Pier 1 2016 Annual Report Download - page 31

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 2015 and 2014 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 2, 2013 982 80 1,062
Openings 26 1 27
Closings (17) — (17)
Open at March 1, 2014 991 81 1,072
Openings 29 1 30
Closings (36) (1) (37)
Open at February 28, 2015 (1) 984 81 1,065
(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 2015, there were 68 of these locations in Mexico and one in El Salvador. These locations are excluded from the table above.
Merchandise Margin and Gross Profit
Gross profit for fiscal 2015 was $768.5 million, or 40.8% of sales, compared to $765.3 million, or 42.7% of sales, in fiscal 2014,
a decline of 190 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 $1.100 billion for fiscal 2015, or
58.4% of sales, compared to $1.068 billion, or 59.6%, for fiscal 2014. The decline in merchandise margin as a percentage of
sales was primarily attributable to increased promotional activity in the first half of fiscal 2015 and incremental unplanned supply
chain expenses during the fourth quarter of fiscal 2015 primarily related to the distribution centers, which resulted from higher
than normal inventory levels. Beginning in the third quarter of fiscal 2015 the Company refined its promotional strategy, utilizing a
more targeted approach to promotions, with reduced frequency and depth of all-Company coupons and a more balanced mix
between full price and promotional selling. Store occupancy costs during fiscal 2015 were leveraged at 15.8% of sales,
compared to 16.1% during fiscal 2014.
SG&A Expenses, Depreciation and Operating Income
SG&A expenses were $594.9 million in fiscal 2015, compared to $550.9 million in fiscal 2014, an increase of $44.0 million. As a
percentage of sales, SG&A expenses were 31.6% in fiscal 2015, compared to 30.8% in fiscal 2014.
SG&A expenses are summarized in the table below (in millions):
Year Ended
February 28, 2015 March 1, 2014
Expense % Sales Expense % Sales
Compensation for operations $270.4 14.3% $256.4 14.3%
Operational expenses 85.6 4.5% 78.2 4.4%
Marketing 101.0 5.4% 90.2 5.0%
Other selling, general and administrative 137.9 7.3% 126.2 7.0%
Total selling, general and administrative $594.9 31.6% $550.9 30.8%
The year-over-year increase both in dollars and as a percentage of sales was primarily attributable to planned increases in
marketing expenses and planned growth in headcount and associated costs to expand the Company’s organizational capabilities
in support of its ‘1 Pier 1’ strategy.
Depreciation for fiscal 2015 was $46.3 million compared to $38.9 million in fiscal 2014. This increase was primarily the result of
additional capital expenditures in recent fiscal years coupled with incremental expenditures deployed towards technology, which
typically depreciate over a shorter time period compared to other depreciable assets, and store closures.
In fiscal 2015, the Company recorded operating income of $127.3 million, or 6.8% of sales, compared to $175.5 million, or
9.8% of sales, for fiscal 2014.
PIER 1 IMPORTS, INC. 2016 Form 10-K 25