Business Report: Abercrombie and Fitch

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Abstract Factors such as economic issues affect the business and its marketing strategies. The company recognizes there is a strong competition from other competitor within the industry; therefore it is crucial to improve its financial performance. Inflation and unemployment caused by the economic recession has affected the company’s performance. Organizations seek to increase overall profitability and performance, which lead to the introduction of performance management concept. Aiming at increasing employee productivity and output in the organization. The company is able to invest in ways that have more positive strategic impacts such as providing some services for the betterment of the community in which it operates. The rate of unemployment has been reducing over the recent periods, and third quarter of 2012 recorded reduction of unemployment levels.  

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“Business Report: Abercrombie and Fitch”

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1.0 Introduction

Abercrombie & Fitch is a company that operates in the clothing industry. The company provides clothing products to people around the world. The performance of the company has elevated over the years having opened more stores in the United States (Plantes & Finfrock 2009). It has been able to increase its financial performance due to its high product quality and corporate image and its marketing campaigns, which involves seasonal campaign. The macroeconomic factors have affected Abercrombie & Fitch Co. since the recession, but the company has been able to improve significantly on its financial performance (Smither & London 2010). This paper aims at discussing the effects of the macroeconomic factors on the performance of Abercrombie & Fitch Co.

1.1 Abercrombie & Fitch Co stock market share

Abercrombie & Fitch Co. (ANF)

Revenue ($m) Pre-tax ($m) EPS P/E PEG EPS Grth. Div Yield  
31-Jan-09 3,484.06 509.64 355.00A 5.0 n/a -35% 70.00A 3.9%
30-Jan-10 2,928.63 119.51 90.00A 35.0 n/a -75% 70.00A 2.2%
29-Jan-11 3,468.78 228.57 171.00A 28.3 0.3 +90% 70.00A 1.4%
28-Jan-12 4,158.06 217.81 165.00A 28.6 n/a -4% 70.00A 1.5%
02-Feb-13 4,510.81 366.95 289.00A 17.7 0.2 +75% 70.00A 1.4%
                 

Source: (ANF 2013) From the above table and chart, it can be observed that Abercrombie & Fitch Co. has been increasing its stock market share.

2.0 Abercrombie & Fitch Co Financial Performance

The international trade and investment has been on its recovery path and this has led to increased financial performance (Parikh & Gupta 2010). Inflation is one of the macroeconomic factors that have great influence on the company’s growth. Economic decisions that are being made at the macroeconomic level are influenced by stability of the general economic environment. They normally benefit from the stable economic state and stable inflationary environment favors economic decisions being made (Lamb, Hair & McDaniel 2012). Low rates of inflation are normally favorable and can easily be managed. On the other hand, high changes in inflation rates will be problematic and are likely to adversely affect the economy. In the modern economic environment, the price levels are very critical when it comes to production and investment decisions. High inflation implies high prices and lower real incomes for people with fixed incomes, those with power to raise the high prices are not affected the same way as those who are not able. Inflation, however, is not an altogether evil concept in the economy; this is because it can be used to minimize unemployment (Harold & Weihrich 2010). Economies cannot be always predicted; they fluctuate from period to period. Activities in the business most of the time leads to reduction in aggregate demand. As the aggregate demand falls, output and employment falls, these are negative impacts on the economy since the actual output is less than the potential output (Dwivedi, 2010). If the aggregate demand is low, it can be altered in the short-run by formulating policies like increasing government spending, cutting taxes or increasing the supply of money. The opposite will be the alternative if aggregate demand is high in the economy (Jha 2008).

2.1 Abercrombie & Fitch Co Income statement

The company has been performing well in the market taking into consideration the effects that were brought by the 2008 recession. Its profits have been adversely increasing as it has sort new markets that provide a lot of income to the company.

