Aug 19, 2016
Executives
John A. Maurer - VP, Treasurer and IR Lauren B.
Peters - EVP and CFO Richard A. Johnson - President and CEO
Analysts
Matthew McClintock - Barclays Eric Tracy - Brean Capital Kate McShane - Citigroup Matthew Boss - J.P. Morgan Mitch Kummetz - B.
Riley & Co. John Kernan - Cowen and Company Susan Anderson - FBR Capital Markets Omar Saad - Evercore ISI Michael Binetti - UBS Paul Trussell - Deutsche Bank
Operator
Good morning, ladies and gentlemen, and welcome to Foot Locker's Second Quarter 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode.
Later we will conduct a question-and-answer session. This conference call may contain forward-looking statements that reflect management's current views of future events and financial performance.
These forward-looking statements are based on many assumptions and factors, including the effects of currency fluctuations, customer preferences, economic and market conditions worldwide, and other risks and uncertainties described in the Company's press releases and SEC filings. We refer you to Foot Locker, Inc.'
s most recently filed Form 10-K or Form 10-Q for a complete description of these factors. Any changes in such assumptions or factors could produce significantly different results, and actual results may differ materially from those contained in the forward-looking statements.
If you have not received today's release, it is available on the Internet at www.prnewswire.com or www.footlocker-inc.com. Please note this conference is being recorded.
I will now turn the call over to John Maurer, Vice President, Treasurer and Investor Relations. Mr.
Maurer, you may begin.
John A. Maurer
Thank you, Beatrice. Good morning to everyone and welcome to Foot Locker, Inc.'
s second quarter earnings conference call. I'm pleased to report that the Company achieved net income of $127 million in the quarter on the strength of a 4.7% comparable sales gain and an improved gross margin rate.
Earnings per share came in at $0.94, up 12% from a year ago and 47% up above our EPS two years ago, as we continue to drive consistent improvements in operating and financial performance over the long term. In fact, this quarter was the 26th consecutive quarter with meaningful sales and profit gains over the prior year period.
This strong second quarter result brought our year-to-date earnings to $318 million or $2.33 per share, a 9% increase over a year ago and the best start to a year in Foot Locker's history. Lauren Peters, Executive Vice President and Chief Financial Officer, will start us off by discussing the Company's second quarter financial performance, followed by Dick Johnson, Chairman of the Board and Chief Executive Officer, who will discuss the various strengths Foot Locker has in the athletic industry and highlight some key product trends.
After that, we'll be happy to get to your questions. Lauren?
Lauren B. Peters
Thank you, John. Good morning to all of you and thank you for your interest in Foot Locker.
On overall, the second quarter finished near where we planned the business. As usual, there were some performances that stood above the rest and other areas where traction was somewhat elusive.
Starting on the positive side of the ledger, Foot Locker Canada again led our Store division, followed closely by Champs Sports, both with low double-digit comparable sales gains. Foot Locker Canada pulled off a hat-trick with double-digit gains in footwear, apparel, and accessories.
Champs Sports posted gains at all three areas too, representing an important inflection point for Champs where apparel and accessories constitute the largest sales penetration of any of our banners. Several Store divisions produced comp gains in the mid-single-digit range, including Foot Locker in the U.S.
As we noted on the last call, our flagship Foot Locker store on 34th Street was closed for the entire quarter, negatively impacting the total Company comp by a few ticks, ticks meaning tens of basis points. The Foot Locker U.S.
division itself was impacted by more than 100 basis points. So we are pleased with how well the Foot Locker team in the U.S.
navigated that headwind. Foot Locker Europe, Foot Locker Asia-Pacific, and Footaction were the other divisions with mid-single-digit comps.
With the performance of some exciting new stores such as State Street in Chicago, Footaction in total generated a double-digit sales increase. The strategy to expand our leading position in the kids business continues to be a major contributor to our success.
The Kids Foot Locker itself produced a low-single-digit comp increase. With the net addition of 26 stores, total sales were up almost 10%.
Sales of children's footwear in our other banners were up double digits. Lady Foot Locker/SIX:02 comped down low-mid single, unfortunately breaking its two year streak of comp gains.
Although footwear sales continued to be strong, apparel was down double-digits. Lifestyle apparel sold well, but we didn't keep pace with the rapid shift out of performance styles by our female customers.
Runners Point and Sidestep banners continued to run off double digits, pressured by traffic declines that seemed to be at least in part a function of local events in Germany. The traffic was also down in our Foot Locker stores in Germany, and Foot Locker sales were softer there than in most other markets.
Turning to our Direct-to-Customers segment, the business overall comped up 7.1%. Sales by our store banner dotcom businesses in the U.S.
increased in the teens, with significantly higher growth rates at Foot Locker's digital businesses in Europe and Canada. On the negative side of the ledger, Eastbay continues to struggle with sales declining high-single digits.
A shift away from performance continued to challenge this very sports-focused banner, as did the heightened sporting-goods liquidation activity that went on during the quarter. For the total Company, footwear continued to be the standout category, with an overall gain in the upper end of mid-single digits.
Running was up mid-single digits and so was basketball, while court classic and casual styles led the way with high-single-digit gain. The fairly consistent sales results across footwear categories this quarter is yet another excellent example of our ability to navigate the never-ending shifts in style preferences of our customers who continue to look to our stores and online sites for the most innovative, trend-right sneakers.
They know they can count on us to have what's hot, or should I say what's cool. Maintaining the trend of recent quarters, both average selling prices and units were up in footwear during the quarter, while in apparel, ASPs were up and units were down reflecting our ongoing shift to more premium apparel assortments.
