February 12, 2020

Via Edgar and Email

 

Mr. Stephen Kim and Mr. Doug Jones

Division of Corporation Finance

United States Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

 

 

Re: Foot Locker, Inc.

Form 10-Q for the Period Ended November 2, 2019

Filed on December 11, 2019

Commission File No. 001-10299

 

 

Dear Gentlemen:

 

Please find our responses below to the comment letter dated January 30, 2020 relating to the Form 10-Q for the period ended November 2, 2019 of Foot Locker, Inc. (herein referred to as the “Company,” “we,” or “our”). Confidential treatment of certain information contained herein has been requested by Foot Locker, Inc. pursuant to Rule 83 of the Rules of Practice of the Securities and Exchange Commission. This letter omits certain information that has been included in an unredacted version delivered to the Division of Corporation Finance (the “Staff”). Asterisks denote the omitted material. In addition, pursuant to Rule 12b-4 of the Securities Exchange Act of 1934, as amended, the Company requests that all supplemental materials provided to the Staff be returned to the Company upon completion of the Staff’s review and that no copies of such material are made and, in the event that the Staff is unable to conclude that the return of such supplemental materials is proper, the Company requests confidential treatment of such information pursuant to Rule 83.

 

To assist your review, we have retyped the text of the Staff’s comments below.

 

Form 10-Q for the Period Ended November 2, 2019

 

Notes to the Condensed Consolidated Financial Statements

3. Segment Information, page 8

 

1. You disclose you have three operating segments (North America, EMEA and Asia Pacific). You further indicate you have aggregated these operating segments into one reportable segment based upon their shared customer base and similar economic characteristics. Please explain to us in detail how the customer base is shared and how this meets the applicable criteria for aggregation contained in ASC 280-10-50-11.

 

 

Likewise, demonstrate how the economic characteristics are similar among the three separate geographic operating segments and how you determined the segments can be expected to essentially have the same future prospects. In your response, tell us the measure(s) you consider to be economically similar and why such measure(s) was selected.

 

Response

 

A reportable segment can be comprised of operating segments that have been aggregated. 

 

During the first quarter ended April 4, 2019, we concluded that we had one reportable segment. We determined that our three operating segments (North America, EMEA and Asia Pacific) met the aggregation criteria. 

 

In order to identify our reportable segments, we considered the guidance in ASC 280-10-50-11:

 

Operating Segments often exhibit similar long-term financial performance if they have similar economic characteristics. For example, similar long-term average gross margins for two operating segments would be expected if their economic characteristics were similar. Two or more operating segments may be aggregated into a single operating segment if aggregation is consistent with the objective and basic principles of this Subtopic, if the segments have similar economic characteristics, and if the segments are similar in all of the following areas:

 

 

In order to conclude on the determination of reportable segments, we analyzed whether the three identified operating segments (North America, EMEA, and Asia Pacific) meet the aggregation criteria set forth above as follows:

 

 

Essentially all of the products we sell across our different geographic markets are similar: athletically inspired footwear, apparel, and accessories. The majority of products that are purchased by our operating segments are from the same branded vendors.

 

 

Essentially all of our products are purchased from leading athletic brands, not produced by us.

 

The end customer, as well as the use of our product, is similar for our respective operating segments. For all three operating segments, our customers are those who desire athletically inspired shoes, apparel, and accessories. Additionally, our marketing efforts are global in nature, reaching customers that share a passion for sneakers and related products.

 

 

The methods used to distribute products are similar for all of our operating segments. For all three operating segments, the customer either visits a physical store location to purchase a product or for products ordered online, the product is shipped to the customer.

 

 

Not applicable. The nature of the regulatory environment is not a factor for our retail operations.

 

In order to determine if the North America, EMEA, and Asia Pacific operating segments share similar economic characteristics, we reviewed the implementation guidance in ASC 280-10-55-7, paragraphs A through C:

 

 

 

 

The principle consideration in the determination of our reportable segments and the aggregation of our 3 operating segments, was gross margin. We reviewed our gross margin performance over the last 3 years, as well as the Company’s long-term strategic plan to assess the future prospects of our operating segments. The implementation guidance in ASC 280-10-55-7 paragraph C notes that gross margin is a measure of profitability that is less likely to be affected by allocations. Additionally, we selected gross margin because it is an important financial metric used in allocating resources to our operating segments.

 

Since gross margins can vary from year to year as a result of fluctuating prices, product mix, markdown strategies, as well as short-term economic conditions, it is more meaningful to review long-term averages when assessing economic similarity rather than an individual year’s margin. Our analysis was prepared using the product gross margin rates and also as presented in our SEC filing, which reflects the inclusion of occupancy and buyers’ compensation in cost of goods sold.

 

 

 

 

As disclosed in our filings, during 2018, the Company expanded into Asia by opening five stores and launching our digital channels across Singapore, Hong Kong, and Malaysia. During the first quarter of 2019, we updated our organizational structure to support an accelerated growth strategy for the region. We opened an Asian headquarters in Singapore and realigned our organization into three distinct geographic regions: EMEA, Asia Pacific, and North America. As such, the Asia Pacific’s results include the results of this new area.

 

The early results are affected by start-up related costs, such as higher freight costs into the region and rent during the buildout phase with no corresponding sales. Although Asia Pacific’s gross margin, inclusive of occupancy and buyers’ compensation, was *% for the third quarter ended November 2, 2019, which represented a *% absolute and *% relative variance from the average North America and EMEA operating segment combined gross margin rate, we expect that when Asia Pacific reaches maturity, that its margins will be consistent with the other operating segments. Additionally, Asia Pacific does not represent 10% of revenue, profit or loss or assets.

 

* Information is provided separately as Attachment I, for which confidential treatment is requested by Foot Locker.

 

Based on our review of the above, the North America, EMEA, and Asia Pacific operating segments share the same economic characteristics and have been aggregated as one reportable segment. Additionally, proposed capital allocations are evaluated across all of our operating segments using the same hurdle rates of return, indicating management believes that the long-term prospects of the operating segments to be similar.

 

As requested by the Staff, the Company acknowledges that, with respect to the filing made by the Company:

 

 

We trust that the foregoing addresses your comment.

 

Should any member of the Staff have any questions or additional comments regarding the Company’s responses to the Staff’s comments set forth above, please do not hesitate to contact me at 212 720-3896.

Sincerely,

/s/ Giovanna Cipriano

Senior Vice President and

Chief Accounting Officer

 

cc:Guillermo Marmol

Chairman of the Audit Committee

Richard Johnson

Chairman of the Board, President and Chief Executive Officer

Lauren Peters

Executive Vice President and Chief Financial Officer

Sheilagh Clarke

Senior Vice President, General Counsel and Secretary