Sears 2011 Annual Report Download - page 37

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Operating Income (Loss)
Sears Canada recorded an operating loss of $20 million in 2011 and operating income of $233 million in
2010. The $253 million decrease in operating results primarily reflects the above noted declines, on a Canadian
dollar basis, in sales and gross margin, and the increase in selling and administrative expenses.
2010 Compared to 2009
Revenues and Comparable Store Sales
Sears Canada’s revenues increased 3.6% in 2010. The increase in revenues of $168 million included a $433
million increase due to the impact of exchange rates. On a Canadian dollar basis, revenues decreased by $265
million, primarily reflecting a comparable store sales decrease of 4.0%. Comparable store sales decreases were
more pronounced in the appliances and apparel categories. We believe the decline in comparable store sales was
mainly the result of a continued tightening in consumer discretionary spending resulting from falling consumer
confidence levels, as well as increased cross-border shopping due to the effect of a strong Canadian dollar
relative to the U.S. dollar.
Gross Margin
Gross margin dollars decreased $32 million to $1.5 billion for 2010 and included a $142 million increase
due to the impact of exchange rates. Gross margin decreased $174 million on a Canadian dollar basis as a result
of lower overall sales and a decline in margin rate. Sears Canada’s margin rate decreased to 30.5% in 2010 from
32.3% in 2009 due to price compression in the appliance and electronics categories, as well as an increase in
promotional and clearance markdowns related to a challenging economic environment.
Selling and Administrative Expenses
Sears Canada’s selling and administrative expenses increased $96 million to $1.1 billion in 2010 and
included a $97 million increase due to the impact of exchange rates and severance expenses of $8 million
recorded during 2009. On a Canadian dollar basis, selling and administrative expenses were flat.
Sears Canada’s selling and administrative expense rate was 23.9% in 2010 and 22.6% in 2009, and
increased primarily as a result of lower expense leverage given lower overall sales on a Canadian dollar basis.
Gain on Sales of Assets
Sears Canada recorded total gains on sales of assets of $14 million during 2010 and $45 million in 2009.
During 2009, Sears Canada recognized a previously deferred $44 million gain related to the August 2007 sale of
its former headquarters.
Operating Income
Sears Canada’s operating income decreased $157 million to $233 million in 2010 and included a $42
million increase due to the impact of foreign currency exchange rates. The decrease of $199 million on a
Canadian dollar basis reflects the above noted decreases in gross margin dollars given lower overall sales on a
Canadian dollar basis and reduced margin rate and decrease in gains on sales of assets.
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