Abercrombie & Fitch 2011 Annual Report Download - page 43

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new international stores and our direct-to-consumer business. We will continue to take a long-term
approach, and will not sacrifice quality to achieve cost reductions.
We are confident that we are on track in regard to our long-term strategy of leveraging the
international appeal of our brands to build a highly profitable, sustainable, global business. There are five
key elements to this strategy.
First, continuing to provide high-quality, trend-right merchandise and a compelling and differentiated
store experience.
Second, continuing to close underperforming U.S. chain stores. During Fiscal 2011, we closed 68 U.S.
chain stores, predominately at the end of the year through natural lease expirations, bringing the total stores
closed over the last two years to 135 stores.
Third, advancing our direct-to-consumer business, which should benefit from multiple investments we
are making in the business and from our growing international presence.
Fourth, continuing to focus on our highly profitable international real estate plan. During Fiscal 2011,
we opened five new A&F flagship stores and 39 international Hollister stores. In Fiscal 2012, we expect to
open A&F flagship or “Tier 1” stores in Hamburg, Hong Kong, Munich, Amsterdam and Dublin, and we
expect to open close to 40 Hollister international stores.
Finally, maintaining tight control over expenses and seeking greater efficiencies, for example, through
consolidation of our two domestic distribution centers. The consolidation is expected to be completed by
the end of Fiscal 2012 and is expected to facilitate the sale or lease of the second distribution center and
result in reduced operating costs.
Based on these factors, we anticipate strong EPS growth in Fiscal 2012, notwithstanding an
approximately flat same-store sales assumption. Longer-term, our objective remains to deliver consistent
and sustainable growth in sales and EPS. We believe trend rates of close to 15% in sales and somewhat
above that in EPS are realistic goals.
The following measurements are among the key business indicators reviewed by various members of
management to gauge the Company’s results:
• 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 its square footage has not been expanded or reduced by more than 20%
within the past year;
• Direct-to-consumer sales growth;
• U.S. and International store performance;
• Store productivity;
• Initial Mark Up (“IMU”);
• Markdown rate;
• Gross profit rate;
• Selling margin, defined as sales price less original cost, by brand and by product category;
• Stores and distribution expense as a percentage of net sales;
• Marketing, general and administrative expense as a percentage of net sales;
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