Abercrombie & Fitch 2003 Annual Report Download - page 18

Abercrombie &Fitch
lion in the 2002 fiscal year. The general, administrative and store
operating expense rate in the 2003 fiscal year was 22.6% versus
21.5% in the 2002 fiscal year. The increased rate in the 2003 fiscal
year resulted primarily from a drop comps that could not be offset
by lower variable expenses per average store. In addition, legal
expense increased in the 2003 fiscal year compared to the 2002 fis-
cal year as the Company reserved expected defense costs for
pending litigation. Partially offsetting these costs were improve-
ments in distribution center productivity, reduced expenses per
order in the direct to consumer business and reduced marketing
expenses, as a percentage of net sales, due to savings from fewer
direct mail campaigns in the 2003 fiscal year. Productivity at the
distribution center, as measured in units processed per labor
hour, was 31% higher during the 2003 fiscal year than during the
2002 fiscal year.
Costs related to the distribution center, excluding direct ship-
ping costs related to the e-commerce and catalogue sales, included
in general, administrative and store operating expenses were $19.3
million in the 2003 fiscal year compared to $19.9 million in the
2002 fiscal year.
FOURTH QUARTER 2002 For the fourth quarter of the 2002 fis-
cal year, general, administrative and store operating expenses
were $93.4 million compared to $79.9 million in fourth quarter of
the 2001 fiscal year. The general, administrative and store oper-
ating expense rate was 17.5% compared to 17.1% in the same
period the prior year. The increase in rate versus the 2001 fiscal
year resulted primarily from an increase in home office expenses,
largely due to higher bonuses resulting from improved financial
performance.
During the fourth quarter of the 2002 fiscal year, store payroll
hours were reduced by 9% per average Abercrombie & Fitch adult
store and 3% per average kids store. The control of payroll hours
helped mitigate the effect of negative comps on the store operating
expense rate.
Efficiencies were also recognized in the distribution center
and in the direct to consumer business. Productivity, as measured
in units processed per labor hour, was 39% higher during the
fourth quarter of the 2002 fiscal year than the fourth quarter of
the 2001 fiscal year. For the quarter, more units were processed
than the comparable period in the 2001 fiscal year with 20%
fewer labor hours.
Costs related to the distribution center, excluding direct ship-
ping costs related to the e-commerce and catalogue sales, included
in general, administrative and store operating expenses were $4.9
million for the fourth quarter of the 2002 fiscal year compared to
$4.9 million for the fourth quarter of the 2001 fiscal year.
FISCAL 2002 The general, administrative and store operating
expenses for the 2002 fiscal year were $343.4 million compared to
$286.6 million in the 2001 fiscal year. The full year general, admin-
istrative and store operating expense rate in the 2002 fiscal year was
21.5% versus 21.0% in the 2001 fiscal year. The 2002 fiscal year
rate increase resulted from an increase in store expenses, as a per-
centage of sales, due to the inability to leverage fixed costs on a
comp store sales decrease, as well as higher legal and incentive
compensation expenses. Productivity at the distribution center, as
measured in units processed per labor hour, was 46% higher dur-
ing the 2002 fiscal year than during the 2001 fiscal year.
Costs related to the distribution center, excluding direct ship-
ping costs related to the e-commerce and catalogue sales, includ-
ed in general, administrative and store operating expenses were
$19.9 million in the 2002 fiscal year versus $19.5 million the 2001
fiscal year.
OPERATING INCOME: F OURTH QUART ER 2003 Operating
income for the fourth quarter of the 2003 fiscal year increased to
$154.3 million from $149.6 million in the 2002 fiscal year fourth
quarter. The operating income rate (operating income divided by net
sales) was 27.5% for the fourth quarter of the 2003 fiscal year compared
to 28.0% for the fourth quarter of the 2002 fiscal year. Higher general,
administrative and store operating expenses, expressed as a per-
centage of net sales, reduced the operating income rate in the current
year’s fourth quarter. This decline was partially offset by higher mer-
chandise margins during the quarter.
FISCAL 2003 For the 2003 fiscal year, operating income was $331.6
million compared to $312.6 million for the 2002 fiscal year. The
operating income rate for the 2003 fiscal year was 19.4% versus
19.6% in the 2002 fiscal year. The decline was attributable to a
higher general, administrative and store operating expense rate
due to the inability to leverage fixed costs on a comp store decrease.
The increased expense rate was partially offset by a gross income
rate increase.
FOURTH QUARTER 2002 AND F ISCAL 2002 Operating income
for the fourth quarter of the 2002 fiscal year increased to $149.6
million from $128.6 million during the same period in the 2001
fiscal year. The operating income rate was 28.0% for the fourth
quarter of the 2002 fiscal year compared to 27.6% for the fourth
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