Abercrombie & Fitch Co. – Case Study

Permanent accounts

9 Asset T-accountsCash and Equivalents(BB) 42,667(3) 800,000

(6) 514,114

(5) 13,398 (8) 50,000 (7) 23,785 (10) 908

 (11)

151,264(EB)

163,564

Accounts Receivable(BB) 1695(3) 15,804

 13,398 (5)

    

4,101

Inventories(BB) 33927(1) 481,918

 465,000 (4)

  6,853 (12)   (EB) 43, 992

Store Supplies(BB) 5,592(2) 1,000

 705 (13)

   (EB) 5,887

Receivable from Limited.

(BB) 23785

 23,785 (7)

    (EB) 0

Other Current Assets(BB) 1296(11) 400

 1,005 (14)

   (EB) 691

Property and

Equipment, Net(BB) 70,517(9) 39,987

 20,946

(15)   (EB) 89,558

Deferred Income Taxes(BB) 3,759

(11) 6,978    

(EB) 10,737

Other Assets(BB) 0

(11) 631    

(EB) 631

*Note: (EB) – Ending balance, (BB) – Beginning balance

9 Liability and Owners’ Equity T-accountsAccounts Payable

  15,968 (BB)(6) 514,114 481,918 (1)

  1,000 (2)

  39,987 (9)

     (EB) 24,759

Accrued Expenses  35143 (BB)  25,054 (11)  3,685 (16)    

  63,882 (EB)

Income Taxes Payable

  15,851 (BB)  17,736 (11)       33,587 (EB)

Long-term Debt

 50,000 (BB)

(8) 50,000       (EB) 0

Other Long-term Liabilities

  7,501 (BB)  3,327 (11)       (EB) 10,828

Common Stock  511 (BB)  6 (11)       517 (EB)

Paid-In Capital  117,972 (BB)  26,170 (11)      144,142 (EB)

Retained Earnings(BB) 58,931

     

(EB) 58,931

Treasury Stock(BB) 777

(10) 908    

(EB) 1,685

Temporary Accounts

5 T-accountsSales

  (BB) 0  815,804 (3)     (EB) 815,804

COGS(BB) 0(4) 465,000(12) 6,853  (EB) 471, 853

Income Tax Expense(BB) 0

(11) 68,040   

(EB) 68,040

Interest Income  (BB) 0  (11) 3,144     (EB) 3,144

G,A&SO Expenses(BB) 0(11) 150,652(13) 705(14) 1,005(15) 20,946(16) 3,685  (EB)176993

Unadjusted Trial BalanceAbercrombie and Fitch Co.

For Date Ending January 30th, 1999

Debits CreditsCash 163,564

Accounts Receivables 4,101

Inventories 50,845

Store Supplies 6,592

Receivables from the Limited 0

Other Current Assets 1,696

Property & Equipment, Net 110,504

Deferred Income Taxes 10,737

Other Assets 631

Accounts Payable 24,759

Accrued Expenses 60,197

Income Taxes Payable 33,587

Long-Term Debt 0

Other Long-Term Liabilities 10,828

Common Stock 517

Paid-In Capital 144,142

Retained Earnings 58,931

Treasury Stock 1,685

Net Sales 815,804

Cost of Goods Sold 465,000

General, Administrative and SO Expenses

150,652

Interest Income 3,144

Income Tax Expense 68,040

Total 1,092,978 1,092,978

Adjusting Journal Entries

Adjusting Journal Entries Debit Credit12. COGS 6,853

Inventories 6,853 13. G, A & SO Expenses 705

Store Supplies 705 14. G, A & SO Expenses 1,005

Other Current Assets 1,005 15. GA&SO Expenses 20,946

Property&Equipment 20,946 16. G, A & SO Expenses 3,685

Accrued Expenses 3,685

Adjusted T-accountsCOGS

(BB) 0(4) 465,000(12) 6,853  (EB) 471, 853

G,A&SO Expenses(BB) 0(11) 150,652(13) 705(14) 1,005(15) 20,946(16) 3,685  (EB)176993

Inventories(BB) 33,927(1) 481,918

 465,000 (4)

  6,853 (12)   (EB) 43, 992

Store Supplies(BB) 5,592(2) 1,000

 705 (13)

   (EB) 5,887

Other Current Assets(BB) 1,296(11) 400

 1,005 (14)

   (EB) 691

Property and Equipment, Net

(BB) 70,517(9) 39,987

 20,946

(15)   (EB) 89,558

Accrued Expenses  35143 (BB)  25,054 (11)  3,685 (16)      63,882 (EB)

G,A&SO Expenses(BB) 0(11) 150,652(13) 705(14) 1,005(15) 20,946(16) 3,685  (EB)176,993

