UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

	x
(Mark One)
	☒		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 31, 2015

For the fiscal year ended February 3, 2018

OR

	o ☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 1-10299
(Exact name of registrant as specified in its charter)

For the transition period from   to 

Commission File No. 1-10299

(Exact name of Registrant as specified in its charter)

New York		13-3513936
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

112 incorporation or organization)
330 West 34th Street, New York, New York		10120 10001
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (212) 720-3700

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Common Stock, par value $0.01		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.YesAct. Yesx☒No  ☐ Noo

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.YesAct. Yes o☐ Nox☒

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yesxdays. Yes ☒   Noo☐

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yesx. Yes ☒Noo☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filerx☒		Accelerated filero☐		Non-accelerated filero☐		Smaller reporting companyo☐
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes. Yes o☐ Nox☒

The number of shares of the Registrant’s Common Stock, par value $0.01 per share, outstanding at March 16, 2015:			139,649,989
The aggregate market value of voting stock held by non-affiliates of the Registrant computed by reference to the closing price as of the last business day of the Registrant’s most recently completed second fiscal quarter, August 2, 2014, was approximately:		$	5,363,852,719	*

	*
The number of shares of the Registrant’s Common Stock, par value $0.01 per share, outstanding as of March 26, 2018:	118,115,818
The aggregate market value of voting stock held by non-affiliates of the Registrant computed by reference to the closing price as of the last business day of the Registrant’s most recently completed second fiscal quarter, July 29, 2017, was approximately:	$4,504,950,585*

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive Proxy Statement (the “Proxy Statement”) to be filed in connection with the Annual Meeting of Shareholders to be held on May 20, 2015:23, 2018: Parts III and IV.

FOOT LOCKER, INC.

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Item 1A. Risk Factors

The statements contained in this Annual Report on Form 10-K (“Annual Report”) that are not historical facts, including, but not limited to, statements regarding our expected financial position, business and financing plans found in “Item 1. Business” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

Please also see “Disclosure Regarding Forward-Looking Statements.” Our actual results may differ materially due to the risks and uncertainties discussed in this Annual Report, including those discussed below. Additional risks and uncertainties that we do not presently know about or that we currently consider to be insignificant may also affect our business operations and financial performance.

Our inability to implement our long-range strategic long range plan may adversely affect our future results.

Our ability to successfully implement and execute our long-range plan is dependent on many factors. Our strategies may require significant capital investment and management attention, which may result in the diversion of these resources from our core business and other business issues and opportunities.attention. Additionally, any new initiative is subject to certain risks including customer acceptance of our products and renovated store designs, competition, product differentiation, and the ability to attract and retain qualified personnel.personnel, and our ability to successfully implement technological initiatives. If we cannot successfully execute our strategic growth initiatives or if the long-range plan does not adequately address the challenges or opportunities we face, our financial condition and results of operations may be adversely affected. Additionally, failure to meet marketshareholder expectations, particularly with respect to sales, operating margins, and earnings per share, would likely result in volatility in the market value of our stock.

The retail athletic footwear and apparel business is highly competitive.

Our athletic footwear and apparel operations compete primarily with athletic footwear specialty stores, sporting goods stores, department stores, discount stores, traditional shoe stores, mass merchandisers, and Internet retailers, many of which are units of national or regional chains that have significant financial and marketing resources. The principal competitive factors in our markets are selection of merchandise, customer experience, reputation, store location, quality, advertising, price, and customer service. Our success also depends on our ability to differentiate ourselves from our competitors with respect to a quality merchandise assortment and superior customer service.price. We cannot assure that we will continue to be able to compete successfully against existing or future competitors. Our expansion into markets served by our competitors, and entry of new competitors or expansion of existing competitors into our markets, could have a material adverse effect on our business, financial condition, and results of operations.

Although we sell an increasing proportion of our merchandise via the Internet, a significantsignificantly faster shift in customer buying patterns to purchasing athletic footwear, athletic apparel, and sporting goods via the Internet could have a material adverse effect on our business results. In addition, all of our significant suppliers operate retail stores and distribute products directly through the Internet and others may follow. Some of our suppliers currently operate retail stores and some have indicated that they intend to open additional retail stores. Should this continue to occur, and if our customers decide to purchase directly from our suppliers, it could have a material adverse effect on our business, financial condition, and results of operations.

The industry in which we operate is dependent upon fashion trends, customer preferences, product innovations, and other fashion-related factors.

