UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-K

(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended February 2, 2008

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

ABERCROMBIE & FITCH CO.

(Exact name of registrant as specified in its charter)

Delaware		31-1469076
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
6301 Fitch Path, New Albany, Ohio		43054
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (614) 283-6500

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Class A Common Stock, $.01 Par Value		New York Stock Exchange
Series A Participating Cumulative Preferred Stock Purchase Rights		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. þ Yes o No

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes þ No

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o.

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).

o Yes  þ No

Aggregate market value of the Registrant’s Class A Common Stock (the only outstanding common equity of the Registrant) held by non-affiliates of the Registrant (for this purpose, executive officers and directors of the Registrant are considered affiliates) as of August 3, 2007: $6,092,155,314.

Number of shares outstanding of the Registrant’s common stock as of March 26, 2008: 86,180,344 shares of Class A Common Stock.

DOCUMENT INCORPORATED BY REFERENCE:

Portions of the Registrant’s definitive proxy statement for the Annual Meeting of Stockholders, to be held on June 11, 2008, are incorporated by reference into Part III of this Annual Report on Form 10-K.

 

 

PART I

ITEM 1. BUSINESS.

General.

Abercrombie & Fitch Co. (“A&F”), a company incorporated in Delaware in 1996, through its subsidiaries (collectively, A&F and its subsidiaries are referred to as “Abercrombie & Fitch” or the “Company”), is a specialty retailer that operates stores and websites selling casual sportswear apparel, including knit and woven shirts, graphic t-shirts, fleece, jeans and woven pants, shorts, sweaters, outerwear, personal care products and accessories for men, women and kids under the Abercrombie & Fitch, abercrombie, Hollister and RUEHL brands. In addition, the Company operates stores under the Gilly Hicks brand offering bras, underwear, personal care products, sleepwear and at-home products for women. As of February 2, 2008, the Company operated 1,035 stores in the United States, Canada and the United Kingdom.

The Company’s fiscal year ends on the Saturday closest to January 31, typically resulting in a fifty-two week year; but, occasionally giving rise to an additional week, resulting in a fifty-three week year. Fiscal years are designated in the consolidated financial statements and notes by the calendar year in which the fiscal year commences. All references herein to “Fiscal 2007” represent the results of the 52-week fiscal year ended February 2, 2008; to “Fiscal 2006” represent the results of the 53-week fiscal year ended February 3, 2007; and to “Fiscal 2005” represent the 52-week fiscal year ended January 28, 2006. In addition, all references herein to “Fiscal 2008” represent the 52-week fiscal year that will end on January 31, 2009.

A&F makes available on its website, www.Abercrombie.com, under “Investors, SEC Filings” free of charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as A&F’s definitive annual meeting proxy statements filed pursuant to Section 14 of the Exchange Act, as soon as reasonably practicable after A&F electronically files such material with, or furnishes it to, the Securities and Exchange Commission (“SEC”). The SEC maintains an internet site that contains electronic filings at www.sec.gov. In addition, the public may read and copy any materials A&F files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

The Company has included its website addresses throughout this filing as textual references only. The information contained on these websites is not incorporated into this Annual Report on Form 10-K.

Description of Operations.

Brands.

Abercrombie & Fitch. Targeted at 18 to 22 year-old males and females, the brand is rooted in East Coast traditions and Ivy League heritage. Abercrombie & Fitch is the essence of privilege and casual luxury. The Adirondacks supply a clean and rugged inspiration to this youthful All-American lifestyle. A combination of classic and sexy creates a charged atmosphere that is confident and just a bit provocative. Idolized and respected, Abercrombie & Fitch is timeless, and always cool.

abercrombie. Targeted at seven to 14 year-old boys and girls, the brand has the essence of privilege and prestigious East Coast prep schools. abercrombie directly follows in the footsteps of Abercrombie & Fitch. With an energetic attitude, abercrombie is popular, wholesome, and athletic. Rugged and casual with a vintage inspired style, abercrombie aspires to be like its older sibling, Abercrombie & Fitch. The perfect combination of maturity and mischief, abercrombie is the signature of All-American cool.