Our apparel business continues to improve with men's apparel, by far the largest piece of the category for us, up mid-single digits and kids' apparel up double digits. The women's side, as I mentioned before, was challenged, as were accessories.
The socks business was the main culprit in accessories, still running down double digits, although we generated gains in hats, bag, and shoe care products. You will recall that when we gave you our quarter-to-date comp results back in May, we were running negative, but we said we expected the month of May to end positive, which is in fact what happened.
We then had a very strong June, up high single digits, with July up mid-single digits. The overall result was the mid-single-digit comparable sales gain to which we guided early in the quarter.
After looking at the relationship over time of our quarter-to-date comps with our finished comps for the quarter and by listening to many of you, we have concluded that our quarter to date results as of the time of our calls are not useful indicators of the expected pace of business for the total quarter. And so after this call, we will no longer provide the quarter-to-date comps.
Rest assured, the quarter-to-date comp, whatever it is, will be factored into the comp guidance we do provide you for the upcoming quarter. If there are some special short-term effects that warrant calling out, we will do so.
But between launch shift holiday, payday shifts and the like, we believe providing early quarter to date comp does not add value to understanding our business. That said, for this final mention of quarter to date comps, they are up mid-single digits, in line with our expectation for comparable sales to be up mid-single digits for the full quarter.
Turning now to the rest of the income statement, John mentioned the strong gross margin rate, which was 33% for the quarter, up 40 basis points from a year ago. The gains were driven by lower markdowns in our stores, partially offset by a decline in the merchandise margin of our Direct-to-Customers business.
In response to the competitive environment and a softening of traffic to our U.S. Web-sites, we were more promotional on our digital businesses than we had expected heading into the quarter.
We also spent more to drive traffic to our Web-sites, which contributed to a slight deleverage of our SG&A in the quarter to 19.7%. Overall, we had very good expense management, especially in store wages.
However, as we noted on the call in May, with two of our biggest stores closed for the entire duration of what is already our lowest sales volume quarter, our leverage point was challenged. Depreciation expense continued to trend up as a result of our ongoing investments in customer experience, both in-store and digital, while our tax rate continued to run slightly below our plan due to the proportionately higher mix of income from our international operations relative to the U.S.
We continued to manage inventory very closely, posting a 1.7% increase compared to a 5% total sales increase. This inventory discipline is key to our ability to continue with free flow in the fresh exciting products our customers expect and extend our full-price selling even further.
Meanwhile, our inventory turn rate is inching ever closer to the 3x target we set as our goal several years ago. The income statement and balance sheet performances we have executed in recent years have positioned us to deliver on the balanced approach to capital allocation to which we are committed.
Specifically, we invested $66 million of capital in the business during the quarter to be executed on our elevated capital expenditure program this year. That said, it is probable that we will come in $5 million to $10 million below the $297 million target we set at the beginning of the year, with the shortfall primarily the result of the timing of certain substantial projects related both to stores and infrastructure initiatives, and a shortfall in spending this year will likely roll over to next year.
We also spent $188 million in the quarter to buy back 3.35 million shares, bringing our total year to date shareholder return including dividends to $350 million compared to $275 million in the first half of 2015. With the mid-single-digit comparable sales gain that I mentioned, we're planning for the third quarter we will likely see similar operating metrics that we've seen so far this year, with gross margin up slightly and a bit of deleverage in SG&A driven by the digital business, leading to an EPS increase that should be double-digit or close to it.
Our outlook for the full year remains in mid-single-digit comparable sales gain and double-digit EPS growth. Let me now hand the call to Dick to discuss our leadership position in the industry and highlight a few of the key product trends for the quarter.
Richard A. Johnson
Thanks Lauren. Greetings everyone.
Foot Locker is the leading company. Our vision for many years has been to be the leading global retailer of athletically inspired shoes and apparel.
The goal of any competition however, and retail is a terrific competition each and every day, is not to be leading at the midway point of the race, it's to be the leader at the end, except in retail there is never an end to the race. So we strive through our strategic initiatives to build our Company to be an enduring retail leader with strengths across a variety of dimensions.
First and foremost we must be leaders with our customers. We are leaders in understanding what our customers want and how and when they want it.
We spend a tremendous amount of time identifying the key characteristics of the core customers of each of our banners and what makes them want to engage and transact with us. This work in turn makes us a leading partner for our world-class vendors as they create and market their most innovative, athletically inspired products.
The investments we have made in our store fleet, both in the physical appearance of the stores and the quality of the merchandise assortments, have led to our stores being destinations for our customers. This can be seen in our traffic results which consistently outpaced overall mall or high street traffic.
Our traffic was up in the U.S. this quarter, although it was down somewhat in Europe.
Being a strong retail destination positions us as the leading partner with our landlords in the malls and increasingly in the prime shopping streets across our global footprint. And our most important investments have been in our people, leading us to have in my opinion the best talents in retail, including our associates in our stores, in the field and in all of our support facilities.
This powerful combination enabled us to build strong leadership positions across the athletic retail industry. Let me first talk about product categories.
We believe we are the leading retailer of premium sneakers; period. Not just a specific category of sneakers; sneakers, full stop.
Yes, we are the leader in basketball. Lauren mentioned that basketball footwear was up mid single digits.
The gains came in a variety of silhouettes, primarily from Jordan Retros, Nike Foamposites, Superstars from adidas and certain signature basketball shoes such as Kyrie Irving from Nike and Stephen Curry from Under Armour to call out a few. We were up in running footwear, where we also lead the market.
The category here was led by lifestyle products such as the established Roshe and Huarache programs from Nike, with growth driven especially by Nomads and Ultra Boost from adidas and the Presto from Nike. Finally, we lead the market in sales of various casual and premium classic shoes.
