During the second quarter, the company opened 38 new stores; remodeled/relocated 126 stores and closed 21 stores. At July 29, 2006, the company operated 3,894 stores in 20 countries in North America, Europe and Australia. Two company franchised stores were opened in the Middle East, one in Kuwait, and one in Saudi Arabia.

Performance Analysis of Major Divisions

U.S. Foot Locker Business

U.S. Foot Locker business comprising Foot Locker, Kids Foot Locker, and Lady Foot Locker was essentially flat. Footaction produced a mid single digit gain. Champs had a good quarter with a mid single digit increase. Footlocker.com sales increased low to mid single digits.

International Business

On the international front, Foot Locker Europe comparative same store sales declined approximately 10%. Total sales declined mid single digits, reflecting a larger store base and a favorable foreign exchange rate comparison. Comparative same store sales at Foot Locker Canada and Asia Pacific rose in low to mid single digits.

Year-to-date Financial Performance

Year-to-date net income was $73 million, compared to $102 million in the year ago period.

- First half EPS was 47 cents per share versus 65 cents per share in the prior year period. This year’s income before the non-cash charge recorded in the second quarter was 55 cents per share, or $85 million.
- Year-to-date sales decreased 0.5% to $2,668 million compared with sales of $2,681 million in the year ago period. Comparable-store sales decreased 0.4%.

- Cost of sales for the first half was $1,888 million versus $1,886 million in the year ago period.
- Selling, general and administrative expenses for the year-to-date period were $556 million versus $548 million in the prior year period.
- First half depreciation and amortization was $87 million compared with $82 million in the year ago period.

Fiscal 2006 Outlook

EPS from continuing operations for the full year of 2006 is forecast to be in the range of $1.52 to $1.62 before the non-cash charge ($1.44 to $1.54 after the non cash charge).

Considering the challenging athletic retail environment in Europe and recent softening sales trends in U.S. markets, the company is taking cautious stand on the outlook for the balance of the year.

This guidance for the balance of the year is based upon the following assumptions:
Overall comparative same store sales are expected to be flat to up slightly, including a low single digit increase in the U.S. and a mid single digit decline in the international markets.

- Gross margin and SG&A rates are anticipated to be in line with last year.
- Interest expense is expected to be $3 million to $4 million.
- Income tax rate is forecast at 37.5%.
- The company expects positive impact of an additional week during the fourth quarter.

Capital spending for fiscal 2006 is estimated at $170 million.

The spending is currently directed towards the opening of 150 new stores and remodeling and relocating approximately 300 additional stores. Foot Locker plans to close 125 stores during 2006, and as a result, expects to close the year with almost 3,950 stores, 25 more compared with the beginning of the year. This current capital expenditure forecast is lower than the initial forecast, primarily due to some of 2006 planned openings that were pushed into 2007.

Key questions from the second quarter fiscal 2006 earnings call conducted by Foot Locker, Inc. on August 18, 2006.

The assets in how many stores were reevaluated?

The assets in 69 stores were reevaluated.