UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
August 27, 2007 (August 21, 2007)
ABERCROMBIE & FITCH CO.
(Exact name of registrant as specified in its charter)
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Delaware
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1-12107
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31-1469076
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(State or other
jurisdiction of
incorporation)
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(Commission File
Number)
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(IRS Employer Identification No.)
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6301 Fitch Path, New Albany, Ohio 43054
(Address of principal executive offices) (Zip Code)
(614) 283-6500
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address,
if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item 2.02. Results of Operations and Financial Condition.
On August 22, 2007, Abercrombie & Fitch Co. (the “Registrant”) issued a news release (the
“Release”) reporting the Registrant’s unaudited financial results for the thirteen weeks (quarterly
period) ended August 4, 2007. A copy of the Release is furnished as Exhibit 99.1 to this Current
Report on Form 8-K and is incorporated herein by reference.
The Registrant also made available in conjunction with the Release additional quarterly
financial information as of and for the quarterly period ended August 4, 2007, as of and for the
quarterly period ended May 5, 2007 and as of and for the quarterly periods during the fiscal years
ended February 3, 2007, January 28, 2006 and January 29, 2005. The additional quarterly financial
information is furnished as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated
herein by reference.
The Registrant’s management conducted a conference call on August 22, 2007, at approximately
4:30 p.m., Eastern Time, to review the Registrant’s financial results for the thirteen weeks ended
August 4, 2007. Additionally, the Registrant’s management addressed plans for the second half of
the fiscal year ending February 2, 2008 on the conference call. A copy of the transcript of the
conference call is furnished as Exhibit 99.3 to this Current Report on Form 8-K and is incorporated
herein by reference.
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of
Certain Officers; Compensatory Arrangements of Certain Officers.
At the meeting of the Compensation Committee of the Board of Directors (the “Board”) of the
Registrant held on August 21, 2007, the Compensation Committee approved (i) the form of Stock
Option Agreement to be used to evidence the grant of nonstatutory stock options to employees of the
Registrant and its subsidiaries under the Abercrombie & Fitch Co. 2007 Long-Term Incentive Plan
(the “2007 Plan”) and (ii) the form of Restricted Stock Unit Award Agreement to be used to evidence
the grant of restricted stock units to employees of the Registrant and its subsidiaries under the
2007 Plan. The form of Stock Option Agreement is filed as Exhibit 10.1 to this Current Report on
Form 8-K. The form of Restricted Stock Unit Award Agreement is filed as Exhibit 10.2 to this
Current Report on Form 8-K. A description of the material terms of the 2007 Plan was included in
the Registrant’s definitive Proxy Statement, dated May 10, 2007, filed with the Securities and
Exchange Commission (the “SEC”) on May 10, 2007, under the caption “PROPOSAL TO APPROVE ADOPTION OF
THE ABERCROMBIE & FITCH CO. 2007 LONG-TERM INCENTIVE PLAN,” and incorporated by reference into
“Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of
Certain Officers; Compensatory Arrangements of Certain Officers” of the Registrant’s Current Report
on Form 8-K filed with the SEC on June 18, 2007 (the “June 18, 2007 Form 8-K”). The 2007 Plan was
filed with the June 18, 2007 Form 8-K as Exhibit 10.2.
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Consistent with the terms of the 2007 Plan, the form of Stock Option Agreement contemplates
that each nonstatutory stock option (“NSO”) evidenced thereby will be granted with an exercise
price equal to the per share closing price of the Registrant’s Class A Common Stock as reported on
the New York Stock Exchange on the grant date and a ten-year term, subject to earlier expiration or forfeiture in accordance with the provisions of the 2007 Plan
and the optionee’s Stock Option Agreement. The form of Stock Option Agreement provides for the
vesting of the NSO evidenced thereby in annual installments (which may or may not be equal)
beginning on the first anniversary of the grant date, subject to the continued employment of the
optionee by the Registrant or one of its subsidiaries on such vesting date. The form of Stock
Option Agreement also provides for the acceleration of vesting if an optionee becomes totally
disabled or dies while employed by the Registrant or one of its subsidiaries. The form of Stock
Option Agreement contemplates that unless the Board of the Registrant or the Compensation Committee
provides otherwise prior to a “Change of Control” (as defined in the 2007 Plan), upon a Change of
Control, the provisions of Section 9 of the 2007 Plan will govern the treatment of the NSO. The
foregoing summary is qualified in its entirety by reference to the form of Stock Option Agreement
filed as Exhibit 10.1 to this Current Report on Form 8-K.
Each restricted stock unit evidenced by the form of Restricted Stock Unit Award Agreement
represents the right to receive one issued and outstanding share of the Registrant’s Class A Common
Stock, subject to the restrictions, conditions and other terms set forth in the Restricted Stock
Unit Award Agreement. Consistent with the terms of the 2007 Plan, the form of Restricted Stock
Unit Award Agreement contemplates that restricted stock units evidenced thereby will be granted
subject to a period of restriction which will lapse, and the restricted stock units will vest, in
installments (which may or may not be equal) beginning on the grant date, subject to the
continued employment of the participant by the Registrant or one of its subsidiaries on such
vesting date. The form of Restricted Stock Unit Award Agreement provides for the acceleration of
the lapsing of the restricted period if a participant becomes totally disabled or dies while
employed by the Registrant or one of its subsidiaries. Upon the retirement of a participant, the
Compensation Committee may, but is not required to, shorten or terminate the restricted period
applicable to the participant’s restricted stock units. Except as the Compensation Committee may
at any time provide, if the employment of a participant with the Registrant and its subsidiaries is
terminated for any other reason prior to the lapsing of the applicable restricted period, the
participant’s restricted stock units will be forfeited to the Registrant. The form of Restricted
Stock Unit Award Agreement contemplates that unless the Board of the Registrant or the Compensation
Committee provides otherwise prior to a Change of Control, upon a Change of Control, the provisions
of Section 9 of the 2007 Plan will govern the treatment of the restricted stock units. The
foregoing summary is qualified in its entirety by reference to the form of Restricted Stock Unit
Award Agreement filed as Exhibit 10.2 to this Current Report on Form 8-K.
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Item 5.05. Amendments to the Registrant’s Code of Ethics, or Waiver of a Provision of the Code
of Ethics.
At the meeting of the Board of the Registrant held on August 21, 2007, the Board adopted
amendments to the Abercrombie & Fitch Code of Business Conduct and Ethics (the “Code of Ethics”) in
order to conform the provisions of the Code of Ethics with the guidelines and procedures set forth
in the Abercrombie & Fitch Co. Related Person Transaction Policy adopted by the Board at the August
21, 2007 meeting, as discussed in “Item 8.01. Other Events” of this Current Report on Form 8-K.
The Code of Ethics is applicable to all associates, including every officer and director, of the
Registrant and its operating subsidiaries. The amendments clarify that the Nominating and Board Governance Committee (the “Nominating Committee”) of the
Board may approve related person transactions if required or appropriate under the applicable
policies of the Registrant (including the Related Person Transaction Policy). In addition, the
amendments clarify that if a potential conflict of interest arises concerning an officer of
director of the Registrant or a subsidiary of the Registrant, all information regarding the issue
should be reported to the General Counsel of the Registrant for review and, if appropriate or
required under the applicable policies of the Registrant, submission to the Nominating Committee
for review and the taking of such course of action as the Nominating Committee deems appropriate.
The Code of Ethics, as amended on August 21, 2007, is included as Exhibit 14 to this Current Report
on Form 8-K. The Code of Ethics, as amended on August 21, 2007, has been posted on the “Corporate
Governance” page of the Registrant’s website at www.abercrombie.com, accessible through the
“Investors” page, and is available in print from the Registrant by sending a request to the
Investor Relations Department, 6301 Fitch Path, New Albany, Ohio 43054.
Item 8.01. Other Events.
In the Release, the Registrant also announced that the Board of the Registrant had declared a
quarterly cash dividend of $0.175 per share in respect of the Registrant’s Class A Common Stock.
The dividend was declared on August 22, 2007 and is payable on September 25, 2007 to stockholders
of record at the close of business on September 4, 2007.
At the meeting of the Board of the Registrant held on August 21, 2007, the Board adopted the
Abercrombie & Fitch Co. Related Person Transaction Policy, which was recommended by the Nominating
Committee. The Related Person Transaction Policy sets forth the guidelines and procedures under
which the transactions falling within the scope of the Related Person Transaction Policy are to be
reviewed and approved or ratified. The Related Person Transaction Policy is included as Exhibit
99.4 to this Current Report on Form 8-K and has been posted on the “Corporate Governance” page of
the Registrant’s website at www.abercrombie.com, accessible through the “Investors” page.
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Item 9.01. Financial Statements and Exhibits.
(a) through (c) Not applicable
(d)
Exhibits:
The following exhibits are included with this Current Report on Form 8-K:
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Exhibit No.
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Description
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10.1
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Form of Stock Option Agreement to be used to evidence the grant of nonstatutory stock options
to employees of Abercrombie & Fitch Co. and its subsidiaries under the Abercrombie & Fitch Co.
2007 Long-Term Incentive Plan after August 21, 2007
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10.2
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Form of Restricted Stock Unit Award Agreement to be used to evidence the grant of restricted
stock units to employees of Abercrombie & Fitch Co. and its subsidiaries under the Abercrombie
& Fitch Co. 2007 Long-Term Incentive Plan after August 21, 2007
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Abercrombie & Fitch Code of Business Conduct and Ethics, as amended by the Board of Directors
on August 21, 2007
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99.1
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News Release issued by Abercrombie & Fitch Co. on August 22, 2007
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99.2
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Additional Quarterly Financial Information made available by Abercrombie & Fitch Co. in
conjunction with News Release on August 22, 2007
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99.3
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Transcript of conference call held by management of Abercrombie & Fitch Co. on August 22,
2007
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99.4
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Abercrombie & Fitch Co. Related Person Transaction Policy, as adopted on August 21, 2007
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[Reminder of page intentionally left blank; signature on following page]
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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ABERCROMBIE & FITCH CO.
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Dated: August 27, 2007
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By:
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/s/ Michael W. Kramer
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Michael W. Kramer
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Executive Vice President and Chief Financial Officer
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INDEX TO EXHIBITS
Current Report on Form 8-K
Dated August 27, 2007
Abercrombie & Fitch Co.
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Exhibit No.
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Description
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10.1
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Form of Stock Option Agreement to be used to evidence the grant of nonstatutory stock options
to employees of Abercrombie & Fitch Co. and its subsidiaries under the Abercrombie & Fitch Co.
2007 Long-Term Incentive Plan after August 21, 2007
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10.2
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Form of Restricted Stock Unit Award Agreement to be used to evidence the grant of restricted
stock units to employees of Abercrombie & Fitch Co. and its subsidiaries under the Abercrombie
& Fitch Co. 2007 Long-Term Incentive Plan after August 21, 2007
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Abercrombie & Fitch Code of Business Conduct and Ethics, as amended by the Board of Directors
on August 21, 2007
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99.1
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News Release issued by Abercrombie & Fitch Co. on August 22, 2007
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99.2
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Additional Quarterly Financial Information made available by Abercrombie & Fitch Co. in
conjunction with News Release on August 22, 2007
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99.3
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Transcript of conference call held by management of Abercrombie & Fitch Co. on August 22,
2007
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99.4
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Abercrombie & Fitch Co. Related Person Transaction Policy, as adopted on August 21, 2007
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Exhibit 10.1
STOCK OPTION AGREEMENT
(Nonstatutory Stock Option – 2007 Long-Term Incentive Plan)
This STOCK OPTION AGREEMENT (this “AGREEMENT”) is made to be effective as of
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200___ (the “GRANT DATE”), by and between Abercrombie & Fitch Co., a Delaware corporation (the
“COMPANY”), and
(the “OPTIONEE”).
WITNESSETH
:
WHEREAS, pursuant to the provisions of the 2007 Long-Term Incentive Plan of the COMPANY (the
“PLAN”), the Compensation Committee (the “COMMITTEE”) of the Board of Directors of the COMPANY (the
“BOARD”) administers the PLAN; and
WHEREAS, the COMMITTEE has determined that an option to purchase
(
) shares of Class A Common
Stock, $0.01 par value (the “SHARES”), of the COMPANY should be granted to the OPTIONEE upon the
terms and conditions set forth in this AGREEMENT;
NOW, THEREFORE, in consideration of the premises, the parties hereto make the following
agreement, intending to be legally bound thereby:
1.
Grant of OPTION
. Pursuant to, and subject to, the terms and conditions set forth
in this AGREEMENT and in the PLAN, the COMPANY hereby grants to the OPTIONEE an option (the
“OPTION”) to purchase
(
) SHARES of the COMPANY (subject to adjustment as
provided in Section 11(c) of the PLAN). The OPTION is not intended to qualify as an incentive stock
option under Section 422 of the Internal Revenue Code of 1986, as amended (the “CODE”).
2.
Terms and Conditions of the OPTION
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(A)
OPTION PRICE
. The purchase price (the “OPTION PRICE”) to be paid by the OPTIONEE
to the COMPANY upon the exercise of the OPTION shall be $
per share, which is the per share
closing price of the SHARES of the COMPANY as reported on the New York Stock Exchange on the GRANT
DATE (subject to adjustment as provided in Section 11(c) of the PLAN).
(B)
Exercise of the OPTION
. Except as provided under Sections 3 and 5 of this
AGREEMENT, no portion of the OPTION may be exercised until the first anniversary of the GRANT DATE,
provided that the OPTIONEE is employed by the COMPANY or a subsidiary of the COMPANY on such date.
Thereafter, except as otherwise provided in this AGREEMENT, the OPTION may be exercised as follows:
(i) at any time after the first anniversary of the GRANT DATE, as
to
% of
the SHARES subject to the OPTION (subject to adjustment as provided in Section 11(c) of the PLAN),
provided that the OPTIONEE is employed by the COMPANY or a subsidiary of the COMPANY on such date;
(ii) at any time after the second anniversary of the GRANT DATE,
as to an additional
% of the SHARES subject to the OPTION (subject to adjustment as provided in Section 11(c)
of the PLAN), provided that the OPTIONEE is employed by the COMPANY or a subsidiary of the COMPANY
on such date;
(iii) at any time after the third anniversary of the GRANT DATE,
as to an additional
% of the SHARES subject to the OPTION (subject to adjustment as provided in Section 11(c)
of the PLAN), provided that the OPTIONEE is employed by the COMPANY or a subsidiary of the COMPANY
on such date; and
(iv) at any time after the fourth anniversary of the GRANT DATE,
as to an additional
% of the SHARES subject to the OPTION (subject to adjustment as provided in Section 11(c)
of the PLAN), provided that the OPTIONEE is employed by the COMPANY or a subsidiary of the COMPANY
on such date.
Subject to the other provisions of this AGREEMENT, including Section 5, if the OPTION becomes
vested and exercisable as to certain SHARES, it shall remain exercisable as to those SHARES until
the date of expiration of the OPTION term. The COMMITTEE may, but shall not be required to (unless
otherwise provided in this AGREEMENT), accelerate the vesting and exercisability of the OPTION.
The grant of the OPTION shall not confer upon the OPTIONEE any right to continue in the
employment of the COMPANY or any of its subsidiaries or interfere with or limit in any way the
right of the COMPANY or any of its subsidiaries to modify the terms of or terminate the employment
of the OPTIONEE at any time in accordance with applicable law and the COMPANY’s or the subsidiary’s
governing corporate documents.
