Abercrombie & Fitch 2004 Annual Report Download - page 5

Abercrombie &Fitch Abercrombie &Fitch
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CHAIRMAN’S LETTER
I have often said our success is dependent on total commitment to the long term strength of our brands. That
philosophy requires a delicate balance between protecting our current profitability while simultaneously
investing in our brands to assure the company’s success over the long-term. I, along with Bob Singer, the
company’s President and Chief Operating Officer, believe that managing this balance effectively is critical to
the company’s ongoing success. We have undertaken significant steps this year to achieve this balance and I
am very pleased with our current performance as well as our future prospects.
Fiscal 2004 marked another year of strong operating results for our company. We achieved net income
per share of $2.28, up 11%, on net sales of $2.021 billion, up 18%. The gross margin rate increased 300 basis
points to 45.0%. We utilized our strong cash position to repurchase 11.2 million shares of common stock
for $434.7 million. Shareholder value increased significantly in fiscal 2004 as our share price rose 88%
and we began to pay a dividend amounting to $0.50 per share.
During fiscal 2004 we undertook several initiatives in order to enhance the in-store experience of
our customers as well as to expand the reach of the business both demographically and geographically.
Recognizing the importance of our stores as the primary marketing vehicle for the business, we implemented
a comprehensive program designed to increase control and discipline over store operations, and enhance
the shopping experience of our customers. A large part of this initiative involved increasing staff coverage
in stores by developing detailed programs to be used by store managers and brand representatives, as well
as increasing the number of staff hours per week in our stores and enhancing staff training. We are pleased
with the early results of the program. By increasing staff coverage throughout most of our stores, we have
significantly improved customer service levels, while also upgrading store presentation standards and
reducing merchandise shrink.
Hollister’s performance during 2004 was exceptional. Hollister is now broadly recognized as a leading
aspirational brand for the high school-aged guy and girl. The business recorded a double-digit comparable
store increase for the year. In addition, we opened 84 new stores, increasing the total number of stores to
256. Sales productivity exceeded $420 per square foot, with profitability similar to that of Abercrombie &
Fitch. In 2005, as we expect to open between 60 and 70 new Hollister stores, this brand will continue to
be a primary growth vehicle for our company.
I am extremely proud of the improvements made in the Abercrombie & Fitch business. Our team did an
excellent job of differentiating the brand from the competition by increasing the quality of our products and
stressing aspiration in every element of the brand. The Casual Luxury theme truly defines the aspirational
character of the Abercrombie & Fitch brand. During 2004 we introduced Ezra Fitch, a high-quality classics
line, inspired by our past, but mindful of our casual luxury orientation. Reflecting our initiatives to eliminate
promotional activity and to improve store presentations, in late 2004 the brand began to achieve significant
sales increases, a trend which has continued to accelerate in early 2005. This strength has also favorably
impacted the abercrombie kids business. Looking ahead, we are excited about the opening of our two over
20,000 square feet Abercrombie & Fitch flagship stores in 2005 in the two key markets in the United States,
in Manhattan on the corner of Fifth Avenue and 56th Street and the other at The Grove at Farmer’s Market
in Los Angeles. We expect these stores to generate exceptional sales levels and at the same time further
solidify the Abercrombie & Fitch brand as an icon of casual American luxury.
We launched RUEHL, our newest brand, with four stores opening in the fall of 2004 targeting the 22-35
year-old customer. The brand identifies itself with a Greenwich Village heritage and offers our first leather
goods as well as designer denim and casual apparel with sophisticated fabrications. The in-store experience
embodies luxury and mystery, while reflecting the feel of a classically inspired modern residence. We are
building a very strong design and merchandising team and I am confident that RUEHL will become an
important contributor to the company.
During fiscal 2004 we decided to expand our business internationally. To support this expansion, the
company has established a European subsidiary in preparation for the rollout of Abercrombie & Fitch stores
in Europe planned for 2006. In addition, we are preparing for the launch of both Abercrombie & Fitch and
Hollister in Canada during 2005. While our initial steps into the global marketplace will be more focused
when compared to our domestic rollout, we are optimistic about the prospects for this business given the
high level of recognition our brands have throughout the world.
I believe that we are on track for another successful year in fiscal 2005. I am confident that we are
achieving the necessary balance between long-term investment and shorter-term financial objectives and
I believe this approach will bring us many more years of profitable growth and success.
Michael S. Jeffries
Chairman and Chief Executive Officer