rct-abercrombie & fitch
rct-abercrombie & fitch
rct-abercrombie & fitch
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Annual Report<br />
Abercrombie & Fitch<br />
Catherine Rios<br />
ACG2021- 001
Executive Summary<br />
Abercrombie & Fitch FISCAL 2008 ended in<br />
January 31 2009 it showed a decrease in net sales<br />
showing it is being affected by the current countries<br />
crisis. During this year the Company used cash from<br />
operation to finance its growth strategy. The steep<br />
decline in consumer spending is affecting the<br />
company and has reacted by having seasonal ending<br />
clearance sales and are scaling back on domestic<br />
expansion. This allowed the company to end<br />
FISCAL 2008 with a strong cash position.<br />
Abercrombie & Fitch Annual Report
Part A. Introduction<br />
• Mike Jeffries CEO.<br />
• home office:<br />
6301 Fitch Path<br />
New Albany, Ohio 43054<br />
United States.<br />
• Fiscal year ended January 31,<br />
2009 (Fiscal 2008).<br />
• Abercrombie & Fitch is a<br />
specialty retailer that sells casual<br />
sportswear apparel. In addition it<br />
offers bras, underwear, personal<br />
care products, sleepwear and at<br />
home products for women.<br />
• Company operates 1.125 in the<br />
United States, Canada and the<br />
United Kingdom.
Part A. Audit Report<br />
• Independent Auditor:<br />
Pricewaterhouse<br />
Coopers LLC.<br />
• According to<br />
Pricewaterhouse<br />
Coopers, the company<br />
maintained effective<br />
internal control over<br />
financial reporting for<br />
Fiscal 2008.
Part A. Stock Market<br />
Information<br />
• Most recent price of stock: $36.42<br />
• Twelve month trading range of the<br />
company’s stock has been:<br />
• High: $82.06<br />
• Low: $13.66<br />
• Dividend per share: $0.175<br />
• February 16, 2010<br />
• In my opinion this company is being affected<br />
by the recent economic situation customers<br />
are more interested in lower priced clothing<br />
stores. The price of stock has decreased<br />
compared to Fiscal 2007 and the company<br />
does not seem to be in a stable condition. I<br />
would not recommend to buy stock in this<br />
company since it seems its financial position<br />
will only worsen with the current economy.<br />
Abercrombie & Fitch
Part B. Industry Situation and<br />
Company Plans<br />
• Abercrombie & Fitch is a leading fashion specialty retailer<br />
store that sell clothing and accessories under the Abercrombie<br />
& Fitch, <strong>abercrombie</strong>, RUEHL, Gilly Hicks and Hollister. The<br />
company views the customer in store experience as the primary<br />
way of communicating the spirit of each brand. The retailer has<br />
two principal selling seasons which are spring and fall. The<br />
current financial situation has had a huge impact on the<br />
company business. The company plans on continue expanding<br />
but focusing more on expansion overseas.
Part C. Income<br />
Statement<br />
•Abercrombie & Fitch uses a<br />
Multistep Income Statement, going<br />
through a series of steps, or subtotals,<br />
to arrive at their net income.<br />
A&F<br />
(in thousands)<br />
2008 2007<br />
Gross Profit $2,361,692 $2,511,367<br />
Operating<br />
Income<br />
$439,386 $740,497<br />
Net Income $272,255 $475,697<br />
The company Gross<br />
Profit decreased 30 basis<br />
points this was due to the<br />
current financial crisis<br />
and the companies need<br />
to clear merchandize as a<br />
result of the declining<br />
sales. The operating<br />
income decrease was due<br />
to foreign currency<br />
transactions and the<br />
decrease in income due to<br />
gift cards.
Part C. Balance Sheet<br />
A&F Assets = Liabilities + Stock Holders<br />
(in thousands) Equity<br />
2008 $2,848,181 $1,002,603 $1,845,578<br />
2007 $2,567,598 $949,285 $1,618,313<br />
• Abercrombie & Fitch showed an increase in<br />
all three accounts. Its assets increased with the<br />
openings of new stores abroad as well as its<br />
Liabilities increased with it.