(C)
OPTION Term
. The OPTION shall in no event be exercisable after the expiration of
ten years from the GRANT DATE and shall expire on such date.
(D)
Method of Exercise
. The OPTION may be exercised by giving written or electronic
notice of exercise to the COMMITTEE, in care of the Human Resources Department of the COMPANY, or
such third-party administrator as the Human Resources Department may from time to time designate,
stating the number of SHARES subject to the OPTION in respect of which the OPTION is being
exercised. Payment for all such SHARES shall be made to the COMPANY at the time the OPTION is
exercised or pursuant to a cashless exercise procedure approved by the COMMITTEE in United States
dollars in cash (including certified check). Payment for such SHARES may also be made (i) by
tender of SHARES of the COMPANY already owned by the OPTIONEE for at least six months (either by
actual delivery of the already-owned SHARES or by attestation) and having a fair market value
(based on the closing sale price of the SHARES as reported on the New York Stock Exchange or, if
the SHARES are not traded on the New York Stock Exchange, “fair market value” as defined in the
PLAN) on the date of tender equal to the OPTION PRICE or (ii) by a combination of the delivery of
cash and the tender of already-owned SHARES. After payment in full for the SHARES purchased under
the OPTION has been made, the COMPANY shall take all such actions as are necessary to deliver an
appropriate certificate or other
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evidence of ownership representing the SHARES purchased upon the exercise of the OPTION as
promptly thereafter as is reasonably practicable.
(E)
Tax Withholding
. The COMPANY shall have the right to require the OPTIONEE to
remit to the COMPANY an amount sufficient to satisfy any applicable federal, state and local tax
withholding requirements in respect of the exercise of the OPTION. These tax withholding
requirements may be satisfied in one of several ways, including:
(i) The OPTIONEE may give the COMPANY cash equal to the amount
required to be withheld or
tender SHARES of the COMPANY already owned by the OPTIONEE for at least six months by actual
delivery of the already-owned SHARES and having a fair market value (based on the closing sale
price of the SHARES as reported on the New York Stock Exchange or, if the SHARES are not traded on
the New York Stock Exchange, “fair market value” as defined in the PLAN) on the exercise date equal
to the amount required to be withheld; or
(ii) The COMPANY may withhold SHARES otherwise issuable upon
exercise of the OPTION having a
fair market value (based on the closing sale price of the SHARES as reported on the New York Stock
Exchange or, if the SHARES are not traded on the New York Stock Exchange, “fair market value” as
defined in the PLAN) on the exercise date equal to the amount required to be withheld (but only to
the extent of the minimum amount that must be withheld to comply with applicable state, federal and
local income, employment and wage tax laws).
3.
Change of Control
. Unless the BOARD or COMMITTEE provides otherwise prior to a
“Change of Control” (as such term is defined in the PLAN), upon a Change of Control, Section 9 of
the PLAN shall govern the treatment of the OPTION.
4.
Non-Transferability of OPTION
. The OPTION may not be transferred, assigned,
pledged or hypothecated (whether by operation of law or otherwise) by the OPTIONEE, except as
provided by will or by the applicable laws of descent and distribution, and the OPTION shall not be
subject to execution, attachment or similar process.
5.
Exercise After Termination of Employment
.
(A) Except as the COMMITTEE may at any time provide, if the employment of the OPTIONEE with
the COMPANY and its subsidiaries is terminated for any reason other than death or “total
disability” (as defined below), the OPTION may be exercised (to the extent that the OPTIONEE was
entitled to do so on the date of the termination of the OPTIONEE’s employment) at any time within
three months after such termination of employment, subject to the provisions of Section 2(C) of
this AGREEMENT, and shall then expire. To the extent the OPTIONEE was not entitled to exercise the
OPTION on the date of termination of the OPTIONEE’s employment, such portion of the OPTION shall
expire on the date of such termination.
(B) If the OPTIONEE becomes totally disabled, the OPTION shall become immediately vested and
exercisable in full, and the OPTION may be exercised at any time during
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the first twelve (12) months that the OPTIONEE receives benefits under the Abercrombie & Fitch
Co. Long-Term Disability Program, or any successor program, subject to the provisions of Section
2(C) of this AGREEMENT, and shall then expire.
(C) If the OPTIONEE dies while employed by the COMPANY or one of its subsidiaries, the OPTION
shall become immediately vested and exercisable in full by the OPTIONEE’s estate or by the person
who acquires the right to exercise the OPTION upon the OPTIONEE’s death by bequest or inheritance.
The OPTION may be exercised at any time within one year after the date of the OPTIONEE’s death, or
such other period as the COMMITTEE may at any time provide, subject to the provisions of Section
2(C) of this AGREEMENT, and shall then expire.
(D) For purposes of this AGREEMENT, “total disability” shall have the definition set forth in
the Abercrombie & Fitch Co. Long-Term Disability Program, which definition is incorporated herein
by reference.
6.
Forfeiture of OPTION
.
(A) The OPTION shall be subject to the following additional forfeiture conditions, to which
the OPTIONEE, by accepting the OPTION, agrees. If any of the events specified in Section 6(B)(i),
(ii), or (iii) occurs (a “FORFEITURE EVENT”), the following forfeiture will result:
(i) The unexercised portion of the OPTION held by the OPTIONEE,
whether or not vested, will be
immediately forfeited and canceled upon the occurrence of the FORFEITURE EVENT; and
(ii) The OPTIONEE will be obligated to repay to the Company, in
cash, within five business
days after demand is made therefor by the Company, the total amount of “AWARD GAIN” (as defined
below) realized by the OPTIONEE upon each exercise of the OPTION that occurred on or after (I) the
date that is six months prior to the occurrence of the FORFEITURE EVENT, if the FORFEITURE EVENT
occurred while the OPTIONEE was employed by the COMPANY or a subsidiary or affiliate, or (II) the
date that is six months prior to the date the OPTIONEE’s employment by the COMPANY or a subsidiary
or affiliate terminated, if the FORFEITURE EVENT occurred after the OPTIONEE ceased to be so
employed. For purposes of this Section, the term “AWARD GAIN” shall mean, in respect of a given
OPTION exercise, the product of (x) the Fair Market Value per share of Stock at the date of such
exercise (without regard to any subsequent change in the market price of shares) minus the exercise
price times (y) the number of shares as to which the OPTION was exercised at that date.
(B) The forfeitures specified in Section 6(A) will be triggered upon the occurrence of any one
of the following FORFEITURE EVENTS at any time during OPTIONEE’s employment by the COMPANY or a
subsidiary or affiliate, or during the one-year period following termination of such employment:
(i) OPTIONEE, acting alone or with others, directly or
indirectly, (I) engages, either as
employee, employer, consultant, advisor, or director, or as an owner, investor, partner, or
stockholder unless OPTIONEE’s interest is insubstantial, in any business in an area or
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region in which the COMPANY conducts business at the date the event occurs, which is directly
in competition with a business then conducted by the COMPANY or a subsidiary or affiliate; (II)
induces any customer or supplier of the COMPANY or a subsidiary or affiliate, with which the
COMPANY or a subsidiary or affiliate has a business relationship, to curtail, cancel, not renew, or
not continue his or her or its business with the COMPANY or any subsidiary or affiliate; or (III)
induces, or attempts to influence, any employee of or service provider to the COMPANY or a
subsidiary or affiliate to terminate such employment or service. The COMMITTEE shall, in its
discretion, determine which lines of business the COMPANY conducts on any particular date and which
third parties may reasonably be deemed to be in competition with the COMPANY. For purposes of this
Section 6(B)(i), OPTIONEE’s interest as a stockholder is insubstantial if it represents beneficial
ownership of less than five percent of the outstanding class of stock, and OPTIONEE’s interest as
an owner, investor, or partner is insubstantial if it represents ownership, as determined by the
COMMITTEE in its discretion, of less than five percent of the outstanding equity of the entity;
(ii) OPTIONEE discloses, uses, sells, or otherwise transfers,
except in the course of
employment with or other service to the COMPANY or any subsidiary or affiliate, any confidential or
proprietary information of the COMPANY or any subsidiary or affiliate, including but not limited to
information regarding the COMPANY’s current and potential customers, organization, employees,
finances, and methods of operations and investments, so long as such information has not otherwise
been disclosed to the public or is not otherwise in the public domain (other than by OPTIONEE’s
breach of this provision), except as required by law or pursuant to legal process, or OPTIONEE
makes statements or representations, or otherwise communicates, directly or indirectly, in writing,
orally, or otherwise, or takes any other action which may, directly or indirectly, disparage or be
damaging to the COMPANY or any of its subsidiaries or affiliates or their respective officers,
directors, employees, advisors, businesses or reputations, except as required by law or pursuant to
legal process; or
(iii) OPTIONEE fails to cooperate with the COMPANY or any
subsidiary or affiliate in any way,
including, without limitation, by making himself or herself available to testify on behalf of the
COMPANY or such subsidiary or affiliate in any action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, or otherwise fails to assist the COMPANY or any
subsidiary or affiliate in any way, including, without limitation, in connection with any such
action, suit, or proceeding by providing information and meeting and consulting with members of
management of, other representatives of, or counsel to, the COMPANY or such subsidiary or
affiliate, as reasonably requested.
(C) Despite the conditions set forth in this Section 6, an OPTIONEE is not hereby prohibited
from engaging in any activity, including but not limited to competition with the COMPANY and its
subsidiaries and affiliates. Rather, the non-occurrence of the FORFEITURE EVENTS set forth in
Section 6(B) is a condition to the OPTIONEE’s right to realize and retain value from the OPTION,
and the consequence under the PLAN and this AGREEMENT if the OPTIONEE engages in an activity giving
rise to any such FORFEITURE EVENTS are the forfeitures specified therein and herein. The COMPANY
and OPTIONEE
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shall not be precluded by this provision or otherwise from entering into other agreements
concerning the subject matter of Sections 6(A) and 6(B).
(D) The COMMITTEE may, in its discretion, waive in whole or in part the COMPANY’s right to
forfeiture under this Section 6, but no such waiver shall be effective unless evidenced by a
writing signed by a duly authorized officer of the COMPANY.
7.
Restrictions on Transfers of SHARES
. Anything contained in this Agreement or
elsewhere to the contrary notwithstanding, the COMPANY may postpone the issuance and delivery of
SHARES upon any exercise of the OPTION until completion of any stock exchange listing or
registration or other qualification of such SHARES under any state or federal law, rule or
regulation as the COMPANY may consider appropriate; and may require the OPTIONEE when exercising
the OPTION to make such representations and furnish such information as the COMPANY may consider
appropriate in connection with the issuance of the SHARES in compliance with applicable laws, rules
and regulations. SHARES issued and delivered upon exercise of the OPTION shall be subject to such
restrictions on trading, including appropriate legending of certificates to that effect, as the
COMPANY, in its discretion, shall determine are necessary to satisfy applicable laws, rules and
regulations.
8.
Rights of the OPTIONEE as a Stockholder
. The OPTIONEE shall have no rights as a
stockholder of the COMPANY with respect to any SHARES of the COMPANY covered by the OPTION until
the date of issuance to the OPTIONEE of a certificate or other evidence of ownership representing
such SHARES.
9.
PLAN as Controlling; OPTIONEE Acknowledgments
. All terms and conditions of the
PLAN applicable to the OPTION which are not set forth in this AGREEMENT shall be deemed
incorporated herein by reference. In the event that any term or condition of this AGREEMENT is
inconsistent with the terms and conditions of the PLAN, the PLAN shall be deemed controlling. The
OPTIONEE acknowledges receipt of a copy of the PLAN and of the Prospectus related to the PLAN. The
OPTIONEE also acknowledges that all decisions, determinations and interpretations of the COMMITTEE
in respect of the PLAN, this AGREEMENT and the OPTION shall be final, conclusive and binding on the
OPTIONEE, all other persons interested in the PLAN and stockholders.
10.
Governing Law
. To the extent not preempted by federal law, this AGREEMENT shall
be governed by and construed in accordance with the laws of the State of Delaware.
11.
Rights and Remedies Cumulative
. All rights and remedies of the COMPANY and of the
OPTIONEE enumerated in this AGREEMENT shall be cumulative and, except as expressly provided
otherwise in this AGREEMENT, none shall exclude any other rights or remedies allowed by law or in
equity, and each of said rights or remedies may be exercised and enforced concurrently.
12.
Captions
. The captions contained in this AGREEMENT are included only for
convenience of reference and do not define, limit, explain or modify this AGREEMENT or its
interpretation, construction or meaning and are in no way to be construed as a part of this
AGREEMENT.
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13.
Severability
. If any provision of this AGREEMENT or the application of any
provision hereof to any person or any circumstance shall be determined to be invalid or
unenforceable, then such determination shall not affect any other provision of this AGREEMENT or
the application of said provision to any other person or circumstance, all of which other
provisions shall remain in full force and effect, and it is the intention of each party to this
AGREEMENT that if any provision of this AGREEMENT is susceptible of two or more constructions, one
of which would render the provision enforceable and the other or others of which would render the
provision unenforceable, then the provision shall have the meaning which renders it enforceable.
14.
Number and Gender
. When used in this AGREEMENT, the number and gender of each
pronoun shall be construed to be such number and gender as the context, circumstances or its
antecedent may required.
15.
Entire Agreement
. This AGREEMENT, including the PLAN incorporated herein by
reference, constitutes the entire agreement between the COMPANY and the OPTIONEE in respect of the
subject matter of this AGREEMENT, and this AGREEMENT supersedes all prior and contemporaneous
agreements between the parties hereto in connection with the subject matter of this AGREEMENT. No
officer, employee or other servant or agent of the COMPANY, and no servant or agent of the
OPTIONEE, is authorized to make any representation, warranty or other promise not contained in this
AGREEMENT. Other than as set forth in Section 11(e) of the Plan, no change, termination or
attempted waiver of any of the provisions of this AGREEMENT shall be binding upon either party
hereto unless contained in a writing signed by the party to be charged.
16.
Successors of the COMPANY
. The obligations of the COMPANY under this AGREEMENT
shall be binding upon any successor corporation or organization resulting from the merger,
consolidation or other reorganization of the COMPANY, or upon any successor corporation or
organization succeeding to substantially all of the assets and businesses of the COMPANY.
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IN WITNESS WHEREOF, the COMPANY has caused this AGREEMENT to be executed by its duly
authorized officer, and the OPTIONEE has executed this AGREEMENT, in each case effective as of the
GRANT DATE.
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OPTIONEE
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Exhibit 10.2
RESTRICTED STOCK UNIT AWARD AGREEMENT
(2007 Long-Term Incentive Plan)
This RESTRICTED STOCK UNIT AWARD AGREEMENT (this “AGREEMENT”) is made to be effective as of
, 200___ (the “GRANT DATE”), by and between Abercrombie & Fitch Co., a Delaware
corporation (the “COMPANY”), and
, an employee of the COMPANY (the
“PARTICIPANT”).
WITNESSETH
:
WHEREAS, pursuant to the provisions of the 2007 Long-Term Incentive Plan of the COMPANY (the
“PLAN”), the Compensation Committee (the “COMMITTEE”) of the Board of Directors of the COMPANY (the
“BOARD”) administers the PLAN; and
WHEREAS, the COMMITTEE has determined that the PARTICIPANT should be granted rights to receive
(
) shares of Class A Common Stock, $0.01 par value, of the COMPANY (such rights, the “RESTRICTED
STOCK UNITS”), subject to the restrictions, conditions and other terms set forth in this AGREEMENT;
NOW, THEREFORE, in consideration of the premises, the parties hereto make the following
agreement, intending to be legally bound thereby:
1.
