Abercrombie & Fitch 2008 Annual Report Download - page 63
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Table of Contents
ABERCROMBIE & FITCH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company does not include tax amounts collected as part of the sales transaction in its net sales
results.
COST OF GOODS SOLD
Cost of goods sold primarily includes the following: cost of merchandise, markdowns, inventory
shrink, valuation reserves and freight expenses.
STORES AND DISTRIBUTION EXPENSE
Stores and distribution expense includes store payroll, store management, rent, utilities and other
landlord expenses, depreciation and amortization, repairs and maintenance and other store support
functions, as well as Direct-to-Consumer and Distribution Center (“DC”) expenses.
MARKETING, GENERAL & ADMINISTRATIVE EXPENSE
Marketing, general and administrative expense includes photography and media ads; store marketing;
home office payroll, except for those departments included in stores and distribution expense; information
technology; outside services such as legal and consulting; relocation, as well as recruiting, samples and
travel expenses.
OTHER OPERATING INCOME, NET
Other operating income primarily consists of gift card balances whose likelihood of redemption has
been determined to be remote and are therefore recognized as income, gains and losses on foreign
currency transactions, foreign currency gains and losses resulting from remeasurement of foreign
inter-company loans, and foreign held cash accounts for the Company’s Swiss and United Kingdom
operations in compliance with SFAS No. 52.
DIRECT-TO-CONSUMER AND ADVERTISING COSTS
Direct-to-consumer costs consist primarily of website production costs, catalogue production and
mailing costs and are expensed as incurred as a component of “Stores and Distribution Expense.” Fiscal
2008 did not include any costs related to catalogue production and mailing costs as catalogues were no
longer produced after Fiscal 2007. Advertising costs consist of in-store photographs and advertising in
selected national publications and billboards and are expensed as part of “Marketing, General and
Administrative Expense” when the photographs or publications first appear. Direct-to-consumer and
advertising costs, including photo shoot costs, amounted to $30.3 million, $32.8 million and
$39.3 million, in Fiscal 2008, Fiscal 2007 and Fiscal 2006, respectively.
LEASES
The Company leases property for its stores under operating leases. Most lease agreements contain
construction allowances, rent escalation clauses and/or contingent rent provisions.
59
Source: ABERCROMBIE & FITCH CO /DE/, 10-K, March 27, 2009 Powered by Morningstar® Document Research℠