Foot Locker Earnings Call Nuggets: Increased Cost Vendors and Fall Outlook
Increased Cost Vendors
Kate McShane – Citigroup: Ken, I was wondering if you could give a little bit more detail from the increased costs vendors are passing on to you which are weighing on gross margins a bit. I wonder why this is happening now especially in light of what we’ve been through the last couple of years with raw material cost. And what percentage of your product is being impacted?
Kenneth C. Hicks – Chairman, President and CEO: We saw larger cost increases a year ago, but they continue and will continue to see cost increases, not just because of materials but because of labor cost and other costs that they are seeing; fuel costs go up. The cost – we work with the vendors to try to manage the cost and make sure they’re focused on products that can accept it. But that said, some of the shoes that have been in the line a while, costs have gone up, they’ve made adjustments. Those are more difficult to pass on. Newer product with changes, we’ve seen higher cost on some of them. But since the customer doesn’t have a reference point, we were able to pass those on more readily, but there’ve been cost increases and will continue to be cost increases and they’ve had an effect on the IMU. It’s not a big effect but an effect.
Lauren B. Peters – EVP and CFO: 30 basis points.
Kate McShane – Citigroup: Can I just follow up with, do you expect that to continue for the next couple of quarters or longer enough the same level of impact that you saw in Q2?
Kenneth C. Hicks – Chairman, President and CEO: We probably will live with cost increases for the rest of our lives. But that said, I think we are getting very smart about how we pass them on. Once the price – once we get them, and we are able to raise the price of the product, it normalizes the IMU.
Lauren B. Peters – EVP and CFO: Katy, it’s one of the dynamics that we deal with and this is why we are so focused on initiatives that we have that will improve merchandise margins for us. So, the allocation system that we’re investing in helps us get right product to the right place at the right time, and that means less markdown. So, that’s how we deal with the dynamic.