Grant of RESTRICTED STOCK UNITS
. The COMPANY hereby grants to the PARTICIPANT
(
) RESTRICTED STOCK UNITS of the COMPANY (subject to adjustment as
provided in Section 11(c) of the PLAN and Section 5(E) of this Agreement, if applicable). Each
RESTRICTED STOCK UNIT shall represent the right to receive one issued and outstanding share of
Class A Common Stock, $0.01 par value (the “COMMON SHARES”), of the COMPANY, but shall be subject
to the restrictions, conditions and other terms set forth in this AGREEMENT.
2.
Terms and Conditions of the RESTRICTED STOCK UNITS
.
(A)
RESTRICTED PERIOD
. Except as provided under Sections 3 and 4 of this AGREEMENT,
the period of restriction (the “RESTRICTED PERIOD”), after which the RESTRICTED STOCK UNITS shall
become vested and no longer be subject to forfeiture to the COMPANY shall lapse according to the
following schedule:
(i) the RESTRICTED PERIOD shall lapse as to
% of the RESTRICTED STOCK UNITS
(subject to adjustment as provided in Section 11(c) of the PLAN), and such RESTRICTED STOCK UNITS
shall become vested, on the GRANT DATE, provided the PARTICIPANT is employed by the COMPANY or a
subsidiary of the COMPANY on such date;
(ii) the RESTRICTED PERIOD shall lapse as to an additional
% of the
RESTRICTED STOCK UNITS (subject to adjustment as provided in Section 11(c) of the PLAN), and such
RESTRICTED STOCK UNITS shall become vested, on the ___
anniversary of the GRANT DATE, provided the PARTICIPANT is employed by the COMPANY or a
subsidiary of the COMPANY on such date;
(iii) the RESTRICTED PERIOD shall lapse as to an additional
% of the
RESTRICTED STOCK UNITS (subject to adjustment as provided in Section 11(c) of the PLAN), and such
RESTRICTED STOCK UNITS shall become vested, on the ___ anniversary of the GRANT DATE, provided
the PARTICIPANT is employed by the COMPANY or a subsidiary of the COMPANY on such date; and
(iv) the RESTRICTED PERIOD shall lapse as to an additional
% of the
RESTRICTED STOCK UNITS (subject to adjustment as provided in Section 11(c) of the PLAN), and such
RESTRICTED STOCK UNITS shall become vested, on the ___ anniversary of the GRANT DATE, provided
the PARTICIPANT is employed by the COMPANY or a subsidiary of the COMPANY on such date.
(B)
Non-Transferability of RESTRICTED STOCK UNITS
. RESTRICTED STOCK UNITS may not be
transferred, assigned, pledged or hypothecated (whether by operation of law or otherwise) by the
PARTICIPANT, except as provided by will or by the applicable laws of descent and distribution, and
the RESTRICTED STOCK UNITS shall not be subject to execution, attachment or similar process.
(C)
Lapse of RESTRICTED PERIOD
. Upon the lapse of the RESTRICTED PERIOD applicable to
any RESTRICTED STOCK UNITS, as promptly as is reasonably practicable, and in no case later than
March 15th of the year after the year the RESTRICTED PERIOD lapses, COMMON SHARES shall be issued
to the PARTICIPANT and the COMPANY shall deliver a stock certificate or other appropriate
documentation evidencing the number of COMMON SHARES of the COMPANY issued in settlement of such
vested RESTRICTED STOCK UNITS to the PARTICIPANT.
(D)
Tax Withholding
. The COMPANY shall have the right to require the PARTICIPANT to
remit to the COMPANY an amount sufficient to satisfy any applicable federal, state and local tax
withholding requirements in respect of the settlement of the RESTRICTED STOCK UNITS. These tax
withholding requirements may be satisfied in one of several ways, including:
(i) The PARTICIPANT may give the COMPANY cash equal to the amount
required to be withheld or
tender COMMON SHARES of the COMPANY already owned by the PARTICIPANT for at least six months by
actual delivery of the already-owned COMMON SHARES and having a fair market value (based on the
closing sale price of the COMMON SHARES as reported on the New York Stock Exchange or, if the
COMMON SHARES are not traded on the New York Stock Exchange, “fair market value” as defined in the
PLAN) on the date of settlement equal to the amount required to be withheld; or
(ii) The COMPANY may withhold COMMON SHARES otherwise deliverable upon
settlement of the
RESTRICTED STOCK UNITS having a fair market value (based on the closing sale price of the COMMON
SHARES as reported on the New York Stock
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Exchange or, if the COMMON SHARES are not traded on the New York Stock Exchange, “fair market
value” as defined in the PLAN) on the date of settlement equal to the amount required to be
withheld (but only to the extent of the minimum amount that must be withheld to comply with
applicable state, federal and local income, employment and wage tax laws).
(E)
Rights as Holder of RESTRICTED STOCK UNITS
. With respect to this RESTRICTED STOCK
UNIT AWARD, the PARTICIPANT shall have no rights as a stockholder of the COMPANY (including the
right to vote or receive dividends) with respect to any COMMON SHARES of the COMPANY until the date
of issuance to the PARTICIPANT of a certificate or other evidence of ownership representing such
COMMON SHARES in settlement thereof. In addition, dividend equivalents will not be paid or payable
with respect to the RESTRICTED STOCK UNITS subject to this AGREEMENT.
3.
Change of Control
. Unless the BOARD or COMMITTEE provides otherwise prior to a
“Change of Control” (as such term is defined in the PLAN), upon a Change of Control, Section 9 of
the PLAN shall govern the treatment of the RESTRICTED STOCK UNITS.
4.
Effect of Termination of Employment
.
(A) The grant of the RESTRICTED STOCK UNITS shall not confer upon the PARTICIPANT any right to
continue in the employment of the COMPANY or any of its subsidiaries or interfere with or limit in
any way the right of the COMPANY or any of its subsidiaries to modify the terms of or terminate the
employment of the PARTICIPANT at any time in accordance with applicable law and the COMPANY’s or
the subsidiary’s governing corporate documents.
(B) Except as the COMMITTEE may at any time provide, and subject to Section 4(E) below, if the
employment of the PARTICIPANT with the COMPANY and its subsidiaries is terminated for any reason
other than death or “total disability” (as defined below) prior to the lapsing of the RESTRICTED
PERIOD applicable to any RESTRICTED STOCK UNITS, such RESTRICTED STOCK UNITS shall be forfeited to
the COMPANY.
(C) If the PARTICIPANT becomes totally disabled prior to the lapsing of the RESTRICTED PERIOD
applicable to any RESTRICTED STOCK UNITS, such RESTRICTED PERIOD shall immediately lapse and the
RESTRICTED STOCK UNITS shall become fully vested.
(D) If the PARTICIPANT dies while employed by the COMPANY or one of its subsidiaries prior to
the lapsing of the RESTRICTED PERIOD applicable to any RESTRICTED STOCK UNITS, such RESTRICTED
PERIOD shall immediately lapse and the RESTRICTED STOCK UNITS shall become fully vested.
(E) Upon the retirement of the PARTICIPANT, the COMMITTEE may, but shall not be required to,
shorten or terminate the RESTRICTED PERIOD applicable to the RESTRICTED STOCK UNITS.
-3-
(F) For purposes of this AGREEMENT, “total disability” shall have the definition set forth in
the Abercrombie & Fitch Co. Long-Term Disability Program, which definition is incorporated herein
by reference.
5.
Forfeiture of RESTRICTED STOCK UNITS
.
(A) The RESTRICTED STOCK UNITS shall be subject to the following additional forfeiture
conditions, to which the PARTICIPANT, by accepting the RESTRICTED STOCK UNITS, agrees. If any of
the events specified in Section 5(B)(i), (ii), or (iii) occurs (a “FORFEITURE EVENT”), the
following forfeiture will result:
(i) any RESTRICTED STOCK UNITS held by the PARTICIPANT and not
then settled will be
immediately forfeited and canceled upon the occurrence of the Forfeiture Event; and
(ii) The PARTICIPANT will be obligated to repay to the Company,
in cash, within five business
days after demand is made therefor by the Company, the total amount of “AWARD GAIN” (as defined
below) realized by the PARTICIPANT upon each settlement of RESTRICTED STOCK UNITS that occurred on
or after (x) the date that is six months prior to the occurrence of the FORFEITURE EVENT, if the
FORFEITURE EVENT occurred while the PARTICIPANT was employed by the COMPANY or a subsidiary or
affiliate, or (y) the date that is six months prior to the date the PARTICIPANT’s employment by the
COMPANY or a subsidiary or affiliate terminated, if the FORFEITURE EVENT occurred after the
PARTICIPANT ceased to be so employed. For purposes of this Section, the term “AWARD GAIN” shall
mean, in respect of any settlement of RESTRICTED STOCK UNITS granted to the Participant, the Fair
Market Value of the cash or COMMON SHARES paid or payable to the Participant (regardless of any
elective deferrals).
(B) The forfeitures specified in Section 5(A) will be triggered upon the occurrence of any one
of the following FORFEITURE EVENTS at any time during PARTICIPANT’ employment by the COMPANY or a
subsidiary or affiliate, or during the one-year period following termination of such employment:
(i) PARTICIPANT, acting alone or with others, directly or indirectly,
(I) engages, either as
employee, employer, consultant, advisor, or director, or as an owner, investor, partner, or
stockholder unless PARTICIPANT’s interest is insubstantial, in any business in an area or region in
which the COMPANY conducts business at the date the event occurs, which is directly in competition
with a business then conducted by the COMPANY or a subsidiary or affiliate; (II) induces any
customer or supplier of the COMPANY or a subsidiary or affiliate, with which the COMPANY or a
subsidiary or affiliate has a business relationship, to curtail, cancel, not renew, or not continue
his or her or its business with the COMPANY or any subsidiary or affiliate; or (III) induces, or
attempts to influence, any employee of or service provider to the COMPANY or a subsidiary or
affiliate to terminate such employment or service. The COMMITTEE shall, in its discretion,
determine which lines of business the COMPANY conducts on any particular date and which third
parties may reasonably be deemed to be in competition with the COMPANY. For purposes of this
Section 5(B)(i), an PARTICIPANT’s interest as a stockholder is insubstantial if it represents
beneficial ownership of less than five percent of the outstanding class of stock, and a
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PARTICIPANT’s interest as an owner, investor, or partner is insubstantial if it represents
ownership, as determined by the COMMITTEE in its discretion, of less than five percent of the
outstanding equity of the entity;
(ii) PARTICIPANT discloses, uses, sells, or otherwise transfers,
except in the course of
employment with or other service to the COMPANY or any subsidiary or affiliate, any confidential or
proprietary information of the COMPANY or any subsidiary or affiliate, including but not limited to
information regarding the COMPANY’s current and potential customers, organization, employees,
finances, and methods of operations and investments, so long as such information has not otherwise
been disclosed to the public or is not otherwise in the public domain (other than by PARTICIPANT’s
breach of this provision), except as required by law or pursuant to legal process, or PARTICIPANT
makes statements or representations, or otherwise communicates, directly or indirectly, in writing,
orally, or otherwise, or takes any other action which may, directly or indirectly, disparage or be
damaging to the COMPANY or any of its subsidiaries or affiliates or their respective officers,
directors, employees, advisors, businesses or reputations, except as required by law or pursuant to
legal process; or
(iii) PARTICIPANT fails to cooperate with the COMPANY or any
subsidiary or affiliate in any
way, including, without limitation, by making himself or herself available to testify on behalf of
the COMPANY or such subsidiary or affiliate in any action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, or otherwise fails to assist the COMPANY or any
subsidiary or affiliate in any way, including, without limitation, in connection with any such
action, suit, or proceeding by providing information and meeting and consulting with members of
management of, other representatives of, or counsel to, the COMPANY or such subsidiary or
affiliate, as reasonably requested.
(C) Despite the conditions set forth in this Section 5, a PARTICIPANT is not hereby prohibited
from engaging in any activity, including but not limited to competition with the COMPANY and its
subsidiaries and affiliates. Rather, the non-occurrence of the FORFEITURE EVENTS set forth in
Section 5(B) is a condition to the PARTICIPANT’s right to realize and retain value from the
RESTRICTED STOCK UNITS, and the consequence under the PLAN and this AGREEMENT if the PARTICIPANT
engages in an activity giving rise to any such FORFEITURE EVENTS are the forfeitures specified
therein and herein. The COMPANY and PARTICIPANT shall not be precluded by this provision or
otherwise from entering into other agreements concerning the subject matter of Sections 5(A) and
5(B).
(D) The COMMITTEE may, in its discretion, waive in whole or in part the COMPANY’s right to
forfeiture under this Section 5, but no such waiver shall be effective unless evidenced by a
writing signed by a duly authorized officer of the COMPANY.
(E) This Section 5(E) shall apply only if the PARTICIPANT was granted the RESTRICTED STOCK
UNITS under this AGREEMENT pursuant to the achievement of a performance goal under Section 7(c) of
the PLAN. If the Committee determines that the earlier determination as to the achievement of the
performance goal was based on incorrect data and that in fact the performance goal had not been
achieved or had been achieved to a lesser extent than originally determined and a number of the
RESTRICTED STOCK UNITS would not have been granted, given the correct data, then (i) the aggregate
number of RESTRICTED STOCK
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UNITS set forth in Section 1 above shall be reduced by such number of RESTRICTED STOCK UNITS
that would not have been granted (such RESTRICTED STOCK UNITS, the “EXCESS RSUs”), (ii) any EXCESS
RSUs that have not yet vested in accordance with the terms of this AGREEMENT shall be forfeited and
(iii) any COMMON SHARES received upon settlement of vested EXCESS RSUs (or if such COMMON SHARES
were disposed of the cash equivalent) shall be returned to the COMPANY as provided by the
COMMITTEE.
6.
PLAN as Controlling; PARTICIPANT Acknowledgments
. All terms and conditions of the
PLAN applicable to the RESTRICTED STOCK UNITS which are not set forth in this AGREEMENT shall be
deemed incorporated herein by reference. In the event that any term or condition of this AGREEMENT
is inconsistent with the terms and conditions of the PLAN, the PLAN shall be deemed controlling.
The PARTICIPANT acknowledges receipt of a copy of the PLAN. The PARTICIPANT also acknowledges that
all decisions, determinations and interpretations of the COMMITTEE in respect of the PLAN, this
AGREEMENT and the RESTRICTED STOCK UNITS shall be final, conclusive and binding on the PARTICIPANT,
all other persons interested in the PLAN and stockholders.
7.
Governing Law
. To the extent not preempted by federal law, this AGREEMENT shall be
governed by and construed in accordance with the laws of the State of Delaware.
8.
Rights and Remedies Cumulative
. All rights and remedies of the COMPANY and of the
PARTICIPANT enumerated in this AGREEMENT shall be cumulative and, except as expressly provided
otherwise in this AGREEMENT, none shall exclude any other rights or remedies allowed by law or in
equity, and each of said rights or remedies may be exercised and enforced concurrently.
9.
Captions
. The captions contained in this AGREEMENT are included only for
convenience of reference and do not define, limit, explain or modify this AGREEMENT or its
interpretation, construction or meaning and are in no way to be construed as a part of this
AGREEMENT.
10.
