American Eagle Outfitters 2009 Annual Report Download - page 25

Gross Profit
Gross profit decreased 1% to $1.158 billion from $1.174 billion in Fiscal 2008. Gross profit as a percent to net
sales decreased by 60 basis points to 38.7% from 39.3% last year. The percentage decrease was attributed to a
140 basis point increase in buying, occupancy and warehousing costs as a percent to net sales, partially offset by an
80 basis point increase in the merchandise margin rate as a percent to net sales. Merchandise margin increased for
the period due primarily to decreased markdowns.
Buying, occupancy and warehousing expenses increased 140 basis points as a percent to net sales. This was
primarily due to a 120 basis point increase in rent as a percent to net sales, driven by new store openings. Share-
based payment expense included in gross profit increased to approximately $12.9 million compared to $5.7 million
last year.
Our gross profit may not be comparable to that of other retailers, as some retailers include all costs related to
their distribution network, as well as design costs in cost of sales. Other retailers may exclude a portion of these
costs from cost of sales, including them in a line item such as selling, general and administrative expenses. Refer to
Note 2 to the Consolidated Financial Statements for a description of our accounting policy regarding cost of sales,
including certain buying, occupancy and warehousing expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 3% to $756.3 million from $734.0 million. As a percent
to net sales, selling, general and administrative expenses increased by 60 basis points to 25.2% from 24.6% last year.
The higher rate this year is primarily due to incentive compensation of 90 basis points partially offset by
improvement in advertising and travel expenses. Share-based payment expense included in selling, general and
administrative expenses increased to approximately $24.0 million compared to $14.6 million last year.
Loss on Impairment of Assets
Loss on impairment of assets in Fiscal 2009 was $18.0 million, or 0.6% as a rate to net sales, compared to
$6.7 million, or 0.2% as a rate to net sales in Fiscal 2008. This impairment relates primarily to underperforming
M+O stores.
Refer to Note 15 to the Consolidated Financial Statements for additional information regarding the planned
closure of MARTIN+OSA.
Depreciation and Amortization Expense
Depreciation and amortization expense increased 11% to $145.4 million from $131.2 million last year. This
increase is primarily due to a greater property and equipment base driven by our level of capital expenditures. As a
percent to net sales, depreciation and amortization expense increased to 4.9% from 4.4% due to the increased
expense as well as the impact of the comparable store sales decline.
Other (Expense) Income, Net
Other (expense) income, net decreased to $(5.1) million from $17.8 million, due primarily to lower interest
income and a realized loss on the sale of preferred securities in Fiscal 2009 as well as a non-cash, non-operating
foreign currency loss related to holding U.S. dollars in our Canadian subsidiary in anticipation of repatriation
recorded this year.
Net Impairment Loss Recognized in Earnings
Net impairment loss recognized in earnings relating to our investment securities was $0.9 million compared to
$22.9 million for Fiscal 2008.
Refer to the Fair Value Measurements caption below for additional information.
24