Abercrombie & Fitch 2011 Annual Report Download - page 57

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Policy Effect if Actual Results Differ from Assumptions
Inventory Valuation
Inventories are principally valued at the lower of
average cost or market utilizing the retail method.
The Company reduces inventory value by recording a
valuation reserve that represents estimated future
permanent markdowns necessary to sell-through the
inventory. The valuation reserve can fluctuate
depending on the timing of markdowns previously
recognized.
Additionally, as part of inventory valuation, an
inventory shrink estimate is made each period that
reduces the value of inventory for lost or stolen
items.
The Company has not made any material changes
in the accounting methodology used to determine
the shrink reserve or the valuation reserve over the
past three fiscal years.
The Company does not expect material changes in
the near term to the underlying assumptions used
to determine the shrink reserve or valuation
reserve as of January 28, 2012. However, changes
in these assumptions do occur, and, should those
changes be significant, they could significantly
impact the ending inventory valuation at cost, as
well as the resulting gross margin(s).
An increase or decrease in the valuation reserve of
10% would have affected pre-tax income by
approximately $7.2 million for Fiscal 2011.
An increase or decrease in the inventory shrink
accrual of 10% would have been immaterial to
pre-tax income for Fiscal 2011.
54