of 80 "Reimagined" Foot Locker and Kids Foot Locker stores, primarily through conversions or relocations of existing stores. Spending for 2025 also includes refreshing approximately 300 existing stores to our current brand design standards and will incorporate key elements of our "Reimagined" design specifications. Finally, the capital plan for 2025 also includes $85 million primarily for our technology and supply chain initiatives, including capital expenditures related to a new distribution center and our new global headquarters. We also expect to spend an additional $30 million in software-as-a-service implementation costs related to our technology initiatives as we modernize our customer facing and support capabilities as part of a multi-year project. We have the ability to revise and reschedule some of the anticipated spending program should our financial position require it.
Operating Activities
|
($ in millions) |
2024 |
2023 |
2022 |
|||||||||
|
Net cash provided by operating activities |
$ | 345 | $ | 91 | $ | 173 | ||||||
|
$ Change |
$ | 254 |
|
|
||||||||
The amount provided by operating activities reflects net income (loss) adjusted for non-cash items and working capital changes. Adjustments to net income for non-cash items include impairment and other, pension settlement charge, fair value adjustments to our minority investments, depreciation and amortization, deferred income taxes, and share-based compensation expense. The increase in cash from operating activities was primarily due to changes in other accruals reflecting lower payments for incentive compensation and income taxes, as well as changes in prepaid occupancy expense related to the timing of rent payments as compared to the prior year due to the shift caused by the 53rd week in 2023. The increases in operating cash were partially offset by a decrease in our net income, adjusted for non-cash items, partially related to the 53rd week of operations in 2023.
Investing Activities
|
($ in millions) |
2024 |
2023 |
2022 |
|||||||||
|
Net cash used in investing activities |
$ | (240 | ) | $ | (222 | ) | $ | (162 | ) | |||
|
$ Change |
$ | (18 | ) |
|
|
|||||||
We have made meaningful progress as we continue to implement our strategic initiative to power-up our portfolio of stores. Capital expenditures were $240 million, as compared with $242 million last year. During 2024, we completed the remodeling or relocation of 478 existing stores, including the refresh of 407 stores to our updated brand design standards and opened 26 new stores, 7 of which were our Reimagined store concept that aims to deliver an elevated shopping experience and unrivaled customer service. At year end, 44% of our Foot Locker, Kids Foot Locker, and Champs Sports gross store square footage was at current brand standard. We also made progress on the development of information systems, websites, and infrastructure, including supply chain initiatives.
During 2023, we sold our businesses operating in Singapore and Malaysia for total cash consideration of $24 million, or $16 million net of $8 million of cash in the business. We also sold a corporate office property in North America for proceeds of $6 million.
Financing Activities
|
($ in millions) |
2024 |
2023 |
2022 |
|||||||||
|
Net cash used in financing activities |
$ | (7 | ) | $ | (120 | ) | $ | (279 | ) | |||
|
$ Change |
$ | 113 |
|
|
||||||||
The change in financing activities primarily resulted from not paying dividends in 2024, as compared with $113 million paid in 2023. Also contributing to the decline in cash used in financing activities was a $5 million reduction in repurchases of common stock related to share-based tax withholdings, partially offset by $4 million in debt issuance costs related to our credit facility amendment. During the second quarter of 2024, we amended our $600 million revolving credit facility, which provided for (i) an uncommitted "accordion" feature that allows us, subject to certain customary conditions, to increase the size of the revolving credit facility to up to $750 million in the aggregate, (ii) an extension of the maturity date from July 14, 2025 to June 20, 2029, and (iii) a change to the interest rates and commitment fees applicable to the loans and commitments, among other items.
Free Cash Flow (non-GAAP measure)
In addition to net cash provided by operating activities, we use free cash flow as a useful measure of performance and as an indication of our financial strength and our ability to generate cash. We define free cash flow as net cash provided by operating activities less capital expenditures (which is classified as an investing activity). We believe the presentation of free cash flow is relevant and useful for investors because it allows investors to evaluate the cash generated from underlying operations in a manner similar to the method used by management. Free cash flow is not defined under U.S. GAAP. Therefore, it should not be considered a substitute for income or cash flow data prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures.
The following table presents a reconciliation of net cash flow provided by operating activities, the most directly comparable U.S. GAAP financial measure, to free cash flow.
|
($ in millions) |
2024 |
2023 |
2022 |
|||||||||
|
Net cash provided by operating activities |
$ | 345 | $ | 91 | $ | 173 | ||||||
|
Capital expenditures |
(240 | ) | (242 | ) | (285 | ) | ||||||
|
Free cash flow |
$ | 105 | $ | (151 | ) | $ | (112 | ) | ||||
Capital Structure
We maintain a credit facility for working capital and general corporate purposes. We currently have a $600 million asset-based revolving credit facility that is scheduled to expire on June 20, 2029. No borrowings were outstanding as of February 1, 2025. The amount of borrowing availability under our credit facility is reduced by the amount of standby and commercial letters of credit outstanding, which were $7 million as of February 1, 2025.
