Sears 2008 Annual Report Download - page 36

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Gross Margin
Total gross margin dollars decreased $111 million in fiscal 2008 as compared to fiscal 2007 and include a
$30 million decline due to the impact of unfavorable exchange rates during the year. Gross margin decreased $81
million on a Canadian dollar basis primarily due to the impact of lower overall sales for the year. For fiscal 2008,
Sears Canada’s gross margin rate increased to 31.4% from 31.3% in fiscal 2007 due mainly to improved
inventory management.
Selling and Administrative Expenses
Sears Canada’s selling and administrative expenses declined $44 million in fiscal 2008. Selling and
administrative expenses for fiscal 2007 include a $27 million curtailment gain recorded in connection with
changes made to Sears Canada’s post-retirement benefit plans. Excluding the impact of the curtailment gain,
selling and administrative expenses decreased $71 million. The decline in selling and administrative expenses
includes a decline of $24 million due to the impact of exchange rates during the quarter. The remaining decline is
mainly due to Sears Canada’s continued efforts to reduce advertising and payroll and benefits expenses.
Operating Income
Sears Canada’s operating income decreased $33 million in fiscal 2008. The decrease in operating income
includes a $6 million decline due to the negative impact of foreign currency exchange rates and reflects the above
noted decreases in sales, gross margin and selling and administrative expenses. In addition, Sears Canada
benefited from a $32 million gain on the sale of its Calgary downtown full-line store during fiscal 2008.
Fiscal 2007 Compared to Fiscal 2006
Total Revenues
Total revenues increased 7.9% to $5.6 billion in fiscal 2007, as compared to revenues of $5.2 billion in
fiscal 2006. The increase in revenues of $412 million includes an increase of $382 million related to the impact
of favorable exchange rates, as the Canadian dollar strengthened during fiscal 2007 relative to fiscal 2006.
Gross Margin
Gross margin increased $208 million in fiscal 2007 and included an increase of $109 million related to the
impact of favorable exchange rates. The gross margin rate for fiscal 2007 as compared to fiscal 2006 increased
1.5% to 31.3% in 2007. The increase was primarily due to improved inventory management during the year.
Selling and Administrative Expenses
Selling and administrative expenses increased $102 million in fiscal 2007 and included an increase of $83
million related to the impact of currency exchange rates. The selling and administrative expense rate increased
slightly for fiscal 2007 as compared to fiscal 2006. The increase was primarily due to small increases in
advertising expense in connection with a program to discourage cross-border shopping, which increased during
the year due to a strengthening Canadian dollar.
Operating Income
Operating income was $400 million in fiscal 2007 as compared to $258 million in fiscal 2006. As discussed,
the increase was the result of increased sales (mainly due to the impact of favorable exchange rates) in addition
to increases in gross margin rate during the year. The increase in 2007 is also partially due to the absence of
restructuring charges during the year, as compared to $19 million of such expenses incurred during 2006.
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