Hollister. Targeted at 14 to 18 year-old guys (“dudes”) and girls (“bettys”), Hollister is the fantasy of Southern California. It is the feeling of chilling on the beach with your great looking friends. Young, spirited, with a sense of humor, Hollister never takes itself too seriously. The laidback lifestyle and wholesome image combine to give Hollister an energy that’s effortlessly cool. Hollister brings Southern California to the world.

RUEHL. Targeted at 22 to 35 year-old men and women, RUEHL is the post-grad that has arrived in Greenwich Village, New York City to live the dream. Embracing its culture and artistic nature, RUEHL personifies a style that is inherently cool. Rooted in quality and tradition, RUEHL remains casual, authentic, and sexy. With sophistication and intelligence, RUEHL defines the aspirational New York City lifestyle.

Gilly Hicks. Targeted at 14 to 35 year-old women, Gilly Hicks is the cheeky cousin of Abercrombie & Fitch, inspired by the free spirit of Sydney, Australia. Gilly makes cute bras and underwear for the young, naturally beautiful and always confident girl. Classic and vibrant with a little tomboy sexiness, Gilly never takes herself too seriously. It’s the wholesome, All-American brand with a Sydney sensibility.

Each of the Company’s brands possess their own heritage and handwriting, but they share common elements and characteristics. The brands are classic, casual, confident, intelligent, privileged and possess a sense of humor.

Refer to the Financial Summary in “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” in ITEM 7 of this Annual Report on Form 10-K for information regarding net sales and other financial and operational data by brand.

In-Store Experience and Store Operations.

The Company views the customer’s in-store experience as the primary vehicle for communicating the spirit of each brand. The Company emphasizes five senses – 1) sight, 2) sound, 3) smell, 4) touch and 5) energy – by utilizing visual presentation of merchandise, in-store marketing, music, fragrances and its sales associates to reinforce the aspirational lifestyles represented by the brands.

The Company’s in-store marketing is designed to convey the principal elements and personality of each brand. The store design, furniture, fixtures and music are all carefully planned and coordinated to create a shopping experience that reflects the Abercrombie & Fitch, abercrombie, Hollister, RUEHL or Gilly Hicks lifestyle.

The Company’s sales associates and managers are a central element in creating the atmosphere of the stores. In addition to providing a high level of customer service, sales associates and managers reflect the casual, energetic and aspirational attitude of the brands.

Every brand displays merchandise uniformly to ensure a consistent store experience, regardless of location. Store managers receive detailed plans designating fixture and merchandise placement to ensure coordinated execution of the Company-wide merchandising strategy. Standardization of each brand’s store design and merchandise presentation creates the opportunity for cost savings in store furnishings, maximizes the productivity of selling space, and enables the Company to open new stores efficiently.

At the end of Fiscal 2007, the Company operated 1,035 stores. The following table details the number of retail stores operated by the Company for the past two fiscal years:

		Abercrombie &
		Fitch				abercrombie				Hollister				RUEHL				Gilly Hicks				Total
Fiscal 2006
Beginning of Year			361				164				318				8				—				851
New			8				19				70				7				—				104
Remodels/Conversions (net activity as of year-end)			(2	) (1)			—				5	(1)			(1	) (2)			—				2
Closed			(7	)			(6	)			—				—				—				(13	)
End of Year			360	(3)			177				393	(3)			14				—				944
Fiscal 2007
Beginning of Year			360				177				393				14				—				944
New			6				25				58				7				3				99
Remodels/Conversions (net activity as of year-end)			(2	)			(1	)			—				1				—				(2	)
Closed			(5	)			—				(1	)			—				—				(6	)
End of Year			359	(4)			201				450	(3)			22				3				1,035

Direct-to-Consumer Business.

