Elliott Rodgers: Thanks, Peter. Now that we’ve talked about our omni-channel aspirations and the strategies to achieve them, let’s talk about the supply chain and technology enablers. Let’s start with supply chain. We’ve made enhancements to our U.S. supply chain network to improve flexibility, speed and efficiency, while significantly improving our ability to meet customer expectations. We have rapidly evolved the network from 2 centralized single-channel DCs to 3 regional omni-channel DCs that service markets in their respective territories. Consequently, we can now service 95% of our stores and customers within 2 business days. Our new omni-channel network allows us to leverage inventory across all locations to fulfill customer demand, enabling a binnywear funny wear experience.
We will make similar advancements to our supply chain network outside of the U.S. to achieve parity within the markets we operate. Our multiyear supply chain road map will enable our omni-channel growth strategies. We recently opened an automated DC in Reno, Nevada to better service our stores and customers on the West Coast. This investment will drive efficiency and has reduced shipping times to the service market by 50%. We will continue to upgrade our DC network globally while leveraging supply chain partnerships to extend our capabilities. To enhance our omni-channel convenience offerings, we will further optimize our end-to-end product flow and create the near real-time visibility of inventory that Peter mentioned. This visibility will yield many benefits such as better aligning our e-commerce estimated delivery promise with our actual delivery times.
This strategy will be underpinned with technology investments ranging from data and analytics to inventory management to robotics and automation, all focused on creating a resilient, reliant and responsive network. And speaking of technology. We are committed to a multiyear technology investment plan to achieve our omni-channel and broader growth aspirations. Over the last decade, we have invested at a level below the industry benchmark. We will increase our investment to be at or above 3% of sales and increase our CapEx by 50% over the next 4 years. This acceleration will not only be an enabler of growth in our digital channels but will create a more efficient, nimble and digitally-enabled organization. Our digital transformation will create a more agile modern platform.
The improvements will not be limited to technology. They will include improvements to our processes and ways of working. We will move from legacy platforms with heavy customization to a modern architecture that is scalable and future-proof for growth. We will evolve to a more agile product and platform operating model that delivers capabilities and personalized customer journeys with a faster speed to market. Through this transformation, we will reduce our technology debt and emerge with a stronger technology core. We have launched a multiyear plan to elevate our technology foundation and accelerate our digital capabilities. Recent improvements include extending our FLX program to Canada, launching buy online, pick up in store in the U.K. and introducing Express Shipping from Foot Locker stores in the U.S. We have launched a digital win room, along with product teams across key experience areas, including search and browse, loyalty and launch and are already seeing encouraging results.
After introducing recent enhancements, we’ve seen year-over-year NPS improvements of 14% across digital purchase and fulfillment. We believe that with our focused 3-year road map and key priorities of strengthening our foundation, reimagining our tech operating model and transforming the customer experience that we will be well positioned to achieve our strategic imperative of being a truly best-in-class omni-channel retailer. Now I will bring up Rob Higginbotham, our Interim Chief Financial Officer, who will tie this all into our financial outlook.
Robert Higginbotham: Thank you, Elliott. The plans we are presenting to you today are meant to create value for all of our stakeholders. That’s our community, that’s our team members and, of course, our investors. In the communities that we serve, we will continue to invest in Black-owned businesses through our commitment to our LEED program, invest in scholarships and underinvested communities as well as donate our time, funds and product to charities we hold dear. We are also creating value for our team members, our people. We do that through empowering our people and transforming the way we work. We empower our people by creating mobility in multiple ways, including promoting from within, and in doing so are dedicated to a culture of diversity.
Secondly, we have our IGNITE program, which includes our cost optimization work, but is much more than that. We are changing the way we work through deep engagement and collaboration, making us more nimble and building an always-on capability and mentality when it comes to driving efficiency. Then there is, of course, our investors. Now, you probably all skipped ahead to this section if you got the slides online, but I’ll go through it anyway. To summarize our financial vision at a high level, our goal is to be over $10 billion in revenue with over 10% EBIT margins. Now that extends beyond the 2026 time frame that I’ll flesh out in more detail in a moment, but this is our long-term ambition. The path to get us there again is to simplify our business, invest in our core assets and capabilities in order to drive sustainable growth.