Severability
. If any provision of this AGREEMENT or the application of any
provision hereof to any person or any circumstance shall be determined to be invalid or
unenforceable, then such determination shall not affect any other provision of this AGREEMENT or
the application of said provision to any other person or circumstance, all of which other
provisions shall remain in full force and effect, and it is the intention of each party to this
AGREEMENT that if any provision of this AGREEMENT is susceptible of two or more constructions, one
of which would render the provision enforceable and the other or others of which would render the
provision unenforceable, then the provision shall have the meaning which renders it enforceable.
11.
Number and Gender
. When used in this AGREEMENT, the number and gender of each
pronoun shall be construed to be such number and gender as the context, circumstances or its
antecedent may required.
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12.
Entire Agreement
. This AGREEMENT, including the PLAN incorporated herein by
reference, constitutes the entire agreement between the COMPANY and the PARTICIPANT in respect of
the subject matter of this AGREEMENT, and this AGREEMENT supersedes all prior and contemporaneous
agreements between the parties hereto in connection with the subject matter of this AGREEMENT. No
officer, employee or other servant or agent of the COMPANY, and no servant or agent of the
PARTICIPANT, is authorized to make any representation, warranty or other promise not contained in
this AGREEMENT. Other than as set forth in Section 11(e) of the Plan, no change, termination or
attempted waiver of any of the provisions of this AGREEMENT shall be binding upon either party
hereto unless contained in a writing signed by the party to be charged.
13.
Successors and Assigns of the COMPANY
. The obligations of the COMPANY under this
AGREEMENT shall be binding upon any successor corporation or organization resulting from the
merger, consolidation or other reorganization of the COMPANY, or upon any successor corporation or
organization succeeding to substantially all of the assets and businesses of the COMPANY.
IN WITNESS WHEREOF, the COMPANY has caused this AGREEMENT to be executed by its duly
authorized officer, and the PARTICIPANT has executed this AGREEMENT, in each case effective as of
the GRANT DATE.
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COMPANY
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ABERCROMBIE & FITCH CO.
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PARTICIPANT
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Exhibit 14
Abercrombie & Fitch
CODE OF BUSINESS CONDUCT AND ETHICS
(As amended by the Board of Directors on August 21, 2007)
OVERVIEW
Success in personal or business relationships requires conduct dictated by four basic principles:
honesty, integrity, intellect and compassion. While deviation from these principles sometimes
appears to produce benefits, these benefits are generally short lived and lead to long term
damaging results.
It is the policy of Abercrombie & Fitch Co. (“A&F”) and its operating subsidiaries (the “Company”)
to adhere to the highest standards of integrity and to apply these standards fairly and
consistently in every area of the business throughout the world. Every associate, including every
officer and director (collectively “associates”), shares an obligation to protect and strengthen
the reputation of the business in all relationships with customers, associates, suppliers,
competitors, investors, and governmental agencies.
Each associate is commissioned by the Company to diligently perform assigned processes and work.
These duties will involve business relationships with individuals both inside and outside the
Company, and with other companies and organizations. In performing their duties, associates must
act in accordance with the law, fully considering the Company’s rights, interests and ethical
responsibilities. It is prudent for each associate to protect his or her own good reputation and
also that of the Company, and to avoid transactions or situations in which his or her own interests
conflict, or could be construed to conflict, with those of the Company.
It is not possible to cover all situations to which this Code of Business Conduct and Ethics (the
“Code”) applies. Consequently, all associates may from time to time encounter situations that
require interpretation, and they should not proceed with any questionable activities until proper
clarification is received. Any questions regarding the interpretation of laws, rules or
regulations as they apply to the operations of the Company should be referred to the Vice
President, Human Resources, the Vice President, Finance, the Chief Financial Officer, the Director
of Internal Audit, the General Counsel or the Chief Operating Officer of A&F for resolution.
This Code has been adopted by the Board of Directors of A&F to demonstrate to the public and A&F’s
shareholders the importance that management and the Board of Directions place on ethical conduct.
The Code outlines certain specific areas where associates should exercise good judgment and, in
some cases, caution as they discharge their decision-making responsibilities as they relate to
Company affairs.
COMPLIANCE WITH LAWS, RULES AND REGULATIONS
Every associate, while acting on behalf of the Company, will comply with all applicable
governmental laws, rules and regulations. Company transactions that are unusual in nature may
require review by outside auditors or counsel before proceeding.
Officers of the Company will diligently review all foreign, federal, state or local laws, rules,
regulations or administrative procedures that affect the operation of the business. Compliance
will be monitored and detected deviations will be promptly corrected.
Merchandise offered for sale by the Company will comply with all known safety standards. This will
not only meet legal requirements but also serve to promote brand quality. It is expected that all
advertising to the public regarding merchandise quality or pricing will be true and not in anyway
intentionally misleading or deceptive.
Associates responsible for purchasing or producing merchandise will be required to understand and
ensure compliance with applicable laws, rules, regulations and policies as well as the Company’s
guidelines for vendor standards and relationships.
It is expected that the Company and all associates will comply with all computer software copyright
laws. The use of computer software on PC’s or other computers by associates in any manner not
specifically authorized by the Company’s guidelines is prohibited.
The Company will adhere to its employment policies of non-discrimination as it relates to race,
color, religion, age, gender, sexual orientation or handicap and will ensure compliance with all
legal and other regulations governing employment. Management will not tolerate discrimination of
any kind among associates, including sexual or racial harassment.
The Company will fully cooperate with law enforcement authorities to aid in the investigation and
appropriate prosecution of any associated individual(s) involved in alleged illegal activity.
PAYMENTS TO GOVERNMENTAL OFFICIALS
The U.S. Foreign Corrupt Practices Act prohibits giving anything of value, directly or indirectly,
to foreign governmental officials or foreign political candidates in order to obtain or retain
business. The promise, offer or delivery to an official or employee of the U.S. government of a
gift, favor or other gratuity is likewise prohibited. State and local governments may have similar
rules.
Associates who may be affected by these laws, rules and regulations must understand when their
actions may violate them and place the Company, as well as themselves, in jeopardy.
No gift or payment of any questionable, improper, or illegal nature will be allowed by or on behalf
of the Company, directly or indirectly, regardless of motive, to or for the benefit of any
governmental agency, officials, or their families or associates. Governmental officials include
elected or appointed officials of any foreign or United States federal, state, county, municipal or
other political subdivision, and agencies thereof.
Social amenities, reasonable entertainment, and other courtesies within Company policy may be
extended to governmental officials only to the extent customary and proper in the jurisdiction in
which offered. Expensive gifts or lavish entertainment will not be offered or furnished to any
governmental official.
2
POLITICAL CONTRIBUTIONS
No associate shall, on the Company’s behalf or on Company time or premises, solicit contributions
for a political party, organization or committee or any candidate for public office, except in
connection with a solicitation on behalf of any political action committee established by the
Company, or other solicitation approved by the Chairman, Chief Executive Officer of A&F. No
associate may use coercion of any kind in connection with any permissible solicitation. No
associate may use Company funds or property in support of any political party, organization or
committee, or any candidate for public office unless it is permitted by law and approved by the
Chairman, Chief Executive Officer.
ACCOUNTING RECORDS AND FINANCIAL STATEMENTS
All transactions directly or indirectly affecting the Company’s financial statements and public
disclosures will be properly and accurately recorded in the General Ledger and appropriately
documented. No Company funds or assets that are not disclosed or recorded will be established or
maintained, directly or indirectly, for any purpose. All recorded entries will conform to
Generally Accepted Accounting Principles, applicable legal requirements and the Company’s internal
controls. False or misleading records, information or accounting entries, as to either purpose or
amount, are prohibited.
It is critical that the reports and documents A&F files with or submits to the Securities and
Exchange Commission and other public communications made by the Company be complete, fair,
accurate, timely and understandable in all material respects.
Company financial executives and associates directly responsible for specific accounting records
will cooperate fully with outside public auditors retained to verify the accuracy and reliability
of financial statements and reports.
Periodically, and when relevant, Company financial executives, internal auditors and its
independent auditors will confirm to the Audit Committee of the Board of Directors of A&F that they
are not aware of any material misstatements or omissions in accounting records or documents, or
have any concerns about the disclosure under the “management’s discussion and analysis” section of
a report.
Additionally, the Company’s internal and independent auditors will consult with the Audit Committee
of the Board of Directors of A&F on a regular basis to report any identified weaknesses or concerns
with respect to internal controls and measures taken to correct or remedy such weaknesses or
concerns.
The Company’s documented Accounting and Operating Policies will be made available to all
appropriate associates for constant reference when needed. These Policies will be maintained and
revised in accordance with related changes in legal or accounting regulations and internal control
or operating practices.
Senior Financial Officers are also subject to the Code of Ethics for Senior Financial Officers, See
Appendix: Code of Ethics for Senior Financial Officers.
3
CONFLICTS OF INTEREST AND CORPORATE OPPORTUNITIES
A conflict of interest can arise when an associate takes actions or has interests that may make it
difficult to perform his or her work for the Company objectively and effectively. Conflicts of
interests also arise when an associate, or members of his or her immediate family, receive improper
personal benefits as a result of his or her position in the Company, whether received from the
Company or a third party.
If any associate receives a gift or anything else of meaningful value from a supplier or potential
supplier, it should be immediately returned. If it is not practical to return the item, the donor
should be informed of the Company policy and the gift will be turned over to the Company. If any
associate has a question regarding the appropriateness of a gift, they should contact A&F’s Vice
President, Human Resources, Vice President, Finance, Chief Financial Officer, Director of Internal
Audit, General Counsel or Chief Operating Officer for guidance.
A conflict of interest may also arise if an associate has an interest in a transaction to which the
Company is a party, competes with the Company or takes advantage of an opportunity that belongs to
the Company. Associates are prohibited from taking for themselves opportunities that properly
belong to the Company or are discovered through the use of the Company’s property, information or
position; using the Company’s property, information or position for personal gain; or competing
with the Company.
The Company’s property also includes confidential information as well as certain corporate
opportunities which may be disclosed to the Company’s associates while carrying out their duties
for the Company. The Company strives to provide information to associates and the public which is
accurate, complete, relevant, timely and understandable. No associate of the Company should
disclose any such confidential information except when disclosure is authorized or legally
mandated, or utilize such confidential information or corporate opportunity for his or her own
personal gain. Each associate has a duty to advance the best interests of the Company and, except
with the prior approval of the Chairman, Chief Executive Officer and/or Board of Directors of A&F,
to refrain from engaging in any conduct which may compete with the Company or interfere with the
Company’s pursuit of its business opportunities.
Theft, carelessness and waste of the Company’s assets have a direct impact on the Company’s
profitability and cannot be tolerated. Associates are entrusted with the use of Company assets and
resources for legitimate business purposes. Those individuals authorized to use funds of the
Company are responsible for assuring the Company receives proper value in return. The use of the
Company’s funds for personal, improper or illegal purposes is strictly prohibited and the Company
will take appropriate action, including notifying the appropriate civil authorities, if this
principle is violated and in any such case, disciplinary action will be taken. Further, the use of
any assets of the Company in a manner that is offensive, disruptive or destructive is prohibited.
At management’s discretion, selected associates will be required to sign a confidentiality
agreement, either when they begin employment or when they are transferred to a position allowing
access to confidential or trade secret information.
4
An officer or other employee of the Company may not provide managerial or consulting services or
serve on the board of directors (or similar body) of any concern that competes or has business
relations with the Company without prior approval from the Chairman, Chief Executive Officer and/or
Board of Directors (or if appropriate or required under the applicable policies of the Company, the
Nominating and Board Governance Committee of the Board of Directors) of A&F.
It may not always be clear when a situation results in a conflict of interest. All questionable
situations should be appropriately reported and a determination made. When an associate faces a
potential conflict of interest, all information regarding the issue should be reported to the
Company for review. If a potential conflict of interest arises concerning an officer or director
of the Company, all information regarding the issue should be reported to A&F’s General Counsel for
review and, if appropriate or required under the applicable policies of the Company, submission to
the Nominating and Board Governance Committee of the Board of Directors of A&F for reviews and the
taking of such course of action as the Nominating and Board Governance Committee deems appropriate.
The affected individual will be given counsel to properly resolve the potential conflict of
interest.
CODE OF BUSINESS CONDUCT AND ETHICS COMPLIANCE
Internal auditors, as part of our regular procedures, will assess compliance with this Code. Any
matters discovered by them that appear to violate this Code will be investigated and serious
violations reported to the Audit Committee of the Board of Directors of A&F and the Chairman, Chief
Executive Officer.
The Company’s outside independent auditors will report in writing to the internal auditors and the
Vice President, Finance any matter discovered during their examination of the Company’s financial
statements that appear to violate this Code.
All management associates will be required at least annually to affirm, to the best of their
knowledge, that they have complied with this Code, have no knowledge of any violation of this Code
not previously reported and have not been requested to engage in any activity in violation of this
Code. Associates may also be required to submit detailed information on any related business
interest in which they or their immediate family are involved.
The failure of any associate of the Company to comply with this Code will result in disciplinary
action which, depending on the seriousness of the matter, may include reprimand, probation,
suspension, demotion or dismissal, and possible civil or criminal action. Disciplinary measures
will apply to supervisors and senior executives who condone questionable, improper, or illegal
conduct by those associates reporting to them or who fail to take appropriate corrective action
when such matters are brought to their attention, or who allow unethical or illegal conduct to
occur because of their inattention to supervisory responsibilities.
REPORTING ILLEGAL/UNETHICAL BEHAVIOR
Any associate who knows or has reasonable cause to suspect another associate of any conflicts of
interest or other violations of this Code is expected to inform his or her supervisor or to report
his or her suspicions in accordance with the Company’s Whistleblower Policy to facilitate
5
disclosures, encourage proper individual conduct and alert management and the Audit Committee to
potential issues before encountering serious consequences. Any associate who becomes aware of any
violation of this Code should follow the procedures for reporting the violation contained in the
Whistleblower Policy. A copy of the Company’s Whistleblower Policy can be found on the “Corporate
Governance” page of the Company’s Web site located at www.abercrombie.com.
CONFIDENTIALITY
To ensure all associates will not feel intimidated or uncomfortable reporting possible Code
violations, the Company has engaged an outside third party to receive and log associates’ calls.
The manner in which the caller may contact this outside third party is described in the “Corporate
Governance” page of the Company’s Web site located at www.abercrombie.com. That third party will
forward related information to Human Resources for investigation. Calls reporting possible store
theft will be immediately reported to Store Security for follow up. Associates will be allowed
anonymity in all instances. Alleged financial or accounting infringements will be investigated by
internal auditors, and results reported to responsible financial executives or the Audit Committee
of the Board of Directors of A&F when applicable. Records will be maintained for each incident
showing the results of investigation and any disciplinary action taken. Any violation considered
material to financial results will be reported to Audit Committee of the Board of Directors of A&F
and any other required disclosures made.
The Company will not permit retaliation of any kind by or on behalf of the Company and its
associates against good faith reports or complaints of violations of this Code or other illegal
conduct.
INSIDER TRADING
The Company has adopted a Policy Statement Regarding Trading in Company Securities and Compliance
with Federal Securities Laws, dated February 13, 2006. All trading in securities by associates
must be conducted in accordance with this Policy Statement, a copy of which shall be made available
to each associate.
CUSTOMERS AND SUPPLIERS; FAIR DEALING
Business relationships with customers and suppliers of goods and services will emphasize a
continuing business purpose of mutual benefit. The Company will discharge its obligations to its
customers and suppliers in a manner which reflects a strong sensitivity and concern for social
responsibility and ethical dealings, and will maintain its solid reputation for honesty and
fairness in all transactions. Every associate shares an obligation to protect and strengthen the
Company’s good reputation in all relationships with customers and suppliers. Each associate will
endeavor to deal fairly with the Company’s customers, competitors, suppliers and other associates.