The Company operates web-based stores for the Abercrombie & Fitch, abercrombie, Hollister and RUEHL brands located at their websites: www.Abercrombie.com; www.abercrombiekids.com; www.hollisterco.com; and www.RUEHL.com, respectively. Products offered at individual stores can be purchased through the respective websites. Each of the four websites reinforces the particular brand’s lifestyle and is designed to complement the in-store experience. Since the introduction of the websites, aggregate total net merchandise sales, including shipping and handling, through the direct-to-consumer business has grown consistently year-over-year to $298.0 million for Fiscal 2007, representing 8.0% of net sales. The Company believes its websites have broadened its market and brand recognition worldwide.

Marketing and Advertising.

The Company considers the in-store experience to be its main form of marketing. The Company emphasizes the five senses to reinforce the aspirational lifestyles represented by the brands. Additionally, the Company advertises on billboards and in select national publications. The stand-alone Abercrombie & Fitch flagships on Fifth Avenue in New York and on Savile Row in London represent the pinnacle of the Company’s in-store branding efforts. The stores attract a substantial number of international tourists and thus, have significantly contributed to the Company’s iconic brand reputation worldwide.

Merchandise Suppliers.

During Fiscal 2007, the Company purchased merchandise from approximately 240 factories and suppliers located throughout the world; primarily in Asia and Central and South America. In Fiscal 2007, the Company did not source more than 5% of its apparel and personal care products from any single factory or supplier. The Company pursues a global sourcing strategy that includes relationships with vendors in 34 countries and the United States (the “U.S.”). Any event causing a sudden disruption, either political or financial, in these sourcing locations could have a material adverse effect on the Company’s operations. The Company’s foreign purchases of merchandise are negotiated and settled in U.S. dollars.

All product sources, including independent manufacturers and suppliers, must achieve and maintain the Company’s high quality standards, which are an integral part of the Company’s identity. The Company has established supplier product quality standards to ensure the high quality of fabrics and other materials used in the Company’s products. The Company utilizes both home office and field employees to help monitor compliance with the Company’s product quality standards.

Distribution and Merchandise Inventory.

A majority of the Company’s merchandise and related materials are shipped to the Company’s two distribution centers (“DCs”) in New Albany, Ohio where they are received and inspected. Merchandise and related materials are then distributed to the Company’s stores and direct-to-consumer customers primarily using one contract carrier. Any event causing a sudden disruption in the operations of the DCs or in carrier operations could have a material adverse effect on the Company’s operations.

The Company’s policy is to maintain sufficient quantities of inventory on hand in its retail stores and DCs to offer customers a full selection of current merchandise. The Company attempts to balance in-stock levels and inventory turnover, and to take markdowns when required to keep merchandise fresh and current with fashion trends.

Information Systems.

The Company’s management information systems consist of a full range of retail, financial and merchandising systems. The systems include applications related to point-of-sale, inventory management, supply chain, planning, sourcing, merchandising and financial reporting. The Company continues to invest in technology to upgrade core systems to make the Company scalable, efficient and more accurate in the production and delivery of merchandise to stores. In addition, the Company invests in best practice technologies that are expected to provide a clear competitive advantage.

Seasonal Business.

The retail apparel market has two principal selling seasons, the Spring season which includes the first and second fiscal quarters (“Spring”) and the Fall season which includes the third and fourth fiscal quarters (“Fall”). As is typical in the apparel industry, the Company experiences its greatest sales activity during the Fall season due to the Back-to-School (August) and Holiday (November and December) selling seasons. This seasonal sales pattern, in which approximately 40% of the Company’s sales are realized in the Spring and approximately 60% in the Fall, results in increased inventory during the Back-to-School and Holiday selling periods.

During Spring of Fiscal 2007, the highest level of inventory, approximately $431.4 million at cost, was reached at the end of July 2007 due to the Back-to-School selling season. The lowest level of inventory, approximately $374.5 million at cost, was reached at the end of May 2007. During Fall of Fiscal 2007, the highest level of inventory, approximately $407.1 million at cost, was reached at the end of October 2007 in anticipation of the Holiday selling season beginning in November. The lowest level of inventory, approximately $300.9 million at cost, was reached at the end of December 2007.

