Express 2010 Annual Report Download - page 57

The 390 basis point improvement in gross margin, or gross profit as a percentage of net sales, in 2010 compared
to the 2009 period primarily reflected increased full-priced merchandise sales and less markdown activity. We
believe this is driven by our evolving go-to-market strategy, which is designed to reduce markdowns and
inventory risk through increased product testing, more informed inventory buys, and chasing into proven styles.
From 2008 to 2009 we had a 540 basis point improvement in gross margin. The improvement in gross profit was
due primarily to a $76.5 million increase resulting from our redesigned go-to-market strategy, which we believe
reduces markdowns and lowers inventory risk through increased product testing. This increase was also due to
increased full-priced merchandise sales and less markdown activity related to our evolving go-to-market strategy,
a reduction in distressed carry-over inventory at the end of 2009, and lower product cancellation expense. The
remaining increase in gross margin was driven primarily by a $5.3 million reduction in freight. Gross profit was
also impacted by purchase accounting related to the Golden Gate Acquisition in 2007. This had the effect of
increasing the carrying amount of property and equipment by $38.5 million which is being depreciated over the
remaining useful life of each asset and recording an intangible asset of $19.8 million related to net favorable
lease obligations that is being amortized over the remaining life of each lease. The impact of purchase accounting
associated with the incremental depreciation and amortization had the effect of reducing gross profit by
$11.8 million and $19.5 million for 2009 and 2008, respectively.
Selling, General and Administrative Expenses
The following table shows selling, general and administrative expenses in dollars for the stated periods:
Year Ended
2010 2009 2008
(in thousands)
Selling, general, and administrative expenses ....... $461,073 $409,198 $447,071
The $51.9 million increase in selling, general, and administrative expenses in 2010 compared to 2009 was driven
by a $19.4 million increase in marketing expense as a result of additional investments in brand development,
including testing of local advertising in key markets such as New York, Chicago, and Los Angeles and increased
e-commerce and print advertising to heighten awareness and maximize the strength of our brand, a $10.3 million
increase in professional fees, supplies, and other direct expenses, including credit card and bank fees, a $7.3
million increase in payroll costs primarily associated with additional information technology and e-commerce
headcount, stock compensation expense due to accelerated vesting, and a higher tax and fringe rate due to the
reinstatement of the company contributions for the 401(K) and retirement plans, a $7.2 million increase primarily
related to new public company costs, and $2.7 million in costs related to the Senior Notes offering completed on
March 5, 2010 and the IPO completed on May 18, 2010.
Selling, general, and administrative expenses decreased $37.9 million in 2009 compared to 2008. The decline in
selling, general, and administrative expenses was due primarily to a $35.3 million reduction in store operating
expenses resulting from efforts to optimize payroll and increase operational efficiencies, and a $2.2 million
savings in benefits and payroll administration related to our transition to a stand-alone business. These reductions
were partially offset by a $1.7 million investment in home office headcount to support our e-commerce growth
strategy.
Other Operating Expense, Net
The following table shows other operating expense, net in dollars for the stated periods:
Year Ended
2010 2009 2008
(in thousands)
Other operating expense, net ......................... $18,000 $9,943 $6,007
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