The firm believes that both of these new businesses can be efficiently integrated within its existing infrastructure with minimum incremental overhead. The firm’s real estate team has already identified most of the 30 family footwear stores and plans to open beginning in the spring of next year. The stores will be located in offprice and value oriented strip centers. The first group of stores are expected to open in the April/May timeframe and the firm plans to open 30 to 40 additional stores in the fall season. A first hat store will be open this month in the Miami international mall.

Fiscal Year to Date Financial Highlights

Year-to-date net income was 88 cents per share, or $138 million, compared to $1.07 per share, or $168 million last year. This year’s results include a non-cash impairment charge recorded during the second quarter of 8 cents per share, or $12 million after tax, to write down long-lived assets at the company’s European operation, pursuant to SFAS No. 144. Year-to-date income from continuing operations before this non-cash impairment charge was 96 cents per share, or $149 million, as compared to $1.06 per share, or $167 million last year.

- Year-to-date sales increased 0.2% to $4,098 million compared with sales of $4,089 million last year. Comparable-store sales decreased 0.4%.

Fourth Quarter Fiscal 2006 Outlook

The firm’s earnings per share expectation for the fourth quarter has not changed versus the guidance provided in August. Including the additional week, the firm currently expects that its earnings per share for the fourth quarter to increase several cents per share versus the fourth quarter of last year. Therefore, based on the third quarter results and current outlook for the fourth quarter, the firm is raising its total fiscal 2006 guidance to a range of $1.58 to $1.65. This range excludes the 8 cent per share non-cash charge that was recorded in the second quarter to write down certain assets of the firm’s European subsidiary in compliance with FAS 144.

The fourth quarter forecast is based upon the following assumptions:
- Flat to low single digit same store sales increase;
- Total sales increase in mid to high single digits, reflecting both new stores and an additional $60 to $70 million of incremental sales for the extra week.

Gross margin and SG&A rates relatively flat with last year on a 13 week comparable basis. After adding in the additional week, the firm expects gross margin rate to be stronger than last year, due to the additional leverage on occupancy expenses.

The firm expects interest expense of $1 million, and an income tax rate of 36.5%. The income tax rate during last year''s fourth quarter was 32% due to a one-time adjustment. Therefore, on a 13 week comparative basis, the firm expects its fourth quarter pre-tax results to be higher than last year.

Key questions and answers from the third quarter fiscal 2006 earnings call conducted by Foot Locker, Inc. on November 17, 2006.

Could you discuss a little more about the value store format, the terms of relative size, relative investment and where you are looking to take this?

The firm will be opening approximately 60 to 70 stores in the first year. The management believes that it could be a rather large division. The division will be approximately 60% athletic and 40% Brown shoes. The management believes that the firm has a lot of people within its company who has tremendous knowledge of the Brown shoe business.

The firm feels that its buying power in the athletic segment will give it enhanced margins versus its competition. Hence, it could be a very large division. The Brown shoe business is approximately $25 billion in the U.S. if it works the way the management believes it is going to work and the firm will roll it certainly up into Canada and possibly Mexico and Central America. It will be in off price value oriented malls. In the mall based category, the firm is well penetrated, and this is a new exciting opportunity for the company.

The price points will be in the moderate range for this area, ranging between $35 and $49.99. Stores will be approximately 4,000 to 6,000 feet. Also, the firm’s back of the house operating efficiencies and synergies will allow it to generate higher returns than its competitors.

Will this be branded or private brand?

The lion''s share of the athletic will be branded and the lion''s share of the Brown shoes will be private label. Probably 78% private label and the rest branded. But the firm will also be buying closeouts.

Can you provide breakdown on how Foot Locker Europe did in its five major country markets of Italy, France, U.K., Germany and Spain and what the prognosis is about those countries in terms of the environment in those markets?

The firm’s two toughest markets were the U.K. and France and they continue to be the two most challenging environments for a lot of reasons. Italy was good, Germany was fair and Spain was not too rough.

In looking to the future, the U.K. seems be very cranky. The firm is carrying out a lot of promotion there. France is a different story and it is more of a fashion shift there. That''s what the firm has in its stores, but it is also competing with a lot of new customers. They carry a lot of the low-profile product. As that cyclical product will diminish, everything is cyclical in this business. In the past you would never find that kind of merchandise in those stores. Hence, the firm has got a fashion shift and it has got a whole bunch of new competitors, and those are the principal dynamics behind the difficulty the firm has had over there.

Will the services of Evercore be continued or is that something that is not going to be needed now that there is less likelihood of something else happening LBO wise?

From time to time, the firm has always hired investment bankers and consultants and from time to time, the firm will use various different services. The firm will probably continue to use them as advisors in the financial end of the business. They are a financial advisor and Parthenon was a strategic advisor.