Abercrombie & Fitch 2009 Annual Report Download - page 34

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On a regional basis for Fiscal 2008, comparable store sales were down in all U.S. regions and Canada.
Comparable store sales were stronger in the flagship stores, particularly in the United Kingdom.
Direct-to-consumer net merchandise sales in Fiscal 2008 were $264.3 million, an increase of 2.1% over
Fiscal 2007 net merchandise sales of $258.8 million. Shipping and handling revenue was $42.9 million in
Fiscal 2008 and $39.1 million in Fiscal 2007. The direct-to-consumer business, including shipping and
handling revenue, accounted for 8.8% of total net sales in Fiscal 2008 compared to 8.1% of total net sales in
Fiscal 2007.
Gross Profit
Gross profit for Fiscal 2008 decreased to $2.331 billion from $2.488 billion in Fiscal 2007. The gross
profit rate for Fiscal 2008 was 66.9% versus 67.2% the previous year, a decrease of 30 basis points. The
decrease in gross profit rate was attributable to a higher IMU rate being more than offset by an increase in
markdown rate versus Fiscal 2007. The higher markdown rate resulted from the need to clear through
seasonal merchandise as a result of declining sales and the Company’s limited ability to reduce fourth quarter
of Fiscal 2008 deliveries.
Stores and Distribution Expense
Stores and distribution expense for Fiscal 2008 was $1.436 billion compared to $1.344 billion for Fiscal
2007. For Fiscal 2008, the stores and distribution expense rate was 41.2% compared to 36.3% for Fiscal 2007.
The increase in rate resulted primarily from the Company’s limited ability to leverage fixed expenses due to
negative comparable store sales. Additionally, stores and distribution expense in Fiscal 2008 also included
additional direct expenses related to flagship pre-opening rent expenses, as well as minimum wage and
manager salary increases and an $8.3 million non-cash impairment charge associated with store-related
assets.
Marketing, General and Administrative Expense
Marketing, general and administrative expense for Fiscal 2008 increased 7.5% to $405.2 million
compared to $376.8 million in Fiscal 2007. The increase in expense reflected investments in home office
resources necessary for flagship and international expansion, partially offset by savings in incentive
compensation and benefits and other home office expenses in the second half of Fiscal 2008. The marketing,
general and administrative expense rate was 11.6% for Fiscal 2008, an increase of 1.4 percentage points
compared to 10.2% for Fiscal 2007.
Other Operating Income, Net
Other operating income for Fiscal 2008 was $8.8 million compared to $11.7 million for Fiscal 2007. The
decrease was primarily driven by losses on foreign currency transactions for Fiscal 2008 compared to gains on
foreign currency transactions for Fiscal 2007, as well as a decrease in income related to gift cards for which
the Company has determined the likelihood of redemption to be remote.
Interest Income, Net and Income Tax Expense
Fiscal 2008 interest income was $14.8 million, offset by interest expense of $3.4 million compared to
interest income of $19.8 million, offset by interest expense of $1.0 million for Fiscal 2007. The decrease in
interest income in Fiscal 2008 was primarily due to a lower average rate of return on investments. The
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