Kaushik Andra, Ishan Prasad, Shicheng Tang, Lingtao Zhou April 25, 2013

1. Kaushik Andra, Ishan Prasad, Shicheng Tang, Lingtao Zhou April 25, 2013

2. Agenda Introduction Macroeconomic Review Industry Overview Company Overview Financial Analysis Valuation Recommendation

3. Foot Locker Inc. – NYSE (FL) Source: Marketline Founded in 1974- Headquartered in New York, NY Global Retailer of athletically inspired shoes and apparel Operates 3335 retail stores in 23 countries in North America, Europe, Australia, and New Zealand

4. Macroeconomic outlook Source: Wall Street Journal • Marketplace Fairness Act moving through Senate • Primarily affects small online retailers • Retail Sales down in March but beat expectations for 1st quarter • May be explained by payroll tax effect • Further sequestration cuts

5. Macroeconomic Outlook Source: New York Times • Growth in Asian markets slow as well, Japan trying to implement expansionary monetary policy • European data continues to show mixed results, points to sluggish growth • Austerity measures in Spain not particularly effective

6. Industry Overview Foot Locker primarily operates in the retail athletic shoe wear and apparel industry Largest Players: Nike, Adidas, Finish Line, Dick’s Sporting Goods Asia Pacific region forecasted to have highest growth during next 5 years

7. Five Forces Analysis • Bargaining Power of Buyers- High • Consumers face low switching costs • Bargaining Power of Suppliers- Moderate • Suppliers starting to develop e-commerce presence • Threat of Substitutes- Moderate • Can use cross-training shoes for various purposes • Barriers to Entry- Low • Low initial investment to enter retail space • Degree of Rivalry- High • Emergence of online retailers in every business segment • Overall Industry Attractiveness- Moderate

8. Projected Industry Growth Source: Lucintel • Highlighted by events such as FIFA World Cup 2014, and 2016 Olympics • CAGR of 4.92% until 2017 • Mainly correlated with global economic growth • Heavily driven by consumer sentiment and confidence • Foot Locker specifically affected mostly by U.S and European growth

9. Company Overview Source: Foot Locker Inc. 2012 Annual Report Operates in two reportable segments — Athletic Stores and Direct-to-Customers. Athletic Stores segment is one of the largest athletic footwear and apparel retailers in the world, whose formats include Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports, Footaction, and CCS. Direct-to-Customers segment includes Footlocker.com, Inc. and other affiliates, which sell to customers through their websites, mobile devices, etc. It operates websites for eastbay.com, ccs.com as well as those aligned with the brand names of its store banners

10. Store Presence Source: Foot Locker Inc. 2012 Annual Report

11. Athletic Stores Segment • Sales increased 9.0% in 2012, as compared with 10.7% in 2011. • Excluding the effect of currency fluctuation, it increased by 10.6% in 2012, as compared with 8.9% in 2011. Source: Foot Locker Inc. 2012 Annual Report

12. Athletic Stores Segment Source: Foot Locker Inc. 2012 Annual Report Most divisions experienced strong increases compared with the prior year, led by Champs Sports and domestic Foot Locker. Foot Locker Europe had a modest comparable-store sales decline reflecting the macro conditions in that region. Introduced a new banner SIX:02 in November 2012.

13. Direct-to-Customers segment Sales increased 19.7% in 2012, as compared with 18.8% in 2011. The increase was majorly a result of strong sales performance for the company’s store-banner websites (60%) as well as increased Eastbay sales. Source: Foot Locker Inc. 2012 Annual Report

14. Sales Composition Source: Foot Locker Inc. 2012 Annual Report

15. Strategy Source: Foot Locker Inc. 2012 Annual Report Create a clear customer focus, to drive performance in core athletic banners. Make stores and internet sites more exciting, relevant places to shop and buy. Deliver exceptional growth in high-potential business segments. Aggressively pursue brand expansion opportunities

16. Business Risk Source: Foot Locker Inc. 2012 Annual Report

17. SWOT Analysis Source: Foot Locker Inc. 2012 Annual Report

18. Current Financial Condition Source: Foot Locker Inc. 2012 Annual Report

19. Key Financial Ratios Source: Bloomberg

20. Stock Information Source: Yahoo.com

21. Financial Performance Source: Yahoo

22. Total Return to shareholders Source: Foot Locker Inc. 2012 Annual Report

23. Comparable Company Analysis Source: Bloomberg

24. Discount Rate

25. DCF Analysis Source: Bloomberg

26. DCF Valuation

27. Decision Drivers • Strengths • Strong Same-Store Sales Growth • Good improvement in operating margins • Excellent Dividend Record • Revamp store layout to better suit customer shopping experience • Concerns • Consumer sentiment sluggish as global economy recovers • High degree of rivalry within industry with the rise of online retailers • Unclear plan of expansion into key global markets

28. Recommendation • Valuation Summary • Current Stock Price: $32.34 • Comparable Companies Valuation: $39.56 • DCF Valuation: $26.95 • Recommendation: WATCH LIST • Place on RCMP Watch List • Consider reviewing again in 12 months once U.S. and European economies show stronger consumer confidence