Abercrombie & Fitch 2011 Annual Report Download - page 17

Furthermore, we purchase substantially our entire inventory in U.S. dollars. As a result, our gross
margin rate from international operations is subject to volatility from movements in exchange rates over
time, which could have an adverse effect on our financial condition and results of operations and
profitability from the growth desired from international operations.
Our business could suffer if our information technology systems are disrupted or cease to operate
effectively.
We rely heavily on our information technology systems: to operate our websites; record and process
transactions; respond to customer inquiries; manage inventory; purchase; sell and ship merchandise on a
timely basis; and maintain cost-efficient operations. Given the significant number of transactions that are
completed annually, it is vital to maintain constant operation of our computer hardware and software
systems and maintain cyber security. Despite efforts to prevent such an occurrence, our information
technology systems are vulnerable from time-to-time to damage or interruption from computer viruses,
power outages, third-party intrusions and other technical malfunctions. If our systems are damaged, or fail
to function properly, we may have to make monetary investments to repair or replace the systems, and we
could endure delays in our operations. Any material disruption or slowdown of our systems, including a
disruption or slowdown caused by our failure to successfully upgrade our systems, could cause
information, including data related to customer orders, to be lost or delayed. Such a loss or delay could —
especially if the disruption or slowdown occurred during our peak selling seasons — result in delays of
merchandise delivery to our stores and customers, which could reduce demand for our merchandise and
cause our sales and profitability to decline.
Comparable store sales may continue to fluctuate on a regular basis and impact the volatility of the
price of our Common Stock.
Our comparable store sales, defined as year-over-year sales for a store that has been open as the same
brand at least one year and the square footage of which has not been expanded or reduced by more than
20%, have fluctuated significantly in the past on an annual and quarterly basis and are expected to continue
to fluctuate in the future. We believe that a variety of factors affect comparable store sales results
including, but not limited to, fashion trends, actions by competitors or mall anchor tenants, changes in
economic conditions and consumer spending patterns, weather conditions, opening and/or closing of our
stores in proximity to each other, the timing of the release of new merchandise and promotional events,
changes in our merchandise mix and the calendar shifts of tax free and holiday periods.
Comparable store sales fluctuations may impact our ability to leverage fixed direct expenses,
including store rent and store asset depreciation, which may adversely affect our financial condition or
results of operations.
In addition, comparable store sales fluctuations may have been an important factor in the volatility of
the price of our Common Stock in the past, and it is likely that future comparable store sales fluctuations
will contribute to stock price volatility in the future.
Our market share may be negatively impacted by increasing competition and pricing pressures from
companies with brands or merchandise competitive with ours.
The sale of apparel and personal care products through stores and direct-to-consumer channels is a
highly competitive business with numerous participants, including individual and chain fashion specialty
stores, as well as regional, national and international department stores. The substantial sales growth in the
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