increase in the inventory shrinkage rate compared to 2011. In addition,
consumables, which generally have lower markups than non-consumables,
represented a greater percentage of sales in 2012 than in 2011.
Primarily as the result of lower inflation on commodities in 2012, the
LIFO provision decreased to $1.4 million in 2012 compared to $47.7
million in 2011.
Full year SG&A expense was 21.4 percent of sales in 2012 compared to 21.7 percent in 2011, an improvement of 25 basis points. Retail labor expense increased at a lower rate than the increase in sales, partially due to ongoing benefits of the Company's workforce management system coupled with savings due to various store work simplification initiatives. Also positively impacting SG&A were lower legal settlement expenses in 2012 due to two legal matters settled in 2011 for a combined cost of $13.1 million and the impact of decreased expenses ($2.9 million in 2012 compared to $11.1 million in 2011) relating to secondary offerings of the Company's common stock. Costs that increased at a rate higher than the increase in sales included rent expense, fees associated with the increased use of debit cards and depreciation expense, primarily related to additions of certain store equipment and fixtures. SG&A in 2011 was favorably impacted by increased sales, including the 2011 53rd week, among other factors.
Full year operating profit increased by 11 percent to $1.66 billion, or 10.3 percent of sales, in 2012 compared to $1.49 billion, or 10.1 percent of sales, in 2011. Excluding the acceleration of equity-based compensation and other secondary offering expenses from both years and expenses related to certain legal settlements in 2011, operating profit increased 9 percent to $1.66 billion, or 10.4 percent of sales, in 2012 compared to $1.52 billion, or 10.2 percent of sales, in 2011.
Interest expense in 2012 was $128 million, a decrease of $77 million from 2011, due to lower average outstanding long-term obligations, resulting from repurchases and refinancing of indebtedness in 2012 and 2011 and lower all-in interest rates on long-term obligations.
Other (income) expense in 2012 included pretax losses totaling $29.0 million resulting from the repurchase of the Company's 11.875%/12.125% senior subordinated notes. Other (income) expense in 2011 includes pretax losses totaling $60.3 million resulting from the repurchase of the Company's 10.625% senior notes.
The effective income tax rate for 2012 was 36.4 percent compared to a rate of 37.4 percent for 2011. The 2012 income tax rate was lower than the 2011 rate primarily due to an adjustment of $14.5 million, or $0.04 per diluted share, associated with an adjustment of accruals due to the favorable resolution of income tax audits, which was recorded in the fiscal 2012 second quarter.
The Company reported net income of $953 million, or diluted EPS of $2.85 for fiscal year 2012 compared to net income of $767 million, or diluted EPS of $2.22 for fiscal year 2011. Adjusted net income, as defined above and as reconciled to net income in the accompanying schedules, increased 19 percent to $973 million, or $2.91 per diluted share, in fiscal 2012, compared to adjusted net income of $819 million, or $2.37 per diluted share, in fiscal 2011.
As of February 1, 2013, total merchandise inventories, at cost, were
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