Pier 1 2009 Annual Report Download - page 34

impacted by 200 basis points as a result of a $32.5 million inventory write-down. Store occupancy costs
during fiscal 2008 were $293.2 million or 19.4% of sales, a decrease of $10.2 million and an increase of
70 basis points over store occupancy costs of $303.4 million or 18.7% of sales during fiscal 2007. The
decrease of $10.2 million was 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.
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 fiscal 2007’s $649.0 million
or 40.0% of sales. Selling, general and administrative expenses for fiscal years ended 2008 and 2007
included charges summarized in the table below (in thousands):
March 1, 2008 March 3, 2007 Increase/
Expense % Sales Expense % Sales (Decrease)
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) ǁ0.1% 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 in fiscal 2008 from fiscal 2007 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 fiscal 2007. 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
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