Credit Rating
As of March 27, 2025, our corporate credit ratings fromStandard & Poor's and Moody's Investors Service are BB and Ba3, respectively. In addition, Standard & Poor's and Moody's Investors Service have rated our senior unsecured notes BB and B1, respectively.
Off-Balance Sheet Arrangements
We have not entered into any transactions with unconsolidated entities that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity. Also, our financial policies prohibit the use of derivatives for which there is no underlying exposure.
Critical Accounting Policies
Our responsibility for integrity and objectivity in the preparation and presentation of the financial statements requires application of appropriate accounting policies. Generally, our accounting policies and methods are those specifically required by U.S. GAAP. Included in the Summary of Significant Accounting Policies note in "Item 8. Consolidated Financial Statements and Supplementary Data" is a summary of the most significant accounting policies. In some cases, we are required to calculate amounts based on estimates for matters that are inherently uncertain. We believe the following to be the most critical of those accounting policies that necessitate subjective judgments.
Impairment of Long-Lived Tangible Assets and Right-of-Use Assets
We perform an impairment review when circumstances indicate that the carrying value of long-lived tangible assets and right-of-use assets may not be recoverable ("a triggering event"). Our policy for determining whether a triggering event exists comprises the evaluation of measurable operating performance criteria and qualitative measures at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets and liabilities, which is generally at the store level. We also evaluate for triggering events at the banner level. If an impairment review is necessitated by the identification of a triggering event, we determine the fair value of the asset using assumptions predominately identified from our historical performance and our long-range strategic plans.
To determine if an impairment exists, we compare the carrying amount of the asset with the estimated future undiscounted cash flows expected to result from the use of the asset group. If the carrying amount of the asset exceeds the estimated undiscounted future cash flows, we measure the amount of the impairment by comparing the carrying amount of the asset group with its estimated fair value.
The estimation of fair value is measured by discounting expected future cash flows using a risk adjusted discount rate and by using a market approach to determine current lease rates. Future expected cash flows are based upon estimates that, if not achieved, may result in significantly different results.
Recoverability of Goodwill and Indefinite-Lived Intangible Assets
We review goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter of each fiscal year or more frequently if impairment indicators arise. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. The review of impairment consists of either using a qualitative approach to determine whether it is more likely than not that the fair value of the assets is less than their respective carrying values or a one-step qualitative impairment test. In 2024, we performed a quantitative approach to valuing goodwill and indefinite-lived intangibles assets.
When we perform the qualitative assessment, we consider many factors in evaluating whether the carrying value of goodwill may not be recoverable, including declines in our stock price and market capitalization in relation to the book value of the Company and macroeconomic conditions affecting retail. If, based on the results of the qualitative assessment, it is concluded that it is not more likely than not that the fair value of a reporting unit exceeds its carrying value, additional quantitative impairment testing is performed. The quantitative test requires that the carrying value of each reporting unit be compared with its estimated fair value. If the carrying value of a reporting unit is greater than its fair value, a goodwill impairment charge will be recorded for the difference (up to the carrying value of goodwill).
We use a discounted cash flow approach to determine the fair value of a reporting unit. The determination of discounted cash flows of the reporting units and assets and liabilities within the reporting units requires significant estimates and assumptions. These estimates and assumptions are consistent with our internal forecasts and operating plans and primarily include, but are not limited to, the discount rate, terminal growth rates, earnings before depreciation and amortization, and capital expenditures forecasts. Additionally, we compare the indicated equity value to our market capitalization and evaluate the resulting implied control premium to determine if the estimated enterprise value is reasonable compared to external market indicators. Due to the inherent uncertainty involved in making these estimates, actual results could differ from those estimates. We evaluate the merits of each significant assumption, both individually and in the aggregate, used to determine the fair value of the reporting units, as well as the fair values of the corresponding assets and liabilities within the reporting units.
We have three reporting units, representing our operating segments of North America, EMEA, and Asia Pacific. Our 2024 quantitative analysis determined that the fair value of each reporting unit exceeded its carrying value. However, the EMEA and Asia Pacific reporting units had fair values that were not substantially in excess of their carrying values. The total amount of goodwill attributable to these reporting units was $238 million and the fair value was 6.0% higher than the carrying value. The fair value of our North America reporting unit's goodwill was substantially greater than its carrying value.
