Abercrombie & Fitch Company (ANF)

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Abercrombie & Fitch Co. (ANF)

Q2 2010 Earnings Call

August 17, 2010 8:30 am ET

Executives

Eric Cerny - Manager, IR

Mike Jeffries - Chairman and CEO

Jonathan Ramsden - EVP and CFO

Analysts

Jeff Klinefelter - Piper Jaffray

Janet Kloppenburg - JJK Research

Edward Yruma - KeyBanc

Brian Tunick - JPMorgan

Christine Chen - Needham & Company

Stacy Pak - SP Research

Evren Kopelman - Wells Fargo Securities

Michelle Tan - Goldman Sachs

Richard Jaffe - Stifel

Lorraine Hutchinson - Bank of America-Merrill Lynch

Robert Samuels - Phoenix Partners

Dorothy Lakner - Caris & Company

John Morris - BMO Capital

Jennifer Black - Jennifer Black & Associates

Robin Murchison - SunTrust

Marni Shapiro - The Retail Tracker

Laura Champine - Cowen and Company

Roxanne Meyer - UBS

Dana Telsey - Telsey Advisory Group

Amy Noblin - Weeden

Howard Tubin - RBC Capital Markets

Sam Panella - Raymond James

Linda Tsai - MKM Partners

Presentation

Operator

Good day, everyone, and welcome to the Abercrombie & Fitch second quarter earnings results conference call. (Operator Instructions)

At this time, I would like to turn the conference over to Mr. Eric Cerny. Mr. Cerny, please go ahead, sir.

Eric Cerny

Good morning and welcome to our second quarter earnings call. Earlier this morning, we released our second quarter sales and earnings, balance sheet, income statement, store opening and closing summary, and an updated financial history. Please feel free to reference these materials available on our website. Also available on our website is an investor presentation which we will be referring to in our comments during this call.

This call is being recorded and the replay may be accessed through the internet at abercrombie.com under the Investors section. Before we begin, I'll remind you that any forward-looking statements we 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, followed by a review of the financial performance for the quarter from Jonathan Ramsden. 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.

As a reminder, the after-tax operating results of Ruehl for 2009 and prior periods are now included in discontinued operations and income statement and related comparisons to prior year therefore generally exclude Ruehl.

Now I'll turn the call over to Mike.

Mike Jeffries

Good morning, everyone. Thank you for joining us. We are pleased with the progress we're making as we pursue our strategy of leveraging the international appeal of our iconic brands to build a highly profitable, sustainable, global business. We achieved growth both domestically and internationally during the quarter. We are gaining traction and we are very excited about what we see ahead of us.

In that context, I want to take a few minutes to recap how we see the state of our business today and to talk about our progress on some of the key initiatives we've discussed in the recent calls.

Starting with our domestic business, we're pleased that all of the brands achieved positive comps for the quarter. We are particularly pleased with the performance of the flagship and tourist stores both on an absolute and a relative basis. Year-to-date, our U.S. tourist stores produced double-digit comps. And as you know, we operate these locations without many of the sale events and promotions that we've run in the rest of the chain.

At the same time, we are also pleased that our non-tourist stores for all brands were in positive territory for the quarter. I want to make special mention of our Hollister Epic store in SoHo, which has posted very strong comps since it entered the comp base a few weeks ago.

Next, we believe that our marketing and promotional activities for the quarter were effective and appropriately timed. We also believe that the promotions were effective in driving overall gross profit dollars. Substantially all of the promotions we ran during the quarter were planned in advance and were driven by our expectation that they would be effective in driving sales productivity and gross profit dollars. As we said at the beginning of the year, we are willing to tolerate some gross margin rate erosion in the near term to accomplish that.

While it is too early to speak to back-to-school results, I can also tell you that I feel very good about the look and feel of our stores today. We have great product in both men's and women's. We are gaining traction with trends. And importantly, we have inventory behind these trends.

The marketing in all of the brands is exciting and energetic, and we are engaging with our customer in ways that promote some of our key back-to-school items. We have an appropriate mix of fashion and basic items in the assortment, and we intentionally took a more aware-now approach to our back-to-school floor set. Most importantly, I feel that we are now properly organized in merchandizing, planning and design to deliver sustainable growth domestically and internationally.

Having said that, the performance of a number of our domestic stores remains unsatisfactory. And to that end, we remain committed to restore closure plan, particularly for the A&F and kids brands. Jonathan will provide details on this in a few minutes.

Moving to our international business, we're very happy with the performance of both our stores and direct-to-consumer business. Our U.K. Hollister stores continue to comp positively in aggregate for the quarter. The London flagship had double-digit comps for the quarter, and Milan and Ginza continued to perform well.

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