The Gap 2009 Annual Report Download - page 37

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Our fiscal 2008 net sales decreased $1.2 billion, or 8 percent, compared with fiscal 2007, primarily due to a decrease
in net sales of $1.4 billion related to our Stores reportable segment, offset by an increase in net sales of $127 million
related to our Direct reportable segment.
• For the Stores reportable segment, our fiscal 2008 net sales decreased $1.4 billion, or 9 percent, compared with
fiscal 2007. The decrease was primarily due to a decline in net sales at all of our brands due to the weakening
retail environment and declines in traffic, offset by an increase in net sales from our franchise business and the
$19 million favorable impact of foreign exchange. The foreign exchange impact is the translation impact if fiscal
2007 sales were translated at fiscal 2008 exchange rates.
• For the Direct reportable segment, our fiscal 2008 net sales increased $127 million, or 14 percent, compared with
fiscal 2007 due to the growth in our online business across all brands and the acquisition of Athleta in
September 2008.
Cost of Goods Sold and Occupancy Expenses
Cost of goods sold and occupancy expenses include the following:
• the cost of merchandise;
• inventory shortage and valuation adjustments;
• freight charges;
• costs associated with our sourcing operations, including payroll and related benefits;
• production costs;
• insurance costs related to merchandise; and
• rent, occupancy, depreciation, and amortization related to our store operations, distribution centers, and certain
corporate functions.
The classification of these expenses varies across the apparel retail industry. Accordingly, our cost of goods sold
and occupancy expenses may not be comparable to that of other companies.
As a general business practice, we review our inventory levels in order to identify slow-moving merchandise and
broken assortments (items no longer in stock in a sufficient range of sizes) and use markdowns to clear the
majority of this merchandise.
($ in millions)
Fiscal Year
2009 2008 2007
Costofgoodssoldandoccupancyexpenses ...................................... $8,473 $9,079 $10,071
Grossprofit ................................................................... $5,724 $5,447 $ 5,692
Cost of goods sold and occupancy expenses as a percentage of net sales ............ 59.7% 62.5% 63.9%
Grossmargin.................................................................. 40.3% 37.5% 36.1%
Cost of goods sold and occupancy expenses as a percentage of net sales decreased 2.8 percentage points in fiscal
2009 compared with fiscal 2008. Cost of goods sold decreased 2.9 percentage points as a percentage of net sales
in fiscal 2009 compared with fiscal 2008. Occupancy expenses increased 0.1 percentage points as a percentage of
net sales in fiscal 2009 compared with fiscal 2008.
• For the Stores reportable segment, cost of goods sold and occupancy expenses as a percentage of net sales
decreased 2.7 percentage points in fiscal 2009 compared with fiscal 2008. Cost of goods sold decreased
2.9 percentage points as a percentage of net sales in fiscal 2009 compared with fiscal 2008. The decrease was
primarily driven by reduced cost of merchandise from our cost management efforts and a decrease in selling at
markdown. Occupancy expenses increased 0.2 percentage points as a percentage of net sales in fiscal 2009
compared with fiscal 2008, primarily driven by lower sales related to comparable stores.
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