Pier 1 2008 Annual Report Download - page 23

Operating Expenses, Depreciation and Income Taxes
Selling, general and administrative expenses, including marketing, were $487.9 million or 32.3% of sales
in fiscal 2008, a decrease of $161.1 million and 770 basis points from last year’s $649.0 million or 40.0% of
sales. Selling, general and administrative expenses included charges summarized in the table below (in
thousands):
Expense % Sales Expense % Sales
Increase /
(Decrease)
March 1, 2008 March 3, 2007
Store payroll . . . . . . . . . . . . . . . . . . . . . . . . . . . . $229,573 15.2% $261,600 16.1% $ (32,027)
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,970 4.2% 117,364 7.2% (53,394)
Store supplies and equipment rental . . . . . . . . . . . . 38,341 2.5% 47,378 2.9% (9,037)
331,884 22.0% 426,342 26.3% (94,458)
Administrative payroll . . . . . . . . . . . . . . . . . . . . . . 82,244 5.4% 96,712 6.0% (14,468)
Lease termination costs and impairments . . . . . . . . 15,470 1.0% 40,372 2.5% (24,902)
(Gain) loss on disposal of fixed assets . . . . . . . . . . . (2,137) (0.1)% 187 0.0% (2,324)
Severance, outplacement and new CEO . . . . . . . . . . 5,972 0.4% 2,679 0.2% 3,293
Settlement and curtailment, retirement plan . . . . . . . 1,763 0.1% 6,769 0.4% (5,006)
Litigation settlements . . . . . . . . . . . . . . . . . . . . . . (89) 0.0% 4,836 0.3% (4,925)
Credit card contract termination . . . . . . . . . . . . . . . — — 2,400 0.1% (2,400)
Other relatively fixed expenses . . . . . . . . . . . . . . . . 52,791 3.5% 68,708 4.2% (15,917)
156,014 10.3% 222,663 13.7% (66,649)
$487,898 32.3% $649,005 40.0% $(161,107)
Expenses that tend to fluctuate proportionately with sales and number of stores, such as store payroll,
marketing, store supplies, and equipment rental, decreased $94.5 million and 430 basis points as a percentage
of sales from last year due, in part, to store closures. The decline was primarily the result of a conscious effort
by management to reduce costs at all levels of the organization, especially marketing. Store payroll, including
bonus, decreased $32.0 million as a result of store closures, and decreased 90 basis points as a percentage of
sales primarily as a result of planned reductions in staffing levels in the stores. Marketing expense decreased
$53.4 million and 300 basis points as a percentage of sales as a result of the Company’s strategic decision to
shift from television and catalog advertisements to targeted event mailers, newspaper inserts and emails. Other
variable expenses such as store supplies and equipment rental decreased 40 basis points as a percentage of
sales, primarily due to efforts to reduce costs.
Relatively fixed selling, general and administrative expenses decreased $66.6 million and 340 basis points
as a percentage of sales in fiscal 2008 compared to last year. Administrative payroll including bonus decreased
$14.5 million and 50 basis points as a percentage of sales, resulting primarily from decreases in salaries and
wages related to a reduction in the number of home office and field administrative employees in the first half
of fiscal 2008. Decreases in other non-store payroll expenses included a $5.0 million decrease in retirement
plan settlement and curtailment expense primarily as a result of the retirement of two officers in fiscal 2007
compared to one in fiscal 2008, partly offset by a $3.3 million increase in severance and outplacement costs in
fiscal 2008 associated primarily with home office and field administration headcount reductions during the
first two quarters of the year. Impairment charges decreased $31.4 million as a result of less impairment
recorded during the year, and lease termination obligations increased $6.4 million related primarily to the
closure of all Pier 1 Kids and clearance stores during fiscal 2008. Litigation settlements decreased $4.9 million
from the prior year as a result of a $4.6 million charge in the prior year related to an accrual for the settlement
of a class action lawsuit with no similar expense in the current year. Other selling, general and administrative
expenses that do not typically vary with sales decreased primarily as a result of the Company’s continued
initiative to manage and control expenses.
The Company entered into a contract to sell its headquarters facility and lease a portion of the building
subsequent to fiscal 2008. This transaction is expected to be finalized no later than June 30, 2008. During
fiscal 2009, the Company anticipates an increase in rent expense related to this transaction, partly offset by a
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