Kohl's 2009 Annual Report Download - page 24

Table of Contents
Gross margin for 2008 increased $41 million, or 0.7%, over 2007. The improvement in gross margin as a percent of net sales for 2008 compared to
2007 was driven by the continued impact of our merchandise and inventory management initiatives and increased penetration of private and exclusive brands.
Sales of private and exclusive brands were approximately 42% of net sales for 2008, an increase of over 260 basis points over 2007.
Selling, general and administrative expenses.
  

Selling, general, and administrative expenses  $3,936 $3,697
As a percent of net sales   24.0% 22.4%
Selling, general and administrative expenses (“SG&A”) include compensation and benefit costs (including stores, headquarters, buying and
merchandising and distribution centers); occupancy and operating costs of our retail, distribution and corporate facilities; freight expenses associated with
moving merchandise from our distribution centers to our retail stores, and among distribution and retail facilities; advertising expenses, offset by vendor
payments for reimbursement of specific, incremental and identifiable costs; net revenues from the Kohl’s credit card agreement with JPMorgan Chase; and
other administrative costs. We do not include depreciation and amortization and preopening expenses in SG&A. The classification of these expenses varies
across the retail industry.
SG&A for 2009 increased $208 million, or 5.3%, over 2008. SG&A increased primarily due to store growth and increased incentive compensation and
changes made to our non-management compensation structure.
Hourly store payroll costs as a percentage of net sales decreased, or “leveraged,” in 2009 as reduced inventory and clearance levels resulted in fewer
hours spent on replenishment and inventory markdowns. We were able to shift some of these savings to provide additional customer assistance on the selling
floor and at point-of-sale. This emphasis on customer service contributed to an approximately 7% improvement in our customer service scores over the prior
year. Customer service scores are derived from direct customer surveys conducted by an independent research firm.
Distribution center costs, which are included in SG&A, totaled $168 million for 2009, $166 million for 2008 and $165 million for 2007. Payroll
costs increased as increased sales required additional processing hours to facilitate the transfer of merchandise to the stores. These increases were offset by the
benefits of technology investments in our distribution centers that continue to generate operating efficiencies. Lower fuel costs also contributed to the decrease.
In connection with the April 2006 sale of our proprietary credit card accounts to JPMorgan Chase & Co. (“JPMorgan Chase”), we entered into a service
and revenue-sharing agreement. Pursuant to this agreement, JPMorgan Chase issues Kohl’s branded private label credit cards to new and existing Kohl’s
customers. Since we do not own the receivables, the receivables and the related allowance for bad debt reserve are not reported on our balance sheets. Risk-
management decisions are jointly managed by JPMorgan Chase and us. We handle all customer service functions and are responsible for all advertising and
marketing related to credit card customers and the majority of the associated expenses. Net revenues of the program are shared with JPMorgan Chase according
to a fixed percentage and are settled monthly. Net revenues include finance charge and late fee revenues, less write-offs of uncollectible accounts and other
expenses. Net revenues from the credit card program increased in 2009 as growth in finance charges and late fee revenues exceeded increases in write-offs of
uncollectible accounts.
Advertising and information services expenses, measured in both dollars and as a percentage of net sales, decreased in 2009 compared to 2008.
Advertising expenses, net of vendor allowances, were $846 million for 2009 and $890 million for 2008.
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