This quarter, some of the standout styles were Stan Smiths from adidas and PUMA Suedes and Fierce. We have strong inventory positions as well as important exclusives and collaborations in many of these classic styles, just as we do in running and basketball.
Our vendors know that our banners provide the perfect battleground spread out to win market share, especially with the young male customers who buy the most sneakers and who are the style influencers for the rest of their generation, and increasingly for the rest of us since every day it seems more and more adults are wearing sneakers too. And that's why the leading brands continue to be highly motivated to collaborate with us on these exclusives and strong allocations.
We're a leading retailer of premium athletic footwear and apparel, not just in the U.S. but also across Western Europe, Canada and Australia.
Lauren mentioned that the Foot Locker banner was up mid single digits in Europe and Asia Pacific, but what she didn't mention is that both of those gains came on top of strong double-digit gains a year ago, leading to two-year stacked gains close to 20%. Running is the leading product category in both of those divisions by the way, not basketball.
And Canada's double digit comp gain this year also came on top of a double-digit gain last year. Those are definitely all industry-leading performances.
We are not just leaders in store productivity, but our digital businesses are approaching annual sales of $1 billion as we continue to connect with our customers often multiple times on their journey to selecting their favorite sneaker or piece of apparel. Those connections are more and more often happening on mobile devices where we lead in social media interaction, including some of the newer platforms such as Instagram Stories, Facebook Live and Snapchat.
Right now, you can check out the recent exclusive Twitter Q&A we hosted with James Harden, and next week we are partnering in the launch of the Bitmoji app. We'll have hustle groups in SIX:02 stores within Bitmoji fashion where customers can outfit their avatars in the latest products from Nike, adidas and others.
Finally, I want to mention that we've been hard at work creating what I believe will be the leading destination for the best in athletic footwear and apparel and accessories right here in Midtown Manhattan. Our flagship store on 34th Street is scheduled to reopen in a matter of days and we couldn't be more excited about it.
The space will include not just pinnacle footwear experiences but also a new and exciting presence for SIX:02 here in the city, as well as partnership spaces with multiple vendors. The details are still a bit under wraps but rest assured there will be plenty of fanfare about it soon.
So please look for that over the next couple of weeks, and if you are in the area, you should visit the store once it opens. All of these efforts I've just described has led to the strong financial performance we have produced over the last 6.5 years, which has in turn enabled us to provide industry-leading shareholder returns, including the elevated share repurchases Lauren described earlier.
Yet we feel our work has just begun. As I said before, the competition in retail is never over and we still have a long way to go to reach most of the 2020 objectives we laid out at the beginning of last year.
Within our solid growth plan, we have initiatives that are delivering excellent results now, such as expanding the kids' business globally, building out the Foot Locker banner in Europe and growing our digital business, plus our core business of selling athletic footwear to young males in the U.S. is making steady progress towards the productivity objectives embedded in our long-term goals based in large measure on the remodel program we continue to execute.
Meanwhile, we are making real headway in the apparel business, as seen especially by the strong results in Europe and the turnaround in Champs Sports. It will still take some time for our improvements in apparel to substantially move the needle, so I see this as a very important intermediate term opportunity for the Company, along with the turnaround in the Runners Point and Sidestep banners we are working on diligently.
Finally, the women's business remains a tremendous long-term opportunity. As I've said, we are excited to bring SIX:02 to New York City in a few days, with another key shop opening in our Times Square location towards the end of the year.
And if you're not in New York or near any of our other SIX:02 stores, you can see the exciting progress we are making at six02.com. We will keep partnering with our vendors to create and deliver the exciting lifestyle products connected with the meaningful assets to which our female customers have responded enthusiastically.
Although we've known all along it will take quite some time to build the business profitably to scale, we do have some exciting product and marketing initiatives coming in the near term. These include a continued and enhanced relationship with PUMA featuring MIANA FANCY products that we believe will help give the SIX:02 brand an immediate momentum boost.
Before we get to your questions, I must thank the excellent team of associates we have at Foot Locker for producing yet another record quarter. The second quarter used to be our toughest quarter.
In fact, it still is. But now, instead of barely breaking even in the second quarter, as we did early on in our journey, this year we earned $127 million or $0.94 per share.
It took a lot of excellent teamwork over several years to get us to this level of performance. So as we look to the future in how we can improve the business even further, I have to acknowledge all the tremendously good work done by everyone that went into producing the high quality industry-leading results that we announced today.
Thank you all very much. Beatrice, let's open the phone call for questions.
Operator
[Operator Instructions] Our first question, Jonathan Komp from Barclays is on the line with a question.
Matthew McClintock
This is Matt McClintock. I was confused there for a second.
Great quarter, congrats, really impressed by the results there. I just had a question, there were two questions actually.
First, Dick, you talked about traffic and positive traffic for the quarter and how you were a destination. There is a lot of discussion in retail today about the closing of anchor tenants in malls.
I was wondering if you could dive a little bit more into how you view your positioning, particularly in malls where anchor tenants may be closed, and maybe provide some color about success you've had in malls that maybe aren't even A or B malls?
Richard A. Johnson
Sure. Our U.S.
traffic was up in the quarter, Matt, and the closing of anchor stores has been going on for a while. We believe there's only a couple of places in the mall that people will line up for products.
One of them is a Foot Locker family store and one of them is the Apple Store. So we know that our customers, our core consumers want to be in our stores.
So the anchors, certainly there are some lease ramifications when anchors close, but our focus is more on the connectivity with our consumer, the engagement we have with our consumer, building exciting places to shop and buy. They interact with us digitally on their way to the mall, they in the mall will take a photo of the sneaker on their foot, and they'll tweet it out or they will send it out to their group of friends and we get the responses back.