The athletic footwear and apparel industry, especially at the premium end of the price spectrum, is subject to changing fashion trends and customer preferences. In addition, retailers in the athletic industry rely on their suppliers to maintain innovation in the products they develop. We cannot guarantee that our merchandise selection will accurately reflect customer preferences when it is offered for sale or that we will be able to identify and respond quickly to fashion changes, particularly given the long lead times for ordering much of our merchandise from suppliers. A substantial portion of our highest margin sales are to young males (ages 12 – 12–25), many of whom we believe purchase athletic footwear and athletic apparel as a fashion statement and are frequent purchasers. Our failure to anticipate, identify or react appropriately in a timely manner to changes in fashion trends that would make athletic footwear or athletic apparel less attractive to theseour customers could have a material adverse effect on our business, financial condition, and results of operations.

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If we do not successfully manage our inventory levels, our operating results will be adversely affected.

We must maintain sufficient inventory levels to operate our business successfully. However, we also must guard against accumulating excess inventory. For example, we order most of our athletic footwear four to six months prior to delivery to our stores. If we fail to anticipate accurately either the market for the merchandise in our stores or our customers’ purchasing habits, we may be forced to rely on markdowns or promotional sales to dispose of excess or slow moving inventory, which could have a material adverse effect on our business, financial condition, and results of operations.

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A change in the relationship with any of our key suppliers or the unavailability of our key products at competitive prices could affect our financial health.

Our business is dependent to a significant degree upon our ability to obtain exclusive product and the ability to purchase brand-name merchandise at competitive prices from a limited number of suppliers. In addition, our suppliers providewe have negotiated volume discounts, cooperative advertising, and markdown allowances with our suppliers, as well as the ability to negotiate returns ofcancel orders and return excess or unneeded merchandise. We cannot be certain that such terms with our suppliers will continue in the future.

The Company

We purchased approximately 8993 percent of itsour merchandise in 20142017 from itsour top five suppliers and expectswe expect to continue to obtain a significant percentage of itsour athletic product from these suppliers in future periods. Approximately 7367 percent of all merchandise purchased in 2017 was purchased from one supplier — Nike, Inc. (“Nike”). Each of our operating divisions is highly dependent on Nike;Nike: they individually purchased 4744 to 8473 percent of their merchandise from Nike.Nike during the year. Merchandise that is high profile and in high demand is allocated by our suppliers based upon their internal criteria. Although we have generally been able to purchase sufficient quantities of this merchandise in the past, we cannot be certain that our suppliers will continue to allocate sufficient amounts of such merchandise to us in the future. Our inability to obtain merchandise in a timely manner from major suppliers (particularly Nike) as a result of business decisions by our suppliers or any disruption in the supply chain could have a material adverse effect on our business, financial condition, and results of operations. Because of our strong dependence onthe high proportion of purchases from Nike, any adverse development in Nike’s reputation, financial condition or results of operations or the inability of Nike to develop and manufacture products that appeal to our target customers could also have an adverse effect on our business, financial condition, and results of operations. We cannot be certain that we will be able to acquire merchandise at competitive prices or on competitive terms in the future. These risks could have a material adverse effect on our business, financial condition, and results of operations.

We depend onare affected by mall traffic and our ability to secure suitable store locations.

Our

Many of our stores, especially in North America, are located primarily in enclosed regional and neighborhood malls. Our sales are dependent,affected, in part, onby the volume of mall traffic. Mall traffic may be adversely affected by, among other factors, economic downturns, the closing or continued decline of anchor department stores and/or specialty stores, and a decline in the popularity of mall shopping among our target customers. Further, any terrorist act, natural disaster, or public health or safety concern that decreases the level of mall traffic, or that affects our ability to open and operate stores in affected areas,such locations, could have a material adverse effect on our business.

To take advantage of customer traffic and the shopping preferences of our customers, we need to maintain or acquire stores in desirable locations such as in regional and neighborhood malls, anchored by major department stores.as well as high-traffic urban retail areas and high streets. We cannot be certain that desirable mall locations will continue to be available at favorable rates. Some traditional enclosed malls are experiencing significantly lower levels of customer traffic, driven by economic conditions as well as the closure of certain mall anchor tenants.

Several large landlords dominate the ownership of prime malls particularly in the United States, Canada, and Australia, and because of our dependence upon these landlords for a substantial number of our locations, any significant erosion of their financial condition or our relationships with these landlords wouldcould negatively affect our ability to obtain and retain store locations. Additionally, further landlord consolidation may negatively affect our ability to negotiate favorable lease terms.

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We may experience fluctuations in, and cyclicality of, our comparable-store sales results.

