OfficeMax 2008 Annual Report Download - page 30

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Retail segment operating, selling and general and administrative expenses increased 1.1% of
sales to 26.5% of sales for 2008 from 25.4% of sales a year earlier, primarily due to deleveraging of
expenses from the same-store sales volume decrease, as well as new stores which have not
ramped up to mature sales volumes, partially offset by reduced incentive compensation expense
and targeted cost controls, including the benefits from the reorganization of our Retail store
management in the second quarter and Retail field and ImPress management undertaken in the
first quarter.
The Retail segment total operating expenses were impacted by a number of charges during
2008. The segment recorded impairment charges of $548.9 million, consisting of $386 million for
impairment of goodwill, $107.1 million for impairment of trade names and $55.8 million for
impairment of store fixed assets, consisting primarily of leasehold improvements. The segment also
recorded a $12.7 million charge for headcount reductions primarily for the reorganization of our
Retail field and store management and $4.7 million of charges related to site and store lease
terminations. For more information regarding impairment charges, see the discussion of ‘‘Goodwill
and Other Asset Impairments’’ that follows.
Retail segment operating loss was $505.1 million, or 12.8% of sales, for 2008 compared to
income of $173.7 million, or 4.1% of sales, for 2007.
2007 Compared With 2006
Retail segment sales for 2007 increased by 0.3% to $4,265.9 million from $4,251.2 million for
2006. Retail segment same-location sales decreased 1.2% year-over-year during 2007.
Adjusted for the Company’s initiative to eliminate mail-in rebates, and to provide instant rebates
in lieu of national, vendor-sponsored mail-in rebates, same-store sales decreased 0.5% during 2007.
During the fourth quarter of 2007, Retail segment same-store sales decreased 7.3% year-over-year
due to weakness in consumer and small business spending and the Company’s reduced
promotional activity during the holiday season. The fourth quarter same-store sales decrease offset
same store sales increases realized during the first three quarters of 2007. During 2007, we opened
59 new retail stores in the U.S., ending the year with 908 retail stores in the U.S. Our majority
owned joint-venture in Mexico opened 15 stores during 2007, ending the year with 68 stores.
Retail segment gross profit margin improved 0.2% of sales to 29.5% of sales for 2007,
compared to 29.3% of sales in the previous year. The gross margin improvement was primarily due
to the segment’s improved promotional and advertising strategies, primarily during the holiday
season, partially offset by occupancy costs for new stores.
Retail segment operating expenses increased 0.2% of sales to 25.4% in 2007 compared to
25.2% of sales for 2006. The year-over-year increase was primarily due to expense deleveraging
from new store openings and the same-store sales decrease, partially offset by reduced incentive
compensation expense.
During 2006, the Retail segment incurred pre-tax charges of $89.5 million related to lease
termination costs and severance from the closure of 109 underperforming retail stores.
Retail segment operating income was $173.7 million, or 4.1% of sales, for 2007 and
$86.3 million, or 2.0% of sales, for 2006.
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