It is possible, depending upon a number of factors that are not determinable at this time or within our control, that the fair value of these two reporting units could decrease in the future and result in an impairment to goodwill. Specifically, actual results may vary from our forecasts and such variations may be material and unfavorable. Additionally, further deterioration or sustained declines in our market capitalization may trigger the need for future impairment tests where the conclusions may differ and could result in the recognition of an impairment charge.
Owned trademarks and trade names that have been determined to have indefinite lives are not subject to amortization but are reviewed at least annually for potential impairment. Our impairment evaluation for indefinite-lived intangible assets consists of either a qualitative or quantitative assessment, similar to the process for goodwill.
If the results of the qualitative assessment indicate that it is more likely than not that the fair value of the indefinite lived intangible is less than its carrying amount, or if we elect to proceed directly to a quantitative assessment, we calculate the fair value using a discounted cash flow method, based on the relief-from-royalty concept, and compare the fair value to the carrying value to determine if the asset is impaired. This methodology assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to exploit the related benefits of these types of assets. This approach is dependent on a number of factors, including estimates of future growth and trends, royalty rates in the category of intellectual property, discount rates, and other variables. We base our fair value estimates on assumptions we believe to be reasonable, but which are unpredictable and inherently uncertain. Actual future results may differ from those estimates. We recognize an impairment loss when the estimated fair value of the intangible asset is less than the carrying value. Following the $25 million impairment recorded related to our atmos tradename during the year ended February 1, 2025, there is no excess of fair value over the carrying value. Therefore, any further decrease in estimated fair value will result in an additional impairment charge. Additionally, our WSS tradename, which has a carrying value of $296 million, has an excess of fair value over the carrying value of 7.8%. If future results for atmos or WSS deteriorate at rates in excess of our current projections, we may be required to record additional non-cash impairment charges to these intangible assets.
Fair Value Measurements of Minority Investments
We account for certain minority investments using the fair value measurement alternative, which is at cost, adjusted for changes in observable prices minus impairment under the practicability exception. We evaluate our minority investments for impairment when events or circumstances indicate that the carrying value of the investment may not be recoverable and that impairment is other than temporary. If an indication of impairment occurs, we evaluate the recoverability of our carrying value based on the fair value of the investment. If an impairment is indicated, we adjust the carrying values of the investment downward, if necessary, to their estimated fair values.
We estimate the fair value of our minority investments using a discounted cash flow approach and/or a market approach, which consider forecasted cash flows provided by the investee's management, as well as assumptions over discount rates, terminal values, and selected comparable companies. Therefore, the valuation results cannot be determined with precision and may not be realized in an actual sale the investment. Additionally, there are inherent uncertainties in any valuation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values.
Deferred Tax Asset Valuation Allowance
We record income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets and liabilities are expected to be realized or settled. We must assess the likelihood that our deferred tax assets will be recoverable based on expected future taxable income. To the extent that we determine it is more-likely-than-not (greater than a 50% probability) that some portion or all of the deferred tax assets will not be realized, we must establish a valuation allowance.
At February 1, 2025, we had valuation allowances of $112 million to reduce our $927 million of deferred tax assets to amounts that are more likely than not to be realized. The net deferred tax assets of $815 million include $85 million net operating loss ("NOL") carryforwards and $13 million deferred interest deductions in the Netherlands that can be used to offset taxable income in future periods. These NOLs and deferred interest deductions have an indefinite carryfoward period. After weighing the positive and negative evidence and considering both recent losses and forecasted taxable income as well as other tax planning actions, we consider it more likely than not that we will have sufficient taxable income in the future that will allow us to realize these deferred tax assets. However, it is possible that some or all of these deferred tax assets could ultimately not be realized, especially if our business initiatives are not successful or our forecasted taxable income is not generated. Specifically, unless we are able to generate sufficient future taxable income in the Netherlands, a substantial valuation allowance to reduce our $98 million deferred tax assets may be required.
We will continue to assess the need for a valuation allowance on the deferred tax assets by evaluating both positive and negative evidence that may exist. The estimation of future taxable income in these jurisdictions and our resulting ability to utilize deferred tax assets can significantly change based on future events. Thus, recorded valuation allowances may be subject to material future changes. We will continue to monitor facts and circumstances in our reassessment of the likelihood that operating loss carryforwards and other deferred tax attributes will be utilized.
Recent Accounting Pronouncements
Descriptions of the recently issued and adopted accounting principles are included in the Summary of Significant Accounting Policies note in "Item 8. Consolidated Financial Statements and Supplementary Data."
Attachments
Disclaimer
Foot Locker Inc. published this content on March 27, 2025, and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on March 27, 2025 at 20:31:21.814.
