Abercrombie & Fitch 2014 Annual Report Download - page 9

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• extreme weather conditions and the seasonal nature of our business may cause net sales to fluctuate and negatively impact
our results of operations;
• the impact of war or acts of terrorism could have a material adverse effect on our operating results and financial condition;
• changes in the regulatory or compliance landscape could adversely affect our business and results of operations;
• our Asset-Based Revolving Credit Agreement and our Term Loan Agreement include restrictive covenants that limit our
flexibility in operating our business; and,
• compliance with changing regulations and standards for accounting, corporate governance and public disclosure could
adversely affect our business, results of operations and reported financial results.
The following sets forth a description of the preceding risk factors that we believe may be relevant to an understanding of
our business. These risk factors could cause actual results to differ materially from those expressed or implied in any of our forward-
looking statements.
Changes in global economic and financial conditions, and the resulting impact on consumer confidence and consumer
spending, as well as other changes in consumer discretionary spending habits, could have a material adverse effect on our
business, results of operations and liquidity.
Our business depends on consumer demand for our merchandise. Consumer purchases of discretionary items, including our
merchandise, generally decline during recessionary periods and other periods where disposable income is adversely affected. Our
performance is subject to factors that affect worldwide economic conditions including unemployment, consumer credit availability,
consumer debt levels, reductions in net worth based on declines in the financial, residential real estate and mortgage markets, sales
tax rates and tax rate increases, fuel and energy prices, interest rates, consumer confidence in future economic and political
conditions, consumer perceptions of personal well-being and security, the value of the U.S. Dollar versus foreign currencies and
other macroeconomic factors. Additionally, consumer preferences and discretionary spending habits have changed in recent years,
which has negatively impacted, and may continue to negatively impact, the retail apparel market. Global economic uncertainty
and changing consumer preferences and discretionary spending habits could have a material adverse effect on our results of
operations, liquidity and capital resources if reduced consumer demand for our merchandise should occur. It could also impact
our ability to fund growth and/or result in our becoming reliant on external financing, the availability and cost of which may be
uncertain.
The economic conditions and factors described above could adversely affect the productivity of our stores, as well as adversely
affect the pace of opening new stores, or their productivity once opened. Finally, the economic environment may exacerbate some
of the risks noted below, including consumer demand, strain on available resources, our international growth strategy, availability
of real estate, interruption of the flow of merchandise from key vendors and manufacturers, and foreign currency exchange rate
fluctuations.
The inability to manage our inventory commensurate with customer demand and changing fashion trends could adversely
impact our sales levels and profitability.
Our success largely depends on our ability to anticipate and gauge the fashion preferences of our customers and provide
merchandise that satisfies constantly shifting demands in a timely manner. Our merchandise and our brands must appeal to our
consumers, whose preferences change frequently and cannot be predicted with certainty. We must translate market trends into
appropriate, saleable merchandise far in advance of its sale in our stores or through our websites. Because we enter into agreements
for the manufacture and purchase of merchandise well in advance of the applicable selling season, we are vulnerable to changes
in consumer preferences and demand, pricing shifts, and the sub-optimal selection and timing of merchandise purchases. Moreover,
there can be no assurance that we will continue to anticipate consumer demands and accurately plan inventory successfully in the
future. Changing consumer preferences and fashion trends, whether we are able to anticipate, identify and respond to them or not,
could adversely impact our sales. Inventory levels for certain merchandise styles no longer considered to be “on trend” may
increase, leading to higher markdowns to sell through excess inventory and therefore, lower than planned margins. A distressed
economic and retail environment, in which many of our competitors continue to engage in aggressive promotional activities
increases the importance of reacting appropriately to changing consumer preferences and fashion trends. Conversely, if we
underestimate consumer demand for our merchandise, or if our manufacturers fail to supply quality products in a timely manner,
we may experience inventory shortages, which may negatively impact customer relationships, diminish brand loyalty and result
in lost sales. Any of these events could significantly harm our operating results and financial condition.