The Gap 2008 Annual Report Download - page 36

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Operating Expenses
Operating expenses include:
• payroll and related benefits (for our store operations, field management, distribution centers, and corporate
functions);
• advertising;
• general and administrative expenses;
• costs to design and develop our products;
• merchandise handling and receiving in distribution centers and stores;
• distribution center general and administrative expenses;
• rent, occupancy, depreciation, and amortization for corporate facilities; and
• other expense (income).
The classification of these expenses varies across the retail industry.
Fiscal Year
($ in millions) 2008 2007 2006
Operating Expenses ................................................. $3,899 $4,377 $4,432
Operating Expenses as a Percentage of Net Sales ....................... 26.8% 27.8% 27.8%
Operating Margin ................................................... 10.7% 8.3% 7.7%
Operating expenses decreased $478 million, or 1.0 percent as a percentage of net sales, in fiscal 2008 compared
with fiscal 2007 primarily due to the following:
• $195 million in decreased corporate and divisional overhead expenses, primarily related to bonus, payroll, and
employee benefits;
• $141 million in decreased store payroll and benefits;
• $88 million in decreased store-related expenses associated with fewer remodels, fewer fixture rollouts, and less
packaging and supplies; and
• $41 million in decreased marketing expenses, primarily for Gap and Old Navy.
Operating expenses as a percentage of net sales were flat, but decreased $55 million in fiscal 2007 compared with
fiscal 2006 primarily due to the following:
• $97 million in decreased marketing expenses, primarily for Gap and Old Navy; offset by
• $32 million of expenses, the majority of which were severance payments, recognized in fiscal 2007 as a result of
our cost reduction initiatives not included in fiscal 2006;
• $31 million of income recognized in fiscal 2006 related to the change in our estimate of the elapsed time for
recording income associated with unredeemed gift cards not included in fiscal 2007; and
• $14 million of income recognized in fiscal 2006 related to the Visa/Mastercard litigation settlement.
24 Gap Inc. Form 10-K