Foot Locker 2007 Annual Report Download - page 27

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11
Sales
All references to comparable-store sales for a given period relate to sales from stores that are open at the period-
end, that have been open for more than one year, and exclude the effect of foreign currency fluctuations. Accordingly,
stores opened and closed during the period are not included. Sales from the Direct-to-Customer segment are included
in the calculation of comparable-store sales for all periods presented. Sales from acquired businesses that include
the purchase of inventory are included in the computation of comparable-store sales after 15 months of operations.
Accordingly, Footaction sales have been included in the computation of comparable-store sales since August 2005.
Sales decreased to $5,437 million, or by 5.4 percent as compared with 2006. Excluding the effect of foreign currency
fluctuations, sales declined 7.6 percent as compared with 2006. Comparable-store sales decreased by 6.3 percent.
Sales of $5,750 million in 2006 increased by 1.7 percent from sales of $5,653 million in 2005. Excluding the effect
of foreign currency fluctuations and the 53rd week, sales declined 0.7 percent as compared with 2005. Comparable-store
sales decreased by 1.2 percent, which was primarily a result of the decline in the European operations.
Gross Margin
Gross margin as a percentage of sales was 26.1 percent in 2007 declining 410 basis points as compared with 2006.
Gross margin, as a percentage of sales, was negatively affected by incremental markdowns of 180 basis points taken
to liquidate slow-moving and excess inventory and the effect of reduced vendor allowances negatively affected gross
margin by approximately 60 basis points, as compared with 2006. Lower sales resulted in the occupancy rate increasing
by 160 basis points, as a percentage of sales, as compared with the prior-year period.
Gross margin as a percentage of sales was 30.2 percent in 2006; excluding the effect of the 53rd week, gross margin
would have declined 20 basis points as compared with 2005. This reflected increased promotional activity, offset, in
part, by the effect of increased vendor allowances. The effect of these vendor allowances was an improvement in gross
margin in 2006, as a percentage of sales, of 20 basis points as compared with 2005. Additionally, gross margin was
negatively affected by lower sales, which resulted in increased occupancy costs, as a percentage of sales.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses increased by $13 million to $1,176 million in 2007, or
by 1.1 percent, as compared with 2006. SG&A as a percentage of sales increased to 21.6 percent as compared with
20.2 percent in 2006. The increase in SG&A as a percentage of sales is due to the decline in sales. Excluding the effect
of foreign currency fluctuations and the 53rd week in 2006, SG&A decreased by $2 million. This decrease primarily
reflected savings associated with operating fewer stores, as well as controlling variable expenses as compared with
the prior-year period.
SG&A increased by $34 million to $1,163 million in 2006, or by 3.0 percent, as compared with 2005. SG&A as a
percentage of sales increased to 20.2 percent, as compared with 20.0 percent in 2005. Excluding the effect of foreign
currency fluctuations and the 53rd week, SG&A would have increased by 1.4 percent. This increase was primarily the
result of incremental share-based compensation included in corporate expense, associated with the adoption of
SFAS No. 123(R) of $6 million. Additionally, the net benefit cost for the Company’s pension and postretirement plans
reflected a reduction of $5 million, primarily as a result of additional contributions and improved pension fund asset
performance.
Corporate Expense
Corporate expense consists of unallocated general and administrative expenses as well as depreciation and
amortization related to the Company’s corporate headquarters, centrally managed departments, unallocated insurance
and benefit programs, certain foreign exchange transaction gains and losses, and other items.
Corporate expense decreased by $9 million to $59 million in 2007 as compared with 2006. Depreciation and
amortization included in corporate expense amounted to $14 million in 2007 and $22 million in 2006, the decrease
reflecting certain software assets which were fully depreciated. Excluding the change in corporate expense related
to depreciation and amortization, corporate expense declined primarily due to reduced incentive compensation
expense.