Pier 1 2016 Annual Report Download - page 29

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
A summary reconciliation of the Company’s stores open at the beginning of fiscal 2016 and 2015 to the number open at the end
of each period is as follows (openings and closings include relocated stores):
United States Canada Total
Open at March 1, 2014 991 81 1,072
Openings 29 1 30
Closings (36) (1) (37)
Open at February 28, 2015 984 81 1,065
Openings 16 1 17
Closings (47) (3) (50)
Open at February 27, 2016 (1) 953 79 1,032
(1) The Company supplies merchandise and licenses the Pier 1 Imports name to Grupo Sanborns, which sells Pier 1 Imports merchandise primarily in a “store within a store” format. At the end
of fiscal 2016, there were 72 of these locations in Mexico and one location in El Salvador. These locations are excluded from the table above.
Merchandise Margin and Gross Profit
Gross profit for fiscal 2016 was $705.0 million, or 37.3% of sales, compared to $768.5 million, or 40.8% of sales, in the same
period last year, a decline of 350 basis points. Merchandise margin (the result of adding back delivery and fulfillment net costs
and store occupancy costs to gross profit — see “Reconciliation of Non-GAAP Financial Measures”) was $1.046 billion for fiscal
2016, or 55.3% of sales, compared to $1.100 billion, or 58.4% of sales, for fiscal 2015. The year-over-year decline in
merchandise margin as a percentage of sales was primarily attributable to promotional and clearance activity and inventory-
related inefficiencies within the Company’s distribution center network. Delivery and fulfillment net costs for fiscal 2016 were
$42.5 million, or 2.2% of sales, compared to $32.9 million, or 1.7% of sales, in fiscal 2015. The increase reflects the strong
growth of e-Commerce. Store occupancy costs during fiscal 2016 leveraged slightly to 15.7% of sales, compared to 15.8% of
sales, during fiscal 2015.
SG&A Expenses, Depreciation and Operating Income
SG&A expenses were $578.8 million in fiscal 2016, compared to $594.9 million in fiscal 2015, a decrease of $16.1 million. As a
percentage of sales, SG&A expenses were 30.6% in fiscal 2016, compared to 31.6% in fiscal 2015.
SG&A expenses are summarized in the table below (in millions):
Year Ended
February 27, 2016 February 28, 2015
Expense % Sales Expense % Sales
Compensation for operations $260.2 13.7% $270.4 14.3%
Operational expenses 90.5 4.8% 85.6 4.5%
Marketing 92.6 4.9% 101.0 5.4%
Other selling, general and administrative 135.6 7.2% 137.9 7.3%
Total selling, general and administrative $578.8 30.6% $594.9 31.6%
The year-over-year decrease both in dollars and as a percentage of sales was primarily attributable to a decrease in store payroll
and marketing expenses.
Depreciation for fiscal 2016 was $50.9 million, compared to $46.3 million in fiscal 2015. This increase was primarily the result of
additional capital expenditures in recent fiscal years.
In fiscal 2016, the Company recorded operating income of $75.2 million, or 4.0% of sales, compared to $127.3 million, or 6.8%
of sales, for fiscal 2015.
Nonoperating Income and Expense
Nonoperating expense for fiscal 2016 was $12.0 million, compared to $6.9 million in fiscal 2015. This increase was primarily the
result of interest and related expenses for borrowings on the Term Loan Facility. In the prior year, the Company also recognized
gains on the settlement of life insurance policies.
PIER 1 IMPORTS, INC. 2016 Form 10-K 23