No one should take unfair advantage of anyone through manipulation, concealment, abuse of
privileged information, misrepresentation of material facts or any other unfair dealing practice.
6
Exhibit 14
Appendix: Code of Ethics for Senior Financial Officers
Purpose
It is the Company’s intention to provide all stockholders with the highest degree of
confidence that its financial control systems are implemented and maintained by Senior Financial
Officers who exhibit the highest degree of integrity and are free from actual or apparent conflicts
of interest. Therefore, the Company has adopted a specific Code of Ethics for Senior Financial
Officers (“Financial Code of Ethics”), which is in addition to this Code of Business Conduct and
Ethics.
Standard of Conduct
This Financial Code of Ethics applies to all Senior Financial Officers of the Company. The
term “Senior Financial Officer” shall mean the Chief Executive Officer, Chief Financial Officer,
Controllers, Treasurer, all Vice Presidents in the Finance Department and other designated
financial Associates. Under this policy, the Company’s Senior Financial Officers are expected to
conduct the financial, accounting, reporting, and auditing activities of the Company in compliance
with all laws and regulations and in accordance with the highest ethical standards. Each Senior
Financial Officer is also responsible to do the following:
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•
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Act in all Company financial and accounting matters as a model of honesty, integrity
and fair dealing;
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•
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Owe and fulfill the highest duty of care to the Company over any personal, other
professional or third party interests;
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•
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Avoid becoming involved in or approving any transaction or project that creates an
actual or apparent conflict of interest between the Senior Financial Officer, his or
her family, other third parties and the Company;
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•
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To the maximum extent possible, take actions and develop financial and accounting
procedures that ensure that the Company’s books and records are accurate, and in
conformance with recognized and required accounting standards, nationally and
internationally;
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•
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Report any proposals or attempts by others to record transactions inaccurately or
improperly to keep transactions off the Company’s books and records, and never approve,
permit, or engage in such accounting practices;
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•
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Report any proposals or attempts by others to cause such Senior Financial Officer to
engage in any negotiations for intended off-the-books transactions, activities or
projects;
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•
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Never approve, authorize or participate in any activity that involves the
falsification of documents or accounts, the making of misleading or intentionally
incomplete entries into the Company’s books and records, or in any documents
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provided to external auditors or government agencies, or other authorized third
parties;
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•
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Report any proposed changes in Company accounting policies and practices to
appropriate Company officers, including a specific statement of why the accounting
change has been proposed and a recommendation as to whether and on what basis it should
be approved or implemented;
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•
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Provide assurance that the financial and accounting aspects of all proposed project
activities, reports, or other business is lawful, accurate, complete, in conformance
with corporate policy and procedure and not characterized or developed to mislead;
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•
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Ensure to the maximum extent possible that no officers or directors use Company
funds or assets for personal benefit, the benefit of their relatives or other third
parties;
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•
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Provide full, fair, timely, accurate and understandable disclosure in the periodic
reports required to be filed by the Company and of, as appropriate, any violation of
Company financial and accounting policies or procedures;
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•
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Engage in dealings with outside and internal auditors that are open, honest, and
non-misleading, and which do not seek to exert undue influence on their work for the
Company;
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•
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Provide periodic assurance to the Finance Review Team, in an agreed upon format,
that internal financial control systems are adequate to detect fraud in the financial
books, records and accounts of the Company;
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•
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Comply which rules and regulations of federal, state and local governments, and
other appropriate private and public regulatory agencies;
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Respect the confidentiality of information acquired in the course of work except
when authorized or otherwise legally obligated to disclose;
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Proactively promote ethical behavior as a responsible partner in the work
environment and the community; and
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•
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Achieve responsible use of and control over all Company assets and resources.
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The Financial Code of Ethics for Senior Financial Officers is not limited to the actions described
above, nor is it intended to address or anticipate all situations involving Senior Financial
Officers with respect to the reliability and accuracy of Company books, records, and accounts, as
well as the integrity of all financial disclosures and financial dealings of the Company.
8
Exhibit 99.1
ABERCROMBIE & FITCH REPORTS SECOND QUARTER RESULTS;
SECOND QUARTER NET INCOME INCREASES TO $81.3 MILLION;
SECOND QUARTER NET INCOME PER DILUTED SHARE INCREASES TO $0.88;
BOARD OF DIRECTORS DECLARES QUARTERLY DIVIDEND OF $0.175;
COMPANY PROVIDES OUTLOOK FOR SECOND HALF OF THE YEAR
New Albany, Ohio, August 22, 2007:
Abercrombie & Fitch Co. (NYSE: ANF) today reported unaudited
results which reflected record second quarter net income of $81.3 million and net income per
diluted share of $0.88 for the thirteen weeks ended August 4, 2007, a 24% increase over net income
of $65.7 million and a 22% increase over $0.72 per diluted share for the thirteen weeks ended July
29, 2006.
Second Quarter Developments
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•
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Total Company net sales increased 22% to $804.5 million; comparable store sales
decreased 2%
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•
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Total direct-to-consumer net sales increased 66% to $45.6 million
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•
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Abercrombie & Fitch net sales increased 15% to $363.9 million; Abercrombie & Fitch
comparable store sales decreased 2%
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•
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abercrombie net sales increased 30% to $94.5 million; abercrombie comparable store sales
increased 2%
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•
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Hollister Co. net sales increased 27% to $334.4 million; Hollister comparable store
sales decreased 3%
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•
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RUEHL net sales increased 71% to $11.7 million; RUEHL comparable store sales increased
2%
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•
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Net income for the second quarter increased 24% to $81.3 million
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•
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Net income per diluted share in the second quarter increased 22% to $0.88
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•
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The Company announced initial plans for Abercrombie & Fitch expansion in Italy, France,
Germany, Spain, Denmark and Sweden
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•
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The Company announced plans for an Abercrombie & Fitch Tokyo flagship in 2009
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Mike Jeffries, Chief Executive Officer and Chairman of the Board of Abercrombie & Fitch Co., said:
“I am extremely pleased with the record financial results we posted this quarter. Our success can
be attributed largely to the fact that we have created a consistent business that is able to
generate strong results. Our company is uniquely positioned, with each brand maintaining only the
highest standards and supported by defined and proven processes that are continuously audited. The
drive for constant improvement in standard, process and audit will help us to maintain our
leadership position over the long term.”
Second Quarter Financial Results
Net sales for the thirteen weeks ended August 4, 2007 increased 22% to $804.5 million from $658.7
million for the thirteen weeks ended July 29, 2006. Total Company direct-to-consumer net sales
increased 66% to $45.6 million for the thirteen-week period ended August 4, 2007, compared to the
thirteen-week period ended July 29, 2006. Total Company comparable store sales decreased 2% for the
thirteen weeks ended August 4, 2007, compared to the thirteen weeks ended August 5, 2006.
The gross profit rate for the quarter was 68.8%, down 30 basis points compared to last year. The
decrease in gross profit rate was primarily due to a higher markdown rate, partially offset by
higher initial markup.
Stores and Distribution expense, as a percentage of sales, increased 50 basis points from 41.1% to
41.6%. The increase in rate versus last year is primarily attributed to increases in
direct-to-consumer and store-related payroll and other controllable expenses.
Marketing, General and Administrative expense, as a percentage of sales, decreased 80 basis points
from 13.0% to 12.2%. The reduction in rate versus last year resulted primarily from a reduction in
legal, travel, and marketing expenses, partially offset by increased home office payroll.
Operating income for the second quarter increased 21% to $124.1 million, compared to $102.4 million
last year.
Net income for the quarter increased 24% to $81.3 million, compared to $65.7 million last year.
Net income per diluted share increased 22% to $0.88, compared to $0.72 for the second quarter of
fiscal 2006.
2007 Outlook
The Company expects net income per diluted share for the second half of fiscal 2007 to be in the
range of $3.63 to $3.67. Based upon this guidance, the Company now expects full year fiscal 2007
net income per diluted share to be in the range of $5.16 to $5.20.
The low-end of the guidance reflects a flat comparable store sales scenario for the second half of
fiscal 2007. Fourth Quarter fiscal 2006 results included incremental net income per diluted share of $0.06 resulting from an extra selling week in the fiscal 2006 retail calendar and
$0.07 resulting from favorable settlements of tax audits.
The Company plans total capital expenditures for fiscal 2007 to be between $395 million and $405
million with approximately $220 million of this amount allocated to new store construction and
store remodels. Approximately $60 million is allocated to “refresh” improvements and other brand
enhancing investments planned for existing stores with the balance related to home office,
information technology, and direct-to-consumer infrastructure investments.
For fiscal 2007, the Company expects to increase gross square-footage by approximately 10%,
primarily through the addition of six new Abercrombie & Fitch stores, 25 new abercrombie stores, 56
new Hollister Co. stores, seven new RUEHL stores, and four stores of the Company’s new concept.
Other Developments
On August 7, 2007, the Company announced that it plans to open a Tokyo flagship in late 2009. This
will be the Company’s first flagship in Asia and will be centrally located in Tokyo’s Ginza
district, one of the most prominent shopping destinations in the world.
On July 13, 2007, the Company announced that it plans to expand its retail presence throughout
Europe. The Company is in the process of securing locations in Italy, France, Germany, Spain,
Denmark and Sweden and plans to identify additional key locations in the United Kingdom.
The Board of Directors declared a quarterly cash dividend of $0.175 per share on the Class A Common
Stock of Abercrombie & Fitch Co. payable on September 25, 2007 to shareholders of record at the
close of business on September 4, 2007.
The Company operates a total of 362 Abercrombie & Fitch stores, 186 abercrombie stores, 419
Hollister Co. stores and 17 RUEHL stores. The Company operates three Abercrombie & Fitch stores and
three Hollister Co. stores in Canada, and one Abercrombie & Fitch store in London, England. The
Company operates e-commerce websites at www.abercrombie.com, www.abercrombiekids.com, and
www.hollisterco.com.
Today at 4:30 PM, Eastern Time, the Company will conduct a conference call. Management will
discuss the Company’s performance, its plans for the future and will accept questions from
participants. To listen to the live conference call, dial (800) 811-0667 or internationally at
(913) 981-4901. To listen via the internet, go to www.abercrombie.com, select the Investors page
and scroll through the Calendar of Events. Replays of the call will be available shortly after its
completion. The audio replay can be accessed for two weeks following the reporting date by calling
(888) 203-1112 or internationally at (719) 457-0820 followed by the conference ID number 3466308;
or for 12 months by visiting the Company’s website at www.abercrombie.com.
# # # #
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For further information, call:
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Thomas Lennox
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Vice President, Corporate Communications
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(614) 283-6751
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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
A&F cautions that any forward-looking statements (as such term is defined in the Private Securities
Litigation Reform Act of 1995) contained in this Press Release or made by management of A&F involve
risks and uncertainties and are subject to change based on various important factors, many of which
may be beyond the Company’s control. Words such as “estimate,” “project,” “plan,” “believe,”
“expect,” “anticipate,” “intend,” and similar expressions may identify forward-looking statements.
The following factors, in addition to those included in the disclosure under the heading
“FORWARD-LOOKING STATEMENTS AND RISK FACTORS” in “ITEM 1A. RISK FACTORS” of A&F’s Annual Report on
Form 10-K for the fiscal year ended February 3, 2007, in some cases have affected and in the future
could affect the Company’s financial performance and could cause actual results for the 2007 fiscal
year and beyond to differ materially from those expressed or implied in any of the forward-looking
statements included in this Press Release or otherwise made by management: changes in consumer
spending patterns and consumer preferences; the effects of political and economic events and
conditions domestically and in foreign jurisdictions in which the Company operates, including, but
not limited to, acts of terrorism or war; the impact of competition and pricing; changes in weather
patterns; postal rate increases and changes; paper and printing costs; market price of key raw
materials; ability to source product from its global supplier base; political stability; currency
and exchange risks and changes in existing or potential duties, tariffs or quotas; availability of
suitable store locations at appropriate terms; ability to develop new merchandise; ability to hire,
train and retain associates; and the outcome of pending litigation. Future economic and industry
trends that could potentially impact revenue and profitability are difficult to predict.
Therefore, there can be no assurance that the forward-looking statements included in this Press
Release will prove to be accurate. In light of the significant uncertainties in the
forward-looking statements included herein, the inclusion of such information should not be
regarded as a representation by the Company, or any other person, that the objectives of the
Company will be achieved. The forward-looking statements herein are based on information presently
available to the management of the Company. Except as may be required by applicable law, the
Company assumes no obligation to publicly update or revise its forward-looking statements even if
experience or future changes make it clear that any projected results expressed or implied therein
will not be realized.
Abercrombie & Fitch Co.
Condensed Consolidated Statements of Income
(Unaudited)
Thirteen Weeks Ended August 4, 2007 and Thirteen Weeks Ended July 29, 2006
(in thousands, except per share data)
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ACTUAL
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ACTUAL
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2007
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% of Sales
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2006
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% of Sales
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Net Sales
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$
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804,538
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100.0
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%
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$
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658,696
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100.0
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%
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Cost of Goods Sold
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251,100
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31.2
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%
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203,438
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30.9
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%
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Gross Profit
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553,438
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68.8
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%
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455,258
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69.1
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%
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Total Stores and Distribution Expense
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334,417
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41.6
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%
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270,494
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41.1
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%
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Total Marketing, General and Administrative Expense
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98,440
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12.2
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%
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85,340
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13.0
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%
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Other Operating Income, Net
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(3,551
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)
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-0.4
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%
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(3,005
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)
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-0.5
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%
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
124,132
|
|
|
|
15.4
|
%
|
|
|
102,429
|
|
|
|
15.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income, Net
|
|
|
(4,143
|
)
|
|
|
-0.5
|
%
|
|
|
(2,765
|
)
|
|
|
-0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
128,275
|
|
|
|
15.9
|
%
|
|
|
105,194
|
|
|
|
16.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Expense
|
|
|
47,000
|
|
|
|
5.8
|
%
|
|
|
39,472
|
|
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Rate
|
|
|
36.6
|
%
|
|
|
|
|
|
|
37.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
81,275
|
|
|
|
10.1
|
%
|
|
$
|
65,722
|
|
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.92
|
|
|
|
|
|
|
$
|
0.75
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.88
|
|
|
|
|
|
|
$
|
0.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
88,090
|
|
|
|
|
|
|
|
87,981
|
|
|
|
|
|
|
Diluted
|
|
|
92,294
|
|
|
|
|
|
|
|
91,178
|
|
|
|
|
|
Abercrombie & Fitch Co.
