Abercrombie & Fitch Company (ANF)

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Abercrombie & Fitch (ANF)

Q2 2011 Earnings Call

August 17, 2011 8:30 am ET

Executives

Eric Cerny - Manager of Investor Relations

Michael Jeffries - Chairman, Chief Executive Officer and Member of Executive Committee

Jonathan Ramsden - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Barbara Wyckoff - Credit Agricole Securities (USA) Inc.

Carla White

Dorothy Lakner - Caris & Company

Linda Tsai - MKM Partners

Jeff Black - Citigroup Inc

Randal Konik - Jefferies & Company, Inc.

Christine Chen - Needham & Company, LLC

Adrienne Tennant - Janney Montgomery Scott LLC

Eric Beder - Brean Murray, Carret & Co., LLC

Paul Lejuez - Nomura Securities Co. Ltd.

Michelle Tan - Goldman Sachs Group Inc.

John Kernan - Cowen and Company, LLC

Brian Tunick - JP Morgan Chase & Co

Pamela Quintiliano - Oppenheimer & Co. Inc.

Omar Saad - ISI Group Inc.

John Morris - BMO Capital Markets U.S.

Marni Shapiro - The Retail Tracker

Jeffrey Klinefelter - Piper Jaffray Companies

David Weiner - Deutsche Bank AG

Erika Maschmeyer - Robert W. Baird & Co. Incorporated

Robin Murchison - SunTrust Robinson Humphrey, Inc.

Evren Kopelman - Wells Fargo Securities, LLC

Kimberly Greenberger - Morgan Stanley

Unknown Analyst -

Janet Kloppenburg - JJK Research

Lorraine Hutchinson - BofA Merrill Lynch

Presentation

Operator

Good day, and welcome to the Abercrombie & Fitch Second Quarter Earnings Results Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Eric Cerny. Mr. Cerny, please go ahead.

Eric Cerny

Thank you. Good morning, and welcome to our second quarter earnings call. Earlier today, we released our second quarter sales and earnings, income statement, balance sheet, 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 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.

Joining me today on the call are Mike Jeffries and Jonathan Ramsden. 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. After our prepared comments, we will be available to take your questions for as long as time permits. Now to Mike.

Michael Jeffries

Good morning, everyone. Thank you for joining us today. We are pleased that our results for the quarter continued to reflect strong momentum, both in the U.S. and Europe. For the third consecutive quarter, our sales were up more than 20%. This included a strong performance from new stores, particularly the Paris flagship, but also the 19 new Hollister stores we have opened in Europe in the last 12 months. In addition, our U.S. chain store business performed well for the quarter, particularly Hollister, fueled by what we believe is a compelling assortment and supported by effective pricing and promotional strategies.

We had long anticipated that the second quarter would be challenging from an operating income standpoint, considering the effects of investments we are making for future growth. In that context, we are pleased that our top line performance enabled us to significantly beat our internal goal for the quarter and achieve a 71% year-over-year increase in operating income.

Our second quarter results marked the midpoint of the 3-year roadmap we laid out at the beginning of last year. Our focus remains very much on execution against our strategy and the key roadmap objectives, while always maintaining a long-term view. We believe maintaining that long-term approach is even more critical today, given the uncertainty in the macroeconomic environment. I will come back to that in a moment.

First, I want to take a few minutes to review our performance to date against our roadmap goals. Starting with U.S. store productivity, we have clearly delivered on the objectives we laid out in February of last year, and we believe we are on course to sustain meaningful improvements and drive back toward peak productivity levels.

These improvements have been driven by several factors. First and foremost, by having the right merchandise and maintaining a compelling and differentiated store experience. In addition, our pricing and promotional strategies have played a role in the productivity improvements we have seen, and we have improved our execution of these strategies. However, no one should conclude that even in the U.S. chain business, this is a purely price-driven business. Even in an environment where price is increasingly important, you have to be a desirable brand that clearly stands for something in the eye of the consumer. With regard to marketing and customer engagement, we have made progress, but we still see plenty of opportunity ahead of us.

Turning to international. We expect to hit our goal of close to 40 international Hollister openings and 5 A&F flagship location openings this year. Overall, the international stores we have already opened continue to perform very strongly. Tomorrow marks the opening of our first Hollister store in Asia at the Festival Walk mall in Hong Kong. This is a significant milestone for us, and we look forward to our first openings in Mainland China later in the year. In Europe, the performance of our Hollister business continues to be very strong, and our new store openings for the quarter are significantly exceeding plan in aggregate. As I mentioned a moment ago, we are also very pleased with our Paris flagship opening. And while it is still early on, we continue to expect its volume to be in the same range as the London and Milan flagships on a go-forward basis.

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