The following data are excerpted from the annual report of Lands' End:
For the period ending Year 9 Year 8 Year 7 Year 6 Year 5
Net Sales 100% 100% 100% 100% 100%
Cost of Sales 55.0 53.4 54.5 57.0 57.6
Gross profit 45.0 46.6 45.5 43.0 42.4
Selling, General and administrative 39.7 38.8 37.9 38.0 36.0
Other Expenses 3.0 2.7 3.0 2.0 2.8
Net Income 2.3% 5.1% 4.6% 3.0% 3.6%
Required:
1.Discuss factors that determine the level of sales and the level of gross profit as a percentage of sales in the context of the operations of Lands' End.
2.Interpret the gross profit percentage (45% in fiscal year 9) in simple terms and in the context of Lands' End's operations.
3.Catalog mailing costs constitute a large percentage of the selling, general, and administrative costs for Lands' End. These costs have steadily risen as a percentage of sales (only 32.4% in year 4). Discuss drivers (determinants) of total catalog mailing costs and indicate ways that Lands' End can control these costs. With each suggestion, indicate how the level of sales might be impacted.