Condensed Consolidated Statements of Income
(Unaudited)
Twenty-Six Weeks Ended August 4, 2007 and Twenty-Six Weeks Ended July 29, 2006
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACTUAL
|
|
|
ACTUAL
|
|
|
|
|
2007
|
|
|
% of Sales
|
|
|
2006
|
|
|
% of Sales
|
|
|
Net Sales
|
|
$
|
1,546,948
|
|
|
|
100.0
|
%
|
|
$
|
1,315,967
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold
|
|
|
506,241
|
|
|
|
32.7
|
%
|
|
|
430,793
|
|
|
|
32.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
1,040,707
|
|
|
|
67.3
|
%
|
|
|
885,174
|
|
|
|
67.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stores and Distribution Expense
|
|
|
642,655
|
|
|
|
41.5
|
%
|
|
|
528,846
|
|
|
|
40.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Marketing, General and Administrative Expense
|
|
|
188,615
|
|
|
|
12.2
|
%
|
|
|
175,039
|
|
|
|
13.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Operating Income, Net
|
|
|
(7,405
|
)
|
|
|
-0.5
|
%
|
|
|
(5,126
|
)
|
|
|
-0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
216,842
|
|
|
|
14.0
|
%
|
|
|
186,415
|
|
|
|
14.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income, Net
|
|
|
(7,854
|
)
|
|
|
-0.5
|
%
|
|
|
(5,931
|
)
|
|
|
-0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
224,696
|
|
|
|
14.5
|
%
|
|
|
192,346
|
|
|
|
14.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Expense
|
|
|
83,340
|
|
|
|
5.4
|
%
|
|
|
70,383
|
|
|
|
5.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Rate
|
|
|
37.1
|
%
|
|
|
|
|
|
|
36.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
141,356
|
|
|
|
9.1
|
%
|
|
$
|
121,963
|
|
|
|
9.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.61
|
|
|
|
|
|
|
$
|
1.39
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.53
|
|
|
|
|
|
|
$
|
1.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
87,987
|
|
|
|
|
|
|
|
87,920
|
|
|
|
|
|
|
Diluted
|
|
|
92,369
|
|
|
|
|
|
|
|
91,274
|
|
|
|
|
|
Abercrombie & Fitch Co.
Condensed Consolidated Balance Sheets
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
August 4, 2007
|
|
|
February 3, 2007
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
Cash and Equivalents
|
|
$
|
117,164
|
|
|
$
|
81,959
|
|
|
Marketable Securities
|
|
|
293,416
|
|
|
|
447,793
|
|
|
Receivables
|
|
|
73,913
|
|
|
|
43,240
|
|
|
Inventories
|
|
|
431,395
|
|
|
|
427,447
|
|
|
Deferred Income Taxes
|
|
|
38,211
|
|
|
|
33,170
|
|
|
Other Current Assets
|
|
|
64,732
|
|
|
|
58,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
1,018,831
|
|
|
|
1,092,078
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment, Net
|
|
|
1,219,845
|
|
|
|
1,092,282
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
77,662
|
|
|
|
63,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
2,316,338
|
|
|
$
|
2,248,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
Accounts Payable and Outstanding Checks
|
|
$
|
140,239
|
|
|
$
|
128,310
|
|
|
Accrued Expenses
|
|
|
264,902
|
|
|
|
260,219
|
|
|
Deferred Lease Credits
|
|
|
37,739
|
|
|
|
35,423
|
|
|
Income Taxes Payable
|
|
|
12,485
|
|
|
|
86,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
455,365
|
|
|
|
510,627
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities
|
|
|
|
|
|
|
|
|
|
Deferred Income Taxes
|
|
|
19,202
|
|
|
|
30,394
|
|
|
Deferred Lease Credits
|
|
|
213,047
|
|
|
|
203,943
|
|
|
Other Liabilities
|
|
|
143,150
|
|
|
|
97,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-Term Liabilities
|
|
|
375,399
|
|
|
|
332,143
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders’ Equity
|
|
|
1,485,574
|
|
|
|
1,405,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY
|
|
$
|
2,316,338
|
|
|
$
|
2,248,067
|
|
|
|
|
|
|
|
|
|
Exhibit 99.3
Final Transcript
|
|
|
|
|
Thomson StreetEvents
SM
|
|
|
Conference Call Transcript
ANF — Q2 2007 Abercrombie & Fitch Co. Earnings Conference Call
Event Date/Time: Aug. 22. 2007 / 4:30PM ET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomson StreetEvents
|
|
www.streetevents.com
|
|
|
|
|
|
Contact Us
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
© 2006 Thomson Financial. Republished with permission. No part of this publication may be
reproduced or transmitted in any form or by any means without the prior written consent of Thomson
Financial.
|
|
Final Transcript
Aug. 22. 2007 / 4:30PM ET, ANF — Q2 2007 Abercrombie & Fitch Co. Earnings Conference Call
CORPORATE PARTICIPANTS
Tom Lennox
Abercrombie & Fitch Co. — IR, Corporate Communications
Mike Kramer
Abercrombie & Fitch Co. — SVP, CFO
Mike Nuzzo
Abercrombie & Fitch Co. — VP Finance
CONFERENCE CALL PARTICIPANTS
Liz Dunn
Thomas Weisel Partners — Analyst
Lauren Levitan
Cowen & Co — Analyst
Jeff Klinefelter
Piper Jaffray — Analyst
Brian Tunick
JPMorgan — Analyst
Rob Wilson
Tiburon Research — Analyst
Randy Konik
Bear Stearns — Analyst
Adrienne Tennant
Friedman Billings Ramsey — Analyst
Mike Mager
Goldman Sachs — Analyst
John Morris
Wachovia — Analyst
Kimberly Greenberger
Citigroup — Analyst
Lorraine Maikis
Merrill Lynch — Analyst
Christine Chen
Needham & Company — Analyst
Barbara Wyckoff
Buckingham Research Group — Analyst
Paul Lejuez
Credit Suisse — Analyst
Robin Murchison
SunTrust Robinson Humphrey — Analyst
Janet Kloppenburg
JJK Research — Analyst
Josh Schwartz
Flatbush Watermill — Analyst
PRESENTATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
Thomson StreetEvents
|
|
www.streetevents.com
|
|
|
|
|
|
Contact Us
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
© 2006 Thomson Financial. Republished with permission. No part of this publication may be
reproduced or transmitted in any form or by any means without the prior written consent of Thomson
Financial.
|
|
Final Transcript
Aug. 22. 2007 / 4:30PM ET, ANF — Q2 2007 Abercrombie & Fitch Co. Earnings Conference Call
Operator
Good day, and welcome to the Abercrombie & Fitch second quarter earnings results conference
call. Today’s conference is being recorded. (OPERATOR INSTRUCTIONS). We will open the call to your
questions at the end of the presentation. We ask that you limit yourself to one question during the
question and answer session. At this time, I would like to turn the conference over to Mr. Tom
Lennox. Please go ahead.
Tom Lennox
- Abercrombie & Fitch Co. — IR, Corporate Communications
Good afternoon and welcome to our second quarter conference call. After the the market closed,
we publicly released a quarterly sales and earnings release, balance sheet, income statement and
updated financial history. If you haven’t seen these materials, they are available on our website.
This call is being taped and can be replayed by dialing 888-203-1112. You will need to reference
the conference ID number 5786431. You may also access the replay through the internet at
www.abercrombie.com. With me today are Mike Kramer, Chief Financial Officer, Mike Nuzzo, Vice
President of Finance, and Brian Logan, the Company’s controller.
Today’s earnings call will be limited to one hour. After our prepared comments, we will be
available to take your questions for as long as time permits. Please limit yourself to one question
so that we can speak with as many callers as possible. Before we begin, I remind that you any
forward-looking statements we may make today are subject to the Safe Harbor statement found in our
SEC filings. Now to Mike Kramer.
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
Good afternoon. We’re pleased to once again post record financial results. We delivered strong
sales and earnings growth while enhancing our brand standards. We made excellent progress
operationally by improving inventory levels, completing a major component of the refresh program
for Abercrombie & Fitch mall-based stores, and by developing the international rollout of the
Abercrombie & Fitch brand.
This quarter’s financial and operational results are strong, but it is the consistency of our
business that underscores the high quality of our earnings. We have developed an organizational
structure that thrives on and benefits from the sharing of information. We look at the business as
a whole with one branding and operational philosophy. While our brands share attributes, each
characteristic manifests itself uniquely in each brand. From the merchandising standpoint, this
approach helps to us better translate trend, thus driving higher merchandising margins.
We also apply this philosophy to other major areas of the company. For instance, to become more
skilled and efficient, we pull expertise and establish standards by discipline, and then apply
these standards throughout the organization. Each standard is supported by a process that has been
developed over time and is audited consistently. For example, brand standards are established at
the home office by our merchant team who work in conjunction with areas including design and
sourcing, processing are in place to ensure criteria are met, including high levels of quality,
proper fabric, trim, and dye constraints and consistency of fit to name a few.
Each member of the team is trained and responsible for monitoring the process throughout production
until received at the distribution center where it is inspected by quality assurance as a finished
good before transported to the stores. Similar standards are applied to every area of the business.
As a company, improving even the highest standard is what distinguishes our approach from the
competition, and we’ll be critical to driving profitable growth as the business expands
significantly over the next several years. This mindset has enabled us to operate at high
productivity levels compared to other retailers, which supports high margins both domestically and
internationally going forward.
In fact, we are pleased to have the opportunity to leverage our operational strategy by growing the
business. In addition, to rollout of our international expansion, our fifth brand is in development
phase set to be introduced by the end of fiscal 2007. Although I would not regard the Abercrombie &
Fitch brand as mature, we are starting to reach domestic capacity of 400 stores. Regardless, five
of our most recently launched A&F stores including the one on Fifth Avenue and those in Canada and
London are among the most productive and profitable stores in our fleet. Each of these stores
continues to generate substantial volume and four-wall profit. Compared to U.S. mall stores, this
larger and more productive format is somewhat of a new model to us.
Once we adjusted to the new demands of running a high-volume store we were able to standardize our
approach, resulting in a valuable and profitable model. Based on this success as well as on our
receipts from our web business, we are now ready to expand throughout Europe and Japan. We are
aggressively looking for real estate in Italy, France, Germany, Spain, Denmark, and Sweden, with
plans to identify additional key locations in the United Kingdom. As you may have seen, we recently
secured space in the Ginza district of Tokyo. We are focusing our international rollout in heavily
trafficked cities to enable us to generate strong returns with fewer stores.
|
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|
|
|
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© 2006 Thomson Financial. Republished with permission. No part of this publication may be
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Final Transcript
Aug. 22. 2007 / 4:30PM ET, ANF — Q2 2007 Abercrombie & Fitch Co. Earnings Conference Call
We are also very excited because we believe the flagship format provides us with an opportunity to
generate strong returns on invested capital with Hollister as well. We are currently in the design
phase with plans to open a Hollister flagship domestically. International rollout will follow. We
have secured excellent locations for RUEHL openings this year at Natick Mall, Annapolis, and
Washington Square in Oregon. We are planning to open two kids stores in Toronto in 2008.
Now I would like to update you on our IT initiatives, all of which remain on track. In the second
quarter we completed rollout of the store replenishment system. This system not only provides
significant process efficiencies for store associates, but the handheld scanner minimizes in-store
out of stocks. This allows for more immediate and accurate merchandising restocking. We recently
implemented our SKU level planning solution which supports merchandise planning at a more granular
level. By year end, we plan to put into operation a new business intelligence system, which will
consolidate all company data and reporting on to one platform, allowing more comprehensive analysis
by providing as we call it, one version of the truth.
We plan to be online with the visual merchandising system by mid-year 2008 as well. This system
automates the visual floor set process by creating personalized documentation for all stores that
are tied to a master floor set. This process ensures high floor set integrity, managed and approved
centrally, while being able to provide the stores with their adapted layout of the floor set.
Finally, the initial phase of the retail merchandising system is planned to go live in early 2008.
With the last phase implemented over the following year. This system serves as a foundation of our
application portfolio with initial focus on compiling all foundational data to improve purchase
order management and the integrity of associated data.
There is no doubt that we have huge opportunities ahead of us to generate strong returns on
invested capital. In addition to our plans for domestic and international growth, we are making
operational improvements. We are becoming more efficient and therefore able to work smarter. We are
applying high standards across the business, resulting in an organization that performs
consistently well from both financial results and brand standards perspectives. This approach
reflects our goal to share information based on experience to leverage the major areas of our
company. Not only does this lead to increased efficiencies, but running several businesses under
one brand philosophy generates both diversification and consistency of results, which we believe is
truly what differentiates our company.
Going forward, we will continue to raise the bar by improving our standards and positioning the
Company for its continued leadership position. Now Mike Nuzzo will discuss the financial results.
Mike Nuzzo
- Abercrombie & Fitch Co. — VP Finance
Thanks, Mike. Good afternoon.
Second quarter net sales for the 13 weeks ended August 4, 2007, increased 22% to $804.5 million
from $658.7 million for the 13 weeks ended July 29, 2006. Second quarter direct to consumer net
sales increased 66% to $45.6 million for the 13-week period ending August 4, 2007, compared to the
13-week period ending July 29, 2006. Total company comparable store sales declined 2% for the 13
weeks ended August 4, 2007, compared to the 13 weeks ended August 5, 2006. Second quarter gross
profit rate was 68.8%, down 30 basis points compared to last year. The decrease in rate was due to
a higher markdown rate partially offset by improved initial markup versus last year. This gross
margin result is consistent with a strong fashion tops business which contributes to both a higher
overall IMU and a higher overall markdown level. We ended the second quarter with inventories down
12% per square foot at cost versus last year. This result is attributed to lower levels of basic
inventory and having lower spring merchandise carry over on a square foot basis versus last year.
Going forward, third quarter inventory per square foot at cost relative to last year is expected to
decrease at an equal or slightly greater level than in Q2. This expected result should also reflect
a continued reduction in basic inventory levels. As we implement our supply chain technology
solutions in merchandise planning and allocation, we seek to optimized the relationship between
inventory levels and our sales expectations. Stores and distribution expense for the quarter as a
percentage of sales increased 50 basis points to 41.6% versus 41.1% last year. The increase in rate
is attributed to increased direct to consumer expenses resulting from robust e-com sales growth and
increased store related expenses including supplies and maintenance. We also continued to tightly
manage store payroll hours to match sales trends, while absorbing the added expense of minimum wage
and management salary increases. Our distribution center UPH increased 14% in the quarter,
reflecting greater efficiencies in the operation of our second DC.
For the second quarter, marketing, general, and administrative expenses decreased 80 basis points
as a percentage of sales from 13.0% to 12.2%. The reduction in rate versus last year resulted
primarily from a decline in legal, travel, sample, and in-store marketing expenses, which were
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© 2006 Thomson Financial. Republished with permission. No part of this publication may be
reproduced or transmitted in any form or by any means without the prior written consent of Thomson
Financial.
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Final Transcript
Aug. 22. 2007 / 4:30PM ET, ANF — Q2 2007 Abercrombie & Fitch Co. Earnings Conference Call
partially offset by increased home office payroll as a percentage of sales. Incorporating the
resource demands of product development and new concept rollout efforts, we expect MG&A expense of
around $105 million per quarter for fall 2007. For the second quarter, operating income increased
21% to $124.1 million compared to $102.4 million last year. The effective tax rate for the second
quarter was 36.6% compared to 37.5% for the 2006 comparable period. The reduction in rate versus
the prior period primarily reflects the favorable settlement of a state tax audit.
Net income for the second quarter increased 24% to $81.3 million versus $65.7 million last year.
Second quarter net income per diluted share increased 22% to $0.88 versus $0.72 during the same
period in 2006. In fiscal 2007, square footage is expected to grow by approximately 10%, slightly
lower than the 11 to 12% previously estimated. The change is primarily the result of the shift of
Hollister and ANF new store openings originally scheduled in January to the beginning of February
2008. We also look forward to introducing our fifth concept with the opening of four stores in
January.
