Sears 2011 Annual Report Download - page 34

Sears Domestic’s gross margin rate was 26.8% in 2011 and 28.6% in 2010. The decline of 180 basis points
was primarily due to reduced margins in the home appliance, consumer electronics, and Lands’ End categories
and declines in home services.
Selling and Administrative Expenses
Sears Domestic’s selling and administrative expenses increased $102 million to $6.0 billion in 2011. The
increase was mainly due to increases in insurance and store closing expenses. Selling and administrative
expenses included domestic pension plan expense of $74 million in 2011 and $120 million in 2010, store closing
costs and severance of $76 in 2011 and $7 million in 2010, and hurricane losses of $12 million in 2011.
Our selling and administrative expense rate was 27.9% for 2011 and 26.7% for 2010, and increased due to
the above noted increase in expense and decline in sales.
Depreciation and Amortization
Depreciation and amortization expense decreased by $19 million to $601 million during 2011, 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.
Gain on Sales of Assets
Sears Domestic recorded a total net gain on sales of assets of $30 million in 2011 and $46 million in 2010.
The gains on sales of assets in 2011 included a gain of $21 million recognized on the sale of two stores in
California operated under The Great Indoors format. The gain on sales of assets in 2010 was due to the
recognition of a previously deferred gain from the October 2006 sale of one of our Sears Auto Centers. At the
time of the sale, we leased back the property for a period of time. Given the terms of the contract, for accounting
purposes, the excess of proceeds received over the carrying value of the associated property was deferred. We
closed our operations at this location during the first quarter of 2010 and, as a result, recognized a gain of $35
million on this sale at that time.
Impairment Charges
We recorded impairment charges of $551 million and $83 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 of Notes to Consolidated Financial
Statements.
Operating Loss
Sears Domestic reported an operating loss of $1.4 billion in 2011 and $149 million in 2010. The increase in
Sears Domestic’s operating loss was primarily the result of lower gross margin dollars, driven by declines in the
gross margin rate and revenues, and the impairment charges noted above. Sears Domestic’s operating loss
included expenses related to impairments of $634 million in 2011, domestic pension plans and store closing costs
and severance of $242 million in 2011 and $143 million in 2010, hurricane losses of $12 million in 2011, as well
as gains of $21 million and $35 million in 2011 and 2010, respectively, related to the sale of real estate.
2010 Compared to 2009
Revenues and Comparable Store Sales
Sears Domestic’s comparable store sales and total sales both declined 3.1% during 2010. Comparable store
sales declines were driven by the hardlines categories, as well as apparel. Over half of the total decline occurred
in consumer electronics. In contrast, Sears’ footwear, jewelry, and automotive categories generated comparable
store sales growth during the period.
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