Banana Republic 2011 Annual Report Download - page 38

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• Occupancy expenses increased 0.3 percent as a percentage of net sales in fiscal 2011 compared with fiscal 2010.
The increase in occupancy expenses as a percentage of net sales was primarily driven by lower net sales for the
Stores reportable segment without a corresponding decrease in occupancy expenses, partially offset by higher
net sales for the Direct reportable segment.
Cost of goods sold and occupancy expenses as a percentage of net sales increased 0.1 percent in fiscal 2010
compared with fiscal 2009.
• Cost of goods sold increased 0.7 percent as a percentage of net sales in fiscal 2010 compared with fiscal 2009.
The increase in cost of goods sold as a percentage of net sales was primarily driven by lower margins for both
regular price and marked down merchandise.
• Occupancy expenses decreased 0.6 percent as a percentage of net sales in fiscal 2010 compared with fiscal 2009.
The decrease in occupancy expenses as a percentage of net sales was primarily driven by reduced expenses due
to store closures and fully depreciated assets, partially offset by higher expenses due to store remodels and
international store openings and the unfavorable impact of foreign exchange of $22 million.
Operating Expenses
($ in millions)
Operating expenses .............................................................
Fiscal Year
2011 2010 2009
$3,836 $3,921 $3,909
Operating expenses as a percentage of net sales ................................... 26.4% 26.7% 27.5%
Operating margin ............................................................... 9.9% 13.4% 12.8%
Operating expenses decreased $85 million, or 0.3 percent as a percentage of net sales, in fiscal 2011 compared with
fiscal 2010. The decrease in operating expenses was primarily due to higher income from fees earned under the
private label and co-branded credit card agreements, partially offset by an increase in marketing expenses.
Operating expenses increased $12 million, but decreased 0.8 percent as a percentage of net sales, in fiscal 2010
compared with fiscal 2009. The increase in operating expenses was primarily due to higher store payroll, store
benefits, and other store-related expenses and higher expenses due to our New York and San Francisco
headquarter office moves, partially offset by a decrease in bonus expense.
Interest Expense (Reversal)
($ in millions)
Fiscal Year
2011 2010 2009
Interestexpense(reversal) ............................................................... $74 $(8) $6
Interest expense for fiscal 2011 primarily consists of interest expense related to our $1.25 billion long-term debt,
which was issued in April 2011, and $400 million term loan, which was funded in May 2011.
Interest expense for fiscal 2010 includes an interest expense reversal of $15 million from the reduction of interest
expense accruals resulting primarily from the filing of a U.S. federal income tax accounting method change
application and the resolution of the Internal Revenue Service’s review of the Company’s federal income tax
returns and refund claims for fiscal 2001 through 2006.
Interest Income
($ in millions)
Fiscal Year
2011 2010 2009
Interestincome ...................................................................... $(5) $(6) $(7)
24 Gap Inc. Form 10-K