Our comparable-store sales have fluctuated significantly in the past, on both an annual and a quarterly basis, and we expect them to continue to fluctuate in the future. A variety of factors affect our comparable-store sales results, including, among others, fashion trends, product innovation, promotional events, the highly competitive retail sales environment, economic conditions, timing of promotional events,income tax refunds, changes in our merchandise mix, calendar shifts of holiday periods, supply chain disruptions, and weather conditions. Many of our products represent discretionary purchases. Accordingly, customer demand for these products could decline in a recessionan economic downturn or if our customers develop other priorities for their discretionary spending. These risks could have a material adverse effect on our business, financial condition, and results of operations.

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Economic or political conditions in other countries, including fluctuations in foreign currency exchange rates and tax rates may adversely affect our operations.

A significant portion of our sales and operating income for 20142017 was attributable to our operations in Europe, Canada, Australia, and New Zealand. As a result, our business is subject to the risks associated with doing business outside of the United States such as foreignlocal customer product preferences, political unrest, disruptions or delays in shipments, changes in economic conditions in countries in which we operate, foreign currency fluctuations, real estate costs, and labor and employment practices in non-U.S. jurisdictions that may differ significantly from those that prevail in the United States. In addition, because we and our suppliers havemanufacture a substantial amount of our products manufactured in foreign countries, our ability to obtain sufficient quantities of merchandise on favorable terms may be affected by governmental regulations, trade restrictions, and economic, labor, and other conditions in the countries from which our suppliers obtain their product.

Fluctuations in the value of the euro and the British Pound may affect the value of our European earnings when translated into U.S. dollars. Similarly our earnings in Canada, Australia, and New Zealand may be affected by the value of currencies when translated into U.S. dollars. Our operating results may be adversely affected by significant changesExcept for our business in these foreign currencies relative to the U.S. dollar. For the most part,United Kingdom (the “U.K”),  our international subsidiaries transactconduct most of their business in their functional currency, other than in thelocal currency. Inventory purchases for our U.K., whose inventory purchases business are denominated in euro,euros, which could result in foreign currency transaction gains or losses.

Our products are subject to import and excise duties and/or sales or value-added taxes in many jurisdictions. Fluctuations in tax rates and duties and changes in tax legislation or regulation could have a material adverse effect on our results of operations and financial condition.

Significant developments stemming from the U.K.’s decision to withdraw from the European Union could have a material adverse effect on the Company.

The U.K. has voted in favor of leaving the European Union (“E.U.”), and such withdrawal (commonly referred to as “Brexit”) is scheduled to take effect over the next two years. This decision has created political and economic uncertainty, particularly in the U.K. and the E.U., and this uncertainty may last for several years. The pending withdrawal and its possible future consequences have caused and may continue to cause significant volatility in global financial markets, including in global currency and debt markets. This volatility could cause a slowdown in economic activity in the U.K., Europe or globally, which could adversely affect the Company's operating results and growth prospects.  In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which E.U. laws to replace or replicate, and those laws and regulations may be cumbersome, difficult or costly in terms of compliance. Any of these effects of Brexit, among others, could adversely affect our business, results of operations and financial condition. 

Macroeconomic developments may adversely affect our business.

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The effects of natural disasters, terrorism, acts of war, and public health issues may adversely affect our business.

Natural disasters, including earthquakes, hurricanes, floods, and tornadostornadoes may affect store and distribution center operations. In addition, acts of terrorism, acts of war, and military action both in the United States and abroad can have a significant effect on economic conditions and may negatively affect our ability to purchase merchandise from suppliers for sale to our customers. Public health issues, such as flu or other pandemics, whether occurring in the United States or abroad, could disrupt our operations and result in a significant part of our workforce being unable to operate or maintain our infrastructure or perform other tasks necessary to conduct our business.business. Additionally, public health issues may disrupt, or have an adverse effect on, our suppliers’ operations, our operations, our customers, or customer demand. Our ability to mitigate the adverse impacteffect of these events depends, in part, upon the effectiveness of our disaster preparedness and response planning as well as business continuity planning. However, we cannot be certain that our plans will be adequate or implemented properly in the event of an actual disaster. We may be required to suspend operations in some or all of our locations, which could have a material adverse effect on our business, financial condition, and results of operations. Any significant declines in public safety or uncertainties regarding future economic prospects that affect customer spending habits could have a material adverse effect on customer purchases of our products.

Manufacturer compliance with our social compliance program requirements.