And what that means is that 2023 will be a reset year for us. As we absorb changes to the business, exit certain businesses, optimize our store footprint and accelerate investments. When it comes to simplify, we’ve taken 2 key actions in our international operations. First is the wind-down of our Sidestep banner in Europe, which involves closing 70 of those 80 stores while converting the other 10 to the Foot Locker banner in the region. And the benefits are clear. It will give us a sharper focus on our core brand in the region, it will simplify our overall operations, and we’ll have significant financial benefits. This was a $100 million top line business, but it was losing $10 million a year. It will cost us $25 million to exit the business.
That’s part of the reset dynamic in 2023, but then it will give us over 10 basis points of margin accretion going forward. We are also transforming our Asia business model by moving from a mostly owned and operated model and shifting to a mostly licensed model. We still see tremendous growth for the Foot Locker brand in Asia, but have made the strategic decision to lean into our partnership with MAP Active to leverage their scale and expertise in the region to drive that growth, so that we can focus on our more developed markets. And what that means is that the current profile of 30 owned stores that are losing $30 million a year, we’ll evolve into a model where by 2026, we will have 15 owned stores, but 130 licensed stores that generate over $15 million of licensing revenue that falls mostly to the bottom line.
We will then be taking that increased focus and more targeted capital to invest in our core. Our average annual CapEx run rate will increase by over $50 million over the next few years, as we lean into the new store formats that Tony talked about and as we lean into the building the technology capabilities that Elliott talked about. And that means that the tech expense that flows through the P&L will increase by about $80 million a year. which will be an over 50 basis point of margin investment that we’ll use to drive growth. And we will fuel that investment through our cost optimization work. A year ago, we announced a $200 million cost savings program opportunity that we identified in SG&A that we would flow through to the bottom line. Since then, through our IGNITE work, we’ve identified another $150 million of savings coming from merge margin and occupancy.
So we now have a $350 million cost savings program, still with $200 million falling to the bottom line, but now with $150 million to fuel our growth strategies. What that means for the path of our earnings growth is that 2023 will be a reset year for us with earnings down 30%. But as our growth initiatives gain traction, as our investments continue, but then our cost savings work start to more than offset that, we see sustainable growth beginning in 2024 and continuing into the future. In 2023, our reset year, we expect sales to decline by 4.5% to 6.5% on a 52-week basis. Our closing of Asia stores, Sidestep, Champs rationalization, offset by ongoing growth in WSS, will result in about a 9% store count reduction. But as we open bigger stores, our footage would decline by a lesser 4%.
Given the timing of the closures and the productivity differences of those stores, they will only have a 1% impact to sales for the year. We expect comps to decline by 3.5% to 5.5% this year, as we absorb the change with Nike before returning to growth with that brand later in the year and as we reposition the Champs banner. Comps will be down mid- to high single digits in the front part of the year and improving to down low single digits in the back half of the year as our growth initiatives start to take hold, which gets us to the down 4.5% to 6.5% total top line on a 52-week basis and then the extra week adds about a point of sales growth to that. Our EBIT margins will be down significantly in 2023, given the reset, as our cost save work is more than offset in the near term by our investments, some ongoing promotions in the early part of the year and deleveraging the business on the sales decline.
From the 7.9% level in 2022, our cost save program will add about 160 basis points. Our technology investments will then see the biggest pickup in 2023, and we’re also investing nearly $40 million into wages for our frontline associates. So together, those 2 factors will result in a 100 basis point drag on margins. Promotions weighted towards the earlier part of the year will be another 100 basis point drag. And meaningful deleverage of 180 basis points on down comps takes our 2023 EBIT margin to 5.7% on a 52-week basis. Tying all of that together, here’s our full guidance for the year, including the extra week. Within EBIT margin, our gross margin will decline by 90 to 110 basis points on promotional pressure and occupancy deleverage. We expect SG&A to deleverage by 80 to 100 basis points with investments offsetting cost saves in the near term, plus the underlying deleverage on the down comp.