Trademarks.

The Abercrombie & Fitch^®, abercrombie^®, Hollister Co.^® and Ruehl No. 925^® trademarks have been registered with the U.S. Patent and Trademark Office and the registries of countries where stores are located or may be located in the future. An application for the Gilly Hicks trademark has been filed with the U.S. Patent and Trademark Office and the registries of countries where stores are located or may be located in the future. These trademarks are either registered or have applications pending with the registries of many of the foreign countries in which the manufacturers of the Company’s products are located. The Company has also registered or has applied to register certain other trademarks in the U.S. and around the world. The Company believes that its products are identified by its trademarks and, thus, its trademarks are of significant value. Each registered trademark has a duration of ten to 20 years, depending on the date it was registered and the country in which it is registered, and is subject to an infinite number of renewals for a like period upon continued use and appropriate application. The Company intends to continue the use of each of its trademarks and to renew each of its registered trademarks.

Financial Information about Segments.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related Information,” (“SFAS No. 131”), the Company determines its operating segments on the same basis that it uses internally to evaluate performance. The operating segments identified by the Company are Abercrombie & Fitch, abercrombie, Hollister, RUEHL and Gilly Hicks. The operating segments have been aggregated and are reported as one reportable financial segment. RUEHL and Gilly Hicks were determined to be immaterial for segment reporting purposes, and are included in the one reportable segment as they have similar economic characteristics and meet the majority of the aggregation criteria in paragraph 17 of SFAS No. 131. The Company aggregates its operating segments because they meet the aggregation criteria set forth in paragraph 17 of SFAS No. 131. The Company believes its operating segments may be aggregated for financial reporting purposes because they are similar in each of the following areas: class of consumer, economic characteristics, nature of products, nature of production processes and distribution methods. Revenues and long-lived assets relating to the Company’s international operations in each of Fiscal 2007, Fiscal 2006 and Fiscal 2005 were not material and were not reported separately from domestic revenues and long-lived assets.

Other Information.

Additional information about the Company’s business, including its revenues and profits for the last three fiscal years and gross square footage of stores, is set forth under “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” in ITEM 7 of this Annual Report on Form 10-K.

Competition.

The sale of apparel and personal care products through brick-and-mortar stores and direct-to-consumer channels is a highly competitive business with numerous participants, including individual and chain fashion specialty stores, as well as regional and national department stores. As the Company continues its international expansion, it will also face competition in European, Asian and other international markets from established regional and national chains, as well as specialty stores. Brand recognition, fashion, price, service, store location, selection and quality are the principal competitive factors in retail store and direct-to-consumer sales.

The competitive challenges facing the Company include anticipating and quickly responding to changing fashion trends and maintaining the aspirational positioning of its brands so that it can sustain its premium pricing position.

Associate Relations.

As of March 21, 2008, the Company employed approximately 99,000 associates, none of whom were party to a collective bargaining agreement. Approximately 90,000 of these associates were part-time employees.

On average, the Company employed approximately 24,000 full-time equivalents during Fiscal 2007 which included approximately 16,000 full-time equivalents comprised of part-time employees, including temporary associates hired during peak periods, such as the Back-to-School and Holiday seasons.

The Company believes it maintains a good relationship with its associates. However, in the normal course of business, the Company is party to lawsuits involving former and current associates. Refer to “ITEM 3. LEGAL PROCEEDINGS” in this Annual Report on Form 10-K.

ITEM 1A. RISK FACTORS.

Forward-Looking Statements And Risk Factors.

The Company cautions that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this Annual Report on Form 10-K or made by the Company, its management or spokespeople involve risks and uncertainties and are subject to change based on various factors, many of which may be beyond the Company’s control. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” and similar expressions may identify forward-looking statements. Except as may be required by applicable law, the Company assumes no obligation to publicly update or revise its forward-looking statements.

