Fusion footwear – a phrase commonly used now to define low-profile sports-inspired lifestyle footwear - has come to represent 40 percent of the total product mix in Foot Locker’s European outlets, as compared to 15 percent last year. The American retail chain wants to push the European ratio further up to 50 percent, working most closely with the likes of Nike, Puma and Adidas.

The proportion is understood to be more like 25 percent in the USA, where basketball styles have a stronger market penetration, but it should go up there as well. Running and fusion shoes have been the best performers in the Foot Locker stores in the USA lately, and the new European fusion shoe program should help spot new trends that can be applied to the U.S. market ahead of the competition.

In this context, Foot Locker has started a new cooperation with Puma for the exclusive sale of its Superstructure model of men’s and women’s shoes in its 510 European stores, accompanied by coordinated shirts and tops. A similar deal with Adidas should follow. Foot Locker continues to market special make-ups for various brands on a global basis, as this is part of its strength. A test in Europe on 50 stores with Nike Pro apparel will be extended to more than 250 doors in mid-September, although European consumers seem to be going more for street than athletic styles.

Foot Locker continued to have problems in Europe during the 2nd quarter ended July 29, with a drop in comparable store sales of 10 percent. Except for private label merchandise, the drop was stronger in apparel than in footwear. The operating margin fell below 10 percent in Europe, but the management says its footwear sales and margins are beginning to stabilize in the region.

A $26 million charge related to the write-down of aged assets in 69 European stores, especially in the UK, caused the company’s total net income to drop to $14.0 million in the period, as compared to $44.0 million in the same period last year. Total sales were flat at $1,303 million, with same-store sales down by 1.3 percent.

The inventory adjustments conducted in Europe and softening sales trends in the USA have prompted Foot Locker to revise its guidance for its 2006 full year downward to $1.44-1.54 per share, or about $233.5 million in net earnings, from previous guidance of $1.75-1.85 per share. The company has no plans to take any extraordinary markdowns on its inventories in the 3rd quarter.

There is still no word from the management on a proposed leveraged buyout of the company (more in SGI Europe).