Sears 2009 Annual Report Download - page 35

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impairment test involves a two-step process as described in the “Summary of Significant Accounting Policies” in
Note 1 below. The first step is a comparison of each reporting unit’s fair value to its carrying value. If the
carrying value of the reporting unit is higher than its fair value, there is an indication that impairment may exist
and the second step must be performed to measure the amount of impairment loss. As a result of impairment
analysis, we determined that the entire amount of goodwill recorded at Sears Domestic’s subsidiary, OSH, was
impaired and recorded a charge of $262 million. See Note 14 to the Consolidated Financial Statements for further
information regarding impairment charges.
Operating Income (Loss)
Sears Domestic recorded an operating loss of $237 million in fiscal 2008 and operating income of $784
million in fiscal 2007, a decline of $1.0 billion. In addition to the significant items noted above, the decline in
operating income primarily reflects lower total gross margin dollars generated as a result of lower overall sales
levels and a decline in gross margin rate, partially offset by a reduction in selling and administrative expenses.
Sears Canada
Sears Canada, a consolidated, 73%-owned subsidiary of Sears, conducts similar retail operations as Sears
Domestic. Sears Canada results and key statistics were as follows:
millions, except for number of stores 2009 2008 2007
Merchandise sales and services ........................................... $4,628 $5,236 $5,602
Cost of sales, buying and occupancy ....................................... 3,133 3,592 3,847
Gross margin dollars ................................................... 1,495 1,644 1,755
Gross margin rate ..................................................... 32.3% 31.4% 31.3%
Selling and administrative ............................................... 1,048 1,189 1,233
Selling and administrative expense as a percentage of total revenues ............. 22.6% 22.7% 22.0%
Depreciation and amortization ............................................ 102 119 131
Gain on sales of assets .................................................. (45) (31) (9)
Total costs and expenses ............................................ 4,238 4,869 5,202
Operating income ...................................................... $ 390 $ 367 $ 400
Number of:
Full-line stores .................................................... 122 122 121
Specialty stores .................................................... 280 266 259
Total Sears Canada stores ............................................... 402 388 380
Fiscal 2009 Compared to Fiscal 2008
Total Revenues
Sears Canada’s total revenues decreased 11.6% in fiscal 2009. The decrease in total revenues of $608
million includes a $142 million decline due to the impact of exchange rates. On a Canadian dollar basis, revenues
decreased by $466 million, reflecting lower comparable stores sales across all major categories. The decline in
comparable store sales is mainly the result of lower sales in Sears Canada’s Full-line, Direct, Home, Dealer and
Outlet channels, partially offset by higher sales in Corbeil stores.
Gross Margin
Total gross margin dollars decreased $149 million to $1.5 billion for fiscal 2009 and include a $50 million
decline due to the impact of exchange rates. Gross margin decreased $99 million on a Canadian dollar basis as a
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