Macy's 2011 Annual Report Download - page 20

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anticipated market conditions and its recent performance, the Company is assuming that its comparable store sales in 2012 will
increase approximately 3.5% from 2011 levels.
The discussion in this Item 7 should be read in conjunction with our Consolidated Financial Statements and the related
notes included elsewhere in this report. The discussion in this Item 7 contains forward-looking statements that reflect the
Company's plans, estimates and beliefs. The Company's actual results could materially differ from those discussed in these
forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those
discussed below and elsewhere in this report, particularly in “Risk Factors” and “Forward-Looking Statements.”
Results of Operations
Comparison of the 52 Weeks Ended January 28, 2012 and January 29, 2011. Net income for 2011 was $1,256 million,
compared to net income of $847 million for 2010, reflecting the benefits of the key strategies at Macy's, the continued strong
performance at Bloomingdale's and higher income from credit operations. For 2011, gain on sale of properties, impairments
and store closing costs positively affected net income by $25 million on a pretax basis. For 2010, impairments and store
closing costs and expenses associated with the early retirement of debt negatively affected net income by $91 million on a
pretax basis.
Net sales for 2011 totaled $26,405 million, compared to net sales of $25,003 million for 2010, an increase of $1,402
million or 5.6%. On a comparable store basis, net sales for 2011 were up 5.3% compared to 2010. Sales from the Company's
Internet businesses in 2011 increased 39.6% compared to 2010 and positively affected the Company's 2011 comparable store
sales by 1.5%. The Company continues to benefit from the successful execution of the My Macy's localization strategy.
Geographically, sales in 2011 were strongest in the southern regions. By family of business, sales in 2011 were strongest in
cosmetics and fragrances, handbags, watches, men's, home textiles and furniture. Sales of the Company's private label brands
continued to be strong and represented approximately 20% of net sales in the Macy's-branded stores in 2011. Sales in 2011
were less strong in women's traditional casual apparel, juniors and cold weather merchandise. The Company calculates
comparable store sales as sales from stores in operation throughout 2010 and 2011 and all net Internet sales. Stores undergoing
remodeling, expansion or relocation remain in the comparable store sales calculation unless the store is closed for a significant
period of time. Definitions and calculations of comparable store sales differ among companies in the retail industry.
Cost of sales was $15,738 million or 59.6% of net sales for 2011, compared to $14,824 million or 59.3% of net sales for
2010, an increase of $914 million. The cost of sales rate as a percent to net sales was higher in 2011, as compared to 2010,
primarily due to the expansion of free shipping on macys.com and in stores since the fourth quarter of 2010. The valuation of
merchandise inventories on the last-in, first-out basis did not impact cost of sales in either period.
Selling, general and administrative (“SG&A”) expenses were $8,281 million or 31.4% of net sales for 2011, compared to
$8,260 million or 33.0% of net sales for 2010, an increase of $21 million. The SG&A rate as a percent of net sales was 160
basis points lower in 2011, as compared to 2010, reflecting increased net sales. SG&A expenses in 2011 were impacted by
higher selling costs as a result of stronger sales, higher advertising expense, and greater investments in the Company's
omnichannel operations, partially offset by higher income from credit operations and lower depreciation and amortization
expense. Advertising expense, net of cooperative advertising allowances, was $1,136 million for 2011 compared to $1,072
million for 2010. Advertising expense, net of cooperative advertising allowances, as a percent of net sales was 4.3% for both
2011 and 2010. Income from credit operations was $582 million in 2011 as compared to $332 million in 2010. Depreciation
and amortization expense was $1,085 million for 2011, compared to $1,150 million for 2010.
Gain on sale of properties, impairments and store closing costs for 2011 included a $54 million gain from the sale of store
leases related to the 2006 divestiture of Lord & Taylor, partially offset by $22 million of asset impairment charges and $7
million of other costs and expenses primarily related to the store closings announced in January 2012.
Impairments and store closing costs for 2010 amounted to $25 million and included $18 million of asset impairment
charges and $7 million of other costs and expenses related to the store closings announced in January 2011.
Net interest expense was $443 million for 2011, compared to $574 million for 2010, a decrease of $131 million. Net
interest expense for 2011 benefited from lower levels of borrowings as compared to 2010, resulting from both the early
retirement of outstanding debt during fiscal 2010 and the repayment of debt at maturity. Interest expense for 2010 also
included approximately $66 million of expenses associated with the early retirement of debt.
The Company's effective tax rate of 36.2% for 2011 and 35.8% for 2010 differ from the federal income tax statutory rate
of 35%, and on a comparative basis, principally because of the effect of state and local income taxes, including the settlement
of various tax issues and tax examinations.