We require our independent manufacturers to comply with our policies and procedures, which cover many areas including labor, health and safety, and environmental standards. We monitor compliance with our policies and procedures using internal resources, as well as third-party monitoring firms. Although we monitor their compliance with these policies and procedures, we do not control the manufacturers or their practices. Any failure of our independent manufacturers to comply with our policies and procedures or local laws in the country of manufacture could disrupt the shipment of merchandise to us, force us to locate alternate manufacturing sources, reduce demand for our merchandise, or damage our reputation.

Complications in our distribution centers and other factors affecting the distribution of merchandise may affect our business.

We operate multiple distribution centers worldwide to support our businesses. In addition to the distribution centers that we operate, we have third-party arrangements to support our operations in the United States, Canada, Australia, and New Zealand. If complications arise with any facility or if any facility is severely damaged or destroyed, our other distribution centers may be unable to support the resulting additional distribution demands. We also may be affected by disruptions in the global transportation network such as a port strike,strikes, weather conditions, work stoppages or other labor unrest. These factors may adversely affect our ability to deliver inventory on a timely basis. We depend upon third-party carriers for shipment of a significant amount of merchandise. Anmerchandise; any interruption in service by these carriers for any reason could cause temporary disruptions in our business, a loss of sales and profits, and other material adverse effects.

Our freight cost is affected by changes in fuel prices through surcharges. Increases in fuel prices and surcharges, among and other factors, may increase freight costs and thereby increase our cost of sales.

We enter into diesel fuel forward and option contractsare subject to mitigate a portion of the risk associated with the variability caused by these surcharges.

Disruptions,technology risks including failures, or security breaches, of our information technology infrastructure or unauthorized disclosure of sensitive or confidential customer informationand cybersecurity risks which could harm our business, damage our reputation, and standing withincrease our customers.

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Furthermore, recent regulations shorten the election process, significantly reducing the time between the filing of a petition and an election being held. These regulations and recent decisions could impose more labor relations requirements and union activity on our business conducted in the United States, thereby potentially increasing our costs, which could negativelymay affect our profitability.business.

Health care reform could adversely affect our business.

In 2010, Congress enacted comprehensive health care reform legislation which, among other things, includes guaranteed coverage requirements, eliminates pre-existing condition exclusions and annual and lifetime maximum limits, restricts the extent to which policies can be rescinded, and imposes new and significant taxes on health insurers and health care benefits. Due to the breadth and complexity of the health care reform legislation and the large number of eligible employees who currently choose not to participate in our plans, it is difficult to predict the overall effect of the statute and related regulations on our business over the coming years. Due to the health care law changes, some eligible employees who had historically not chosen to participate in our health care plans have found it more advantageous to participate in our plans effective January 1, 2015. Such changes include tax penalties to persons for not obtaining health care coverage and being ineligible for certain health care subsidies if an employee is eligible for health care coverage under an employer’s plan. If a larger number of eligible employees, who currently choose not to participate in our plans, choose to enroll over the next few years, it may significantly increase our health care coverage costs and negatively affect our financial results.

Legislative or regulatory initiatives related to global warming/climate change concerns may negatively affect our business.

There has been an increasing focus and significant debate on global climate change, including increased attention from regulatory agencies and legislative bodies. This increased focus may lead to new initiatives directed at regulating an as-yet unspecified array of environmental matters. Legislative, regulatory, or other efforts in the United States to combat climate change could result in future increases in taxes or in the cost of transportation and utilities, which could decrease our operating profits and could necessitate future additional investments in facilities and equipment. We are currently unable to predict the potential effects that any such future environmental initiatives may have on our business.

We may be adversely affected by regulatory and litigation developments.

We are exposed to the risk that federal or state legislation may negatively impactaffect our operations. Changes in federal or state wage requirements, employee rights, health care, social welfare or entitlement programs, such as health insurance, paid leave programs, or other changes in workplace regulation could increase our cost of doing business or otherwise adversely affect our operations. Additionally, we are regularly involved in various litigation matters, including class actions, and patent infringement claims, which arise in the ordinary course of our business. Litigation or regulatory developments could adversely affect our business operations and financial performance.

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We operate in many different jurisdictions and we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-corruption laws.

The U.S. Foreign Corrupt Practices Act (“FCPA”) and similar worldwide anti-corruption laws, including the U.K. Bribery Act of 2010, which is broader in scope than the FCPA, generally prohibit companies and their intermediaries from making improper payments to non-U.S.government officials for the purpose of obtaining or retaining business.

Our internal policies mandate compliance with these anti-corruption laws. Despite our training and compliance programs, we cannot be assured that our internal control policies and procedures will always protect us from reckless or criminal acts committed by our employees or agents.

Our continued expansion outside the United States, including in developing countries, could increase the risk of FCPA violations in the future. Violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our results of operations or financial condition.

