Abercrombie & Fitch Co. (ANF)
Q4 2008 Earnings Call Transcript
February 13, 2009 8:30 a.m. ET

Executives

Jonathan Ramsden - Chief Financial Officer
Michael Jeffries – Chairman and Chief Executive Officer
Brian Logan – Principal Accounting Officer

Analysts

Jeff Klinefelter - Piper Jaffray & Co
Dana Telsey - Telsey Advisory Group
Christine Chen - Needham & Company
Janet Kloppenburg - JJK Research
Paul Lejuez - Credit Suisse
Lorraine Maikis-Hutchison – Banc of America/Merrill Lynch
Randy Konik – Jefferies & Co.
Kimberly Greenberger – Citigroup
Michele Tan – Goldman Sachs & Co.
Jeff Black – Barclays Capital
Brian Tunick – JPMorgan
Liz Dunn - Thomas Weisel Partners
Adrienne Tennant - Friedman, Billings, Ramsey & Co.
Jennifer Black - Jennifer Black & Associates
Linda Tsai – MKM Partners
Howard Tubin – RBC Capital Markets
Robin Murchison – SunTrust Robinson Humphrey

Presentation

Operator

Good day everyone and welcome to the Abercrombie & Fitch fourth quarter earnings results conference call. Today’s conference is being recorded. If you have a question at any time during today’s conference you may signal us by pressing the “*” key followed by the digit “1” on your touchtone telephone. We will open the call to take your questions at the end of the presentation. We ask that you limit yourself to one question during the question-and-answer session. At this time, I would like to turn the conference over to the Chief Financial Officer, Mr. Jonathan Ramsden. Mr. Ramsden, please go ahead sir.

Jonathan Ramsden

Thank you. Good morning everyone and welcome to our fourth quarter earnings call. Earlier this morning we released our fourth quarter sales and earnings, balance sheet, income statement and an updated financial history. Please feel free to reference these materials which are available on our website. This call is being recorded and the replay may be accessed through the Internet at Abercrombie.com.

Before we begin I remind you that any forward-looking statements we make or may make today are subject to the Safe Harbor statement found in our SEC filings. Today’s earnings call will be limited to one hour. We will begin the call with a few brief remarks from Mike Jeffries, followed by a review of the financial performance for the quarter from Brian Logan and myself. After our prepared comments, we will be available to take your questions for as long as time permits. Please limit yourself to one question so that we can speak with as many callers as possible.

Now to Mike.

Michael Jeffries

Good morning and thank you for joining us today. Jonathan, it is very great to have you on Board. We believe the fourth quarter of 2008 will go down in history as one of the biggest retail nightmares. It certainly will for me. We saw malls dominated by promotional activity, consumers who continued to show reluctance to spend, especially for premium brands and unprecedented volatility in the economy. In this context, particularly given our position as an aspirational brand we are satisfied with our results for the quarter.

We reacted to the environment by cutting back on expenses. We used markdowns to clear through seasonal inventory. We reduced capital expenditures by scaling back on our domestic expansion and ended with a strong cash position. Most importantly, we executed our strategy in a way that enabled us to protect our brands. As a result of these actions, comparable store sales, ending inventory levels, and our earnings per share, excluding the effect of one-time items, were favorable to the guidance we provided in November. Jonathan and Brian will provide more information on our financial results in a moment.

As we look toward 2009 I want to make a number of points about how we are going to manage our business. One, we’re going to protect the brands. Two, we’re going to preserve cash. Three, we’re going to push international growth. And all of this in a seasoned, disciplined, and controlled way.

First, we remain committed to protecting our brands, the cornerstone of a successful and profitable business model and therefore vital to long term shareholder value. Our commitment to providing trend right, high quality merchandise has never been stronger than it is today. We will continue to push forward on improved quality even as others remove quality from their product. We constantly obsess about discovering what is next and will continue to improve on our ability to offer a compelling product assortment.

Second, we will preserve cash. We remain committed to managing our operating expenses. We have already undertaken a number of cost saving initiatives and will continue to look for additional opportunities. These efforts are directed toward insuring we are operating in the most efficient and effective manner. We will continue to be mindful of our capital expenditures and manage them for the seasoned and disciplined approach.

Lastly, we continued to be encouraged with the results of our international expansion and are moving forward with our plans to bring our brands to the rest of the world. The Abercrombie & Fitch flagship performance continues to be phenomenal. We anxiously await the opening of additional flagships in the second half of 2009 and the Hollister SoHo flagship this summer.

The Hollister UK mall based stores continue to outperform our expectations and we believe we have opportunity to grow that concept this year. We will continue to approach our international expansion with the discipline that the current environment requires and we’ll proceed at a pace with which we feel comfortable. Having said all of this, we will continue to focus on our long-term objectives while seeking to maintain flexibility to respond to market conditions as we clearly demonstrated in the fourth quarter.