PRINCIPLES OF ACCOUNTING II

ANNUAL REPORT REVIEW PROJECT For Abercrombie and Fitch Co. by Miguel A. Hito Tuesday/ 6:30 pm

BROWARD COLLEGE Winter, 2012

PROFESSOR CARDOZO

The report below has been made with the purpose of analyzing the most recent annual report of Abercrombie & Fitch Co. (A&F) on the fiscal year 2011 ended on January 28th, 2012 that was audited by PricewaterhouseCoopers LLP and based on that conclude, if whether or not A&F would be a good investment for our company. A&F is a national clothing retailer which executives offices are located in 6301 Fitch Path, New Albany, Ohio. The company sells a broad array of clothing products for men, women, and kids; under the Abercrombie & Fitch, Abercrombie Kids, Hollister and Gilly Hicks brands. A&F Common Stock is actively traded on the New York Stock Exchange under the symbol ANF. Abercrombie and Fitch use the FIFO inventory method and the depreciation and amortization are computed using the straight-line method. The total reported assets on A&F balance sheet (all amounts shown in thousands) are $3,048,153 and Cash and Equivalents $583,495. After calculating the Current Ratio dividing the Current Assets by Current Liabilities theyve got a 2.11 which is above the 1.5 CUR that would be taken as acceptable and above 2.0 that makes company look healthy and stable because that means they have twice as many assets as liabilities; finally, the company reported a total of $57,851 Long Term Debt. A&F most recent Income Statement has reported total Revenues of (all amounts shown in thousands, except par value amounts) $ 2,518,870 and total Operating expenses of $2,328,840. The Total Net Income of $126,862 which 14.9% less than the last year that

was $150,283. On the statements of Cash Flows (in thousands) the company reported total net cash provided by operating activities of $365,219, and a $340,689 and $265,329 used on Investing and Financing activities respectively. The total Retained Earnings is $2,320,571 and we also can see that they have a total of 150,000 shares of Common Stock authorized ($0.01 par value), 103,300 issued shares, 17,662 treasury stock purchased at average cost that gives a total of 85,638 shares Outstanding. A&F has 1.47 (basic) and 1.43 (diluted) earnings per share, as a result of the past fiscal year 2011, their Common stock was traded along the year with a highest peak of $78.25 and the lowest price in which shares were traded was $43.56. On the last Friday before the report was due the closing market price was $48.43. A&F declares a quarterly dividend (4 times a year) of $0.175 per share. The company doesnt report any Preferred Stock on the annual report. A&F has Available for Sale investments consisted of: insured student loan backed securities of $84,650 and municipal authority bonds of $14,858 with maturities ranging from 16 to 31 years categorized as Long term investments which are recorded using the Equity Method. A&F firmly complies with the Sarbanes Oxley Act writing and signing a letter a the end of the annual report accepting the Section 906 of the act and confirming that the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of the Corporation and its subsidiaries.

On a recent article ( http://www.gurufocus.com/news/170094/abercrombie--fitch-coreports-operating-results-10k ) dated March 27 , 2012; Gurufocus highlights the 2011 fiscal
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year net Sales of $4.158 billion which represents an increase of 20% from Fiscal 2010 net sales of $3.469 billion. This increase was attributable to new stores, primarily international, a 5% increase in comparable store sales, and the fact that the Direct-to-consumer sales in Fiscal year 2011 were $552.6 million, an increase of 36% from Fiscal 2010 direct-toconsumer sales of $405.0 million. The direct-to-consumer business, including shipping and handling revenue, accounted for 13.3% of total net sales in Fiscal 2011 compared to 11.7% in Fiscal 2010. I found this article very interesting because it shows the considerable impact that the online sales have on A&F. I selected this company because is probably one of the most popular clothing retailer for college students and I wanted to understand more about how it business work. After analyzing their annual report, answering the question of whether or not I would advise the company that I work for to invest $10,000 I got into the conclusion that even though their sales and annual profit are recovering the good average they use to have before the giant economic crisis during the late 2000s I believe that this market is already over exploited and it wouldnt be a good idea to invest knowing that are new emerging markets that would give better profits either as a long-term or short-term investment.