So the anchors closing is a change certainly in the makeup of the malls, but our consumer is still driven to the malls as a place for social interaction with their friends. So we are confident that regardless of anchor positioning, we should continue to drive traffic into the malls.
And we have success on both ends of the spectrum, I think was the second part of your question, Matt, whether it's an A mall where we have premium placement and great shopping environment, or a B mall where the mall environment isn't quite the same as those A malls but our core consumer shops there and our associates are definitely engaged with the consumers across the entire spectrum, so the malls are far from dead regardless of what's going on with the anchors.
Lauren B. Peters
And I would add to that, this conversation around malls is centric to the U.S., and Foot Locker, our business outside the U.S., especially in Western Europe, it's much more that parity between street locations and mall locations as the development of malls there has trailed what it's been in the U.S. So we have deep experience in locating stores off mall with good traffic and building them to the unique characteristics of off mall.
And if you are in New York City, you've experienced that here in the U.S., but increasingly you will see us taking some of those locations off mall in the U.S. Where the customer is, we are going to be.
Matthew McClintock
Okay. And then one more follow-up, if I may, just on innovation in both basketball and running, you guys have a little bit better visibility into what's coming down the pipeline, can you maybe just fill us in on some of the excitement that you are potentially seeing as we close out the year and around into next year in terms of the innovation platforms and newness in products that may, could continue to drive or should continue to drive meaningful comps in both those categories?
Richard A. Johnson
I think you've seen some of that product, Matt, in the Olympics. You've seen more knit versions of product.
The KD 9 launch that came that was the knit upper, closer to the ground product, that's going to roll out more effectively in the back half of the year. There is no significantly new platforms that are coming.
I mean there are some tweaks to things that we've seen but the vendors continue to bring innovation and add excitement whether that'd be with knit uppers, whether it'd be with new silhouettes, so the pipeline looks good certainly for the back half of the year across running, basketball, and certainly casual styles as well.
Matthew McClintock
Thanks a lot.
Operator
Eric Tracy from Brean Capital is on the line with a question.
Eric Tracy
Good morning guys and I'll add my congrats on another great quarter. Dick, and maybe even Lauren, for you, I guess just speak to sort of what inning where we are in terms of the reformatting of doors, just some enhancements obviously should be supportive of both the comp and productivity bump, but maybe just kind of talk through where you feel like we are and still the opportunities to come?
Richard A. Johnson
We continue, Eric, with the enhanced or the expanded capital program this year, which is certainly fueling our remodel program. Each of the banners is at a different position.
Foot Locker had the earliest start. Footaction is trailing a bit because we just really started that.
We'll be roughly a third of the stores by the end of the year.
Lauren B. Peters
Roughly, Foot Locker roughly about a third; Champs a little bit more than that, I think about 40%; Footaction, as you pointed out, a little bit behind that but it would be about 30%; and Europe about the same, about 30% I think end of the year. But as we described earlier in the year, elevated – this year we had a couple of things going on, New York headquarters and some infrastructure things, we were making investments in our digital experience that will help support the go forward growth, and we would look then as we continue to execute the remodel program in those digital initiatives for the next couple of out years to be at a bit more elevated level.
But we will of course describe that for you in much further detail as plans firm up for next year.
Richard A. Johnson
And Eric, I would just add that the inning analogy infers that there is an end and in the game of retail, as I said in my prepared comments, there really is no end. So we have this remodel program that's going.
As we finish this one up, we'll be looking at what's motivating the consumer and what it takes to create exciting new shopping environment. So whether it's online, digitally or in-store, we're going to keep investing in the business to make sure that we keep pace with what's motivating the consumer to shop with us.
Eric Tracy
Fair enough. And then I guess my follow-up, in terms of digital, solid comp but you did touch on some promotional, elevated promotional cadence there.
Maybe just speak to what exactly you are going, and then in terms of the investments being made behind the digital platform, when we can sort of expect a better chance for leverage within that business?
Richard A. Johnson
The troubled area on our digital business is really the Eastbay brand, and we saw some pressure on the traffic and the pricing in the quarter, especially across the technical categories. So the team [indiscernible] is focused on bringing some traffic back to the banner, which has led to some elevated promotions based on what was going on in the marketplace in Q2, and they are shifting their assortment.
They are still very focused on this sports-led high school athlete, but they have also expanded their casual offerings and we expect that to pay benefits. The investment in our digital space is also an ongoing investment.
We are running as fast as we can there to make some upgrades and we'll start to see – it's a long-range project because there's a lot of plumbing that has to be changed out. So we'll start to see improvements, probably a little bit of leverage later in 2017 would be my guess at this point, sort of the for4ecast.
Eric Tracy
Perfect. Thanks guys.
Best of luck.
Operator
Kate McShane from Citi is on the line with a question.
Kate McShane
One of your competitors was out last week saying that they do think that there is quite a bit of excess pairs of footwear floating around post the TSA liquidation. Just wondered if you could walk through how that could potentially impact the business in Q3 and back to school specifically?
Richard A. Johnson
Against the bulk of our brick and mortar banners, I don't necessarily see a big impact because the level of distribution and product segmentation at both TSA and Sports Chalet is different than what we sell at the premium end. I think there is a bit of pressure against the Eastbay business as the completed numbers that you hear, and I have no idea of the numbers that we hear are true or not, but there is some pressure against the pleated side and the performance side of the business.
But as it relates to back-to-school and what kids are buying. I don't see a lot of impact to our brick and mortar business, or brick and mortar brands I should say.
