Abercrombie and Fitch is a family clothing retail store which sells to men, women, and children both casual clothing and small accessories. A&F sells casual, business, sports, and swim apparel. Its accessory line includes jewelry, perfumes and colognes, and flip flops. As well as Abercrombie & Fitch’s, the company also owns and operates three other branches of family clothing stores. These branches include, Hollister, whose main target are people aged 18-25, Abercrombie kids, whose target is boys and girls aged 7-14, and Gilly Hicks, which is a just-for-girls line of clothing.
Abercrombie has several locations both in the U.S. and across the globe. The clothing retailer has over 1,000 locations throughout the United States, England, Italy, Japan, Puerto Rico, France, Spain, Denmark, United Arab Emirates Federation, Canada, Netherlands, Singapore, Germany, Ireland, Belgium, China, and Seoul.
Abercrombie & Fitch's headquarters are located in New Albany, Ohio. In 1996, Michael Stanton Jefferies become CEO of Abercrombie & Fitch. He was hired by Leslie Wexner, the then CEO of The Limited to invigorate Abercrombie & Fitch. Jefferies built Abercrombie & Fitch to an upscale apparel retailer focused on selling to college students and had eventually broken its time from The Limited. As a result, Jefferies had become the official CEO of Abercrombie & Fitch and began opening dozens of stores across America.
Strengths:
Three unique and advantageous aspects of Abercrombie & Fitch include their lack of traditional advertising, ability to reduce unit costs while remaining competitively priced with other luxury clotheslines and their increased global expansion. A&F’s lack of traditional advertising means they eschew TV and billboard ads and attract their young demographic with newer forms of advertising like social media, extensive e-commerce and other forms of digital media. Abercrombie’s primary form of advertising is their ‘in-store experience’. A&F’s stores have a unique decor and layout which is standardized worldwide among each store. A&F’s lack of traditional advertising reduces advertising expenses greatly; social media and e-advertising is much cheaper in comparison. A&F’s gross margins have been increasing due to their decreasing production costs. A&F sources their clothing production from developing countries like China, India, Guatemala and Vietnam. A&F’s retail prices reflect their luxury status but constant sales discounts and brand loyalty help them stay competitive with other high-end retailers and other young adult clothiers. A&F’s global expansion is key to their revenue gains. A&F can charge much higher prices in non-US countries, because of their ‘Americana’ brand image.
Weaknesses:
The weakest aspects of Abercrombie & Fitch include their reliance on remaining ‘cool’ with their small target demographic, bad press from the current CEO Mike Jeffries and increased competition from ‘fast fashion’ retailers. A&F has a young adult demographic which is very fickle and easily swayed by trends. The reason for A&F’s dramatic rise in sales was because of a such trend during the late 1990s and early 2000s. A&F has received bad press over the years from the CEO Mike Jeffries who claimed that company hires "good-looking people" because they attract "other good-looking people, and we want to market to cool, good looking people." A&F was also flamed over intentionally not stocking XL and XXL sizes for women because they didn’t consider overweight women part of their “cool” demographic. Lastly, A&F has had increased competition from ‘fast-fashion’ retailers, which market heavily to teenage girls with much lower prices than A&F.
A Form 10-K:
The purpose of the investors page on Abercrombie & Fitch’s corporate website is to educate investors of the different opportunities Abercrombie & Fitch has made to increase profits, revenue, and sales. It also includes their different marketing strategies, accounting principles, financial positions, and company overview. It is intended to share company information with patrons who are interested in Abercrombie & Fitch.
Every annual report contains 15 sections altogether broken up within four parts.
The first part contains a description of the business, the risk factors that the business may have, any unresolved staff comments or problems that are caused throughout the year, a description of their properties, the company’s legal proceedings, and the mine safety disclosures.
The second part contains an understanding of the company’s marketing tools, which include any related stockholder manners, selected financial data and financial statements, a management’s discussion and analysis of their financial data and results of operations, the company’s market risk, disagreements between Accountants and company’s financial records, and controls and procedures.
