Abercrombie & Fitch 2011 Annual Report Download - page 19

Part of our future growth is dependent on our ability to operate stores in desirable locations with
capital investment and lease costs providing the opportunity to earn a reasonable return. We cannot be sure
as to when or whether such desirable locations will become available at reasonable costs.
Our net sales fluctuate on a seasonal basis, causing our results of operations to be susceptible to
changes in Back-to-School and Holiday shopping patterns.
Historically, our operations have been seasonal, with a significant amount of net sales and net income
occurring in the fourth fiscal quarter, due to the increased sales during the Holiday selling season and, to a
lesser extent, the third fiscal quarter, reflecting increased sales during the Back-to-School selling season in
the U.S. Our net sales and net income during the first and second fiscal quarters are typically lower due, in
part, to the traditional slowdown in retail sales immediately following the Holiday selling season. As a
result of this seasonality, net sales and net income during any fiscal quarter cannot be used as an accurate
indicator of our annual results. Any factors negatively affecting us during the third and fourth fiscal
quarters of any year, including inclement weather or unfavorable economic conditions, could have a
material adverse effect on our financial condition and results of operations for the entire year.
Our inability to accurately plan for product demand and allocate merchandise effectively could have a
material adverse effect on our results.
We must order and keep appropriate merchandise in stock to meet demand. As a result, the inability to
accurately plan for product demand and allocate merchandise effectively could have a material adverse
effect on our financial condition and results of operations. High inventory levels due to unanticipated
decreases in demand for our products, misidentification of fashion trends, or excess inventory purchases
could require us to sell merchandise at a substantial markdown, which could reduce our net sales and gross
margins and negatively impact our profitability. Low levels of inventory due to conservative planning
could also affect product offerings in our stores and on our websites, and negatively impact net sales and
profitability.
Our failure to protect our reputation could have a material adverse effect on our brands.
Our ability to maintain our reputation is critical to our brands. Our reputation could be jeopardized if
we fail to maintain high standards for merchandise quality and integrity. Any negative publicity about these
types of concerns may reduce demand for our merchandise. Failure to comply with ethical, social, product,
labor, health and safety or environmental standards, or related political considerations, could also
jeopardize our reputation and potentially lead to various adverse consumer actions, including boycotts.
Public perception about our products or our stores, whether justified or not, could impair our reputation,
involve us in litigation, damage our brands and have a material adverse effect on our business. Failure to
comply with local laws and regulations, to maintain an effective system of internal controls or to provide
accurate and timely financial statement information could also hurt our reputation. Damage to our
reputation or loss of consumer confidence for any of these or other reasons could have a material adverse
effect on our results of operations and financial condition, as well as require additional resources to rebuild
our reputation.
We rely on the experience and skills of our senior executive officers, the loss of whom could have a
material adverse effect on our business.
Our senior executive officers closely supervise all aspects of our business — in particular, the design
of our merchandise and the operation of our stores. Our senior executive officers have substantial
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