Sears 2009 Annual Report Download - page 31

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Depreciation and Amortization
Depreciation and amortization expense increased by $14 million in fiscal 2009 to $152 million. The increase
is primarily due to the addition of property and equipment in the Kmart segment during the year.
Impairment Charges
We recorded impairment charges of $21 million during fiscal 2008 related to impairment of goodwill and
long-lived assets. We did not record any such impairments in fiscal 2009. Impairment charges recorded during
fiscal 2008 are further described in Note 14 in Notes to Consolidated Financial Statements.
Operating Income
Kmart recorded operating income of $190 million in fiscal 2009 and $172 million in fiscal 2008. Kmart’s
operating income for 2009 includes expenses of $65 million related to store closings and severance, partially
offset by a $17 million gain related to settlement of Visa/MasterCard antitrust litigation. Kmart’s operating
income for 2008 includes expenses of $48 million related to impairment charges and store closings and
severance.
Fiscal 2008 Compared to Fiscal 2007
Total Revenues and Comparable Store Sales
Comparable store sales and total sales decreased 6.1% and 6.0%, respectively, during fiscal 2008. Kmart
recorded a 4.7% decline in comparable store sales for fiscal 2007. Comparable store sales declines were driven
by declines recorded within the apparel and home categories. We believe the overall decline in comparable store
sales in fiscal 2008 reflected the negative impact of certain external economic factors.
Gross Margin
Kmart generated $3.8 billion in total gross margin in fiscal 2008 and $4.1 billion in fiscal 2007. The $277
million decline primarily reflects the negative gross margin impact of lower overall sales, as well as a decline in
Kmart’s gross margin rate and includes a charge of $15 million recorded in cost of sales for margin related
expenses taken in connection with store closings announced during the third and fourth quarters of 2008. Kmart’s
gross margin rate was 23.3% in fiscal 2008 and 23.5% in fiscal 2007, a decrease of 0.2%. The decrease in
Kmart’s gross margin rate is due to an increase of 0.5% in buying and occupancy costs (which are more fixed in
nature) as a percentage of sales, offset by an increase in margin related to lower royalties paid on select
merchandise.
Selling and Administrative Expenses
Fiscal 2008 selling and administrative expenses decreased $81 million to $3.5 billion. The decline in selling
and administrative expenses mainly reflects a $68 million reduction in payroll expenses, as well as a $14 million
reduction in advertising costs. These reductions were partially offset by expenses incurred for certain store
closing and severance costs of $12 million. Our selling and administrative expense rate was 21.3% for fiscal
2008 and 20.5% for fiscal 2007, and increased primarily as a result of lower expense leverage given lower
overall sales.
Depreciation and Amortization
Depreciation and amortization expense increased by $22 million to $138 million in fiscal 2008. The increase
in expense was due to the addition of property and equipment in the Kmart segment during the year.
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