This summary is based on the third quarter fiscal 2006 earnings call conducted by Abercrombie & Fitch Inc. (ANF: chart) on November 14, 2006.

Management:

- CC: Tom Lennox
- Chairman, CEO: Mike Jeffries
- CFO: Mike Kramer
- VP Finance: Mike Nuzzo
- Controller: Brian Logan

Key Investors Issues

- Net sales were $863.4 million, increasing 22% over last year
- Net income rose 43% to $102 million or $1.11 a share versus $71.6 million or 79 cents a share in the prior year.
- The firm ended the quarter with 358 Abercrombie & Fitch stores, 171 Abercrombie stores, 372 Hollister stores, and 11 RUEHL stores.

Third Quarter Highlights

Net sales were $863.4 million, increasing 22% over last year’s $704.9 million as comparable store sales increased 5% versus a 25% increase for 2005.

- Transactions per store growth of 12% compared to the third quarter of last year helped offset 3% decline in average transaction value, which was driven by a product mix shift from denim to tops.
- In the adult business, Abercrombie & Fitch, comparable store sales increased 1%, transactions per average store increased 13%.
- In the kids business, Abercrombie, comparable store sales increased 8%, transactions per average store increase 11%.
- Hollister comparable store sales increased 8%, transactions per average store increased 8%. RUEHL comparable store sales increased 20%, transactions per average store increased 61%.

The gross profit rate was 65.8%, 20 basis points lower than last year’s rate of 66%, with the decrease in gross profit rate due to a higher markdown rate versus last year.

- Inventories were down 7% per gross square foot at a cost versus last year as the firm accelerated deliveries of spring merchandize to ensure it is well positioned for post Christmas business.
- Given this strategy, it anticipate ending the fourth quarter with inventory flat to slightly positive on a per foot basis at cost compared to last year.
- Stores and distribution expense as a percentage of sales decreased 20 basis points to 35.7% versus 35.9% last year.
- The decrease in rate versus last year resulted primarily from the company’s ability to leverage store payroll, partially offset by increased store maintenance expenses associated with store investment projects.

The firm invested additional maintenance dollars in A&F stores in the continuing effort to recreate the Fifth Avenue flagship’s shopping experience, an initiative which will continue in the fourth quarter.

- In addition, starting in the fourth quarter, the firm plans to increase salary levels in several store management categories with the goal of improving the ability to recruit and retain a strong store management team.
- Marketing, general and administrative expenses decreased 260 basis points as a percentage of sales to 11.3% from 13.9% last year, attributed to decreased home office and marketing expenses as a percentage of sales.

Net income rose 43% to $102 million or $1.11 a share versus $71.6 million or 79 cents a share in the prior year on revenue growth.

- Operating income increased 41% to $162.8 million, compared to $115.9 million last year.
- The firm ended the quarter with 358 Abercrombie & Fitch stores, 171 Abercrombie stores, 372 Hollister stores, and 11 RUEHL stores.
- The Board of Directors declared a quarterly cash dividend of 17.5 cents per share on the Class A Common Stock.

Operational Highlights:

- Over the past year, the firm has invested $50 million in the stores with updated store fronts and hand sliding, the trims, new signage, and upgraded sound systems.
- At the Home Office, the firm is in the middle of a complete overhaul of the IT strategy, shifting a large part of IT investment from existing system maintenance to new platforms for growth, efficient access to data, and innovation.
-Key areas of focus from an IT respective are supply chain improvements where it will implement systems to make better sourcing decisions.
- These will also include planning merchandized flows more effectively, and replenish stores efficiently and more accurately.
- In store systems, it will provide store managers the technology to help the visual presentation and floor filling process easier to direct and implement.

Fiscal 2006 Outlook:

- The firm now plans to open 8 new Abercrombie & Fitch stores, 19 new Abercrombie stores, 70 new Hollister stores, and 7 new RUEHL stores for a total of 104 stores.
- It plans to end the year with 361 Abercrombie & Fitch stores, 177 Abercrombie stores, 393 Hollister stores, and 15 RUEHL stores for a total of 946 stores.
- Total square footage is expected to grow by 11%.
- Planned capital expenditures will be between $410 million and $420 million, with $260 million allocated to new store construction, remodels, conversions, and improvements to existing stores with the remainder related to IT, and distribution center investments.
- Net income per diluted share is to be in the range of $3.25 to $3.30 in the fourth quarter.
- Net income per diluted share for the year to be in the range of $4.59 to $4.64.

Key questions and answers from the third quarter earnings call conducted by Abercrombie & Fitch Inc. (ANF: chart) on November 18, 2006.

Dana Cohen (Banc of America Securities): Could you just talk a little bit more about the incremental spend in SG&A and then MG&A?

Mike Kramer: There are three areas of increased focus in terms of our MG&A spending. One of those which we have articulated is our IT strategy. We are investing significantly in our IT infrastructure both in Home Office and in the stores.

The other one is the rollout of the flagship experience to the rest of the chain. The $50 million that we are spending; even though there is a portion of this that is CapEx, there is a portion of this that is expense. The third one is really our Concept Five, which we have not really publicly talked about, but we are investing significantly more this year than we were last year with regards to Concept Five.