Sears 2011 Annual Report Download - page 32

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Impairment Charges
We recorded impairment charges of $15 million during 2011 related to impairment of long-lived assets. We
did not record any such impairments in 2010. Impairment charges recorded during 2011 are further described in
Note 13 of Notes to Consolidated Financial Statements.
Gain on Sales of Assets
Kmart recorded a total net gain on sales of assets of $34 million in 2011 and $7 million in 2010. The gains
on sales of assets in 2011 included a gain of $12 million recognized on the sale of one store in Indiana.
Operating Income (Loss)
Kmart recorded an operating loss of $34 million in 2011, as compared to operating income of $353 million
in 2010. The decrease in Kmart’s operating results was primarily the result of a decline in gross margin dollars,
driven by the declines in the gross margin rate and revenues, and an increase in selling and administrative
expenses. Kmart’s operating loss for 2011 included expenses related to impairments of $15 million, store closing
and severance costs of $76 million as well as a gain of $12 million related to the sale of one store in Indiana.
Operating income in 2010 included store closing and severance costs of $13 million.
2010 Compared to 2009
Revenues and Comparable Store Sales
Kmart’s comparable store sales increased 0.8% while total sales declined 1.0% in 2010. The decline in
revenues primarily reflects the impact of having fewer stores in operation. The comparable store sales increase
was primarily driven by increases in most categories, with higher increases in the apparel, footwear, jewelry,
sporting goods and toys categories, partially offset by declines in the food and consumable and pharmacy
categories.
Gross Margin
Kmart generated $3.8 billion in gross margin in 2010 and $3.7 billion in 2009. The $131 million increase
was mainly a result of a 110 basis point increase in margin rate and included a $6 million charge recorded in cost
of sales for margin related expenses taken in connection with store closings in 2010. Gross margin for 2009
included a $27 million charge recorded in cost of sales for margin related expenses taken in connection with store
closings in 2009. Kmart’s margin rate increased to 24.6%, from 23.5% in 2009, in part as a result of an increase
in sales of higher margin categories such as apparel and sporting goods.
Selling and Administrative Expenses
Kmart’s selling and administrative expenses decreased $45 million to $3.3 billion in 2010 and included
incremental expenses of $21 million related to our continued investment in our multi-channel capabilities and the
launch of our Shop Your Way Rewards program. The decline in selling and administrative expenses primarily
reflects a reduction in payroll expenses of $16 million, a reduction in advertising expenses of $11 million, as well
as reductions in various other expense categories. Selling and administrative expenses include charges related to
store closings and severance of $7 million and $35 million, for 2010 and 2009, respectively, as well as a $17
million gain related to settlement of Visa/MasterCard antitrust litigation in 2009. Our selling and administrative
expense rate was 21.4% for 2010 and 21.5% in 2009, and decreased primarily as a result of the above noted
significant items.
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