Express 2014 Annual Report Download - page 35

in circumstances indicate that the carrying amount of the assets may not be recoverable. The reviews are conducted
at the store level, the lowest identifiable level of cash flow. Factors used to assess stores for impairment include, but
are not limited to, plans for future operations, brand initiatives, recent operating results, and projected future cash
flows. Significant changes in any of these factors could lead to future impairments.
The 210 basis point decrease in gross margin, or gross profit as a percentage of net sales, in 2013 compared to
2012 was comprised of a 120 basis point deterioration in merchandise margin and a 90 basis point increase in
buying and occupancy costs. The decrease in merchandise margin was primarily driven by increased promotional
activity throughout the year, which continued throughout the 2013 holiday selling season. The increase in buying
and occupancy costs was primarily driven by rent, including the incremental impact of approximately $9.0
million of pre-opening rent expense associated with the construction of two flagship stores, as well as increased
e-commerce fulfillment costs resulting from additional e-commerce sales.
Selling, General, and Administrative Expenses
The following table shows selling, general, and administrative expenses in dollars for the stated periods:
Year Ended
2014 2013 2012
(in thousands)
Selling, general, and administrative expenses ....... $524,041 $504,277 $491,599
The $19.8 million increase in selling, general, and administrative expenses in 2014 compared to 2013 is
primarily the result of increased marketing expenses in the current year associated with our LED sign at our
flagship store in New York City, increased spending on digital marketing to continue to increase our visibility
with our customers and potential customers, and expenses related to our brand ambassadors.
The $12.7 million increase in selling, general, and administrative expenses in 2013 compared to 2012 was driven
by a $12.4 million increase in payroll primarily related to increased stock compensation expense, merit increases,
and additional headcount at our home office to support our outlet business and our international expansion and e-
commerce growth pillars. There was also a $1.9 million increase in information technology expenses primarily in
support of our growth pillars. These increases were partially offset by a $2.1 million decrease in incentive
compensation in 2013.
Interest Expense, Net
The following table shows interest expense in dollars for the stated periods:
Year Ended
2014 2013 2012
(in thousands)
Interest expense, net .............................. $23,896 $19,522 $19,552
The increase in interest expense, net resulted from the accounting rules related to our flagship stores in New
York City and San Francisco, that require a portion of the rent payments to be allocated to interest expense. Refer
to Note 5 of the Consolidated Financial Statements for additional information.
Interest expense, net in 2013 remained substantially unchanged from 2012.
Income Tax Expense
The following table shows income tax expense in dollars for the stated periods:
Year Ended
2014 2013 2012
(in thousands)
Income tax expense .............................. $43,231 $76,627 $92,704
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