In 2008, the firm is launching a series of new brands as well. Two new brands were launched this month. Jumping Beans is a new opening price point children’s private brand targeted to provide the value mom is looking for in her children’s apparel. Gold Toe is a national brand in hosiery, which holds the largest market share in department stores today. It is launched in men’s, women’s and children’s hosiery.
The Elle brand will expand to the remaining 500 stores it was not formerly in at the beginning of March and will be launched in the firm’s grand opening event in mid-March. The firm has expanded its Food Network brand platform through a partnership with Bobby Flay and this will launch in all stores in May. The company’s exclusive partnership with Fila Sport will launch in the early fall in all stores in men’s, women’s and children’s apparel, footwear, and hosiery.
For the quarter, the company’s exclusive and private brands were up over 300 basis points in penetration.
This was a result of new exclusive brands and growth in the firm’s existing exclusive brands like Chaps, Daisy, Tony Hawk, and Candies. This continued to have a favorable impact on the firm’s merchandise margins, which in spite of the difficult environment increased year over year in contrast to much of the firm’s competition. The company expects this to have a very favorable impact in 2008 as well, given the growth of these brands.
Fiscal 2007 Financial Highlights
The sales were $16.5 billion this year versus $15.6 billion last year, an increase of 5.6%.
The fiscal January 2007 was a five-week month while fiscal January 2008 was a four-week month. This additional week contributed approximately $200 million in sales. The comparable sales results have been adjusted for this extra week as a result to compare the results for the period ended February 2, 2008 and January 27, 2007.
The full year comp decreased 0.8%, which was the result of an increase in average transaction values of 0.6% and a decrease in transactions per store of 1.4%.
For the year, the gross margin rate increased approximately 10 basis points to 36.5% from 36.4%.
For the year, improvements from the continued impact of merchandise and inventory management initiatives, improved markup, the adoption of markdown optimization and the increased penetration of both private and exclusive national brands was largely offset by lower fourth quarter margin.
SG&A increased 8% and did not leverage by approximately 50 basis points.
Consistent with the quarterly trends, credit and corporate expenses leveraged for the year while stores, advertising and distributions expenses did not.
- For the full year, depreciation expense was $452 million for the current year, a 16.6% increase over last year. The increase is primarily due to new store growth.
- Pre-opening expenses were $60.7 million versus $49.8 million last year. The increase is consistent with the number of stores opened, 112 in 2007 compared to 85 in 2006. On average, the firm spent approximately $497,000 per store in 2007 and expects to spend approximately $600,000 per store in 2008. The increase is primarily due to an increase in ground lease stores.
- For the year, operating income declined slightly. The operating margin of 11% is the industry leader and the third best result in the firm’s history as a public company.
- For the year, interest expense was $62.4 million compared to $44.4 million last year. The increase is primarily due to the $1 billion in debt we issued in September of 2007.
- The income tax rate was 37.8% for the year.
- For the year, net income was $1.08 billion compared to $1.11 billion last year and for the year earnings per share was $3.39 this year compared to $3.31 last year.
The firm had $483 million in investments at year end compared to $431 million last year.
The increase is the net result of stock repurchases and investment of $1 billion of new debt proceeds in September 2007 and $1.6 billion of credit card sales proceeds in 2006.
- The capital expenditures were approximately $1.54 billion.
- AP as a percent of inventory was 29.3% versus 36.2% last year. Reduced spring receipts as a result of conservative sales planning and an increase in prepaid imports were the primary reasons for the decrease.
- The company repurchased 12.7 million shares for $745 million at an average price of $58.50 for the year.
The average inventory per store was about 3% lower than last year.
Clearance per store is down at a greater level than that and the firm’s sellthroughs on clearance continue to be very strong. In addition to the markdown and size optimization initiatives that the firm has focus on extensively in the past 12 months, its major focus on inventory management continues to be around carrying a lower overall level of inventory and flowing receipts in season as needed. The firm also intends to increase its speed to market through its concept of customer strategy. The goal is to reduce the average product cycle time from 40 weeks to 25 weeks in 2009 for most products. Brands requiring fashions such as Elle will be developed in as little as 12 to 16 weeks. As a result of all of these strategies, and the conservative sales assumptions, the firm expects to continue to have sequential improvement in lowering its inventory per store each quarter in 2008. Inventories at the end of the first quarter should be down mid single-digits on a per-store basis.
First Quarter Outlook
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