Sears 2011 Annual Report Download - page 27

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offset by increases in the home category. The Kmart declines in comparable store sales included decreases in the
consumer electronics, pharmacy, home, apparel and jewelry categories, partially offset by an increase in the
grocery and household category.
Gross Margin
We generated gross margin of $10.6 billion in 2011 and $11.7 billion in 2010. The total decline in gross
margin dollars of $1.1 billion was primarily driven by decreases in the gross margin rate across all of our
segments, and included charges of $130 million and $12 million in 2011 and 2010, respectively, related to store
closures and an increase of $51 million related to the impact of foreign currency exchange rates on gross margin
at Sears Canada.
Kmart’s gross margin rate declined 190 basis points in 2011 mainly due to higher commodity costs and
markdowns in apparel and home, markdowns in consumer electronics, as well as declines in most other
categories. Sears Domestic’s gross margin rate declined 180 basis points in 2011 primarily due to reduced
margins in the home appliance, consumer electronics, and Lands’ End categories and declines in home services.
Sears Canada’s gross margin rate declined 170 basis points in 2011 as a result of clearing inventory, due to an
enhanced focus on improving inventory productivity.
Selling and Administrative Expenses
Our selling and administrative expenses increased $239 million in 2011 to $10.7 billion. Domestic selling
and administrative expenses increased $132 million from last year predominately due to increases in insurance
and store closing expenses. Selling and administrative expenses at Sears Canada for 2011 increased $107 million
from last year, and included an increase of $42 million related to the impact of foreign currency exchange rates.
On a Canadian dollar basis, selling and administrative expenses increased by $65 million primarily due to
increased investment in strategic projects and severance expense.
Selling and administrative expenses for 2011 included domestic pension plan expense of $74 million, store
closing costs and severance of $124 million and $12 million of hurricane losses. Selling and administrative
expenses for 2010 included domestic pension plan expense of $120 million and store closing costs and severance
of $14 million.
Selling and administrative expenses as a percentage of revenues (“selling and administrative expense rate”)
were 25.7% for 2011 and 24.4% for 2010, and increased as a result of the above noted increase in selling and
administrative expenses, as well as the decline in revenues.
Depreciation and Amortization
Depreciation and amortization expense decreased by $16 million during 2011 to $853 million and included
charges of $8 million and $10 million in 2011 and 2010, respectively, taken in connection with store closings.
The decrease is primarily attributable to having fewer assets available for depreciation.
Impairment Charges
We recorded impairment charges of $551 million and $98 million during 2011 related to impairment of
goodwill and long-lived assets, respectively. We did not record any such impairments in 2010. Impairment
charges recorded during 2011 are further described in Notes 12 and 13 in Notes to Consolidated Financial
Statements.
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