For fiscal 2007, our planned capital expenditures will be between $395 million, and $405 million
with approximately $220 million of this amount allocated to new store construction and store
remodels. Approximately $60 million is allocated to allocated refresh improvements and other brand
enhancing investments planned for existing stores, with the balance related to home office,
information technology, and direct to consumer infrastructure investments. For the second half of
fiscal 2007, net income per diluted share is expected to be in the range of $3.63 to $3.67. Based
upon this guidance, full year fiscal 2007 net income per diluted share is expected to be in the
range of $5.16 to $5.20. The low end of this guidance reflects a flat comparable store sale
scenario for the second half of fiscal 2007.
Please note fourth quarter fiscal 2006 results included incremental net income per diluted share of
$0.06, resulting from an extra selling week in the fiscal 2006 retail calendar, and $0.07 resulting
from the favorable settlement of tax audits. As Mike Kramer discussed, we’re excited about the
ongoing high levels of sales productivity, international growth prospects, new concept development,
internal operating improvements, and disciplined financial management of the business. The
combination of all of these factors provides us with a substantial ongoing advantage in delivering
consistent earnings growth regardless of the retail environment. Now I would like it turn it back
over to Mike Kramer before we take questions. Thank you.
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
Thanks, Mike. As you may have noticed, Mike Jeffries is not participating on the call and will
not participate in the foreseeable future. As our company continues to grow, the demands on Mike
Jeffries, our CEO, become more and more increasing. With the two growth initiatives at EF, Concept
5 and our international expansion, we believe Mike’s time is better searched focusing on those
areas. This does not mean you won’t be hearing from Mike Jeffries. In the future as analysts,
investors, potential investors, come on campus to see our brands, see our culture, at that time
allowing, depending on his schedule as his schedule allows, we will have one one time and/or group
on one time. Thanks. Now to questions.
QUESTION AND ANSWER
Operator
(OPERATOR INSTRUCTIONS). As a reminder, please limit yourself to one question. We’ll take our
first one from Liz Dunn with Thomas Weisel.
Liz Dunn
- Thomas Weisel Partners — Analyst
Good afternoon. Congratulations on a great quarter.
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
Thanks, Liz.
Liz Dunn
- Thomas Weisel Partners — Analyst
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© 2006 Thomson Financial. Republished with permission. No part of this publication may be
reproduced or transmitted in any form or by any means without the prior written consent of Thomson
Financial.
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Final Transcript
Aug. 22. 2007 / 4:30PM ET, ANF — Q2 2007 Abercrombie & Fitch Co. Earnings Conference Call
You took down store growth for every concept by my count about 23 stores or about 2 points out
of your growth. I am wondering if, from the prepared comments, it appears that you’re favoring
quality over quantity in terms of where you’re opening real estate. I guess a two-part question.
First. How much did this reduction in store count take out of your internal models for the year,
and, second related question, I think or second related question is I think that some in the
investment community believe that there are concerns about real estate availability. Could you just
address that because it sounds like that’s not what you’re saying here? Thanks.
Mike Nuzzo
- Abercrombie & Fitch Co. — VP Finance
Liz, this is Mike Nuzzo. I can start on that answer. First of all, there is no concerns about
real estate availability for us for the current plans for the year. What I would really like to
focus on is that change in the square footage from 11 to 12% to 10% growth. Really the — as I
mentioned in the script, that is caused by the focus on having those January stores open in the
most perfect condition, both from an operations standpoint and from a merchandise standpoint. The
second issue is obviously with the introduction of our fifth concept, we’re focusing a lot of
resource attention on those store openings, so we felt that it was prudent to move those openings
which really represent about 10 stores, from the January time frame into the beginning of February.
It does not materially affect our sales projections at all, and does not affect our guidance. Mike,
do you want to add to that?
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
Yes. I agree with your quality over quantity comment. Let me talk a little bit about real
estate availability. There is absolutely no concern with regards to real estate availability both
on the international standpoint as well as the domestic standpoint. In fact, the majority of our
2008 anticipated store openings are already locked and loaded. Again, this movement is just exactly
as Mike Nuzzo laid it out. We’re very excited about our real estate opportunities, both on the
domestic and international front.
Operator
Thank you. We’ll go next to Lauren Levitan with Cowen & Co.
Lauren Levitan
- Cowen & Co — Analyst
Thanks. Good afternoon. Mike, you spent a lot of time talking about how some of the
initiatives would contribute to positive returns on invested capital. I am curious if you would be
willing to share any targets you might have for ROIC, and then, related to that, with the lower
inventory levels, even the past giving us a sense of weeks of supply targets that you run the
business off of, should we assume that the lower basic inventories will lead to different weeks of
supply targets, and then lastly, related to metrics, would you ever consider eliminating the
reporting of same-store sales on a monthly basis? Thanks.
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
With regards to — let me see if I can catch all of that, it was a pretty long question,
Lauren, In terms of our initiatives, no, I’m not going to talk about a specific return on
investment with regards to these. You’re starting to see some of the return, you will continue to
see the return, we monitor that very closely on a pre and post basis. In terms of inventory
optimization, as we’ve said, Mike and I have talked over the six to nine months in terms of a lot
of initiatives related to our supply chain. With that comes more of an optimization on inventory.
So we’re very excited about the movement in which we’re focused on in that arena. In terms of
same-store sales, as of this point in time, we’re continuing to talk about same-store sales on a
monthly basis. We will let you know as we change our mind.
Operator
Thank you. We’ll go next to Jeff Klinefelter with Piper Jaffray.
Jeff Klinefelter
- Piper Jaffray — Analyst
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© 2006 Thomson Financial. Republished with permission. No part of this publication may be
reproduced or transmitted in any form or by any means without the prior written consent of Thomson
Financial.
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Final Transcript
Aug. 22. 2007 / 4:30PM ET, ANF — Q2 2007 Abercrombie & Fitch Co. Earnings Conference Call
Hey, guys, just a couple quick questions. One on the international markets. Mike, could you
talk a little bit more about the lead time for opening these stores? We know you have an aggressive
plan now in front of you, but in terms of thinking about timing and how these sequence in over the
next few years, what is a lead time for a store opening there versus in this market? Is it going to
continue to be only flagships or is there an opportunity to do a little more hub-and-spoke in some
of these major markets, and then lastly would be on Hollister, how are you researching
international demand or brand kind of relevance on the Hollister brand?
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
In terms of the lead time internationally, yes, the lead time with regards to our store
development internationally will exceed that here domestically. Largely due to the state of the
real estate, the brick and mortar available there, not to mention the fact that with regards to
flagships and the uniqueness with regards to the flagships, more of Michael Jeffries’ time is
involved. In terms of specific timing, I don’t really want to go into that. I will leave it at that
in terms of it is a longer lead time. However, I will tell you that I am surprised that there are
some lead times that are pretty consistent with domestic.
Keep in mind also that Europe is embracing mall-based retailing, and that’s going to increase, so
we don’t see any difference in terms of lead time with regards to that. In terms of Abercrombie &
Fitch brand, we’ve been very clear about our initiative in terms of the international aspect being
more what I call high profile, not necessarily flagship in size but high profile meaning very high
profile locations, street locations, not mall-based. In terms of the Hollister brand, we will look
at that in terms of a hub-and-spoke mentality. We’re very excited about the Hollister brand. I will
let Mike speak to Hollister as well.
Mike Nuzzo
- Abercrombie & Fitch Co. — VP Finance
Jeff, it is pretty similar to the way we approached Abercrombie & Fitch international
expansion, looking at DTC trends, looking at our performance in Canada, obviously feedback from our
brand protection folks, but also we have a number of what we call tourist stores that now, those
areas have Hollister stores as well, and we get a read from those locations about the potential
business for Hollister internationally, so we’re obviously very excited about that on par with
Abercrombie & Fitch expansion.
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
Interestingly enough, the international locations that we have put in Abercrombie & Fitch
brick and mortar, we’ve seen sizable increases on the Hollister side of direct to consumer as well
compared to the rest of the community.
Operator
We’ll go next to Brian Tunick with JPMorgan.
Brian Tunick
- JPMorgan — Analyst
Hey, guys. My first housekeeping question I guess on the other income line, can you just
remind us what’s in other operating income and how we should think about modeling that and then my
question really is on RUEHL’S. Can you maybe comment is there any change in how you’re thinking
about the dilution to 2007 earnings and any early reads of RUEHL’S new store format and how you
think about rolling that forward?
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
Do you want to take the other end and I will take that?
Mike Nuzzo
- Abercrombie & Fitch Co. — VP Finance
Other income is primarily from the aging of gift cards that we take into income on a pretty
systematic basis. As far as modeling go-forward, I think it would be easy to look at last year for
Q3 and Q4 and use that as a basis for modeling other income for 2007. Did you want to take the
RUEHL’S?
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© 2006 Thomson Financial. Republished with permission. No part of this publication may be
reproduced or transmitted in any form or by any means without the prior written consent of Thomson
Financial.
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Final Transcript
Aug. 22. 2007 / 4:30PM ET, ANF — Q2 2007 Abercrombie & Fitch Co. Earnings Conference Call
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
Yes. You can add on. In terms of RUEHL, guys, this consistently comes up. We’re very, very
excited about this brand. We continue to see profitability in Q4 of this year and obviously the
dilution impact to our profit this year will be much legs than it was last year. We’re not going to
quantify that amount. We’re very excited about it. We’re getting to a scale of stores to where
gross margin is not an issue, and parity will be consistent with our other brands, and we have done
some strong legwork with regards to expense structure and the cost reengineering as well as quite
frankly the new store format.
The issue right now is in terms of store productivity on a top line basis, but we’re seeing
continued momentum there. We’re very excited about it. We believe there is a niche in the age group
of 22 plus for casual sportswear, and we’re very excited about it, particularly some of our most
recent stores. We actually have some very good sites coming up in fall with regards to the smaller
footprint, Natick Mall, Annapolis, Washington Square, Burlington Mall, so we’re very excited about
it, and I hope you stop by and see the store.
Operator
Thank you. We’ll go next to Rob Wilson with Tiburon Research.
Rob Wilson
- Tiburon Research — Analyst
Thank you. Could you remind us the start-up costs for Concept 5? I believe previously you said
12 to $15 million this year. Is that still an accurate number, and also what is the share count
that is implicit in your back half guidance, diluted share count? Thank you.
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
Rob, as far as Concept 5, we did give guidance that it would be 12 to $15 million for 2007.
The first two quarters of the year we spent roughly $3 million each, so we’re looking at about $9
million in home office expense for the balance of the year, and I want to say, specifically that is
home office expense. When we get to close to the opening of those stores, there likely will be some
start-up costs. I don’t expect it to be in excess of a million dollars, but there will be some
additional start-up costs as we get to the time of opening. And then as far as share count, we
don’t give guidance on share count going forward. I think that you can — what we can say is that
any potential purchases of stock are embedded in our guidance.
Operator
We’ll go next to Randy Konik with Bear Stearns.
Randy Konik
- Bear Stearns — Analyst
Can you talk a little bit about the Japan flagship hitting in ‘09? We saw a lot of costs in
first quarter ‘07 for London. Would we expect as much pre opening costs for Japan and when can we
expect that to hit, and are you seeing costs hitting the system for some of your systems
improvements and before implementation and when should we start to see those costs being levered in
early ‘08 and mid-’08, et cetera?
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
Yes. This is Mike Kramer. You can continue to see start-up costs related to Tokyo whenever it
opens. We haven’t really indicated exactly when that store is going to be open for you to build
that into your model. Safe to say it won’t be 2009. I would say the amount would probably be
roughly the same as you saw with regards to London. In terms of cost of systems before
implementation, that’s already been embedded in and continues to be embedded in our increased
investment in terms of IT. I am not going to go into specifics by initiative by initiative to tell
you when you will start receiving the benefit.
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© 2006 Thomson Financial. Republished with permission. No part of this publication may be
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Financial.
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Final Transcript
Aug. 22. 2007 / 4:30PM ET, ANF — Q2 2007 Abercrombie & Fitch Co. Earnings Conference Call
What we have told and you at length in terms of the beginning of the call is when you might see
these actually rolled out, and you should see — you’re starting to see some efficiencies built
into our system. Guys, hopefully I am not calling with that and you looked at this, bit in terms of
our ability to grow EPS at the same rate that we did top line, with a negative to comp for the
quarter, there is some leverage happening on a negative comp basis. Where are we getting that?
We’re getting that through optimization in our systems as well as other optimizations in terms of
our P&L, so you’re starting to see it. You’re going to see a little bit more as time goes on. I
think at an increasing rate, but we don’t want to get into specifics.
Operator
Thank you, we’ll take our next question from Adrienne Tennant with Friedman Billings Ramsey.
Adrienne Tennant
- Friedman Billings Ramsey — Analyst
Good afternoon. Just wanted to talk about the repurchase activity in the quarter and how we
should think about that going into the back half. I think you still have about 4.7 million shares
outstanding on that, and then just secondly, when you go into these international markets, what
type of market research are you doing kind of design changes or sizing changes for the different
tastes and the body types?
Mike Nuzzo
- Abercrombie & Fitch Co. — VP Finance
Repurchase activity go forward. I can tell you that we do intent to get into the market and
repurchase shares in Q3. We will not obviously give you color on how much, but I can tell you that
our earnings guidance does reflect that. Do you want to take the international?
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
Yes. We’ve said many a time our brand is global in terms of how we’re treating it and the roll
out. There will be no difference in terms of our product assortment and our stores in Japan as they
are here in the United States. However, allocation and/or replenishment is done based on sales, so
just by sheer nature of that, depending on the SKU with regards to sizing will fall out within that
process. And in anticipation of new stores and normally, particularly in new markets, we will start
with a higher week of sales so that we anticipate not losing any sales based on differences in size
selling.
Operator
We’ll take our next question from Margaret Mager with Goldman Sachs.
Mike Mager
- Goldman Sachs — Analyst
Hi, how are you, Mike and Mike and tell the other Mike we’re sorry he is not going to be with
us any more.
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
We will.
Mike Mager
- Goldman Sachs — Analyst
Can you talk about bottoms in denim and what’s happening on that front in terms of business
drivers and how you’re thinking about that, and then just curious, on your run through on your
expenses which you did a great job managing overall, I am just curious, what is the increase in
home office payroll? What is that attributed to? Thank you.
Mike Nuzzo
- Abercrombie & Fitch Co. — VP Finance
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© 2006 Thomson Financial. Republished with permission. No part of this publication may be
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Financial.
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Final Transcript
Aug. 22. 2007 / 4:30PM ET, ANF — Q2 2007 Abercrombie & Fitch Co. Earnings Conference Call
Margaret, what I can tell you about the bottoms business for the quarter and this should come
as no surprise, we’ve been talking about it, the shorts business was very strong for the quarter,
and I can also tell you that the trend in denim improved over the course of the quarter. What that
means go forward, we really can’t comment on. Again, overlaying that, our tops business has
continued to be very strong across all categories, fashion, knits, fleece, just continue to be very
strong. I don’t want to get into commenting about the back half of the business.
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
Yes, in terms of the expenses, what increase in home office and payroll, a large portion of
that is our investment in Concept 5, and there are obviously other strategic initiatives such as IT
and so forth we have invest in as well. Keep in mind it is at a lower rate than it has been
historically.
Let me tack onto the conversation, let’s talk theoretically about the business. In terms of Mike
Jeffries is very, very clear about the fact that we are building a consistent long-term business
without losing focus of short-term, but our focus is long-term, and we’re not like any of the other
retailers out there. We are building a business for long-term growth. What I can tell you in terms
of we’re not going to talk about future trends, anything outside of the period that we’re reporting
on. We tried to not do so in the past, and we will continue to not do so.