And as we mentioned, as our reset year, our EPS will decline by 30% to a range of $3.35 to $3.65, including $0.15 from the extra week, which embeds minimal buybacks for the year. Now looking beyond our recent year and into 2024 through 2026, we plan to resume robust sales growth as we expect to at least keep pace with our growing market going forward. Our store base will decline by about 1% a year. But with that same dynamic of opening bigger stores, our footage will actually be up 5% a year as a company. The Foot Locker banner will grow a bit below that average. KFL with the growth opportunity that Frank described will grow above that average. Champs will continue to rationalize its store base as we move towards that $1 billion top line target.
WSS will continue to grow at about 20% and at most will grow but at a modest pace. That incremental footage, by the way, given its bigger boxes, will come in at roughly half the sales productivity versus the company average. So when combined with the comp outlook of 3% to 4%, we see total sales growth of 5% to 6% starting in 2024 through at least 2026. Combined with that top line growth trajectory, we expect significant margin expansion from 2023 levels and see a path to 8.5% to 9% by 2026. Let me walk you through those drivers. Technology spend will have a modest drag as those investments continue, but our sales begin to grow. And then our cost savings will really start to shine through, where we expect to see about 170 basis points of impact.
Then the Sidestep in Asia exits will help our margins by about 30 basis points. Our store rationalization will add another 80 basis points, as Tony mentioned. Our improved licensing revenue stream will add another 15 basis points. And then leverage from our top line growth will add another 20 basis points to get us to the 8.5% to 9% range for 2026. But that will not be the end of our journey. Beyond 2026, we see potential for us to reach 10% or higher EBIT margins, driven by us continuing to optimize our real estate mix, cover further cost saves, optimize our mix of fulfillment and leverage expenses as we grow the top line. As part of our growth plans, we are establishing a more explicit and targeted approach to capital. When it comes to investing in the business, going forward, we will be less focused on external sources of growth and more focused on organic growth and core capabilities, our new concepts, digital technology, all the things we’ve been talking about today.
And that means we will be less focused on M&A activity and/or minority investments. Now that doesn’t mean we’re closing the door entirely on M&A, especially when it comes to buying new capabilities, but it does mean that we will be focused on internal investment first. And in terms of returning cash to shareholders, we are committed to a stable but growing dividend, which we will target at 30% to 35% average payout over time. And on buybacks, apply a more consistent approach, targeting a low single-digit lift to EPS annually starting in 2024. So the result of all of that is our 2024 to 2026 earnings growth algorithm. That’s 5% to 6% total sales growth on a 3% to 4% comp and 5% footage, reaching 8.5% to 9% EBIT margins. Together, that’s high teens to low 20s EBIT growth.
And with buybacks adding a low single-digit lift to that, which gets us to an average EPS growth in the low to mid-20s. Altogether, that puts us on a road map for over 25% annual total shareholder return through 2026. Our sales growth, margin expansion, buybacks will drive that low to mid-20s EPS growth. And then combined with our current dividend yield of 3% to 4% would result in an attractive TSR of 25% or greater. So let me end by summarizing the key elements of our new growth plan. Overall, we will simplify our business, invest in our core in order to drive sustainable growth to achieve over $10 billion of revenue in the long term. And to get there, we will expand sneaker culture through more occasions, more choice and greater distinction, increasing our exclusive mix to over 25% of sales, increase in our non-Nike sales mix to over 40% while also revitalizing our growth path with Nike.
We will power up the portfolio by creating more distinction among banners, closing underperforming stores, expanding our off-mall footage to over 50% in North America and increasing our new format footage to over 20%. We will also deepen our relationship with customers by reimagining our loyalty program and increasing our sales penetration of loyalty from 25% today to 50% by 2026 and then to 70% longer term. And we are making a firm commitment to be a best-in-class omni-channel retailer, including a rich digital experience for our customers, targeting digital penetration of over 25%. The financial output of which will be 10% or better EBIT margins long term, attractive returns on capital and our low to mid-20s earnings growth algorithm. And with that, I’ll bring Mary back for some closing comments.