The third part is a list of executive management of the company as well as their compensation. It also lists the securities owned by the executive management, certain beneficial owners, and related stockholder matters. In addition, it lists certain relationships and related transactions and director independence, which is a business deal by two companies who were already joined by a special relationship prior to the aforementioned transaction and a mention of all members of the board of directors that were brought in from outside the company. Lastly, there is a list of all accounting fees and services.
The final part of the Form 10K includes one last section which includes a list of other documents used to complete the 10K form and a signature section which shows which individuals reviewed, understood, and signed the form.
As well as the breakdown of parts to the financial statements, companies also add what are frequently referred to as “footnotes” or “financial notes.” These notes contain some fo the most important information in corporate financial reporting. It is very hard for a company to provide all of the details necessary in the financial statements, therefore a company uses these notes to provide critically important additional disclosures and anything considered to be an integral part of the statements. These notes are essential for investors to understand and learn how to read the information the company is providing.
Both inside the company and outside the company, auditors review financial statements and summaries to keep a check on the company's ability to maintain these statements properly. For the financial summaries that are formed by a certain company, an additional auditor, outside of the company, reviews these statements and makes notes of any changes or discrepancies between the two reviews. This section is included at the end of the final 10k report. All of these pieces together form what is known as the 10k report. It is essential for every business to provide one that will account for any information that the company holds each year.
Analysis:
PricewaterhouseCoopers currently audits Abercrombie & Fitch’s annual reports and schedules. It often takes a look at several different aspects of the company using basic and advanced accounting principles to interpret the company’s current situation. PricewaterhouseCoopers creates detailed balance sheets, statements of income, shareholders’ equity forms and cash flow documents to report on the financial position of Abercrombie and Fitch Co.
One of the primary issues that explains the current and future results of operations with Abercrombie & Fitch is that the source of cash was driven by a change in inventory and reduced accounts payable and not due to an increase in sales revenue. Another issue is the decrease of profits from U.S stores. Since a bulk of A&F stores are located in the US, this means that many of their stores are not generating significant profit. Another issue is that A&F are opening mega-stores overseas in very expensive retail locations, such as Seoul and Dubai. A&F has also been repurchasing shares of their stock in order to offset the decrease of stock value. Lastly, the overseas expansion makes A&F very susceptible to foreign exchange rates fluctuations.
Abercrombie & Fitch Company has had a difficult time staying consistent in it’s sales and profits. As the 10K shows, the company’s net income has fluctuated between 3-5% throughout the past couple of years. Along with an analysis of the 10 year summary which shows an increase in sales, however, inconsistent at best, can easily swing the company back and forth between being in a place of debt and being in a place of profit. Recently, Abercrombie & Fitch has dealt with several problems that have led to a decrease in interest from consumers in the United States. It’s higher price and higher standards has turned off large groups of people from wanting their product. As a result, Abercombie & Fitch Co.’s outlook has changed dramatically from just a couple of years ago. Back in 2007, one of the companies strongest years, A&F’s net income was over $475 million. As of 2013 the companies net income was just over $54 million for the entire year. In addition, A&F’s current liabilities are much larger than their 2007 liabilities. In 2007 the company had only 949 million in liabilities, whereas in 2013 the company had over 1.17 billion in liabilities. It’s tremendous fall in net income as well as sales and revenue, leads investors to believe that this company is stuck in a downward spiral that can lead to the company requiring additional debt funding to finance its operations.
Due to Abercrombie & Fitch’s strong international presence, the company creates a specific financial sheets each year that makes reference to International Financial Reporting Standards (IFRS). International Financial Reporting Standards are a common set of rules put together for businesses to account for their assets in an understandable and comparable measure. Abercrombie & Fitch documents income statements, balance sheets, cash flows statements and other statements with both UK GAAP standards as well as the International Financial Reporting Standards. The GAAP standards are different from IFRS in that it focuses on certain practical situations. These documents are created separately and show small difference between the two standards, both representing a financial year of 52 weeks. A&F’s amendments, standards and interpretation being adopted, follows the IFRS interpretations. All these standards and amendments do not have any significant impact on the net assets of the Abercrombie & Fitch.