Pier 1 2015 Annual Report Download - page 32

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). This Annual
Report on Form 10-K references non-GAAP financial measures including merchandise margin, contribution from operations,
EBITDA, adjusted net income and adjusted diluted earnings per share.
The Company believes that the non-GAAP financial measures included in this Annual Report on Form 10-K allow
management and investors to understand and compare results in a more consistent manner for the fiscal years ended
February 28, 2015, March 1, 2014 and March 2, 2013. Non-GAAP financial measures should be considered
supplemental and not a substitute for the Company’s results reported in accordance with GAAP for the periods presented.
In fiscal 2015, net income included retirement related expenses for the Company’s former chief financial officer. A reconciliation
of GAAP net income and diluted earnings per share to non-GAAP adjusted net income and adjusted diluted earnings per share is
shown below for the fiscal year ended February 28, 2015 (in millions except per share amounts).
February 28, 2015
Net income (GAAP) $75.2
Add back: Retirement related expenses, net of tax (non-GAAP) 2.0
Adjusted net income (non-GAAP) $77.2
Diluted earnings per share (GAAP) $0.82
Add back: Retirement related expenses, net of tax (non-GAAP) 0.02
Adjusted diluted earnings per share (non-GAAP) $0.84
As the Company continues its omni-channel transformation, some non-GAAP metrics are being utilized to evaluate profitability
such as merchandise margin, contribution from operations and EBITDA. Merchandise margin represents the result of adding
back delivery, fulfillment and store occupancy costs to gross profit. Contribution from operations represents gross profit, less
compensation for operations (which includes store and customer service payroll) and operational expenses. EBITDA represents
earnings before interest, taxes, depreciation and amortization. Management believes merchandise margin, contribution from
operations and EBITDA are meaningful indicators of the Company’s performance which provide useful information to investors
regarding its financial condition and results of operations. Management uses merchandise margin, contribution from operations
and EBITDA, together with financial measures prepared in accordance with GAAP, to assess the Company’s operating
performance, to enhance its understanding of core operating performance and to compare the Company’s operating
performance to other retailers. These non-GAAP financial measures should not be considered in isolation or used as an
alternative to GAAP financial measures and do not purport to be an alternative to net income or gross profit as a measure of
operating performance. A reconciliation of net income to EBITDA to contribution from operations to merchandise margin is shown
below for the fiscal years ended (in millions).
52 Weeks Ended
February 28, 2015 52 Weeks Ended
March 1, 2014 53 Weeks Ended
March 2, 2013
$ Amount % of Sales $ Amount % of Sales $ Amount % of Sales
Merchandise margin (non-GAAP) $1,081.2 58.0% $1,048.1 59.2% $1,022.4 60.0%
Less: Delivery and fulfillment costs 32.9 1.8% 14.0 0.8% 2.8 0.2%
Store occupancy 298.7 16.0% 288.4 16.3% 276.5 16.2%
Gross profit (GAAP) 749.7 40.2% 745.6 42.1% 743.1 43.6%
Less: Compensation for operations 270.4 14.5% 256.4 14.5% 252.7 14.8%
Operational expenses 66.8 3.6% 58.5 3.3% 55.1 3.2%
Contribution from operations (non-GAAP) 412.5 22.1% 430.7 24.3% 435.3 25.5%
Less: Other nonoperating income/expense (2.8) (0.1%) (1.0) (0.1%) (2.0) (0.1%)
Marketing and other SG&A 238.9 12.8% 216.4 12.2% 205.3 12.0%
EBITDA (non-GAAP) 176.3 9.5% 215.4 12.2% 232.0 13.6%
Less: Income tax provision 45.2 2.4% 67.1 3.8% 71.6 4.2%
Interest expense, net 9.6 0.5% 1.8 0.1% — 0.0%
Depreciation and amortization 46.3 2.5% 38.9 2.2% 31.0 1.8%
Net income (GAAP) $ 75.2 4.0% $ 107.5 6.1% $ 129.4 7.6%
26 PIER 1 IMPORTS, INC. 2015 Form 10-K