Part C. Statement of<br />
Cash Flows<br />
•Abercrombie & Fitch cash flows<br />
from operations in the last two years<br />
were significantly larger than net<br />
income.<br />
•The companies growth is due to<br />
investing in capital expenditures<br />
primarily to new store constructions,<br />
store remodels and refreshnes, and<br />
purchases of marketable securities.<br />
•In FISCAL 2008 finances consisted<br />
primarily of repurchase of<br />
Companies Common Stock and the<br />
payment of dividends.<br />
•Overall cash has increased in the last<br />
two years.
Part D. Accounting Policies<br />
•Revenue recognition: The Company recognizes retail sales at<br />
the time the customer takes possession of the merchandize .<br />
Direct to customer sales are recorded upon customer receipt<br />
of merchandize.<br />
•Inventories: principally valued at the lower than average cost<br />
or market utilizing the retail method.<br />
•Property and equipment: are computed on a straight line<br />
basis, using service lives.<br />
•Income taxes: are calculated in accordance with SFAS No.<br />
109 “Accounting for income taxes” which requires the use of<br />
asset and liability method.<br />
Abercrombie & Fitch
• Notes to the financial<br />
statements:<br />
1. Basis of presentation<br />
2. Summary of significant<br />
accounting policies<br />
3. Recently issued accounting<br />
pronouncements<br />
4. Share based compensation<br />
5. Cash and equivilents and<br />
investments<br />
6. Fair value<br />
7. Property and equipment<br />
8. Deferred lease credits, Net<br />
9. Leased facilities and<br />
commitments<br />
10. Accrued expenses<br />
11. Other liabilities<br />
12. Income taxes<br />
13. Debt<br />
14. Derivatives<br />
15. Retirement benefits<br />
16. Contingencies<br />
17. Prefered stoch purchase rights<br />
18. Quaterly financial data<br />
19. Subsequent event
Part E. Financial Analysis<br />
Liquidity Ratios<br />
A&F 2008 2007<br />
Working Capital $636,028 $597,142<br />
Current Ratio 2.41 2.10<br />
Receivable turnover 66.22 70.14<br />
Average days’ sales<br />
uncollected<br />
5.51 5.20<br />
Inventory turnover 22.04 23.16<br />
Average days’<br />
inventory on hand<br />
16.56 15.75<br />
•The working capital and the current ratio both increased this<br />
shows A&F liquidity and ability to pay off debts.<br />
The decreases in the inventory turnover and increases in the<br />
average days of inventory on hand show A&F inefficient use of<br />
inventory.
Part E. Financial Analysis<br />
Profitability Ratios<br />
A&F 2008 2007<br />
Profit margin 0.07 0.12<br />
Asset turnover 1.30 1.38<br />
Return on assets 0.10 0.17<br />
Return of equity 0.15 0.27<br />
• This shows that from 2007 to 2008 the company lost in net income for every<br />
dollar in net sales. This means that the company is loosing money.<br />
• The return on assets and return on equity decreased significantly in both this<br />
means that the stockholders are loosing money off of each dollar invested.<br />
• The loss in asset turnover means that A&F is not using properly their assets<br />
and should look for other ways to invest in their company.
Part E. Financial Analysis<br />
Solvency Ratio<br />
A&F 2008 2007<br />
Debt to<br />
equity<br />
0.54 0.58<br />
• The debt to equity percentage<br />
remains low and has increased<br />
form 2007 to 2008 very little. This<br />
means that the Abercrombie &<br />
Fitch is in control of its<br />
Companies assets.
Part E. Financial Analysis<br />
Market Strength Ratios<br />
A&F 2008 2007<br />
Price<br />
/earnings<br />
Dividends<br />
yield<br />
42.81 66.56<br />
0.02 0.008<br />
• The decrease in<br />
price/earnings per share<br />
shows that the company is<br />
failing.