Third Quarter 2013 Operating Results:
Net sales increased 7% to $503.0 million from $468.5 million in the third quarter of 2012.
Comparable sales increased 5%. In last year's third quarter, comparable sales declined by 5%. Both numbers include e-commerce sales, which increased 29% to $71.2 million in the third quarter of 2013. In last year's third quarter, e-commerce sales grew 21% to $55.1 million.
Gross margin improved 60 basis points over last year's third quarter and represented 32.9% of net sales. Merchandise margin improved by 40 basis points. Despite the promotional environment, we were able to recover some of the margin lost in last year's third quarter by delivering a stronger product assortment, especially on the women's side of the business. Buying and occupancy costs as a percentage of sales improved by 20 basis points, primarily due to the leverage associated with our comparable sales growth.
Selling, general, and administrative (SG&A) expenses were $128.4 million versus $117.7 million in last year's third quarter. As a percentage of net sales, SG&A expenses rose by 40 basis points to 25.5% compared to 25.1% in the same period last year, primarily reflecting payroll increases and an increase in marketing expense, which includes certain costs associated with our preparations to open the Times Square store.
Operating income was $36.7 million, or 7.3% of net sales, compared to $34.4 million, or 7.3% of net sales, in the third quarter of 2012.
The effective tax rate was 39.2% compared to 41.4% in last year's third quarter. The effective rate was lower than the comparable prior year period primarily due to a discrete tax charge related to the rate applied to deferred tax balance sheet accounts incurred during the third quarter of 2012.
Net income was $19.3 million, or $0.23 per diluted share, compared to net income of $17.4 million, or $0.20 per diluted share, in the third quarter of 2012.
Real estate activity for the third quarter of 2013, which includes the opening of our Union Square flagship store in San Francisco, is detailed in Schedule 4.
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