Express 2012 Annual Report Download - page 39

Gross Profit
The following table shows cost of sales and gross profit in dollars for the stated periods:
Year Ended
2012 2011 2010
(in thousands)
Cost of goods sold, buying and occupancy
costs ................................. $1,405,430 $1,318,894 $1,227,490
Gross profit ............................. $ 742,639 $ 754,461 $ 678,324
The 180 basis point decrease in gross margin, or gross profit as a percentage of net sales, in 2012 compared to
2011 was comprised of a 140 basis point deterioration in merchandise margin and a 40 basis point increase in
buying and occupancy costs. The decrease in merchandise margin was primarily driven by higher product costs
and increased promotional activity in the latter part of the second quarter and into the fall season. The increase in
buying and occupancy costs is primarily driven by increased rent, including the impact of $7.8 million of pre-
opening rent expense for the 2 flagship stores under construction.
From 2010 to 2011, we had an 80 basis point improvement in gross margin, or gross profit as a percentage of net
sales. The improvement was comprised of 40 basis points of merchandise margin expansion and 40 basis points
of buying and occupancy leverage. The merchandise margin expansion was primarily driven by average unit
retail increases in certain categories, partially offset by average unit cost increases and higher cancellation
charges resulting from our strategic positioning of fabric ahead of anticipated cost increases, along with
improvements in the execution of our go-to-market strategy.
Selling, General, and Administrative Expenses
The following table shows selling, general, and administrative expenses in dollars for the stated periods:
Year Ended
2012 2011 2010
(in thousands)
Selling, general, and administrative expenses ....... $491,599 $483,823 $461,073
The $7.8 million increase in selling, general, and administrative expenses in 2012 compared to 2011 was driven
by a $4.7 million increase in information technology expenses to support international expansion and
e-commerce growth, a $2.8 million increase in payroll primarily related to additional headcount at our home
office to support our international expansion and e-commerce growth pillars, merit increases, and increased stock
compensation expense, and a $2.5 million increase in marketing expense, primarily related to e-commerce
activities. These increases were partially offset by a $2.3 million decrease in professional fees due to the
secondary offerings in 2011 and hiring internal heads versus outsourcing labor needs in 2012.
The $22.8 million increase in selling, general, and administrative expenses in 2011 compared to 2010 was driven
by a $21.9 million increase in payroll primarily from annual merit increases, increased share-based compensation
expense, additional store payroll hours to support increased sales, and additional headcount at our home office to
support e-commerce and information technology initiatives. Also contributing to the increase was an $11.1
million increase in marketing expense driven by our continued investments in brand building initiatives,
including television advertising and increased e-commerce and print advertising to heighten awareness and
maximize the strength of our brand, as well as increased investment to support our entrance into Canada. These
increases were partially offset by a $9.8 million decrease in professional fees, including $3.2 million of IPO costs
incurred in 2010.
31