Source: (ANF 2013) The company has been faced with various economic challenges such as reduced manufacturing output and continued increase in unemployment. However, the growth in the GDP is considerably strong since the growth is at a lively pace and it might help to solve the problems of a country. The current recovery remains stable, and problems such as high rates of unemployment may be able to get quick solutions (Nattrass, Wakeford & Muradzikwa 2010). The company has been improving its revenues since year 2009 as can be seen below. Abercrombie & Fitch Co. has been financing its operations to ensure better performance in the financial markets. The economic factors have been affecting the company, but the company has outsourced its operations to ensure good performance. Below is the annual cash flow of Abercrombie & Fitch Co.

2.2 Annual cash flow of Abercrombie & Fitch Co

Source: (ANF 2013) Some short-term fluctuations in the economy increase the level of unemployment. It is normally prevalent during hard economic times such as the 2008 and 2009 recession (Van 2010). In cases where unemployment occurs for a longer period of time, some productive resources are not used. This causes economic growth to slow down. On the other hand, when the unemployment levels drop or a country is moving towards full employment, the available resources are fully utilized (Carroll & Buchholtz 2012). The company’s annual balance sheet shows that the total assets of the company are high and its debts are low. The company’s assets have increased as a result of quality improvement in the company. Source: (ANF 2013) The company should take advantage of its strengths to establish some strategies that will increase its financial performance. It should also reduce the weaknesses for better performance. There are also external opportunities that the company needs to use for its success (Dwivedi, 2010). Its strengths have been its ability to ensure that its employees are aligned with the responsibilities they are supposed to take. This has enabled the employees to be accountable when they do not achieve what they are supposed to achieve. The company has a strong sales department, delivers superior products and services, large economies of scale, and good relationships with its clients (Pulakos, 2013). The company’s weakness is that it uses a lot of money in advertising expenses, and also after the crisis, it had a lot of financial problems that included high rates of unemployment and high rates of inflation (Van, 2010). Though the rate of recovery is less than desirable, a positive economic growth is an indicator of a productive economy in the near future. Usually unemployment will start declining after other economic indicators have turned positive (Shim & Siegel 2012). Economists have tried to explain the reason why unemployment rate is always the last economic indicator to revert upwards after the end of a recession. During recession, firms usually operate below their usual rate of production, thus many of the workers’ productivity may be below the normal level. When the economy picks up the productivity, firms will certainly rise without hiring new employees; it will rely on the rising output of the formerly underutilized workers. Hiring of new employees will take place when the present labor force reaches its optimum productivity (Harold & Weihrich 2010). The company’s recognition of its customer’s needs and provision of quality goods has enabled it to perform well. These are strengths that have enabled the company to perform well in the market (Mukherjee & Kumar 2005).

3.0 Conclusion and recommendation

Financial performance and good socially responsible performance tend to depend on one another. In one hand, companies with good financial standing have the necessary resources to invest in socially responsible activities. They are able to invest in ways that have more positive strategic impact such as providing some services for the betterment of the community in which it operates and providing for the welfare of their employees. Through improved image, the company will be able to attract employees with better skills necessary for improvement of the organizational performance. Good financial performance depends on the socially responsible performance. This is because socially responsible companies have an enhanced brand image and good reputation among the consumers. Therefore, socially responsible corporate performance contributes to the bottom line benefits and improves financial performance. The company has been recovering at a slow pace from the economic meltdown, and one of the areas that have experienced some level of growth is employment. The rate of unemployment has been reducing over the recent periods and third quarter of 2012 recorded reduction of unemployment levels. The macroeconomic factors have affected Abercrombie & Fitch Co. since the recession, but the company has been able to improve significantly in its financial performance.

