Pier 1 2009 Annual Report Download - page 31

Gross Profit
Gross profit after related buying and store occupancy costs, expressed as a percentage of sales, was
27.5% in fiscal 2009 compared to 29.1% a year ago. Merchandise margins were 49.0% as a percentage
of sales, an increase of 50 basis points over 48.5% in fiscal 2008. Improvements in merchandise margin
over last year were primarily the result of less aggressive inventory liquidation activity that occurred
during the first quarter of fiscal 2009 as compared to the first quarter of fiscal 2008. Store occupancy
costs during fiscal 2009 were $284.1 million or 21.5% of sales, a decrease of $9.1 million and an
increase of 210 basis points over store occupancy costs of $293.2 million or 19.4% of sales during fiscal
2008. The decrease of $9.1 million was primarily due to store closures, while the increase as a
percentage of sales was the result of the deleveraging of relatively fixed rental costs over a slightly
lower sales base in the remaining open stores. As discussed above, the Company is actively evaluating
every lease renewal and working to negotiate more favorable occupancy costs in an effort to lower the
overall costs of its leased properties.
Operating Expenses, Depreciation and Income Taxes
Selling, general and administrative expenses, including marketing, were $453.5 million or 34.3% of
sales in fiscal 2009, a decrease of $34.4 million and an increase 200 basis points from last year’s
$487.9 million or 32.3% of sales. Selling, general and administrative expenses for fiscal years 2009 and
2008 included charges summarized in the table below (in thousands):
February 28, 2009 March 1, 2008 Increase /
Expense % Sales Expense % Sales (Decrease)
Store payroll ............................. $217,774 16.5% $229,573 15.2% $(11,799)
Marketing ............................... 58,989 4.5% 63,970 4.2% (4,981)
Store supplies, services and other .............. 32,473 2.5% 38,341 2.5% (5,868)
Variable costs .......................... 309,236 23.4% 331,884 22.0% (22,648)
Administrative payroll (excluding severance) ...... 70,118 5.3% 82,244 5.4% (12,126)
Lease termination costs and impairments ........ 15,727 1.2% 15,470 1.0% 257
Severance and other ....................... 5,922 0.4% 7,646 0.5% (1,724)
Acquistion costs .......................... 1,660 0.1% — 0.0% 1,660
Loss (gain) on sale of fixed assets ............. 41 0.0% (2,137) ǁ0.1% 2,178
Other relatively fixed expenses ................ 50,767 3.8% 52,791 3.5% (2,024)
144,235 10.9% 156,014 10.3% (11,779)
$453,471 34.3% $487,898 32.3% $(34,427)
Expenses that tend to fluctuate proportionately with sales and number of stores, such as store
payroll, marketing, store supplies, and equipment rental, decreased $22.6 million and increased 140
basis points as a percentage of sales from last year. Store payroll, including bonus, decreased
$11.8 million partly as a result of planned staffing reductions at the stores and as a result of store
closures. Marketing expense decreased $5.0 million and increased 25 basis points as a percentage of
sales as a result of the absence of television advertising for most of fiscal 2009, offset slightly by the
introduction of a seasonal national cable advertising campaign introduced late in the third quarter of
fiscal 2009 running through the early part of the fourth quarter. The timing of marketing expenditures
was shifted in order to utilize more of the budget in the all important holiday selling period. Other
variable expenses such as store supplies and equipment rental decreased $5.9 million primarily due to
efforts to reduce costs.
Relatively fixed selling, general and administrative expenses decreased $11.8 million compared to
last year. Administrative payroll including bonus decreased $12.1 million resulting primarily from a
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