Table of ConTenTs Chairman’s Letter 6 Financial Summary 11 Management’s Discussion and Analysis 12 Quantitative and Qualitative Disclosures About Market Risk 22 Consolidated Statements of Net Income and Comprehensive Income 24 Consolidated Balance Sheets 25 Consolidated Statements of Shareholders’ Equity 26 Consolidated Statements of Cash Flows 27 Notes to Consolidated Financial Statements 28Report of Independent Registered Public Accounting Firm 40 Corporate Information 43 Senior Management and Board of Directors 44
Once again, I am proud to report that our company achieved record sales and earnings, marking 16 consecutive years of sales and earnings improvement. Our success is a reflection of effective brand positioning and our commitment tomaintain and enhance that positioning over the long-term. In 1992, we began to build a new Abercrombie & Fitch rooted in East Coast traditions with an Ivy League heritage. We positioned the brand to target a young and hip customer by offering high quality, trend right casual sportswear and creating a unique and exceptional in-store environment, which established an emotional connection with ourcustomer. We developed standards for every aspect of the customer experience to ensure that the brand’s image was reinforced through product design and presentation, marketing imagery, music and lighting, fragrance and enthusiastic and energetic brand representatives. We also recognized the importance of protecting the long-term position of the brand by reinvesting in store refreshes and remodels,maintaining full priced selling and avoiding market saturation. These standards continue to be the foundation of the brand and today, I believe Abercrombie & Fitch is better positioned than ever before. Leveraging the branding success of Abercrombie & Fitch, which has achieved iconic status with worldwide recognition, we applied our strategy to our other internally developed brands which include:abercrombie, Hollister, Ruehl and Gilly Hicks. While each brand possesses its own unique heritage and handwriting, they all share common elements and characteristics including casual, classic, confidence, intelligence, privilege and a sense of humor. Our objective is to be the dominate, aspirational lifestyle brand for each brand’s targeted age group. The success of our brand is demonstrated by ourlong-standing financial performance. In 1992, we operated 40 Abercrombie & Fitch stores in the United States that generated $85.3 million in sales. Today, across all brands, we operate over 1,000 stores in the United States, Canada and the United Kingdom. In 2007, we generated $3.750 billion in sales and $475.7 million in net income, with earnings per diluted share of $5.20, representing a 13% increaseover 2006. Since becoming a publicly held company in 1996, sales and earnings per diluted share have increased by a compounded annual growth rate of 25% and 31%, respectively, far exceeding industry averages. We believe we can continue to produce consistent and sustainable growth with our existing domestic and international expansion opportunities. Domestically, growth will come from provenbrands like Hollister and developing concepts like Gilly Hicks. Internationally, growth will come from the Abercrombie & Fitch, abercrombie and Hollister brands.
Our recent performance highlights the opportunity for international expansion. In 2007, the Abercrombie & Fitch and Hollister stores located in Canada continued to generate more than three times the sales productivity of the average U.S.counterpart and our Abercrombie & Fitch London flagship generated similar sales per selling square foot to our amazingly productive Fifth Avenue flagship. “Tourist” stores, such as Fifth Avenue in New York and Aventura Mall in Miami, are among the top performing stores in the chain. Additionally, international direct-to-consumer sales increased 72.4% in 2007. In 2008, we will continue our...
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