Bibliography

  1. ANF(2013). Abercrombie & Fitch Co., viewed 11 February 2014, <https://finance?q=NYSE%3AANF&fstype=ii&ei=0lv6UsiCIcKTwQPp0AE>
  2. Dwivedi, DN 2010, Macroeconomics: Theory and policy, Tata McGraw Hill Education Pte Ltd., New Delhi.
  3. Harold, K & Weihrich, H 2010, Essentials of management : an international perspective, Tata New Delhi, McGraw-Hill, New Delhi.
  4. Jha, R 2008, Contemporary macroeconomic theory and policy,
    1. Wiley Eastern Ltd., New Delhi.
  5. Lamb, CW, Hair, JF & McDaniel, CD 2012, Essentials of Marketing, South-Western Cengage Learning, Mason, Ohio.
  6. Mukherjee, S & Kumar, S 2005, Organization and Management and Business Communication, New international Age Publisher, New Delhi.
  7. Nattrass, N, Wakeford, J & Muradzikwa, S 2011, Macroeconomics: Theory and policy in Cape Town South Africa.
  8. Parikh, M & Gupta, RK 2010, Organisational Behaviour, Tata McGraw Hill Education Pte. Ltd., New Delhi.
  9. Plantes, MK & Finfrock, RD 2009, Beyond Price: Differentiate Your Company, In Ways That Really Matter, Greenleaf Book Group Press, Austin, TX.
  10. Pulakos, E 2004, Performance Management. A roadmap for Developing, Implementing and Evaluating performance Management Systems, Society for Human Resource Foundation, Alexandria.
  11. Shim, JK & Siegel, JG 2012, Budgeting Basics and Beyond, Wiley Hoboken, N.J.
  12. Smither, JW & London, M 2010, Performance management: Putting research into action, Wiley, San Francisco.
  13. Van, BH 2010, International finance and open-economy macroeconomics: Theory, history, and policy, World Scientific Singapore.

Appendices

Table 1: Abercrombie & Fitch Co income statement

Total In Millions of USD (except for per share items) 13 weeks ending 2013-11-02 26 weeks ending 2013-08-03 13 weeks ending 2013-05-04 14 weeks ending 2013-02-02 13 weeks ending 2012-10-27
Revenue 1,033.29 1,784.47 838.77 1,468.53 1,169.65
Other Revenue, Total
Total Revenue 1,033.29 1,784.47 838.77 1,468.53 1,169.65
Cost of Revenue, Total 382.25 627.18 285.60 554.15 417.13
Gross Profit 651.04 1,157.29 553.17 914.38 752.51
Selling/General/Admin. Expenses, Total 696.26 1,157.27 567.90 699.49 620.32
Research & Development
Depreciation/Amortization
Interest Expense(Income) – Net Operating
Unusual Expense (Income)
Other Operating Expenses, Total -9.04 -6.67 0.58 -13.66 0.18
Total Operating Expense 1,068.66 1,779.22 852.69 1,239.98 1,036.30
Operating Income -35.37 5.24 -13.92 228.55 133.34
Interest Income(Expense), Net Non-Operating
Gain (Loss) on Sale of Assets
Other, Net -0.07
Income Before Tax -37.02 1.87 -15.55 225.48 131.76
Income After Tax -15.64 4.17 -7.20 147.00 84.04