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Failure to fully comply with Section 404 of the Sarbanes-Oxley Act of 2002 could negatively affect our business, market confidence in our reported financial information, and the price of our common stock.

We continue to document, test, and monitor our internal controls over financial reporting in order to satisfy all of the requirements of Section 404 of the Sarbanes-Oxley Act of 2002; however, we cannot be assured that our disclosure controls and procedures and our internal controls over financial reporting will prove to be completely adequate in the future. Failure to fully comply with Section 404 of the Sarbanes-Oxley Act of 2002 could negatively affect our business, market confidence in our reported financial information, and the price of our common stock.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The properties of the Company and its consolidated subsidiaries consist of land, leased stores, administrative facilities, and distribution centers. Gross square footage and total selling area for the Athletic Stores segment at the end of 20142017 were approximately 12.7313.30 and 7.487.71 million square feet, respectively. These properties, which are primarily leased, are located in the United States and its territories, Canada, various European countries, Australia, and New Zealand.

The Company

We currently operates sevenoperate five distribution centers, of which threetwo are owned and fourthree are leased, occupying an aggregate of 2.9 million square feet. Three distribution centers are located in the United States, threeone in Germany, and one in the Netherlands. The three locationslocation in Germany relate toserves as the central warehouse distribution centerscenter for the Runners Point Group store locations, as well as a distribution center for itsand Sidestep stores and their direct-to-customer business. During 2014, we opened a new distribution center in Germany which provides us with increased capacity that will enable us to support the planned growth of both the store and direct-to-customer businesses. This larger distribution center will also allow us to consolidate the other two locations in Germany in 2015.

We also own a cross-dock and manufacturing facility, and operate a leased warehouse in the United States, both of which support our Team Edition apparel business. The lease for our leased distribution center in Germany expires during 2019 and the Company is currently negotiating a lease extension for this facility.

We believe that all leases of properties that are material to our operations may be renewed, or that alternative properties are available, on terms not materially less favorable to us than existing leases.

Item 3. Legal Proceedings

Information regarding the Company’s legal proceedings is contained in theLegal Proceedings note under “Item 8. Consolidated Financial Statements and Supplementary Data.”

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Foot Locker, Inc. common stock (ticker symbol “FL”) is listed on The New York Stock Exchange as well as on the Börse Stuttgart stock exchange in Germany. As of January 31, 2015,February 3, 2018, the Company had 15,35313,244 shareholders of record owning 140,864,188119,829,023 common shares.

The following table provides for the period indicated, the intra-day high and low sales prices for the Company’s common stock:stock for the periods indicated below:

		2014								2013								2017						2016
		High				Low				High				Low					High			Low			High			Low
1st Quarter		$	48.71			$	36.65			$	35.64			$	31.30			$	77.86		$	65.88		$	69.65		$	58.17
2nd Quarter			52.07				46.20				37.70				32.61				77.71			44.59			62.45			50.90
3rd Quarter			58.40				47.90				37.85				31.91				51.29			29.89			69.61			56.80
4th Quarter			59.19				51.12				41.73				34.09				53.17			28.42			79.43			65.39

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SIX:02 —“It’s Your Time” — SIX:02 is an elevated retail concept designed for her, featuring top brands in fitness apparel, footwear, and accessories for a variety of activities, including running, yoga, strength training, dance, and CrossFit. This banner connects with each local market’s fitness community through gym, studio, and trainer partnerships, and celebrates the time each woman invests in herself. SIX:02 operates 15 stores in the United States and have an average of 2,100 selling square feet.

Kids Foot Locker — “Go Big” — Kids Foot Locker is a children’s athletic retailer that offers the largest selection of brand-name athletic footwear, apparel and accessories for children. Its stores feature an environment geared to appeal to both parents and children. Of its 357 stores, 336 are located in the United States, Puerto Rico, and the U.S. Virgin Islands, 16 in Europe, and 5 in Canada. These stores have an average of 1,500 selling square feet.

Footaction — “Own It” — Footaction is a national athletic footwear and apparel retailer that offers the freshest, best edited selection of athletic lifestyle brands and looks. This banner is uniquely positioned at the intersection of sport and style. The primary customer is a style-obsessed, confident, influential young male who is always dressed to impress. Its 272 stores are located throughout the United States and Puerto Rico and focus on authentic, premium product. The Footaction stores have an average of 2,900 selling square feet.