Kate McShane
Okay, that's helpful. And for my follow-up question, just because you have the exposure in Western Europe and the U.K.
in particular, is there any detail you can give around what you saw during the quarter given Brexit and what your thoughts are for the rest of the year on the U.K. business in particular?
Lauren B. Peters
I think we saw a little bit of impact on traffic on the day of the vote but not much since then. We do have a bit of a currency impact in that we buy for that market in euros and sell in pounds, and so we do what we can to hedge that currency difference.
Richard A. Johnson
I don't think we'll really see much, Kate, until the world starts to understand what it really means, and that's sort of an ongoing debate at this point. So the consumer is back in shopping in the U.K.
So we'll keep you posted if we see things differently.
Kate McShane
Okay. If I could just sneak one more in, I know you had some good callouts in the basketball business during the quarter with some of the Nike product and the KD 9.
Can you update us at all about the other signature basketball products, since there does seem to be other improvements that have been made since the last time we spoke with you?
Richard A. Johnson
I spoke about the Kyrie shoe from Nike and the Curry shoe from Under Armour, both performed well in the quarter. The KD 9 that launched, again a different price value, a little bit innovation in the upper, a great midsole and outsole combination, so the consumer responded to that.
The LeBron Soldier product that he wore in the Playoffs sold well. There is more work going on in basketball and we'll wait until the vendors really bring that to market to talk about it.
I certainly would not think of pre-empting some of the good work that they are doing in talking about it before they talk about it. But Kate, basketball, as Lauren mentioned, was up nicely in the quarter.
Some of it is signature driven, some of it is lifestyle driven, but still good performance for us. So we see good things in basketball in the back half of the year.
Operator
Matthew Boss from J.P. Morgan is on the line with a question.
Matthew Boss
Nice quarter guys. Can you talk about the increased category and brand diversification that you are seeing in the results?
I guess do you see this as a competitive advantage giving you the more one-stop shop, and just any change in pricing or overall ASPs that we should consider as some of this mix changes?
Richard A. Johnson
We have said it many times, Matt, that our consumers are not driven by categories, they are driven by cool and sneaker culture. So our buyers and our merchants do a great job of working with our vendor partners to bring in assortments that resonate with our consumers.
The consumer moves very quickly, so our team has to be very nimble and adjust on-the-fly so to speak. So I'm less focused on categories, we're less focused on categories than we are making sure that we have the assortment that is really stimulating the consumers engage with us as a brand.
So from an ASP perspective, they do a great job of managing that as well, and we're not talking about trading $200 signature basketball shoes for $49 shoes, we're talking about a lot of these casual silhouettes still being elevated in price points and our focus is really on the premium area of sneaker culture, and the consumer is definitely responding to that. So I don't – Lauren, you may want to comment on ASP mix, but I don't see any changes in the back half.
Lauren B. Peters
No, I mean the trend has been there for quite a while now that ASPs have been up as the customer has voted for these shoes, but if they feel they are not really good price to value if that price has been, if they are elevated. That coupled with all of the really good work that we're doing on improving our allocation to get the right product to the right place at the right time and keeping control of the inventory growth, that too has fueled lower markdowns.
Therefore, that is a bit of a higher ASP as well. But our merchants are very thoughtful about the assortments across price line and to make sure that we are bringing compelling product and it's not skewed to the point that we are pricing folks out.
Matthew Boss
Great. And then just a follow-up, on gross margin, what was the breakdown this quarter between merch margin and occupancy, and does this 10 to 30 basis points guide for the year still stand?
Just trying to think about the best way to think about 3Q and 4Q between merch margin and occupancy.
Lauren B. Peters
So we had our flat Q1 40, and Q2, which was really driven by underlying merchandise margins, we had a bit of a delever on occupancy. We have this dynamic of some couple of properties here in New York that were closed on sales and you got rent.
So there is a little bit of a delever there. So as we look that full of year, that 10 to 30 that we guided to still make sense.
Operator
Mitch Kummetz from B. Riley & Co.
is on line with a question.
Mitch Kummetz
You talked a little bit about ASPs, ASPs were up in the quarter and I think there's maybe just a general concern out there that that slips over time if some of those basketball products come out at a lower price point and maybe there is a shift mix more towards classics at a lower price point. Could you just talk about how you see that playing out?
Richard A. Johnson
Mitch, the ASPs are, I've said this for three or four quarters now because that concern seems to be out there, but the ASP formula algorithm is really complex. So a shift in basketball can be offset by lower markdowns.
It can be offset by elevated Stan Smiths or Superstars. So our team, I can't give them enough credit.
They do a great job of mixing price points across footwear, across apparel, across accessories. And you combine the great assortments that they put in play across those price points, across those categories, and you combine that with great inventory management that Lauren mentioned, and having the right product in the right store at the right time so we don't have to mark as much product down, puts us in a position that continues to drive the premium end of the market which keeps the ASPs at the level that we're at and growing.
So I can't do much about the concern that you all see. I can just rely on what our buyers, our merchants and our vendor partners do to the mix of product that we sell to our consumers.
Mitch Kummetz
And this is a quick follow up to that, because you talked about markdowns. I'm curious, if you got like a KD 9 MSRP like $150 versus the old one at $180 or maybe a new LeBron at $175 versus $200, is that ultimately better for you because your out-the-door price is probably closer to MSRP versus maybe the older version even though at a higher MSRP, maybe you are marking that down more, is that how to think about it also?
Richard A. Johnson
That's one element certainly. Again, if there were just a straight A plus B equals C sort of formula, we might share that.
I'm not sure that we would, but we might. But certainly that's one way to look at it.
