The Gap 2008 Annual Report Download - page 35

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The classification of these expenses varies across the retail industry.
Fiscal Year
($ in millions) 2008 2007 2006
CostofGoodsSoldandOccupancyExpenses .................................... $9,079 $10,071 $10,266
GrossProfit .................................................................. $5,447 $ 5,692 $ 5,657
Cost of Goods Sold and Occupancy Expenses as a Percentage of Net Sales .......... 62.5% 63.9% 64.5%
GrossMargin ................................................................ 37.5% 36.1% 35.5%
Cost of goods sold and occupancy expenses as a percentage of net sales decreased 1.4 percentage points in fiscal
2008 compared with fiscal 2007. Cost of goods sold decreased $1.1 billion, or 3.1 percentage points as a percentage
of net sales, in fiscal 2008 compared with fiscal 2007. Occupancy expenses increased $60 million, or 1.7 percentage
points as a percentage of net sales, in fiscal 2008 compared with fiscal 2007.
• For the Stores reportable segment, cost of goods sold and occupancy expenses as a percentage of net sales
decreased 1.4 percentage points in fiscal 2008 compared with fiscal 2007. Cost of goods sold decreased
3.3 percentage points as a percentage of net sales in fiscal 2008 compared with fiscal 2007. The decrease was
driven by higher margins achieved for both regular price and marked down merchandise primarily as a result of
reduced cost of merchandise from our cost management efforts. Occupancy expenses increased 1.9 percentage
points as a percentage of sales in fiscal 2008 compared with fiscal 2007 primarily driven by lower net sales in
fiscal 2008 and, to a lesser extent, an increase in certain occupancy expenses.
• For the Direct reportable segment, cost of goods sold and occupancy expenses as a percentage of net sales
increased 0.9 percentage points in fiscal 2008 compared with fiscal 2007. Cost of goods sold as a percentage of
net sales was relatively flat in fiscal 2008 compared with fiscal 2007. Occupancy expenses, consisting primarily
of depreciation and amortization expense, increased 0.7 percentage points as a percentage of sales in fiscal 2008
compared with fiscal 2007 primarily driven by higher depreciation expense for new information technology
systems and applications.
Cost of goods sold and occupancy expenses as a percentage of net sales decreased 0.6 percentage points in fiscal
2007 compared with fiscal 2006. Cost of goods sold decreased $307 million, or 1.4 percentage points as a
percentage of net sales, in fiscal 2007 compared with fiscal 2006. Occupancy expenses increased $112 million, or
0.8 percentage points as a percentage of net sales, in fiscal 2007 compared with fiscal 2006.
• For the Stores reportable segment, cost of goods sold and occupancy expenses as a percentage of net sales
decreased 0.4 percentage points in fiscal 2007 compared with fiscal 2006. Cost of goods sold decreased
1.5 percentage points as a percentage of net sales in fiscal 2007 compared with fiscal 2006. The decrease was
primarily driven by an increase in selling at regular price and a higher margin achieved for marked down
merchandise. Occupancy expenses increased 1.1 percentage points as a percentage of net sales in fiscal 2007
compared with fiscal 2006.
• For the Direct reportable segment, cost of goods sold and occupancy expenses as a percentage of net sales
decreased 1.3 percentage points in fiscal 2007 compared with fiscal 2006. Cost of goods sold decreased
0.7 percentage points as a percentage of net sales in fiscal 2007 compared with fiscal 2006 primarily driven by
the write-off of discontinued merchandise in fiscal 2006 that did not occur in fiscal 2007. Occupancy expenses,
consisting primarily of depreciation and amortization expense, decreased 0.6 percentage points as a percentage
of sales in fiscal 2007 compared with fiscal 2006 primarily driven by higher net sales.
As a general business practice, we review our inventory levels in order to identify slow-moving merchandise and
broken assortments (items no longer in stock in a sufficient range of sizes) and use markdowns to clear the
majority of this merchandise.
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