Table 2: The balance sheet

In Millions of USD (except for per share items) As of 2013-11-02 As of 2013-08-03 As of 2013-05-04 As of 2013-02-02 As of 2012-10-27
Cash & Equivalents 3.40 3.57 160.01 245.00 0.00
Short Term Investments 19.90
Cash and Short Term Investments 257.52 335.02 555.90 643.50 369.57
Accounts Receivable – Trade, Net 86.73 92.89 91.30 99.62 91.41
Receivables – Other
Total Receivables, Net 86.73 92.89 91.30 99.62 91.41
Total Inventory 768.95 633.48 458.63 426.96 536.32
Prepaid Expenses
Other Current Assets, Total 173.41 154.68 155.87 137.74 164.47
Total Current Assets 1,286.61 1,216.07 1,261.71 1,307.82 1,161.77
Property/Plant/Equipment, Total – Gross 2,986.43 2,950.69 2,921.21 2,915.07 2,906.56
Accumulated Depreciation, Total -1,825.53 -1,697.85 -1,652.92 -1,606.84 -1,593.43
Goodwill, Net
Intangibles, Net
Long Term Investments 0.00
Other Long Term Assets, Total 404.88 373.93 365.02 371.35 374.55
Total Assets 2,852.40 2,842.84 2,895.01 2,987.40 2,849.45
Accounts Payable 185.44 195.73 146.24 140.40 165.39
Accrued Expenses 307.96 291.77 301.49 398.87 358.48
Notes Payable/Short Term Debt 15.00 15.00 15.00 0.00 60.00
Current Port. of LT Debt/Capital Leases
Other Current liabilities, Total 95.18 76.73 70.78 151.54 113.92
Total Current Liabilities 603.58 579.23 533.51 690.80 697.79
Long Term Debt 123.75 127.50 131.25 0.00
Capital Lease Obligations 61.62 61.13 61.00 63.94 64.48
Total Long Term Debt 185.37 188.63 192.25 63.94 64.48
Total Debt 200.37 203.63 207.25 63.94 124.48
Deferred Income Tax
Minority Interest
Other Liabilities, Total 388.43 391.32 389.48 414.39 424.41
Total Liabilities 1,177.38 1,159.18 1,115.23 1,169.13 1,186.68
Redeemable Preferred Stock, Total
Preferred Stock – Non Redeemable, Net
Common Stock, Total 1.03 1.03 1.03 1.03 1.03
Additional Paid-In Capital 425.93 410.41 403.82 403.27 390.41
Retained Earnings (Accumulated Deficit) 2,505.45 2,536.50 2,542.77 2,567.26 2,366.67
Treasury Stock – Common -1,240.87 -1,241.36 -1,146.79 -1,140.01 -1,088.93
Other Equity, Total -16.53 -22.92 -21.05 -13.29 -6.42
Total Equity 1,675.02 1,683.66 1,779.78 1,818.27 1,662.77
Total Liabilities & Shareholders’ Equity 2,852.40 2,842.84 2,895.01 2,987.40 2,849.45
Shares Outs – Common Stock Primary Issue

Total Common Shares Outstanding

76.39

76.39

78.31

78.44

79.56

Table 3: The cash flow statement

In Millions of USD (except for per share items) 39 weeks ending 2013-11-02 26 weeks ending 2013-08-03 13 weeks ending 2013-05-04 53 weeks ending 2013-02-02
Net Income/Starting Line -11.48 4.17 -7.20 237.01
Depreciation/Depletion 180.61 120.31 59.46 224.25
Amortization
Deferred Taxes -60.80 -26.23 -12.35 -21.54
Non-Cash Items 118.06 21.64 9.88 44.66
Changes in Working Capital -456.55 -328.62 -193.41 199.80
Cash from Operating Activities -230.16 -208.72 -143.63 684.17
Capital Expenditures -124.03 -81.23 -42.37 -339.86
Other Investing Cash Flow Items, Total -6.32 -5.31 -2.64 92.62
Cash from Investing Activities -130.35 -86.54 -45.01 -247.24
Financing Cash Flow Items 2.43 2.37 1.11 1.20
Total Cash Dividends Paid -46.64 -31.36 -15.69 -57.63
Issuance (Retirement) of Stock, Net -115.81 -115.61 -16.21 -318.99
Issuance (Retirement) of Debt, Net 137.94 138.74 139.06 -4.65
Cash from Financing Activities -22.08 -5.87 108.27 -380.07
Foreign Exchange Effects -3.39 -7.35 -7.24 3.15
Net Change in Cash -385.98 -308.48 -87.60 60.01
Cash Interest Paid, Supplemental
Cash Taxes Paid, Supplemental 110.30 104.30 96.90 122.70

 

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Business Report: Abercrombie and Fitch. (2017, Jun 26). Retrieved November 26, 2022 , from
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