The great product that stimulates the customer to buy it at the premium price points is good for us and the less markdowns that we have to spend to move out of product, whether it would be seasonally or because of sales performance, the better that is for our gross margin line. So when you combine all of that, certainly having great products across all of the price points is one of the things that allows our ASPs to stay elevated.
Mitch Kummetz
Okay. And then, Lauren, just real quick follow-up on merch margin, I know it was up in the quarter, you talked about lower markdowns, where did IMU come in and how will you think about IMU over the balance of the year?
Lauren B. Peters
The IMU has really stabilized and it has been pretty stable for the last several quarters, and we are past the point where shift in category and brand mix is impacting the IMU.
Mitch Kummetz
Okay, all right. Thanks, guys.
Good luck.
Operator
John Kernan from Cowen and Company is on line with a question.
John Kernan
Congrats on a very strong quarter, both on the top line and the bottom line. So SG&A isn't levering at this point on 5% comps in Q2.
You're guiding it fairly flat for the year. And one of the things we continue to hear is the theme of higher wages and minimum wages inevitably going to move significantly higher in California and New York.
So I'm just wondering how labor costs factor into your long term margin structure and your ability to leverage SG&A?
Lauren B. Peters
Obviously the results and the guidance that we gave, we factored in what we see happening with minimum wage and the change to overtime exemption, et cetera, but the reason why we are pleased with our wage compensation structure, it includes a commission element that's helpful to our stores so that they will award those who are better salespeople. They have the ability to determine their wage and significantly earn above minimum wage.
They are good sales bucks. So that helps us manage that.
But also the reason that we continue to invest in things that give us some productivity advantages in the store, things like the processing of inventory, trying to make that more efficient so that we can focus the hours on sales activity as opposed to stock keeping activity, all of those are things that we work on to be able to manage that wage rate, and as I described, we felt very good about how selling wages came out and the leverage that we had on that.
John Kernan
That's helpful. Thanks.
You also talked a little bit about adidas. Obviously the inflection there has been pretty substantial.
Can you talk about your ability to get increased allocations around some of the NMDs that were just launched, the Boost technology that's been coming out, both in running and basketball?
Richard A. Johnson
We are on a nice run with adidas absolutely, John, and getting the allocations relates to the great relationship that we have with all of our vendor partners, and right now in several markets, no matter what retailer you talk to, they would tell you that they don't have enough of the best product. But that's one of the things that our vendor partners really do is they control the scarcity model, they pump in the appropriate number of shoes.
Our merchants would always like more. They like to feed at the trough when something's hot, but the vendor partners do a good job of controlling the flow into the marketplace and keeping that ever-present demand out there.
And I think it helps to keep the heat in our industry, it helps to keep the consumer excited about getting the next. So by and large, it's a good thing and we continue to work with all of our vendor partners to increase our allocations and the storytelling that we do in the store to connect better with the consumer and connect them with the product stories.
John Kernan
That's helpful. And then just finally, you bought back a ton of stock this quarter, took advantage of a cheap valuation with the stock.
What should we expect for the share count at year-end and the level of share repurchase for the remainder of the year?
Lauren B. Peters
We have a very balanced approach to our capital allocation. The number one priority is investing in our business.
Hence, what we've described as elevated capital with our remodel program and digital efforts around giving the customers a great store experience, whether they come into the stores or digital, and that investment is part of what we're doing to get after our long-term objectives. So priority number one is that investment.
But we are very committed to returning cash to our shareholders in both a strong dividend program and an active share repurchase. At this point, we have $361 million remaining on our $1 billion share repurchase authorization.
It is not formulaic, so I can't describe something to you that would help you with that model, but you can see we recognized good value.
John Kernan
Okay, thanks. Best of luck.
Operator
Susan Anderson from FBR Capital Markets & Co. is on line with a question.
Susan Anderson
Congrats on a good quarter also. I was wondering if you could drill down a little bit on the women's business.
When do you think you are going to be able to get more fashionable products in the stores that kind of turn that around? And then also, is there anything going on out there in the competitive environment that you also think is impacting this, such as maybe a quieter product, there's obviously been an influx of competitors, so maybe just kind of drill down on the outlook there?
Richard A. Johnson
Sure. From a store count perspective, Susan, we have announced or we have talked about the last few quarters that we slowed down our store development here in 2016 because we've got two very significant properties that we are going to open in New York City to give our SIX:02 banner a real presence in the city, and that's for 34th Street store that we'll see open in the next couple of weeks and then Times Square which will have a SIX:02 shop within it that will open hopefully by the end of the year.
So, that was a decision that we made to slow down the store rollout to make sure that we get those two doors right. The SIX:02 team has done a great job of bringing in some new brands, catching up with the lifestyle side of the equation.
Again, this female consumer that we are after is very discerning in that she expects all of the performance elements to be present in every piece that she buys, everything that she buys, but it's got to be very stylish. And we have got some great new brands, and the best place to sort of see and measure the progress if you're not near a SIX:02 store is on six02.com and you can see some of the great showcased product that we've got there.
So the intent would be to make sure that we've got the assortment right with some of the exciting things that we are going to see in 34th Street and Times Square. We've got the physical space right.
And then we'll likely accelerate door count when we get into 2017. And we've said all along that this is a really competitive marketplace.
So, yes, I mean the fashion is changing, the look is changing, the response and reaction to some of the asset-driven models are changing. So she's a very discerning, very quick moving customer and we are trying to capture her interest and get her engaged with the SIX:02 brand.
It's been a little bit difficult with only 30 doors. So I'm a firm believer that the excitement that's going to be generated out of the doors here in the city will certainly give a big momentum push, as will some of the good work that we're going to do with some of our key vendor partners in the SIX:02 space to drive real energy around that banner.