Champs Sports — “We Know Game” — Champs Sports is one of the largest mall-based specialty athletic footwear and apparel retailers in North America. Its product categories include athletic footwear and apparel, and sport-lifestyle inspired accessories. This assortment allows Champs Sports to differentiate itself from other mall-based stores by presenting complete head-to-toe merchandising stories representing the most powerful athletic brands, sports teams, and athletes in North America. Of its 547 stores, 517 are located throughout the United States, Puerto Rico, and the U.S. Virgin Islands and 30 in Canada. The Champs Sports stores have an average of 3,500 selling square feet.

Runners Point — “Your Way, Our Passion” — Runners Point specializes in running footwear, apparel, and equipment for performance and lifestyle purposes. Its 116 stores are located in Germany and Austria. This banner caters to local running communities providing technical products, training tips and access to local running and group events. The Runners Point stores have an average of 1,200 selling square feet.

Sidestep — “Sneaker Lifestyle” — Sidestep is a predominantly sports fashion footwear banner. Its 83 stores are located in Germany, Austria, and the Netherlands. Sidestep caters to a more discerning, fashion consumer. Sidestep stores have an average of 900 selling square feet.

Direct-to-Customers

The Company’s Direct-to-Customers segment is multi-branded and multi-channeled. This segment sells directly to customers through its Internet and mobile sites and catalogs.

The Direct-to-Customers segment operates the websites for eastbay.com, final-score.com, eastbayteamsales.com, as well as websites aligned with the brand names of its store banners (footlocker.com, ladyfootlocker.com, six02.com kidsfootlocker.com, footaction.com, footlocker.ca, footlocker.eu, and champssports.com). Additionally, this segment includes the direct-to-customer subsidiary of Runners Point Group, which operates the websites for runnerspoint.com, sidestep-shoes.com, and sp24.com. These sites offer one of the largest online selections of running sport items in Europe, while providing a seamless link between e-commerce and store banners.

Eastbay — “First Choice For Athletes” — Eastbay is among the largest direct marketers in the United States, providing high school and other athletes with a complete sports solution including athletic footwear, apparel, equipment, team licensed, and private-label merchandise for a broad range of sports.

Franchise Operations

The Company has two separate ten-year agreements with third parties for the operation of Foot Locker stores located within the Middle East and the Republic of Korea. Additionally, franchised stores located in Germany and Switzerland operate under the Runners Point and Sidestep banners. A total of 78 franchised stores were operating at January 31, 2015, of which 31 are operating in the Middle East, 27 in Germany and Switzerland, and 20 in the Republic of Korea. Royalty income from the franchised stores was not significant for any of the periods presented. These stores are not included in the Company’s operating store count above.

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Reconciliation of Non-GAAP Measures

In the following tables, the Company has presented certain financial measures and ratios identified as non-GAAP. The Company believes this non-GAAP information is a useful measure to investors because it allows for a more direct comparison of the Company’s performance for 2014 as compared with prior years and is useful in assessing the Company’s progress in achieving its long-term financial objectives. The 2014 and 2013 results represent the 52 weeks ended January 31, 2015 and February 1, 2014, respectively, as compared with the 53 weeks in the 2012 reporting year. The following represents a reconciliation of the non-GAAP measures discussed throughout the Overview of Consolidated Results:

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The Company estimates the tax effect of the non-GAAP adjustments by applying its marginal tax rate to each of the respective items.

During 2013 and 2012, the Company recorded benefits of $3 million and $9 million, or $0.02 per diluted share and $0.06 per diluted share, respectively, to reflect the settlement of foreign tax audits, which resulted in a reduction in tax reserves established in prior periods. Additionally, in 2012, the Company recorded a benefit of $1 million, or $0.01 per diluted share, to reflect the repeal of the last two stages of certain Canadian provincial tax rate changes.

When assessing Return on Invested Capital (“ROIC”), the Company adjusts its results to reflect its operating leases as if they qualified for capital lease treatment. Operating leases are the primary financing vehicle used to fund store expansion and, therefore, we believe that the presentation of these leases as if they were capital leases is appropriate. Accordingly, the asset base and net income amounts are adjusted to reflect this in the calculation of ROIC. ROIC, subject to certain adjustments, is also used as a measure in executive long-term incentive compensation.

The closest U.S. GAAP measure is Return on Assets (“ROA”) and is also represented below. ROA increased to 14.7 percent as compared with 12.5 percent in the prior year reflecting the Company’s overall strong performance in 2014. Our ROIC improvement is due to an increase in our earnings before interest and income taxes, partially offset by an increase in our average invested capital, primarily related to an increase in capitalized operating leases. This reflected the effect of opening larger stores, and resulting additional rent, supporting the various shop-in-shop initiatives.

