Sears 2014 Annual Report Download - page 32

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Revenues and Comparable Store Sales
Revenues decreased $5.0 billion, or 13.8%, to $31.2 billion in 2014, as compared to revenues of $36.2 billion
in 2013. Much of the decline related to actions we took during 2014 to streamline our operations and focus on our
transformation into a member-centric retailer. The revenue decrease included a decrease of $1.7 billion associated
with Sears Canada, which was de-consolidated in October 2014, $1.3 billion from the separation of the Lands’ End
business, which was completed on April 4, 2014, and $1.3 billion in less revenue from fewer Kmart and Sears Full-
line stores. Revenues in 2014 also declined as a result of lower domestic comparable store sales, which accounted
for $421 million of the decline. Finally, we also experienced a revenue decline in our Home Services business
during 2014, as well as a decline in delivery revenues, which when combined, accounted for $145 million of the
decline and a decline in our revenues from SHO of $119 million.
Sears Canada's revenue decline of $1.7 billion was predominantly driven by the de-consolidation of Sears
Canada, which occurred on October 16, 2014 and accounted for $1.3 billion of the revenue decline. Revenues also
declined due to an 8.0% decline in comparable store sales, which accounted for an additional $161 million of the
decline, as well as the effect of having fewer stores in operation, which accounted for $97 million of the decline.
Sears Canada experienced declines in the Home Services business, which accounted for $27 million of the decline.
Revenues also included a decrease of $125 million due to foreign currency exchange rates.
Domestic comparable store sales declined 1.8%, comprised of decreases of 1.4% at Kmart and 2.1% at Sears
Domestic. The decline at Kmart reflects positive performance in several categories, most notably apparel and
jewelry, offset by declines in the consumer electronics and grocery & household categories. Excluding the impact of
the consumer electronics and grocery & household goods businesses, comparable store sales would have increased
0.8% for the year. Excluding the impact of consumer electronics, Sears Domestic comparable store sales would have
decreased 0.5%, reflecting improved performance in the home appliance and mattress categories offset by declines
in Sears Auto Centers, apparel and lawn & garden.
Gross Margin
Gross margin declined $1.6 billion to $7.1 billion in 2014 from $8.8 billion in 2013 due to the above noted
decline in revenues, as well as a decline in gross margin rate. Gross margin for 2014 included gross margin of $87
million from the Lands' End business prior to the separation as compared to $616 million in 2013, as well as gross
margin of $502 million and $1.0 billion from the Sears Canada segment in 2014 and 2013, respectively. Gross
margin also included expenses of $68 million and $56 million in 2014 and 2013, respectively, related to store
closings.
The gross margin rate for both Kmart and Sears Domestic for the year were impacted by transactions that offer
both traditional promotional marketing discounts and Shop Your Way® points, predominantly in the first half of the
year. As compared to the prior year, Kmart's gross margin rate decreased 50 basis points primarily driven by
decreases in home, consumer electronics and seasonal, which were partially offset by an improvement in the apparel
category. Sears Domestic's gross margin rate decreased 140 basis points in 2014 primarily driven by decreases in
apparel, tools, home and consumer electronics, partially offset by an improvement in mattresses.
Selling and Administrative Expenses
Selling and administrative expenses decreased $1.2 billion to $8.2 billion in 2014 from $9.4 billion in 2013.
Domestic selling and administrative decreased $682 million in 2014 and included significant items such as expenses
related to our domestic pension plan, store closings and severance totaling $218 million and $164 million in 2014
and 2013, respectively, as well as expenses of $47 million in 2014 for expenses associated with legal matters,
transaction costs associated with strategic initiatives and other expenses. In addition, 2014 included expenses of $77
million from the Lands' End business prior to the separation as compared to $466 million in 2013. Excluding these
items, domestic selling and administrative expenses declined $394 million primarily due to decreases in payroll and
advertising expenses.
Selling and administrative expenses as a percentage of revenues ("selling and administrative expense rate")
were 26.3% and 25.9% for 2014 and 2013, respectively, and increased primarily as the decrease in overall selling
and administrative expenses was offset by lower expense leverage due to the above noted decline in revenues.