Lauren B. Peters
I am encouraged because where we brought those customers the special product, she has really responded very well. I think that the team is obviously in good start.
Susan Anderson
Great, sounds good. And if I could just fill one more in there on the Olympics, maybe if you could talk about if you've seen anything yet in terms of consumers getting excited around the Olympics and the product and maybe just historically kind of what you're seeing in terms of the benefit as you kind of flow through the quarter and afterwards?
Richard A. Johnson
There is always, I've talked about it before, Susan, that the level of patriotism and the focus around sport and the excitement is driven by things like the Olympics, like the World Cup, like the NBA Playoffs. And it may or might not be a direct connection or correlation to the product but a lot of the product that you're seeing on the Olympians' feets and bodies will certainly be commercialized in the back half of the year and into next year, maybe not at the same price points that the special product for the Olympians has been built to, but at price points that are meaningful and commercializeable in our stores.
So there is excitement around the Olympics certainly. We have some very clear country related and Olympic colored product in the stores and there's been great response to that, but that's not what really moves the needle.
It's the after effect and you'll see some of that great – if you've been watching on either track and field, there's an awful lot of great Nike product on the feet of a lot of the sprinters and distance runners that will certainly be in the Eastbay catalog. Same thing with the stuff from adidas and Puma, obviously Puma with – you've seen Bolt in the great performance that he's had, the branding presence that you've seen from Under Armour, all those things are going to be positives to the business in the back half of the year.
Susan Anderson
Great. Very helpful.
Good luck next quarter.
Operator
Omar Saad from Evercore ISI is on line with a question.
Omar Saad
Great quarter, guys. Wanted to ask about, I think you made a comment upfront about the women's business on the apparel side seeing a shift away from performance towards more of the fashion product.
Can you maybe elaborate on that and help us understand what's going on there?
Richard A. Johnson
The consumer that we are really trying to attract in the SIX:02, she expects the performance elements to be built in. So again, she is still very active, she wears it to the classes that she goes to, whether it's yoga, spin or out for a run, whatever, but it just is more fashion led.
There is the influence from some of the style leaders out there in the marketplace today that require it to be more than just a basic garment. It's got to perform, that's the expectation, but it's got to look great and help her project that athletic fashion image that she is really after.
Lauren B. Peters
So it makes a lot of sense, right. If she is wearing it everywhere, she wants it to look really good and special, and looking to us as a specialty retailer, we got to bring her special.
It needs to be something different that she can't find everywhere else.
Richard A. Johnson
And while our core athletic brands are certainly making a lot of progress in that area, there is brands like Kalala and Corelle and Spiritual Gangster that are in SIX:02 that really bring the fashion twist to this performance product. So it's not a lack of performance or a real shift from the performance, it's just that the performance expectation is built into her mindset when she buys the garment.
Omar Saad
Got you. Actually, it's really helpful.
Thank you. And then I wanted to ask on the broader, on the footwear side, there's been so much talk about a shift from performance to more sports fashion, sneakers, how do you see this trend?
Do you see a shift, is it supplemental, is it complementary, how do you see consumer behavior evolving around sneakers essentially across categories?
Richard A. Johnson
It's a good question and the facts are that most of the basketball shoes that we sell never see a basketball court, most of the running shoes that we sell never see the roads or the trails of the track to run in, they just look really good and they are part of the sneaker culture that we really support. So as our vendors continue to bring heat across the categories, whether it's deemed a performance shoe or a lifestyle shoe, our core consumers, the people that we really, that are at the sharp point of our muse work, they don't really distinguish things like that, they are really more focused on how does it look, what message does it send to the people that I hang out with, et cetera.
So as long as people are talking about it and wearing and in love with sneakers, we continue to support the sneaker culture that certainly across the markets that we are in is a significant part of today's pop culture, and I think it will be going on.
Lauren B. Peters
And it's self perpetuating too, right. I mean, if you think about adults today grew up with sneakers and they are getting ever more discerning at an earlier age about the nuances between the different sneakers.
I think you see that in the results at our kids' business. So they fall in love at an early age and they are not falling out of love with the category.
Operator
Michael Binetti from UBS is on line with a question.
Michael Binetti
Let me add my congrats on a great quarter. I know a lot of the questions have been answered here.
Let me ask you about Runners Point group for a second. It sounds like you feel that was partly the market in Germany, but last quarter I think you were a bit more concerned about few of the specific challenges to your own brands in that business.
Could you just maybe help us kind of revisit that a little bit, aside from the market, what do you think is missing in your business that you guys need to do to kind of steady the ship there?
Richard A. Johnson
It's a good question, Michael, and certainly Q2 I would chuck a part of the toughness to the market in Germany because none of our banners performed well in the economy with some of the traffic issues that we saw. But from a broader perspective, we're repositioning both Runners Point and Sidestep and we did some – you know how we operate, we test things pretty significantly before we go ahead and roll them out and the tests that we saw back in 2014, where we positioned Runners Point with all things running and Sidestep more on the lifestyle end of the spectrum with our Foot Locker banner right in between, the results in 2014 were pretty positive and they convinced us that we could go ahead with that.
In the hindsight, what we found is there were a couple of really significant silhouettes that were driving the running side of the business, especially in Germany. Each market in Western Europe is different and Germany was definitely locked down to a couple of key silhouettes that had fallen out of favor there.
So it really caused, firstly fired a bunch of customers from runners point because we took out the vulcanized shoes, we took out the skate shoes, we took out the boots, and we really focused it on the running consumer. And then that running consumer moved off a couple of the key silhouettes that had really been propping up the results.
So it's an assortment mix, it's a brand mix, and I think the team in Recklinghausen is addressing it as quickly as they can with the vendor partners. And then the other piece is on the Sidestep side of the house making sure that we've got the right lifestyle piece of it in a little bit more fashion forward.