		2014				2013				2012
ROA (1)			14.7	%			12.5	%			12.4	%
ROIC% (non-GAAP)(2)			15.0	%			14.1	%			14.2	%

		2014				2013				2012
		(in millions)
EBIT (non-GAAP)		$	816			$	676			$	602
+ Rent expense			635				600				560
- Estimated depreciation on capitalized operating leases(3)			(482	)			(443	)			(409	)
Net operating profit			969				833				753
- Adjusted income tax expense(4)			(347	)			(298	)			(274	)
= Adjusted return after taxes		$	622			$	535			$	479
Average total assets		$	3,532			$	3,427			$	3,209
- Average cash, cash equivalents and short-term investments			(917	)			(898	)			(890	)
- Average non-interest bearing current liabilities			(659	)			(630	)			(592	)
- Average merchandise inventories			(1,235	)			(1,194	)			(1,118	)
+ Average estimated asset base of capitalized operating leases(3)			2,093				1,829				1,552
+ 13-month average merchandise inventories			1,325				1,269				1,200
= Average invested capital		$	4,139			$	3,803			$	3,361
ROIC%			15.0	%			14.1	%			14.2	%

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Overview of Consolidated Results

The following represents our long-term financial objectives and our progress towards meeting those objectives. The following represents non-GAAP results for all the periods presented. In addition, the 2012 results are shown on a 53-week basis.

		Long-term Objectives				2014				2013				2012
Sales (in millions)		$	7,500			$	7,151			$	6,505			$	6,101
Sales per gross square foot		$	500			$	490			$	460			$	443
EBIT margin			11.0	%			11.4	%			10.4	%			9.9	%
Net income margin			7.0	%			7.3	%			6.6	%			6.2	%
ROIC			14.0	%			15.0	%			14.1	%			14.2	%

Our results in 2014 were very strong and we achieved three of our long-term objectives. Highlights of our 2014 financial performance include:

		2014				2013				2012
Sales increase			9.9	%			6.6	%			8.5	%
Comparable-store sales increase			8.0	%			4.2	%			9.4	%

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Summary of Consolidated Statements of Operations

		2014				2013				2012
		(in millions, except per share data)
Sales		$	7,151			$	6,505			$	6,182
Gross margin			2,374				2,133				2,034
Selling, general and administrative expenses			1,426				1,334				1,294
Depreciation and amortization			139				133				118
Interest expense, net			5				5				5
Net income		$	520			$	429			$	397
Diluted earnings per share		$	3.56			$	2.85			$	2.58

Sales

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 comparable-store sales also includes the sales of the Direct-to-Customers segment. 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. Sales from acquired businesses that include inventory are included in the computation of comparable-store sales after 15 months of operations. Accordingly, sales of Runners Point Group were included in the computation of comparable-store sales beginning October 2014.

Sales of $7,151 million in 2014 increased by 9.9 percent from sales of $6,505 million in 2013, this represented comparable-store sales of 8.0 percent. Excluding the effect of foreign currency fluctuations and sales of Runners Point Group, sales increased 8.5 percent as compared with 2013.

Sales of $6,505 million in 2013 increased by 5.2 percent from sales of $6,182 million in 2012, this represented comparable-store sales of 4.2 percent. Excluding the effect of foreign currency fluctuations and sales of Runners Point Group, sales increased 2.4 percent as compared with the 53 weeks of 2012. Results for 2012 include the effect of the 53^rd week, which represented sales of $81 million.

The following represents the percentage of sales from each of the major product categories:

		2014				2013				2012
Footwear sales			79%				77%				76%
Apparel and accessories sales			21%				23%				24%

Gross Margin

		2014				2013				2012
Gross margin rate			33.2%				32.8%				32.9%
Change in the gross margin rate is comprised of:			2014 vs. 2013				2013 vs. 2012
Occupancy and buyers’ compensation			0.7				—
Merchandise margin			(0.3)				(0.1)
Increase (decrease) in gross margin rate			0.4%				(0.1)%

The decrease in the occupancy and buyers’ compensation rate reflects improved leverage of primarily fixed costs. Merchandise margin declined by 30 basis points as the cost of merchandise increased in 2014 as compared with 2013. This primarily reflects the effect of lower initial markups driven by supplier and category mix, and lower shipping and handling margin, partially offset by lower markdowns.

The decline in the gross margin rate in 2013 as compared to 2012 primarily reflects the effect of lower initial markups. Excluding the effect of the 53^rd week in 2012, the gross margin rate in 2013 was flat as compared with 2012.

