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Foot Locker CEO: Supply chain crisis ‘puts a lot of pressure on the team to react’

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Foot Locker Chairman & CEO Richard Johnson joins Yahoo Finance's Brian Sozzi to discuss the business outlook of the apparel company going forward and why the company continues to hold so much cash on its balance sheet.

Video Transcript

- But I do want to welcome in my first special guest for the hour. And it's Foot Locker CEO Richard Johnson. And Richard, always nice to see you. I guess it's only fitting we start with you because I am, I think, standing nearby one of your stores in the city. What's your outlook for this holiday season?

RICHARD JOHNSON: Well, Brian, it's always great to be here with you. And I would echo, based on what my team has told me, that people are back out in New York City. So it's great to see. Great to hear you affirm that. And you know, we're believers that the holiday is going to be strong. We just closed our third quarter. Had a great quarter, got our inventories in position to get the holiday season off to a great start. Clearly, some of the things that you talked about in your opening with supply chain and boats and ships docked up, the ports will clearly create some opportunities for us. We'll have to be nimble and agile. But we look forward to a good holiday season.

- Dick, I think I just realized that this is the first time I have talked to you not inside of my kitchen. So that is a different change of pace in terms of our conversations. But are you seeing-- interesting note right there that you mentioned, what your team mentioned, is are you seeing a big disparity between urban Foot Locker stores and suburban Foot Locker stores, in large part because we have seen these tourist shoppers come back?

RICHARD JOHNSON: Yeah, the move that I just talked about was really the tourist stores, right? You know, our suburban stores, our borough stores in New York City have been on a pretty good run, but the reality is that Midtown Manhattan, where we were missing some of that tourism, has certainly started to rebound. And we've seen it in other key tourist cities around the country, certainly.

So as the borders opened up, as airplanes were allowed to land with foreign tourists in it, it certainly has been good in those marketplaces. And obviously, New York gearing up for the parade on Thursday and all of the excitement that goes with Black Friday, you know, I think there is certainly going to be a lot of energy. But we're seeing it across the marketplace in the tourist cities, Brian.

- Well, let's not forget about the local shoppers that keep a lot of these stores open. I mean, you're entering this holiday season with a record-setting stock market. You have people that have built up their savings. I think the US savings rate is close to 10%. What are you seeing from that core US shopper?

RICHARD JOHNSON: Yeah, no, as you've seen in our results, we've posted good quarters throughout 2021. And that core shopper has a lot of energy around the products that we sell, you know, whether it be the high heat sneakers, whether it be that casual look. We think that our consumer wants to be casual and comfortable. And they continue to come into our stores. They continue to shop on our digital sites and our social network. And we continue to see a lot of positive from that core consumer, Brian.

- I like what you said, Dick, on the earnings call a couple days ago. You mentioned that the consumer is-- when they coming-- when they are coming into your store, they may not get their first choice of product, but they are finding their second. How severe are these supply chain bottlenecks?

RICHARD JOHNSON: Well, we've been battling the supply chain for-- challenges for almost a year now. Obviously, the shutdown in Vietnam and the slowdown in the ports that's been exaggerated a little bit, exacerbated a little bit as we got close to the holiday puts a lot of pressure on the team to react and find other opportunities. But our consumer is very clearly, you know, out to shop. If they don't find their preferred style, color, size, they really are going to the next available. And that's one of the real benefits that we've got, being a multi-branded retailer, is that we've got a lot of partners that we can leverage our relationship with and find ways to get product into our stores.

So again, you know, as I said in our earnings call, we don't have a demand problem. The demand is out there, and the consumer's looking for product. There's a little bit of a supply chain challenge that, again, we've faced for literally the last year. You know, the team continues to do a great job finding ways around it and getting product that our consumers want into the stores, onto our sites, and ultimately on our customers' feet, and their apparel choices, as well.

- Do you think these supply chain issues, Dick, go away next year?

RICHARD JOHNSON: I certainly think they start to go down a little bit. Certainly, the production environment in South Vietnam should get healthier. You know, the factories are open and ramping up, so we think that there will be flow. I think that we'll work with our vendor partners to find other routing, as opposed to just through Long Beach and LA, which is obviously where a number of retail cargo ships come into. But there are many other ports that we can try to take advantage of and move things around. So we'll certainly be working with our partners. So I do see them lessening. I think that, you know, there will-- eventually, the logjam will break up a bit, and we'll be able to see a better flow into our distribution center and, ultimately, into our stores.

- I had a personal moment about a month ago, Dick, I realized everything in my closet was completely outdated, that I haven't really shopped much for the past almost two years of the pandemic. I went out and bought a ton of clothes. And I imagine I'm not alone. What are some of the hottest selling styles you are seeing in Foot Locker, and what are people gravitating towards?

RICHARD JOHNSON: Well, you know, high heat sneakers always drives the business. So clearly, Nike brings the best heat in the industry. We've seen a great run on Ultraboost from Adidas. You know, our relationships with Puma, the RSX continues to be a great model for us here in North America. You know, we've got a new brand by the name of On out of Switzerland. They just went public not long ago. They've had a great run, as that brand sort of takes hold in the US.

On the apparel side, it really is still driven by fleece. You know, fleece is our core consumer's outerwear. And as we get into the fall and the winter season, it really is about layering. And they want the great fleece pieces that we've got. And we just had some really successful launches of our own brand, Locker and the Eastbay performance brand that we launched in the third quarter. And we're about to launch for our female consumer the Cozy brand sometime in December. And you know, again, it's about comfort. It's about style. It's about feeling really, really good with how they look and what they wear.

- Well, listening to that, I really-- I need to go out and get some new sneakers because I am completely off-trend, Dick. Last one before I let you go. If I have my math correct, 20% of your market cap is in cash. Foot Locker is sitting on a lot of cash. How do you plan to use that?

RICHARD JOHNSON: Well, you know, I think as Andrew Page, our CFO, pointed out at the end of our call last week, you know, the end of the quarter is just a moment in time, right? We bought Atmos. We bought WSS. We've paid for WSS, but the payment for Atmos would have fallen into the fourth quarter. Likewise, the inventory that we helped to elevate at the end of the third quarter has to be paid for.

So first and foremost, we're going to continue to fuel our business, you know, with the right inventory. We're going to look for the right opportunities with our customers to expand capabilities. We've got a good dividend program, a share buyback program that's alive and well. And as we see dislocation, we look for opportunities.

But again, we've known each other a long time, Brian. I'm a guy that feels OK with having cash on the balance sheet. And we continue to put it to good use. If you look at what we've done throughout 2021, we spent $1.1 billion to buy two brands that were our fast-growth brands that will help us accelerate our customer base and our growth in Asia. So again, we like to look for opportunities, but first and foremost, we're going to fuel the existing businesses that we've got.

- And we have talked a good bit through the years, Dick, and I can tell you this, I really can't feel my legs. It is very cold out here in New York City. Foot Locker CEO Richard Johnson, happy Thanksgiving to you. Thanks for coming on. We greatly appreciate it.