What is the potential for the new hat business? Earlier didn''t the company used to operate a head wear concept?

The firm had a division back in the late 90s. It was called Going to the Game. The stores were very large and they carried a lot of apparel and a lot of noncore merchandise. This will be principally focused on hats, and will be around 300 to 500 square feet. This will be operated out of the Champs division, with minimal incremental central expense, essentially the Champs hat buying team will be buying this merchandise. Hence, it is a different concept than Going to the Game thing that failed in the late 90s.

The business could grow to several hundred. The management is hopeful about the business. The company has its first test store opening in the Miami international mall. The management is hopeful of doing well. The hat business is tough and is very cyclical.

Can you comment on the performance of the urban stores during the quarter?

The urban stores were a little tougher than the suburban stores and there was somewhat of a slow down in basketball. But it seemed that the last four to five weeks has come back as the season has begun very aggressively and there is a lot of new exciting product out there.

Could you talk a little bit about the structural difference between the U.S. and European? Why are the operating profit margins so much better in Europe? Do you anticipate that the Footquarters business to have equivalent operating margins as core Foot Locker?

Yes. The operating margins in Europe have always been higher because of the productivity. The firm is on many of the important highly trafficked locations and that has been the principal driver. The other very important ingredient in the European business is the nonpromotional nature of it up until the last several years. On the statutory and all the local laws in many countries, particularly Italy, France, Spain, and almost all the other countries except for the U.K., up until recently you have windows when you could promote. Hence the retail margins were always 3% to 4% higher than the U.S.

The European business still, after several years of difficult sales, is more profitable. Doesn''t it make sense to open more stores in Europe rather than open the Footquarters concept?

The firm has got to get Foot Locker Europe back on track. Hence, it is going to take a pause. The firm is going to focus on profitability over there. Hopefully in 2007, the firm will get its sales stabilized and its profitability back to a real exciting return. The management believes that there is an opportunity in the U.S. in this family footwear business. The Brown shoe business is approximately 25 billion versus the athletic business in the U.S. at around $19 billion. The firm believes that there is an opportunity in the Brown shoe business.

You mentioned that the UK market is still having issues. What is going to straighten out that market? Is it a supply driven problem that''s leading to all the ongoing promotions and how is it going to correct itself?

It is a real bear and they are promoting very aggressively. They are giving a lot of merchandise away at ridiculous prices. There is definitely a price war going on there and a market share battle. The firm is not going to be adding anything to its fleet in the U.K. at this point in time. The management is going to try and do what it knows how to do best and make it a fashion exciting market.