Ross 2011 Annual Report Download - page 27

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25
Cost of goods sold in fiscal 2010 increased $402.5 million compared to the prior year mainly due to increased sales from the
opening of 50 net new stores during the year, and a 5% increase in sales from comparable stores.
Cost of goods sold as a percentage of sales for fiscal 2010 decreased approximately 130 basis points from the prior year. This
improvement was mainly the result of an 80 basis point increase in merchandise gross margin, which included a 15 basis point
benefit from lower shortage. In addition, occupancy leveraged 30 basis points, and distribution costs declined by about 30 basis
points. These improvements were partially offset by an increase in freight costs of about 10 basis points.
We cannot be sure that the gross profit margins realized in fiscal 2011, 2010, and 2009 will continue in future years.
Selling, general and administrative expenses. For fiscal 2011, selling, general and administrative expenses (“SG&A”)
increased $74.3 million compared to the prior year, mainly due to increased store operating costs reflecting the opening of 70 net
new stores during the year. SG&A as a percentage of sales for fiscal 2011 decreased by approximately 50 basis points compared
to the prior year due equally to a combination of leverage on both general and administrative and store operating expenses.
For fiscal 2010, SG&A increased $99.0 million compared to the prior year, mainly due to increased store operating costs reflecting
the opening of 50 net new stores during the year. SG&A as a percentage of sales for fiscal 2010 decreased by approximately
10 basis points compared to the prior year mainly driven by leverage on store operating expenses.
The largest component of SG&A is payroll. The total number of employees, including both full and part-time, as of fiscal year end
2011, 2010, and 2009 was approximately 53,900, 49,500, and 45,600, respectively.
Interest expense (income), net. In fiscal 2011, interest expense increased by $0.3 million primarily due to issuance costs for
our revolving credit facility, while interest income decreased by $0.4 million primarily due to lower investment yields as compared
to the prior year. As a percentage of sales, net interest expense in fiscal 2011 remained flat compared to the prior year. The table
below shows interest expense and income for fiscal 2011, 2010, and 2009:
($ millions) 2011 2010 2009
Interest expense $ 11.0 $ 10.7 $ 9.4
Interest income (0.7) (1.1) (1.8)
Total interest expense, net $ 10.3 $ 9.6 $ 7.6
Taxes on earnings. Our effective tax rate for fiscal 2011, 2010, and 2009 was approximately 38% in each year, 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 impacted by changes in laws, 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 2012 will be about 38%.
Net earnings. Net earnings as a percentage of sales for fiscal 2011 were higher compared to fiscal 2010 primarily due to
both lower cost of goods sold and lower SG&A expenses as a percentage of sales. Net earnings as a percentage of sales for
fiscal 2010 were higher compared to fiscal 2009 primarily due to both lower cost of goods sold and lower SG&A expenses as a
percentage of sales.
Earnings per share. Diluted earnings per share in fiscal 2011 was $2.86, compared to $2.31 in fiscal 2010. This 24% increase
in diluted earnings per share is attributable to an approximate 18% increase in net earnings and a 4% reduction in weighted
average diluted shares outstanding, largely due to the repurchase of common stock under our stock repurchase program. Diluted
earnings per share in fiscal 2010 was $2.31, compared to $1.77 in fiscal 2009. This 31% increase in diluted earnings per share is
attributable to an approximate 25% increase in net earnings and a 4% reduction in weighted average diluted shares outstanding,
largely due to the repurchase of common stock under our stock repurchase program.