Pottery Barn 2011 Annual Report Download - page 45

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compared to fiscal 2010 (which included expense of approximately $1,141,000 from lease termination related
costs associated with underperforming retail stores). The leverage of fixed occupancy expenses due to increasing
net revenues and a decrease in occupancy expense dollars was offset by lower selling margins due to higher
promotional activity (including shipping fees).
In the direct-to-customer channel, cost of goods sold as a percentage of direct-to-customer net revenues increased
approximately 70 basis points during fiscal 2011 compared to fiscal 2010. This increase as a percentage of net
revenues was primarily driven by lower selling margins due to higher promotional activity (including shipping
fees), partially offset by the leverage of fixed occupancy expenses due to increasing net revenues.
In the retail channel, cost of goods sold as a percentage of retail net revenues remained relatively flat during
fiscal 2011 compared to fiscal 2010. A decrease in occupancy expense dollars and the leverage of fixed
occupancy expenses due to increasing net revenues was offset by lower selling margins due to higher
promotional activity.
Fiscal 2010 vs. Fiscal 2009
Cost of goods sold increased by $130,832,000, or 6.5%, in fiscal 2010 compared to fiscal 2009. Including
expense of approximately $1,141,000 from lease termination related costs associated with underperforming retail
stores, cost of goods sold as a percentage of net revenues decreased to 60.8% in fiscal 2010 from 64.4% in fiscal
2009 (which included expense of approximately $3,725,000 from lease termination related costs associated with
underperforming retail stores and the exit of excess distribution capacity). This decrease as a percentage of net
revenues was driven by the leverage of fixed occupancy expenses due to increasing net revenues, stronger selling
margins, a decrease in occupancy expense dollars and a higher proportion of total company net revenues being
generated year-over-year in the direct-to-customer channel which incurs a lower rate of occupancy expenses than
the retail channel. This improvement was partially offset by higher inventory shrinkage versus last year.
In the direct-to-customer channel, cost of goods sold as a percentage of direct-to-customer net revenues
decreased approximately 230 basis points during fiscal 2010 compared to fiscal 2009. This decrease as a
percentage of net revenues was driven by stronger selling margins and the leverage of fixed occupancy expenses
due to increasing net revenues.
In the retail channel, cost of goods sold as a percentage of retail net revenues decreased approximately 350 basis points
during fiscal 2010 compared to fiscal 2009. This decrease as a percentage of net revenues was primarily driven by the
leverage of fixed occupancy expenses due to increasing net revenues, stronger selling margins, and a decrease in
occupancy expense dollars, partially offset by higher inventory shrinkage.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Dollars in thousands Fiscal 2011
% Net
Revenues Fiscal 2010
% Net
Revenues Fiscal 2009
% Net
Revenues
Selling, general and administrative expenses $1,078,124 29.0% $1,050,445 30.0% $981,795 31.6%
Selling, general and administrative expenses consist of non-occupancy related costs associated with our retail
stores, distribution warehouses, customer care centers, supply chain operations (buying, receiving and inspection)
and corporate administrative functions. These costs include employment, advertising, third party credit card
processing and other general expenses.
We experience differing employment and advertising costs as a percentage of net revenues within the retail and
direct-to-customer channels due to their distinct distribution and marketing strategies. Store employment costs
represent a greater percentage of retail net revenues than employment costs as a percentage of net revenues
within the direct-to-customer channel. However, advertising expenses are higher within the direct-to-customer
channel than in the retail channel.
Fiscal 2011 vs. Fiscal 2010
Selling, general and administrative expenses increased by $27,679,000, or 2.6%, in fiscal 2011 compared to
fiscal 2010. Including expense of approximately $2,819,000 from asset impairment and early lease termination
31
Form 10-K