Abercrombie & Fitch 2014 Annual Report Download - page 26

Download and view the complete annual report

Please find page 26 of the 2014 Abercrombie & Fitch annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 89

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89

26
CURRENT TRENDS AND OUTLOOK
2014 was a year of significant transition for Abercrombie & Fitch. Our Board of Directors was reconstituted, with new members
bringing significant retail and other relevant experience. We undertook a significant change to a brand-driven organization, and
recruited two brand presidents with significant retail experience to lead that transformation. Our now former CEO, Michael
Jeffries, departed at the end of the year and we are moving forward with a selection process for a new CEO.
As we move into 2015, we continue to evolve our business and respond to major changes and challenges in the macroeconomic
and consumer environment. While our efforts may take some time to show meaningful results, we are confident that we are taking
the right steps to enable our brands to deliver their full potential.
Our strategic priorities for Fiscal 2015 include:
• Improving comparable store sales trends
• Continuing to invest in DTC and omnichannel capabilities
• Ongoing process improvement and cost management
• Pursuing additional opportunities to expand our brand reach, and
• Ensuring we are properly organized for the next phase of growth and increase accountability to the bottom line
We believe that the aggregate effect of these changes will enable us to improve our performance as we go forward.
In what remains a very difficult consumer and competitive environment we expect the first half of Fiscal 2015 to be challenging.
Foreign-currency exchange rates are expected to be a significant headwind to our results for Fiscal 2015. We expect a negative
impact from reduced sales of heavy logo merchandise to modestly abate in the first half of the year, and then neutralize in the
second half of the year. We expect gross margin rate to be flat to slightly up.
With regard to operating expense, we expect the benefit from foreign exchange rates and expected savings from our profit
improvement initiative to be offset by the restoration of normal incentive compensation accruals and increased investment in DTC
and omnichannel. Excluded from our operating expense outlook are potential impairment and store closing charges and other
potential business transformation and restructuring charges.
In addition, we are projecting a full year weighted average share count of approximately 70 million shares, excluding the effect
of potential share buybacks.
We plan to open 15 full-price stores in Fiscal 2015 in the key growth markets of China, Japan and the Middle East, and four full
price stores in North America. We also plan to open 11 new outlet stores in the U.S. In addition, the Company anticipates closing
approximately 60 stores in the U.S. during the fiscal year through natural lease expirations.
With regard to capital allocation, we are targeting Fiscal 2015 capital expenditures of approximately $150 million, which are
prioritized towards new stores and store updates as well as DTC and IT investments to support our growth initiatives.