Adjusted Trial BalanceAbercrombie and Fitch

For Date Ending January 30th, 1999

Debits CreditsCash 163,564

Accounts Receivables 4,101

Inventories 43,992

Store Supplies 5,887

Receivables from the Limited 0

Other Current Assets 691

Property & Equipment, Net 89,558

Deferred Income Taxes 10,737

Other Assets 631

Accounts Payable 24,759

Accrued Expenses 63,882

Income Taxes Payable 33,587

Long-Term Debt 0

Other Long-Term Liabilities 10,828

Common Stock 517

Paid-In Capital 144,142

Retained Earnings 58,931

Treasury Stock 1,685

Net Sales 815,804

Cost of Goods Sold 471,853

General, Administrative and SO Expenses

176,993

Interest Income 3,144

Income Tax Expense 68,040

Total 1,096,663 1,096,663

Income StatementAbercrombie and Fitch Co.Consolidated Income Sheet

For the Year Ended January 30th, 1999Figures in thousands of dollars

Net Sales 815,804

Cost of Goods Sold, Occupancy and Buying Costs (471,853)

Gross Profit 343,951

General, Administrative and Store Operating Expenses (176,993)

Operating Income 166,958

Interest Income, Net 3,144

Income before Taxes 170,102

Provision for Income Taxes (68,040)

Net Income 102,062

Fiscal Year 1999 Closing EntryAbercrombie and Fitch Co.

For the Year Ended January 30th, 1999Figures in thousands of dollars

Closing Entries Debit Credit

Net Sales 815,804

Interest Income 3,144

Income Summary 818,948

Income Summary 716,886

COGS 471,853

Income Tax Expense 68,040

G, A & SO Expenses 176,993

Income Summary 102,062

Retained Earnings 102,062

Abercrombie and Fitch Co.Retained Earnings Statement

For the Year Ended January 30th, 1999Figures in thousands of dollars

Retained Earnings - January 31st, 1998

(58,931)

Net Income 102,062

Dividends Declared 0

Retained Earnings - January 30th, 1999

43,131

Abercrombie and Fitch Co.Consolidated Balance Sheet

For the Year Ended January 30th, 1999Figures in thousands of dollars

Assets

Current Assets:

Cash and Equivalents $163,564

Accounts Receivable $4,101

Inventories $43,992

Store Supplies $5,887

Receivable from the Limited $0

Other Current Assets $691

Total Current Assets $218,235

Property and Equipment, Net $89,558

Deferred Income Taxes $10,737

Other Assets $631

Total Assets $319,161

Liabilities and Shareholders' Equity

Current Liabilities:

Accounts Payable $24,759

Accrued Expenses $63,882

Income Taxes Payable $33,587

Total Current Liabilities $122,228

Long-Term Debt $0

Other Long-Term Liabilities $10,828

Shareholders' Equity

Common Stock $517

Paid-In Capital $144,142

Retained Earnings $43,131

Treasury Stock, at Average Cost ($1,685)

Total Shareholders' Equity $186,105

Total Liabilities and Shareholders' Equity $319,161

Analysis

H.) The year over year percentage change in Net Sales for fiscal 1998 and 1999 is 56.40%

(815,804-521,617)/ 521, 617

This means that the company was able to move 50% more clothing in 1999 than in 1998. This could be the result of increased sales training for the Store Models (i.e. Associates) or a sexier and trendier marketing campaign.

I.) Inventory in 1999 was $43,992 (in thousands), compared to $33,927 in 1998 and $34,943 in 1997. Total assets in 1999 was $319,161 (in thousands), compared to $183,238 in 1998 and $105,761 in 1997.

This means that even though as total company assets tripled in three years (ie. More stores, storage, etc), it managed to keep inventory levels around $33 million to $44 million. Abercrombie and Fitch probably accomplished this by using just-in-time inventory management systems which can keep inventory levels lower.

J.) Abercrombie and Fitch Co is in the Apparel Stores industry of the Services sector. An investor has to compare ANF’s key financial figures with other comparable companies in the same industry. One has to compare key stats such as Price to Earnings ratio, Return on Equity, and Long Term Debt to Equity with other companies such as Limited (LTD), American Eagle Outfitters (AEO), etc.

1 Day Price Change % Market Cap P/E ROE % Div. Yield % Long-Term Debt to EquityPrice to Book Value Net Profit Margin % (mrq)

American Eagle Outfitters Inc. (AEO) 3.86 4.7B 11.90 29.82 1.90 NA 3.30 13.36

Urban Outfitters Inc. (URBN) 3.41 4.9B 34.94 19.91 NA NA 6.13 11.96

Limited Brands Inc. (LTD) 2.48 6.3B 9.08 33.33 3.50 1.40 3.04 0.62

Abercrombie & Fitch Co. (ANF) 3.35 6.6B 14.82 31.46 0.90 NA 4.10 17.64