This summary is based on the first quarter fiscal 2007 earnings call conducted by Abercrombie & Fitch Co. (ANF: chart) on May 23, 2007.

Management:

- VP of Corporate Communications: Tom Lennox
- Chairman and CEO: Mike Jeffries
- CFO: Mike Kramer
- CIO: Kristen Blum

Key Investors Issues

- Net sales rose 13% to $742.4 million from $657.3 million in the prior year.
- Net income increased 7% to $60.1 million or 65 cents a share.
- The firm ended with a total of 359 Abercrombie and Fitch stores, 180 Abercrombie stores, 399 Hollister stores and 16 RUEHL stores.

First Quarter Highlights

Net sales increased 13% to $742.4 million from $657.3 million in 2006 as direct-to-consumer net sales increased 43% to $43.5 million.

- Total company comparable store sales declined 4% and the gross profit rate was 65.6%, up 20 basis points compared to last year.
- The increase in rate was due to improved initial markup, partially offset by slightly higher markdown rate versus last year.
- The firm ended the first quarter with inventories up 5% per gross square foot at cost versus last year.
- Stores and distribution expense as a percentage of sales increased 220 basis points to 41.5% versus 39.3% last year due to an inability to leverage rent and other fix costs due to the comparable stores sales declined.
- These increases were partially offset by a reduction in payroll hours on a per store basis, as well as by other variable expenses, which were swiftly adjusted in response to negative sales trends during the quarter.

Marketing, general and administrative expenses decreased 150 basis points as a percentage of sales to 12.1% from 13.6% last year as a result of a decrease in travel and outside services.

- Operating income increased 10% to $92.7 million compared to $84 million last year.
- Net income increased 7% to $60.1 million or 65 cents a share versus $56.2 million or 62 cents a share on revenue growth.
- It ended with a total of 359 Abercrombie and Fitch stores, 180 Abercrombie stores, 399 Hollister stores and 16 RUEHL stores.

Operational Initiatives:

- The firm upgraded approximately 40 of the 160 stores slated for 2007 upgraded projects.
- The store refresh program is on track for $60 million worth brief refresh improvements for fiscal 2007.
- From a systems standpoint, the firm is making investments in technology to improve productivity and efficiency, as well as provide flexibility to the organization.
- It has already begun several new initiatives, and one of which is the core retail merchandizing system implementation which will deliver to the company, streamlined functionality and better data access.

Once the core retail merchandizing system implementation is complete, the firm will introduce more retail supply chain initiatives, i.e. addressing store systems, logistic systems and the overall corporate system initiatives.

- The firm renewed its commitment to the e-Commerce business and enhanced the look and feel of the website and believe that these changes better express the in-store environment.
- The web business is benefited from a stronger in-store inventory position, as well as more targeted e-mail marketing.
- The e-Commerce business has responded extremely well to these efforts with the 43% sales increase on a year-over-year basis.
- It opened the London Abercrombie & Fitch flagship in March, with initial performance outstanding.
- The ANF UK web business increased 100%. The kids business Abercrombie increased 285%.

The six Canadian stores, including both Abercrombie & Fitch and Hollister stores in Toronto and Edmonton continue to generate approximately three times of the volumes of their domestic counterparts.

- Based on this strategy, the firm is currently assessing additional opportunities in Vancouver, Calgary and Ottawa.
- It also plans to rollout the kids business Abercrombie on an international basis with two stores planned to open in 2008 in Toronto at the Eastern Center and Sherway Gardens.
- Additional Canadian stores are scheduled to open for the kids business in 2009 and 2010.
- Abercrombie created a new store prototype which is now 7,200 square feet versus the initial format of 9,500 square feet, making the store feel cozier, without impacting the capacity, while increasing the efficiency and projected returns.

Fiscal 2007 Outlook:

- Square-footage is expected to grow by 11% to 12%, primarily through the opening of 10 new Abercrombie and Fitch stores, 29 new Abercrombie stores, 69 new Hollister stores and 9 new RUEHL stores.
- Planned capital expenditures will be between $395 million and $405 million, with $220 million of this amount allocated for store construction and store remodel.
- Net income per diluted share for the first half of fiscal 2007 is expected to be in the range of $1.47 to $1.52, representing a 10% to 13% increase over the first half of fiscal 2006.

Key questions and answers from the first quarter earnings call conducted by Abercrombie & Fitch Co. on May 23, 2007.

Janet Kloppenburg (JJK Research): How have you strengthened the brands during the quarter?

Mike Jeffries: We have to enhance our in-store experience, enhance the iconic nature of each of our brands and two; we have to deliver right merchandizing on a regular basis. We have store initiatives that we are excited about in-store lighting, music enhancing the look and feel of the stores.