Ross 2008 Annual Report Download - page 26

24
Cost of goods sold as a percentage of sales for fiscal 2007 decreased approximately 20 basis points from the prior year.
This improvement was mainly the result of a 20 basis point improvement in merchandise gross margin primarily due to lower
markdowns and shortage as a percent of sales.
We cannot be sure that the gross profit margins realized in fiscal 2008, 2007 and 2006 will continue in future years.
Selling, general and administrative expenses. For fiscal 2008, selling, general and administrative expenses (“SG&A”)
increased $98.5 million compared to the prior year, mainly due to increased store operating costs reflecting the opening
of 66 net new stores during the year.
SG&A as a percentage of sales for fiscal 2008 grew by approximately 30 basis points over the prior year. This increase
was mainly driven by a 20 basis point increase in store operating expenses and a 10 basis point increase in general and
administrative costs as a percent of sales.
For fiscal 2007, SG&A increased $72.9 million compared to the same period in the prior year, mainly due to increased store
operating costs reflecting the opening of 93 net new stores during the year.
SG&A as a percentage of sales for fiscal 2007 grew by approximately 15 basis points over the prior year. This increase was
mainly driven by a 40 basis point rise in store operating expenses. Store operating costs in 2007 were impacted by minimum
wage increases and the de-leveraging effect of the 1% gain in comparable store sales. These cost pressures were partially
offset by a 25 basis point decline in other general and administrative costs.
The largest component of SG&A is payroll. The total number of employees, including both full and part-time, as of fiscal year
end 2008, 2007, and 2006 was approximately 40,000, 39,100, and 35,800, respectively.
Interest. In fiscal 2008, interest expense decreased by $1.5 million primarily due to higher capitalization of construction interest.
In fiscal 2008, interest income decreased by $5.3 million primarily due to lower investment yields as compared to the prior year.
As a percentage of sales, the reduction in net interest income in fiscal 2008 decreased pre-tax earnings by approximately 10
basis points compared to the same period in the prior year. The table below shows interest expense and income for fiscal 2008,
2007 and 2006:
($ millions) 2008 2007 2006
Interest expense $ 8.3 $ 9.8 $ 2.9
Interest income (8.5) (13.8) (11.5)
Total interest income, net $ (0.2) $ (4.0) $ (8.6)
Taxes on earnings. Our effective tax rate for fiscal 2008, 2007, and 2006 was approximately 38%, 39%, and 39%,
respectively, which represents the applicable combined federal and state statutory rates reduced by the federal benefit of state
taxes deductible on federal returns. The effective rate is affected by changes in law, location of new stores, level of earnings,
and the resolution of tax positions with various taxing authorities. We anticipate that our effective tax rate for fiscal 2009 will be
in the range of 38% to 40%.
Net earnings. Net earnings as a percentage of sales for fiscal 2008 were higher compared to fiscal 2007 primarily due to lower
cost of goods sold as a percentage of sales, partially offset by higher SG&A expenses as a percentage of sales. Net earnings
as a percentage of sales for fiscal 2007 were higher compared to fiscal 2006 primarily due to lower cost of goods sold as a
percentage of sales, partially offset by higher SG&A expenses as a percentage of sales.
Earnings per share. Diluted earnings per share in fiscal 2008 were $2.33, compared to $1.90 in fiscal 2007. This 23%
increase in diluted earnings per share is attributable to an approximate 17% increase in net earnings and a 4% reduction in