Foot Locker to consider strategic alternatives, retains Lehman Brothers

By Lisa Kerner

Charlotte, N.C., July 30 - Foot Locker, Inc. will evaluate strategic alternatives, including inquiries from private equity firms, with the assistance of Lehman Brothers, it was announced on Monday.

The company said it has already put several initiatives in place during the second quarter to help strengthen its operations.

"During the second quarter, we made the strategic decision to liquidate slower-selling merchandise in our U.S. stores more aggressively than we had planned at the beginning of the quarter, with an objective of improving our inventory position before the start of the fall season," chairman and chief executive officer Matthew D. Serra said in a company news release.

"The financial impact of implementing this important strategy was the primary reason for the projected net loss for the second quarter of 2007. We expect our international units will produce a double-digit division profit increase versus last year's comparable period."

Foot Locker also identified a number of unproductive domestic stores that it plans to close over the next several months. A total of 250 stores are expected to close in 2007, twice the number of stores the company had originally planned to close.

However, the company is also planning to "more aggressively" open Foot Locker stores in the European market, with 30 stores expected to open in 2008.

Foot Locker also announced management changes effective Aug. 6. Keith Daly, currently president and CEO of Foot Locker Europe, will be president and CEO of Foot Locker U.S. Dick Johnson, president and CEO of Footlocker.com, will replace Daly. Dowe Tillema was promoted to executive vice president of Footlocker.com and will continue in his role as chief financial officer of this division, the release stated.

The company updated its second-quarter 2007 financial forecast to reflect merchandise inventory clearance. Foot Locker said it expects a loss of $0.17 to $0.20 per share, reflecting markdowns in U.S. stores of some $55 million, or roughly $0.22 per share. Foot Locker originally estimated net income of $0.15 to $0.20 per share for the quarter.

The New York-based specialty athletic retailer said its cash position, net of debt, is expected to increase by about $50 million from the same time last year. Second-quarter 2007 results will be released on Aug. 22.

As previously reported, in May Genesco Inc.'s board of directors rejected a $51.00 per share cash offer from Foot Locker. Foot Locker has since declined to participate in Genesco's strategic review process. Genesco is a Nashville-based specialty retailer that sells footwear, headwear and accessories. The company has since agreed to be acquired by the Finish Line, Inc. for $54.50 per share in a cash deal valued at about $1.5 billion. The merger of the two specialty retailers is expected to be completed in the fall of 2007.

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