Pottery Barn 2008 Annual Report Download - page 41

activity and discount retailers), current local and global economic conditions, the timing of our releases of new
merchandise and promotional events, the success of marketing programs, the cannibalization of existing store
sales by our new stores, changes in catalog circulation, continued strength in our Internet business and
fluctuations in foreign exchange rates. Among other things, weather conditions can affect comparable store sales
because inclement weather can alter consumer behavior or require us to close certain stores temporarily and thus
reduce store traffic. Even if stores are not closed, many customers may decide to avoid going to stores in bad
weather. These factors have caused our comparable store sales to fluctuate significantly in the past on an annual,
quarterly and monthly basis and, as a result, we expect that comparable store sales will continue to fluctuate in
the future.
DIRECT-TO-CUSTOMER REVENUES
Dollars in thousands
Fiscal 2008
(52 Weeks)
Fiscal 2007
(53 Weeks)
Fiscal 2006
(52 Weeks)
Catalog revenues1$ 365,574 $ 559,966 $ 645,975
Internet revenues1$1,033,400 1,103,750 927,560
Total direct-to-customer revenues1$1,398,974 $1,663,716 $1,573,535
Percent growth (decline) in direct-to-customer revenues (15.9%) 5.7% 4.5%
Percent increase (decrease) in number of catalogs circulated (20.2%) 3.7% (1.6%)
Percent increase (decrease) in number of pages circulated (30.3%) 7.9% 3.2%
1We estimate that approximately 60% of our company-wide non-gift registry Internet revenues are driven by customers who recently received
a catalog and approximately 40% are incremental to the direct-to-customer channel. We do, however, expect to see this percentage begin to
decrease as we continue to reduce our catalog advertising costs, and increase our investment in other internet marketing vehicles, in
conjunction with our catalog circulation optimization strategy.
In our direct-to-customer channel, net revenues in fiscal 2008 decreased by $264,742,000, or 15.9%, over fiscal
2007. This decrease was primarily driven by the downturn in the overall economic environment during fiscal
2008, the impact of the extra week of net revenues in fiscal 2007 (a 53-week year) of approximately $40,000,000
and a decrease in catalog and page circulation of 20.2% and 30.3%, respectively. Declining net revenues in the
Pottery Barn and Pottery Barn Kids brands were the primary contributors to the year-over-year net revenue
decrease. All brands except PBteen had declining net revenues during fiscal 2008.
In our direct-to-customer channel, net revenues in fiscal 2007 increased by $90,181,000, or 5.7%, over fiscal
2006. This increase was primarily driven by net revenues generated in the PBteen, West Elm, Pottery Barn and
Williams-Sonoma brands due to the impact of the extra week of net revenues in fiscal 2007 (a 53-week year) of
approximately $40,000,000, an overall increase in catalog and page circulation of 3.7% and 7.9%, respectively,
and continued strength in our Internet business, which continued to be our fastest growing shopping channel,
with revenues increasing 19.0% to $1,103,750,000. This increase was partially offset by lost revenues in the Hold
Everything brand due to its transition during the second quarter of fiscal 2006.
COST OF GOODS SOLD
Dollars in thousands
Fiscal 2008
(52 Weeks)
% Net
Revenues
Fiscal 2007
(53 Weeks)
% Net
Revenues
Fiscal 2006
(52 Weeks)
% Net
Revenues
Total cost of goods sold $2,226,300 66.2% $2,408,963 61.1% $2,240,226 60.1%
Cost of goods sold includes cost of goods, occupancy expenses and shipping costs. Cost of goods consists of cost
of merchandise, inbound freight expenses, freight-to-store expenses and other inventory related costs such as
shrinkage, damages and replacements. Occupancy expenses consist of rent, depreciation and other occupancy
costs, including common area maintenance and utilities. Shipping costs consist of third party delivery services
and shipping materials.
Our classification of expenses in cost of goods sold may not be comparable to other public companies, as we do
not include non-occupancy related costs associated with our distribution network in cost of goods sold. These
29
Form 10-K