Ross 2010 Annual Report Download - page 26

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Cost of goods sold in fi scal 2009 increased $370.7 million compared to the prior year mainly due to increased sales from the
opening of 49 net new stores during the year, and a 6% increase in sales from comparable stores.
Cost of goods sold as a percentage of sales for fi scal 2009 decreased approximately 230 basis points from the prior year. This
improvement was mainly the result of a 170 basis point increase in merchandise gross margin, which included a 40 basis point
benefi t from lower shortage. In addition, freight costs declined by about 50 basis points, occupancy leveraged 35 basis points,
and distribution costs declined by about 10 basis points. These improvements were partially offset by a 35 basis point increase
in buying expenses due in part to higher incentive costs versus the prior year.
We cannot be sure that the gross profi t margins realized in fi scal 2010, 2009, and 2008 will continue in future years.
Selling, general and administrative expenses. For fi scal 2010, selling, general and administrative expenses (“SG&A”)
increased $99.0 million compared to the prior year, mainly due to increased store operating costs refl ecting the opening of 50 net
new stores during the year.
SG&A as a percentage of sales for fi scal 2010 decreased by approximately 10 basis points compared to the prior year mainly
driven by leverage on store operating expenses.
For fi scal 2009, SG&A increased $96.5 million compared to the prior year, mainly due to increased store operating costs
refl ecting the opening of 49 net new stores during the year.
SG&A as a percentage of sales for fi scal 2009 decreased by approximately 20 basis points compared to the prior year. This
decrease was mainly driven by 40 basis points of leverage on store operating expenses that was partially offset by a 20 basis
point increase in general and administrative expenses due in part to higher incentive costs versus the prior year.
The largest component of SG&A is payroll. The total number of employees, including both full and part-time, as of fi scal year end
2010, 2009, and 2008 was approximately 49,500, 45,600, and 40,000, respectively.
Interest expense (income), net. In fi scal 2010, interest expense increased by $1.3 million primarily due to lower capitalization
of construction interest. In fi scal 2010, interest income decreased by $0.7 million primarily due to lower investment yields as
compared to the prior year. As a percentage of sales, net interest expense in fi scal 2010 remained fl at compared to the prior year.
The table below shows interest expense and income for fi scal 2010, 2009, and 2008:
($ millions) 2010 2009 2008
Interest expense $ 10.7 $ 9.4 $ 8.3
Interest income (1.1) (1.8) (8.5)
Total interest expense (income), net $ 9.6 $ 7.6 $ (0.2)
Taxes on earnings. Our effective tax rate for fi scal 2010, 2009, and 2008 was approximately 38% in each year, which
represents the applicable combined federal and state statutory rates reduced by the federal benefi t of state taxes deductible on
federal returns. The effective rate is impacted by changes in law, location of new stores, level of earnings, and the resolution of tax
positions with various taxing authorities. We anticipate that our effective tax rate for fi scal 2011 will be about 38%.
Net earnings. Net earnings as a percentage of sales for fi scal 2010 were higher compared to fi scal 2009 primarily due to
both lower cost of goods sold and lower SG&A expenses as a percentage of sales. Net earnings as a percentage of sales for
fi scal 2009 were higher compared to fi scal 2008 primarily due to both lower cost of goods sold and lower SG&A expenses as a
percentage of sales.