Pier 1 2012 Annual Report Download - page 32

Store occupancy costs during fiscal 2011 were $262.4 million or 18.8% of sales, a decrease of $4.7
million and 190 basis points from store occupancy costs of $267.1 million, or 20.7% of sales during fiscal 2010.
The decrease was primarily the result of favorable rental negotiations on a large number of stores in the fiscal
2010 and fewer open stores, coupled with decreases in property taxes and property insurance, partially offset by
an increase in maintenance and utility costs.
Operating Expenses and Depreciation
Selling, general and administrative expenses were $431.9 million, or 30.9% of sales in fiscal 2011,
compared to $421.2 million, or 32.6% of sales in fiscal 2010, an increase of $10.7 million, and a decrease of 170
basis points as a percentage of sales. Selling, general and administrative expenses for fiscal years 2011 and 2010
included charges summarized in the table below (in thousands):
February 26, 2011 February 27, 2010 Increase /
Expense % Sales Expense % Sales (Decrease)
Store payroll $ 218,924 15.7% $ 209,815 16.3% $ 9,109
Marketing 65,840 4.7% 60,945 4.7% 4,895
Store supplies, services and other 24,669 1.8% 28,661 2.2% (3,992)
Variable costs 309,433 22.2% 299,421 23.2% 10,012
Administrative payroll 84,900 6.1% 74,734 5.8% 10,166
Other relatively fixed expenses 35,768 2.6% 34,449 2.7% 1,319
Relatively fixed costs 120,668 8.6% 109,183 8.5% 11,485
Lease termination costs and other 1,799 0.1% 12,575 1.0% (10,776)
$ 431,900 30.9% $ 421,179 32.6% $ 10,721
Expenses that tend to fluctuate proportionately with sales and number of stores, such as store payroll,
marketing, store supplies, and equipment rental, increased $10.0 million, but decreased 100 basis points as a
percentage of sales from fiscal 2010. Store payroll, including bonus, increased $9.1 million and decreased 60
basis points as a percentage of sales. Marketing expense increased $4.9 million and remained flat as a percentage
of sales as a result of an increase in television, radio, and internet advertising, partially offset by a reduction of
retail event mailers and catalogs and advertising in newspapers. Other variable expenses, primarily store
supplies, store services and equipment rental, decreased $4.0 million, or 40 basis points as a percentage of sales.
Relatively fixed selling, general and administrative expenses increased $11.5 million to 8.6% of sales, or
10 basis points, from 8.5% of sales during fiscal 2010, primarily as result of increases in accrued management
bonuses and in salaries and benefits. In addition, general insurance costs and foreign currency revaluation
increased as a result of favorable trends in fiscal 2010.
Lease termination and other costs decreased $10.8 million compared to the same period in fiscal 2010.
Lease termination costs decreased by $9.1 million, or 80 basis points as a percentage of sales, which was
primarily the result of decreased activity with lease terminations and buyout agreements along with the closing of
fewer stores in fiscal 2011 compared to fiscal 2010. In addition, the Company had a gain of $1.6 million on the
sale of its distribution center near Chicago during the first quarter of fiscal 2011.
Depreciation and amortization for fiscal 2011 was $19.7 million, representing a decrease of
approximately $2.8 million from fiscal 2010’s depreciation and amortization expense of $22.5 million. This
decrease was primarily the result of certain assets becoming fully depreciated and store closures.
In fiscal 2011, the Company recorded operating income of $103.7 million compared to an operating loss
of $3.3 million for fiscal 2010.
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