We believe that the investor should be looking at certain things like who is the best at
determining trend, who is the best potentially sometimes at dictating trend, and who is the best if
you miss trend in terms of reacting and responding, and we believe the answer to that question is
us. We’re a very solid player in terms of the product and meeting trends, and we’re a very solid
player in terms of our management team. We have the best CEO in the business. We have a strong
operational team. We have a strong balance sheet, and we have lots of growth initiatives. Need I
say more?
It is not about whether we miss lace or hit plaid on shorts. It is really about our long-term
ability to wanted our customer and trends.
Operator
Next we’ll go to John Morris with Wachovia.
John Morris
- Wachovia — Analyst
Thanks. Question about third quarter, Mike Kramer I guess. Some of the companies we’re talking
to have are indicating there is a fairly significant calendar shift effect to the 52, 53-week, and
understand you give us guidance according to season, do you see the same kind of shift out of Q3
and into Q2, and do you care to quantify that or give us some kind of color on it so it will help
us model accordingly?
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
Well, the color I will start off with this, I’m Mike Kramer, and Mike Nuzzo can add to it, but
I think we’ve done a pretty good job of really clarifying, some of the shifts with regard to what
we posted in July, and had the sales or the tax shift not occur what our likes would have been, so
you could — I will let you do the calculation, and build that in, and in terms of any other
shifts, we’ve obviously built that into our guidance on the back half of the year. Now, the one
thing I want to point out, which again I don’t know that I need to point it out, I am assuming you
are smart enough to calculate this, but with regards to the entire spring season, we grew our EPS
15% and compare that with what we’re guiding to on the back half of the year with our EPS guidance,
it is roughly 11 to 12% face value, but if you exclude the 53rd week, as well as the tax rate, and
I am not going to talk about the salaries, because salaries have been in there both spring and
fall, that gets us to about a 16 to 17% growth, so we’re guiding to a higher growth in the back
half of the year than we did the first half of the year. Mike?
Mike Nuzzo
- Abercrombie & Fitch Co. — VP Finance
Nothing to add.
Operator
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© 2006 Thomson Financial. Republished with permission. No part of this publication may be
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Financial.
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Final Transcript
Aug. 22. 2007 / 4:30PM ET, ANF — Q2 2007 Abercrombie & Fitch Co. Earnings Conference Call
We’ll go next to Kimberly Greenberger with Citigroup.
Kimberly Greenberger
- Citigroup — Analyst
Great. Thank you. Good afternoon.
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
Hi, Kimberly.
Kimberly Greenberger
- Citigroup — Analyst
Mike, your commentary earlier about the strive for constant improvement was really helpful,
and I am just wondering if you can talk about process, procedures, standards, and what areas of the
company do you feel most advanced in terms of that constant drive for improvement, and where do you
see the most opportunity going forward?
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
Well, I can honestly tell you that the strive for improvement is pretty evident throughout the
Company. Obviously we have some of the areas that I think are doing better in that arena and some
that aren’t, and I think you can tell by where we’re putting our initiatives, you can tell where we
think is the weakest link, but we’re making great strides with regards to that. Now, I have said
publicly before, I have a CEO that’s right brain/left brain, and his focus and his constant
pressure is setting standards, raising the bar, setting processes in place to making sure we’re
meeting our standards and also auditing them, and why is this so important?
It is so important because, guys, we’re almost at a run rate of a $4 billion company, and these
processes are so important for us to maintain as we grow to $6 billion, to $7 billion, they become
more and more important as the business grows and you lose a little bit more touch to the front
line. That’s just inevitable. There are a lot of retailers out there today that are in the ditch on
the road to success that they didn’t focus on the processes, and this is something that Mike
Jeffries talks about every Monday, and we’re focused on it. I know I answered your question more of
a general terms but I think you can really tell where we’re focused on in terms of where we’re
talking about our initiatives going.
Mike Nuzzo
- Abercrombie & Fitch Co. — VP Finance
And I would add to that I think part of the benefit we’re going to get through our investment
in technology is a very key piece of this whole puzzle which is audit, and I think that the
reporting that we’re starting to see and starting to get over the reporting that we used to get is
starting to pay dividend says. I think the ability for people to look at summary information,
dashboards, I think has really helped with our business decision making, and I think that you can
come up with a process, feel good about, it but you sometimes get to the point where you just
assume that it is working correctly, and the audit piece of it I think is going to be a real
distinguishing aspect as we go forward over the next couple of years.
Operator
Next we’ll go to Lorraine Maikis with Merrill Lynch.
Lorraine Maikis
- Merrill Lynch — Analyst
Thank you. Good afternoon. Progress on inventory was pretty striking this quarter. Can you
speak a little bit about how exactly did you it and how the new systems will help you make further
gains and then how much free cash flow do you plan to generate for the year?
Mike Nuzzo
- Abercrombie & Fitch Co. — VP Finance
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© 2006 Thomson Financial. Republished with permission. No part of this publication may be
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Financial.
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Final Transcript
Aug. 22. 2007 / 4:30PM ET, ANF — Q2 2007 Abercrombie & Fitch Co. Earnings Conference Call
Lorraine, on the inventory side, we have been driving the inventory performance in the basic
categories for some time now, and that, combined with some real strategic work on spring in
managing the triggers and the receipts at the end of the season, and really just focusing on coming
out of spring as clean as possible, but also really setting the stage for planning inventory flows
for the back half of the year and then into spring, spring ‘08. We feel like the technology
enhancements to the planning system are still yet to reap all of the benefits that I think we’re
going to see because we’re — we’ve worked so hard at a macro level that the benefit of the
technology is going to be at the micro level at planning individual key items and ensuring that the
inventory that we buy into is right for the sales plan for each of those key items, so we’re
obviously thrilled about the progress we’ve made, but I guess what I am trying to say is that we’re
really only just starting to as I said, tie the inventory buys more to where we think the sales are
going to go, so we’re obviously very happy about that.
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
In terms of the free cash flow for the balance of the year, my answer to that is lots. Next
question.
Operator
We’ll go to Christine Chen with Needham & Company.
Christine Chen
- Needham & Company — Analyst
Thank you. Wanted to ask about RUEHL just as a follow-up. You said it is really targeting 22
and up. What sort of is the average sweet spot age there you’re seeing shopping in the stores, and
the malls where RUEHL opens up, have you seen any impact at all on the core Abercrombie & Fitch
stores and D&A and CapEx since I think I missed it? Thank you.
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
Well, more the most part with regards it RUEHL and the customer base we’re targeting, we feel
strongly that the shopper that we’re seeing represents a wide range of ages, but it is really more
centrally targeted on our target age group. As far as any sort of cannibalization on Abercrombie &
Fitch stores in the same malls, we have not seen it. Again, it speaks to the fact that we feel like
the customer age range is consistent with what we originally planned it to be, so I think we have
not seen any issues there.
Operator
Thank you. We’ll go next to Barbara Wyckoff with Buckingham Research Group.
Barbara Wyckoff
- Buckingham Research Group — Analyst
Hi, everyone. Good job, good job. Question. The new replenishment system you talked about,
Mike, what is the [continue versus] the prior system?
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
Keep in mind that over the last year we had implemented a manual replenishment system where
there was a paper printed out every so often, and albeit we made great strides in terms of
productivity but like what we’re trying to drive throughout the organization is, you know, always
raising the bar as we brought in IT and made this electronic to where you can actually have
realtime information at any point in time, and it has been very successful for us, particularly in
our large volume stores because it really is realtime. They have handheld devices that enable them
— enable them to review what was sold since we last replenished the floor floor and be able to get
it out on a very timely basis.
Operator
Next we’ll go to Paul Lejuez with Credit Suisse.
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© 2006 Thomson Financial. Republished with permission. No part of this publication may be
reproduced or transmitted in any form or by any means without the prior written consent of Thomson
Financial.
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Final Transcript
Aug. 22. 2007 / 4:30PM ET, ANF — Q2 2007 Abercrombie & Fitch Co. Earnings Conference Call
Paul Lejuez
- Credit Suisse — Analyst
Thanks, guys. Can you quantify the impact of having that extra week in August versus losing
one in May? I don’t know if you do that in terms of basis points on operating margin or pennies per
share. That’s one. Second, with the low end of your guidance reflecting a flat comp, I am wondering
what you’re seeing in the business that justifies planning for flat, just given that you haven’t
seen that in a couple quarters? Thanks.
Mike Nuzzo
- Abercrombie & Fitch Co. — VP Finance
I can answer. I can answer that by saying that again this is similar to an earlier question
that was asked. We’re not going to get into trying to quantify the calendar shift that occurred,
not the tax free shift. We’re going to assume that you guys seen the 22% increase in sales for the
quarter on a negative to comp is not what the go-forward relationship would be, but you guys can do
the calculation on that. As far as your point about not building the guidance on a flat comp and
not having performed to a flat comp, I think the only thing I can say is what we disclosed in July
which was, if you exclude the tax free holiday shifts, the business was running up 2, so that’s a
point of data for you, but as far as the guidance, we have gotten into, I think a good, consistent,
message by setting the guidance to a flat comp and then obviously just working through it as we get
into the season.
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
Paul, this is Mike Kramer. The only thing I would add to that is historically we’re a very
conservative company, and we feel really good about our guidance, and we believe it is
conservative. We aim to beat it as we always do.
Operator
Next we’ll go to Robin Murchison with SunTrust Robinson Humphrey.
Robin Murchison
- SunTrust Robinson Humphrey — Analyst
Thanks. Most of my questions have been answered, but I do wanted to ask you just a little bit
in terms of your relationships with your overseas suppliers, you know, article in the Journal today
that mentions you guys with one supplier which is not terribly consequential to you at this point
or anything, but is everything fairly stable? How do you feel about the relationship overseas and
in pricing opportunities overseas? Thanks.
Tom Lennox
- Abercrombie & Fitch Co. — IR, Corporate Communications
Robin, Tom Lennox. The interesting thing, the Journal article today that ran was actually from
a vendor of a vendor of ours, so they were once removed, so obviously as you said, it is very small
exposure there. As far as what’s going on in the greater landscape for relationships with vendor
and pricing, I think that you would see in our most recent quarter that actually we secured IMU
benefit. There is a lot of chatter about what’s happening on a go-forward basis as far as inflation
is concerned. I think it is difficult to understand. We have a very good handle on that. We have
great relationships with our factories. We’re in probably north of 35 different countries and
hundreds of factories, so I think that we have proven over the last — I will say ten years at this
point because Diane Shank continues to head up the sourcing area here, that not only do we have
good relationships, but we secure the highest level of quality for the best price, and we hope to
continue to be able to do that.
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
Yes. This is Mike Kramer. I will add to that. We have one of the best supply sourcing leaders
in the business, and she maintains a great relationship throughout those 35 countries, we’re in
lock step with, you have seen a lot of stuff in the press press in terms of stuff coming out of
China that is bad or you also heard about the earthquake in Peru, and we actually have
manufacturing in Peru. In conversations with Diane we are seeing no inflationary impact, and none
of the things you heard in the press release recently impacted our supply chain.
Operator
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© 2006 Thomson Financial. Republished with permission. No part of this publication may be
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Financial.
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Final Transcript
Aug. 22. 2007 / 4:30PM ET, ANF — Q2 2007 Abercrombie & Fitch Co. Earnings Conference Call
Next we’ll go to Janet Kloppenburg with JJK Research.
Janet Kloppenburg
- JJK Research — Analyst
Hi, guys.
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
Hi, Janet.
Janet Kloppenburg
- JJK Research — Analyst
Congratulations on a very good quarter.
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
Thank you.
Janet Kloppenburg
- JJK Research — Analyst
Mike Kramer, I was wondering if you can talk a little bit about the spend on the new Concept
5, and whether or not you thought that that concept, I think it is coming out to about $0.06 a
share, and whether she we should think of that as a hurt to your outlook or was there something in
last year’s numbers that was an investment spend as well that you don’t have this year? And with
respect to the IT spend, I was just wondering, are we seeing results in the operating margin now or
are we — is the investment still out weighing the incremental benefit that we should look forward
to in the future, and lastly, if you could give us a back-to-school outlook. Thanks.
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
With regard to the impact of Concept 5, we indicated to you the spending that was going on in
terms of dollar amount, and comparing that to the previous year, keep in mind there was continued
investment in RUEHL. We actually quantified to you the loss with regards to RUEHL, last year i said
it would be better this year. That’s the beauty about our cost structure and our ability to invest
in future initiatives, and we’re not investing in them all at once, and as we’re seeing improvement
in our investment in terms of RUEHL, we’re able to afford continued investment in other areas
without negatively impacting our business. On a side note, we are investing more in Concept 5 than
we did in RUEHL from on up front stage, but hopefully that will secure quicker success.
From an IT spend, you know, we are seeing small results as I said. We anticipate bigger and better
results. From an investment — I think the the investment today still is out weighing, but we in
the near six to nine months I anticipate seeing more results. In terms of back-to-school, we’re
pretty clear about not talking about that. Our thoughts with regards to back-to-school are embedded
in our guidance, and you saw a little bit of the beginning of back-to-school in our July sales
results.
Operator
We’ll next go to Josh Schwartz with Flatbush Watermill.
Josh Schwartz
- Flatbush Watermill — Analyst
Hi, guys, how are you?
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
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© 2006 Thomson Financial. Republished with permission. No part of this publication may be
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Financial.
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Final Transcript
Aug. 22. 2007 / 4:30PM ET, ANF — Q2 2007 Abercrombie & Fitch Co. Earnings Conference Call
Great.
Josh Schwartz
- Flatbush Watermill — Analyst
Good. I just had two questions. Mike Kramer, just to clarify, when you guys first started, you
embarked on all of these investments in IT, your comment was that the objective was to leverage,
get leverage from four to five billion in sales not 3 to 4. I am curious if I think in answering
that last question you alluded to wanting to see some incremental benefit, six to nine months out,
so that may be the case, but you made a comment about 6 to $7 billion in sales, so I was confused
if there was a different thought today. The other thing is going forward, there has been a lot of
spend on CapEx not related to store, in new stores, and I am curious what you think that it is
going to be like going forward, if there will be fall off in the nonstore CapEx. Thanks.
Mike Kramer
- Abercrombie & Fitch Co. — SVP, CFO
With regards to our investment in IT, and the productivity or the enhancements that it is
providing for us, maybe it was misinterpreted, but I think we’re saying the same thing. I
anticipate actually reaping some reward on these investments as they start to stagger into play.
Now, keep many mind that the majority of the investments as well as some of the bigger pieces of
investments do not really — are not really implemented until 2008, 2009 time frame, so from 4 to
$6 billion I anticipate traction in that arena, and I anticipate full traction from the $6 billion
on. Again, there is going to be continued investment as well as we grow our business.
Josh, you asked about CapEx not related to stores. I will throw in stores for a second, but as you
think about us going forward with CapEx investment, as you understand, there always will be that
core CapEx investment in new stores. This year was $220 million. Next year you probably think about
it in the same context. Again, the wild card is flagships, and international development. We will
still be refreshing stores. We have done some catch up over the last year or so, so the level of
investment from the refresh standpoint is likely to not be as much, but on the home office side in
terms of IT and core home office development, just to give you some color, I think that the
investment there will be probably pretty similar to what we’ve been spending over the last year or
so, so again we’ll be providing pretty detailed CapEx investment expectations when we get around to
the fourth quarter conference call, but maybe that gives you a little bit of color thinking about
it going forward.
Operator
That is all the time we do have for questions today. That does conclude today’s conference
call. You may now disconnect your lines at any time.
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