Overstock.com 2012 Annual Report Download - page 54

Table of Contents
The 110 and 90 basis point increases in direct and fulfillment gross margins, respectively, for the year ended December 31, 2012 when compared
to the same period in 2011 are primarily due to shifts in the sales mix into higher margin home and garden products and lower credit card fees, partially
offset by higher returns-related and freight costs.
The shift of business between direct to fulfillment partner (or vice versa) is an economic decision based on the economics of each particular
product offering at the time and we do not have particular goals for "appropriate" mix or percentages for the size of either. We believe that the mix of the
business between direct and fulfillment partner is consistent with our strategic objectives for our business model in the current economic environment
and with the exception of a transition of our direct Apparel and Shoes category to a fulfillment partner model to reduce our seasonal inventory risks, we
do not currently foresee any material shifts in mix between the direct and fulfillment partner.
The other factors described above, such as coupons, promotions and operational costs did not have a significant impact on the change in gross
margin.
Cost of goods sold includes stock-based compensation expense of $272,000 and $193,000 for the years ended December 31, 2012 and 2011,
respectively.
See "Executive Commentary" above for additional discussion.
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Fulfillment costs include all warehousing costs, including fixed overhead and variable handling costs (excluding packaging costs), as well as credit
card fees and customer service costs, all of which we include as costs in calculating gross margin. We believe that some companies in our industry,
including some of our competitors, account for fulfillment costs within operating expenses, and therefore exclude fulfillment costs from gross margin.
As a result, our gross margin may not be directly comparable to others in our industry.
The following table has been included to provide investors additional information regarding our classification of fulfillment costs, gross profit and
margin, thus enabling investors to better compare our gross margin with others in our industry (in thousands):
Fulfillment costs as a percentage of sales may vary due to several factors, such as our ability to manage costs at our warehouses, significant
changes in the number of units received and fulfilled, the extent to which we use third party fulfillment services and warehouses, and our ability to
effectively manage customer service costs and credit card fees. There were no significant changes in our fulfillment and related costs as a percentage of
net revenue during the year ended December 31, 2012.
See "Gross profit" above for additional discussion.
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Total net revenue $ 1,099,289 100% $ 1,054,277 100%
Cost of goods sold
Product costs and other cost of goods sold 848,842 77% 821,739 78%
Fulfillment and related costs 52,017 5% 53,450 5%
Total cost of goods sold 900,859 82% 875,189 83%
Gross profit $ 198,430 18% $ 179,088 17%