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Selling, General and Administrative Expenses (SG&A)

		2014				2013				2012
		(in millions)
SG&A		$	1,426			$	1,334			$	1,294
$ Change		$	92			$	40
% Change			6.9	%			3.1	%
SG&A as a percentage of sales			19.9	%			20.5	%			20.9	%

Excluding the effect of foreign currency fluctuations, SG&A increased by $101 million for 2014 as compared with 2013. Runners Point Group, which was acquired in early July 2013, represented an incremental $39 million in expenses in 2014. Additionally, the Company incurred $2 million in integration costs during 2014. Excluding these items, the increase was driven by higher variable expenses to support sales, such as store wages and banking expenses. As a percentage of sales, SG&A improved 60 basis points representing improved leverage on our sales increase. This improvement reflected continued effective expense management, including store wages, which benefitted from the utilization of hiring and scheduling tools, as well as enhanced associate training.

Excluding the effect of foreign currency fluctuations, SG&A increased by $34 million for 2013 as compared with 2012. Runners Point Group represented an incremental $45 million in expenses. Additionally, the Company incurred $6 million in integration and acquisition costs during 2013. Excluding foreign currency fluctuations, the effect of the acquisition, and the effect of the 53^rd week in 2012, SG&A decreased by $4 million. The decrease reflects effective expense management, specifically variable costs.

Depreciation and Amortization

		2014				2013				2012
		(in millions)
Depreciation and Amortization		$	139			$	133			$	118
% Change			4.5	%			12.7	%			7.3	%

The increases in both 2014 and 2013 reflect increased capital spending on store improvements and technology. Excluding the effect of foreign currency fluctuations, depreciation and amortization increased $7 million in 2014. The 2014 amount included $2 million of capital accrual adjustments made during the third quarter of 2014 which reduced depreciation and amortization. The change in 2013 as compared with 2012 also included $6 million of Runners Point Group expense.

Interest Expense, Net

		2014				2013				2012
		(in millions)
Interest expense		$	11			$	11			$	11
Interest income			(6	)			(6	)			(6	)
Interest expense, net		$	5			$	5			$	5
Weighted-average interest rate (excluding fees)			7.2	%			7.1	%			7.6	%

Net interest expense in 2014 was essentially unchanged from 2013 and 2012. The Company did not have any short-term borrowings, other than amounts outstanding in connection with capital leases, for any of the periods presented.

Income Taxes

The effective tax rate for 2014 was 35.7 percent, as compared with 35.3 percent in 2013. The Company regularly assesses the adequacy of the provisions for income tax contingencies in accordance with the applicable authoritative guidance on accounting for income taxes.

TABLE OF CONTENTS

As a result, the reserves for unrecognized tax benefits may be adjusted due to new facts and developments, such as changes to interpretations of relevant tax law, assessments from taxing authorities, settlements with taxing authorities, and lapses of statutes of limitations. The effective tax rate for 2014 includes reserve releases totaling $5 million due to audit settlements and lapses of statutes of limitations.

Excluding the reserve releases in 2014 and in 2013, the effective tax rate for 2014 increased slightly as compared with 2013 primarily due to the higher proportion of income earned in higher tax jurisdictions in 2014.

The effective tax rate for 2013 was 35.3 percent, as compared with 34.6 percent in 2012. The effective tax rate for 2013 includes reserve releases totaling $6 million due to audit settlements and lapses of statutes of limitations. Additionally, in connection with the purchase of Runners Point Group, the Company recorded a tax expense of $1 million related to non-deductible acquisition costs. Excluding these items as well as the reserve releases in 2012, the effective tax rate for 2013 decreased as compared with 2012 primarily due to the effect of full implementation of international tax planning initiatives in 2013.

Segment Information

The Company’s two reportable segments, Athletic Stores and Direct-to-Customers, are based on its method of internal reporting. The Company evaluates performance based on several factors, the primary financial measure of which is division results. Division profit reflects income before income taxes, corporate expense, non-operating income, and net interest expense.

		2014				2013				2012
		(in millions)
Sales
Athletic Stores		$	6,286			$	5,790			$	5,568
Direct-to-Customers			865				715				614
		$	7,151			$	6,505			$	6,182
Operating Results
Athletic Stores(1)		$	777			$	656			$	653
Direct-to-Customers(2)			109				84				65
Division profit			886				740				718
Less: Corporate expense (3)			81				76				108
Operating profit			805				664				610
Other income(4)			9				4				2
Earnings before interest expense and income taxes			814				668				612
Interest expense, net			5				5				5
Income before income taxes		$	809			$	663			$	607