Sears 2014 Annual Report Download - page 37

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37
2014 Compared to 2013
Revenues and Comparable Store Sales
Kmart’s revenues decreased by $1.1 billion to $12.1 billion in 2014 due to the effect of having fewer stores in
operation in 2014, which accounted for approximately $968 million of the decline. Revenues were also impacted by
a decrease in comparable store sales of 1.4%, which accounted for approximately $170 million of the decline.
The decline in comparable store sales of 1.4% reflects positive performance in several categories, most notably
apparel and jewelry, partially offset by declines in the consumer electronics and grocery & household goods
categories. Excluding the impact of the consumer electronics and grocery & household goods businesses,
comparable store sales would have increased 0.8% for the year.
Gross Margin
Kmart generated $2.6 billion in gross margin in 2014 compared to $2.9 billion in 2013. The decrease in
Kmart’s gross margin is due to the above noted decrease in sales, as well as a decline in gross margin rate. Gross
margin included $54 million and $45 million for markdowns recorded in connection with store closings during 2014
and 2013, respectively. Excluding these items, gross margin decreased $295 million.
Kmart's gross margin rate declined 50 basis points to 21.2% in 2014 from 21.7% in 2013, and was impacted by
transactions that offer both traditional promotional marketing discounts and Shop Your Way® points. The gross
margin rate decline was primarily driven by decreases in home, consumer electronics and seasonal, which were
partially offset by an improvement in the apparel category.
Selling and Administrative Expenses
Kmart’s selling and administrative expenses decreased $121 million in 2014. The decrease primarily reflects
decreases in payroll and advertising expenses. Selling and administrative expenses for 2014 and 2013 were impacted
by expenses of $88 million and $44 million, respectively, related to store closings and severance, while 2014 also
included expenses associated with legal matters and other expenses of $43 million.
Kmart’s selling and administrative expense rate was 24.5% in 2014 and 23.4% in 2013 and increased primarily
as a result of lower expense leverage due to the sales decline noted above.
Depreciation and Amortization
Depreciation and amortization expense decreased $34 million in 2014 to $95 million and included charges of
$4 million and $9 million in 2014 and 2013, respectively, taken in connection with store closings. The overall
decrease is primarily due to having fewer assets to depreciate.
Impairment charges
Kmart recorded impairment charges of $29 million and $70 million in 2014 and 2013, respectively, related to
the impairment of long-lived assets. Impairment charges recorded during 2014 and 2013 are further described in
Note 13 of Notes to Consolidated Financial Statements.
Gain on Sales of Assets
Kmart recorded total gains on sales of assets of $103 million and $66 million in 2014 and 2013, respectively,
with the single largest gain recorded in 2014 consisting of a gain of $10 million related to the sale of one Kmart
store for which the Company received $10 million in cash proceeds. The gains on sales of assets in 2013 included
gains of $24 million related to the sale of two stores for which the Company received $24 million in cash proceeds.