Express 2011 Annual Report Download - page 41

quarters due primarily to early Fall selling patterns and the impact of the holiday season. Generally, the annual
sales split is approximately 45% for the Spring season (first and second quarter) and 55% for the Fall season
(third and fourth quarter). Cash requirements are typically higher in the first and third quarters due to inventory-
related working capital requirements for early Fall and holiday selling periods. Our business is also subject, at
certain times, to calendar shifts, which may occur during key selling periods close to holidays such as Easter,
Thanksgiving, and Christmas, and regional fluctuations for events such as sales tax holidays.
Changes in Sales Mix Among Sales Channels. Our results of operations may vary according to the amount of
products we sell in our stores versus the amount of products we sell through e-commerce. Most of our store
operating costs are fixed in the short term, with the exceptions of incentive compensation for our employees and
discretionary spending, while our e-commerce operating model has a larger variable cost component and depends
in large part on the amount of goods sold. Our sales from e-commerce increased 39% from 2010 to 2011 and
comprised 10% of our net sales in 2011. Sales from e-commerce increased by 60% from 2009 to 2010, and
comprised 8% of our net sales in 2010 and 5% of our net sales in 2009. As sales from e-commerce continue to
increase, we expect our gross margins to be positively affected.
Our Ability to Source and Distribute Products Effectively. Our costs of sales are impacted by our ability to find
third parties who can manufacture our products at favorable costs while maintaining the levels of quality that we
desire to deliver to our customers. Our costs of distribution are affected by a number of items, such as the cost of
fuel and the amount of product being transported though similar distribution networks in the markets in which we
operate (which affects our ability to obtain more favorable pricing with our providers).
The Number of Stores We Open, Close, and Convert to a Dual-Gender Format in Any Period. During any period
in which we are constructing additional stores, we will incur capital expenditures as a result of that expansion. In
the past, when we converted stores to a dual-gender format, we incurred capital expenditures. Because our dual-
gender store conversion efforts are largely complete, store conversions are not expected to have a significant
impact on our results going forward. The number of stores that we operate in any period will impact our results
for that period.
How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of performance and financial measures.
These key measures include net sales, comparable sales and other individual store performance factors, gross
profit and selling, general, and administrative expenses. We also review other metrics such as EBITDA and
Adjusted EBITDA.
Net Sales. Net sales reflects revenues from the sale of our merchandise, less returns and discounts, as well as
shipping and handling revenue related to e-commerce, gift card breakage, and royalties earned from the
Development Agreement with Alshaya.
Comparable Sales and Other Individual Store Performance Factors. Comparable sales are calculated based upon
stores that were open at least thirteen full months as of the end of the reporting period. In the fourth quarter of
2010, we began including e-commerce sales in our comparable sales results and adjusted comparable sales
figures retroactively back to the second quarter of 2009. A store is not considered a part of the comparable sales
base if the square footage of the store changed by more than 20% due to remodel or relocation activities. As we
continue to increase our store count, we expect that non-comparable sales will begin to contribute more to our
total net sales than they currently do. We also review sales per gross square foot, average unit retail price, units
per transaction, dollars per transaction, traffic, and conversion, among other things, to evaluate the performance
of individual stores. We also review sales per gross square foot on a company-wide basis.
Gross Profit. Gross profit is equal to net sales minus cost of goods sold, buying and occupancy costs. Gross
margin measures gross profit as a percentage of net sales. Cost of goods sold, buying and occupancy costs
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