Sears 2015 Annual Report Download - page 37
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Gross Margin
Kmart generated $2.1 billion in gross margin in 2015 compared to $2.6 billion in 2014. The decrease in
Kmart’s gross margin is due to the above noted decrease in sales, as well as a slight decrease in gross margin rate.
Gross margin included significant items which aggregated to $28 million and $54 million for 2015 and 2014,
respectively. Excluding these items, gross margin decreased $441 million.
Kmart's gross margin rate declined 10 basis points to 21.1% in 2015 from 21.2% in 2014, as increases
experienced in a majority of categories, most notably grocery & household, consumer electronics, drugstore and
toys, were more than offset by decreases in the apparel and pharmacy categories.
In addition, as a result of the Seritage and JV transactions, 2015 included additional rent expense and assigned
sub-tenant rental income of approximately $25 million.
Selling and Administrative Expenses
Kmart's selling and administrative expenses decreased $425 million in 2015. Selling and administrative
expenses included significant items which aggregated to expense of $90 million and $131 million for 2015 and
2014, respectively. Excluding these items, selling and administrative expenses decreased $384 million primarily due
to decreases in payroll and advertising expenses.
Kmart's selling and administrative expense rate was 24.9% in 2015 and 24.5% in 2014 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 by $23 million during 2015 to $72 million, primarily due to
having fewer assets to depreciate.
Impairment charges
Kmart recorded impairment charges of $14 million and $29 million in 2015 and 2014, respectively, related to
the impairment of long-lived assets. Impairment charges recorded during 2015 and 2014 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 $185 million and $103 million in 2015 and 2014, respectively.
Gains recorded in 2015 included gains of $137 million recognized in connection with the sale-leaseback transaction
with Seritage. Gains on sales of assets recorded in both years are described further in Note 11 of Notes to
Consolidated Financial Statements.
Operating Loss
Kmart recorded an operating loss of $292 million in 2015 as compared to $422 million in 2014. Operating loss
for 2015 included significant items which aggregated to operating income of $14 million, while operating loss for
2014 included significant items which aggregated to operating expense of $208 million. Excluding these items,
Kmart would have reported an operating loss of $306 million and $214 million for 2015 and 2014, respectively. The
increase in Kmart's operating loss was primarily driven by the decrease in gross margin, partially offset by the
decrease in selling and administrative expenses.
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