Express 2015 Annual Report Download - page 27

Table of Contents
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The following table shows cost of goods sold, buying and occupancy costs, gross profit in dollars, and gross margin for the stated periods:
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Cost of goods sold, buying and occupancy costs $ 1,554,852
$ 1,504,527
$ 1,501,418
Gross profit $ 795,277
$ 660,954
$ 717,707
Gross margin 33.8%
30.5%
32.3%
The 330 basis point increase in gross margin, or gross profit as a percentage of net sales, in 2015 compared to 2014 was comprised of a 200 basis point
increase in merchandise margin and a 130 basis point decrease in buying and occupancy costs as a percentage of net sales. The increase in merchandise
margin was driven by a better product assortment, a reduction in promotional activities, and more disciplined inventory management which led to fewer
markdowns. The decrease in buying and occupancy costs as a percentage of sales was primarily the result of the leveraging effect of the increase in sales and
the fact that we recognized a $1.8 million impairment charge related to store fixed assets in 2015 versus a $10.5 million impairment charge in 2014. Assets
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The reviews
are conducted at the store level, the lowest identifiable level of cash flow. Factors used to assess stores for impairment include, but are not limited to, plans for
future operations, brand initiatives, recent operating results, and projected future cash flows. Significant changes in any of these factors could lead to future
impairments.
The 180 basis point decrease in gross margin, or gross profit as a percentage of net sales, in 2014 compared to 2013 was comprised of a 180 basis point
increase in buying and occupancy costs as merchandise margin remained flat. The increase in buying and occupancy costs was primarily the result of
increased depreciation expense, increased rent and related charges, and an increase in base payroll expense primarily due to additional headcount at our
home office to support our outlet expansion. Depreciation expense was impacted by the opening of our two flagship stores in New York City and San
Francisco as well as impairment charges of $10.5 million related to leasehold improvements at certain under-performing stores.
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The following table shows selling, general, and administrative expenses in dollars and as a percentage of net sales for the stated periods:
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Selling, general, and administrative expenses $ 587,747
$ 524,041
$ 504,277
Selling, general, and administrative expenses, as a percentage of net sales 25.0%
24.2%
22.7%
The $63.7 million increase in selling, general, and administrative expenses in 2015 compared to 2014 was the result of additional payroll related expenses of
approximately $42.5 million. The additional payroll expenses were primarily related to incentive compensation and store payroll resulting from improved
performance and store payroll associated with new outlet stores, partially offset by payroll savings from retail store closures. In addition, there was an increase
of $10.9 million in information technology expenses primarily related to the previously mentioned upgrades to our systems and processes and an increase of
$5.3 million in marketing expenses primarily related to increased digital and television marketing.
The $19.8 million increase in selling, general, and administrative expenses in 2014 compared to 2013 was primarily the result of increased marketing
expenses in 2014 associated with the LED sign at our flagship store in New York City, increased spending on digital marketing to continue to increase our
visibility with our customers and potential customers, and expenses related to our brand ambassadors.
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