So we've got work to do there but the team is diligently working on it. We spent a little time over in Germany this summer and we see some progress, but we do definitely have work to do.
Michael Binetti
Okay, that's very helpful. And back on your commentary about women's, if we go back a few years, there's been a few starts and stops in that business, it sounds like you're fairly high conditioned that it's a product issue right now, the teams are working on it, but it seems like longer term the reality is that the demand in that category changes in a much different cadence than what it used to in your men's business.
Looking at that, and as you mentioned, we had pause on the store reopening, what you are thinking about how much capital you want to deploy behind the women's business over the longer term knowing that it's a more volatile category and that it changes quite frequently and these product issues seem to be a bit guardrail to guardrail more than the men's business?
Richard A. Johnson
We are definitely committed to the SIX:02 brand and the amount of capital, Michael, we'll figure out as we keep moving forward. We have to get a little brand recognition out there.
We have to make sure that we have got our target mused in the right asset led and scarcity model. She's not that different from our male consumer once we get the right product assortment in.
We've found when we bring the right product assortment in that's asset-led and it's a little bit scarce, she's very reactive to that and very much – in those moments, she looks very much like our male consumer. But we have to win her every day and that's where the shifts that you referred to that we've talked about are critical that our team is on those.
So we're certainly supportive and 100% behind the SIX:02. When we get more brand recognition and momentum as we get through these openings in New York City in 2017 and 2018, we'll look different from a capital investment perspective for her I'm sure.
Michael Binetti
Thanks a lot, guys. Very helpful.
John A. Maurer
All right, I think we have time for just one more question.
Operator
Paul Trussell from Deutsche Bank is on line with a question.
Paul Trussell
Congrats. Wanted to just follow-up on the remodels.
You guys mentioned that you were around 30% complete of the store base globally, any metrics that you are able to provide for us at this time on four wall or comps or returns relative to the rest of the store base? And then also as we think about exclusivity because of your House of Hoops banner, I think it's well understood the partnership that you have on the basketball side with Nike.
Maybe you can just give us a little bit more color around your mix of exclusives with Nike on non-basketball products and the same with other vendors such as adi, Under Armour, PUMA, et cetera?
Richard A. Johnson
Couple of things, Paul, going back to the first part of your question, we don't break out the exact performance of the remodels because each of them performs a little bit differently, but I can tell you that the remodels outperformed the balance of the chain and in totality they surpassed all of the hurdles that we have from a financial point of view, from a capital investment point of view. So again, I really would want to stop remodelling at that first one that doesn't pass out all those hurdles appropriately.
I'm not sure that anybody in the organization has that good a crystal ball to tell us which one that's going to be. So we continue to be investing in that program, as Lauren talked about.
I guess I'd also point out that beyond the House of Hoops, that's certainly our biggest partnership program with our vendors, but we've got vendor partnerships across multiple brands, we've got the Armoury with Champs Sports and Under Armour, we've got Flight 23 in Jordan shops with Footaction, we've got the Fly Zone with KFLs and Nike, and those are open around the globe. We've got the Collective with adidas.
And they are all committed to bringing fresh new exclusive product into those spaces. So I'm not going to get into the amount of exclusives that we've got in each of those, but commitment that we have made, we sign the lease, we share the buildout cost, they deliver great product, some of it exclusive, some of it with time leads, et cetera, we do the servicing and the storytelling in the stores and we have great partnerships that continue to fuel sneaker culture.
So they are all working and we are very positive about the vendor partnerships.
Paul Trussell
Thank you. And then just a follow up, apparel comped positive as well this quarter, you mentioned that I believe units were down, ASPs were up, maybe just help us better understand for your men's customer, your teen customer, what is it that they are attracted to on the apparel side currently and how do you feel in terms of your positioning and your assortment going forward?
Richard A. Johnson
We've had a great run in fleece on the high-end, the tech fleece, et cetera, I mean not so much in Q2 but still the kid was buying, our consumer was buying fleece even in Q2. We've got a great position in windwear going into the fall and we've seen good early results from that, so we are positive about that.
We've got the licensed product business in Champs Sports at the level that we wanted to be and they are having a nice run with licensed product where they are able to chase and fill in on the right team, the right player, et cetera, the right sport moment. Dad hats are a winner on the accessories side.
So there's a lot of things that are interesting the consumer right now, graphic tees, the right graphic tees, some of them are sports moment led, some of them are culturally led and some of them are just brand reads that our consumers are after, and the apparel is so much different in each of our banners that there is winners and obviously some things that aren't quite as positive in each of the banners, but it goes across the full spectrum, Paul.
Lauren B. Peters
It does, and our merchants are doing a great job of really tuning in to their local customer and what appeals to their local customer in apparel and assorting to it, and I think that's one of the things that we're seeing show up in the apparel results.
Paul Trussell
Great. Congrats guys.
Good luck.
Richard A. Johnson
John, before you jump in, I just want to make sure that we call out and have the people of Louisiana in our thoughts. We've got a bunch of teammates down in Louisiana that have been flooded out and we know that they are working hard to put their lives back to normal but it's something we should all think about and remember.
John A. Maurer
Okay. Thanks, Dick.
Thanks for everybody's participation today. If we didn't get to your question or if you have a follow-up, I'll be back at my desk shortly.
Please join us for our next earnings call, which we anticipate will take place at 9 AM on Friday, November 18, following the release of our third quarter results earlier that morning. Thanks again and good bye.
Operator
Thank you, ladies and gentlemen. This concludes today's conference.
Thank you for participating. You may now disconnect.