Big Lots 2012 Annual Report Download - page 110

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trim and summer related merchandise, partially offset by a decrease in our fall seasonal departments. The
decrease in the Electronics & Other category was primarily driven by lower sales in the apparel departments,
partially offset by an increase in the electronics department. In addition, the Electronics & Other category
was impacted by the absence of certain drugstore closeout deals in 2011. We allocated less space and reduced
our assortment of apparel during 2011, and allocated a portion of this space to electronics based on customer
demand. The decrease in the Hardlines & Toys category was driven by decreases in our toys, tools and paint
departments as less selling square footage was allocated to these departments in 2011 as compared to 2010.
Gross Margin
Gross margin dollars increased $33.6 million or 1.7% to $2,046.1 million in 2011, compared to $2,012.5 in 2010.
The increase in gross margin dollars was principally due to the increase in net sales which increased gross
margin dollars by approximately $76.4 million. Partially offsetting the increase in net sales was the decrease
in gross margin rate which decreased gross margin dollars by approximately $42.8 million. Gross margin as
a percentage of net sales decreased 80 basis points to 39.8% in 2011 compared to 40.6% in 2010. The gross
margin rate decrease was principally due to the unfavorable merchandise mix impact caused by the strong sales
of our lower margin Food and Consumables categories and electronics department, lower initial mark-up on
merchandise receipts, and higher shrink costs.
Selling and Administrative Expenses
Selling and administrative expenses were $1,599.8 million in 2011, compared to $1,576.5 million in 2010.
The increase of $23.3 million or 1.5% was primarily due to increases in rent expense of $14.7 million, store
payroll expense of $9.3 million, advertising expense of $6.1 million, and outbound transportation expense of
$4.2 million, partially offset by lower bonus expense of $17.1 million. Store payroll and store rents increased
primarily due to the net increase of 53 stores compared to the end of 2010. The increase in advertising expense
was driven by increased print distribution costs associated with new store growth, the roll out of new in-store
point-of-purchase presentations, and support for promotional events. The increase in outbound transportation
costs was largely driven by the net increase of 53 stores along with higher diesel fuel prices. The decrease in
bonus expense was directly related to lower financial performance during 2011 as compared to the targets in our
2011 operating plan and to 2010, which outperformed the targets in our 2010 operating plan.
As a percentage of net sales, selling and administrative expenses decreased by 70 basis points to 31.1% in 2011
compared to 31.8% in 2010. The decrease of 0.7% was primarily due to the effect of the increase in sales of 3.8%
as selling and administrative expense dollars only increased 1.5% as discussed above.
Depreciation Expense
Depreciation expense increased $9.9 million to $88.5 million in 2011 compared to $78.6 million in 2010. The
increase is directly related to our new store growth, investments in systems, and capital spending to support
and maintain our stores and distribution centers. Depreciation expense as a percentage of net sales increased by
10 basis points compared to 2010.
Canadian Segment
In 2011, we consolidated the results of our Canadian segment from the date of acquisition (July 18, 2011)
through the end of the fiscal year. Our Canadian segment’s net sales were $62.1 million, which exceeded our
original expectations, as customers responded to fresh, new merchandise with an improved value proposition,
particularly in furniture, electronics, toys, and Christmas trim. The higher than expected net sales resulted in a
smaller than expected operating loss of $12.2 million.
Other Performance Factors
Interest Expense
Interest expense increased $0.9 million to $3.5 million in 2011 compared to $2.6 million in 2010. The increase
in interest expense was primarily due to prepayment fees incurred in connection with our repayment of the
notes payable we assumed in the acquisition of Liquidation World Inc. We had total average borrowings