The following factors could affect the Company’s financial performance and could cause actual results to differ materially from those expressed or implied in any of the forward-looking statements:

	•		loss of services of skilled senior executive officers;
	•		ability to hire, train and retain qualified associates;
	•		changes in consumer spending patterns and consumer preferences;
	•		ability to develop innovative, high-quality new merchandise in response to changing fashion trends;
	•		effects on consumer purchases due to a general economic downturn;
	•		the impact of competition and pricing pressures;
	•		availability and market prices of key raw materials;
	•		ability of manufacturers to comply with applicable laws, regulations and ethical business practices;
	•		availability of suitable store locations under appropriate terms;
	•		currency and exchange risks and changes in existing or potential duties, tariffs or quotas;
	•		effects of political and economic events and conditions domestically and in foreign jurisdictions in which the Company operates, including, but not limited to, acts of terrorism or war;
	•		unseasonable weather conditions affecting consumer preferences;
	•		disruptive weather conditions affecting consumers’ ability to shop; and
	•		effects of capital market conditions.

The following sets forth a description of certain risk factors that the Company believes may be relevant to an understanding of the Company and its business. These risk factors, in addition to the factors set forth above, could cause actual results to differ materially from those expressed or implied in any of the Company’s forward-looking statements.

The Loss of the Services of Skilled Senior Executive Officers Could Have a Material Adverse Effect on the Company’s Business.

The Company’s senior executive officers closely supervise all aspects of its business – in particular, the design of its merchandise and the operation of its stores. The Company’s senior executive officers have substantial experience and expertise in the retail business and have made significant contributions to the growth and success of the Company’s brands. If the Company were to lose the benefit of their involvement, in particular the services of any one or more of Michael S. Jeffries, Chairman and Chief Executive Officer, Diane Chang, Executive Vice President – Sourcing, Leslee K. Herro, Executive Vice President – Planning and Allocation, Michael W. Kramer, Executive Vice President and Chief Financial Officer and David S. Cupps, Senior Vice President, General Counsel and Secretary, its business could be adversely affected. Competition for such senior executive officers is intense, and the Company cannot be sure it will be able to attract and retain a sufficient number of qualified senior executive officers in future periods.

Failure to Anticipate, Identify and Respond to Changing Consumer Preferences and Fashion Trends in a Timely Manner Could Cause the Company’s Profitability to Decline.

The Company’s success largely depends on its ability to anticipate and gauge the fashion preferences of its customers, and provide merchandise that satisfies constantly shifting demands in a timely manner. The merchandise must appeal to each brand’s corresponding target market of consumers whose preferences cannot be predicted with certainty and are subject to rapid change. Because the Company enters into agreements for the manufacture and purchase of merchandise well in advance of the applicable selling season, it is vulnerable to changes in consumer preference and demand, pricing shifts and the sub-optimal selection and timing of merchandise purchases. There can be no assurance that the Company will be able to continue to successfully anticipate consumer demands in the future. To the extent that the Company fails to anticipate, identify and respond effectively to changing consumer preferences and fashion trends, its sales will be adversely affected. Inventory levels for certain merchandise styles no longer considered to be “on trend” may increase, leading to higher markdowns to reduce excess inventory or increases in inventory valuation reserves. Each of these could have a material adverse effect on the Company’s financial condition or results of operations.

A Downturn in the Economy Could Affect Consumer Spending and Adversely Affect the Company’s Business.

Many factors affect the level of consumer spending in the apparel and personal care market, including, among others, general economic conditions, interest rates, the availability of consumer credit, wages and unemployment, taxation and consumer confidence in the economy. A downturn in the economy may affect consumer spending and adversely impact the Company’s retail sales.

The Company’s Market Share may be Adversely Impacted at any Time by a Significant Number of Competitors.

The sale of apparel and personal care products through brick-and-mortar stores and direct-to-consumer channels is a highly competitive business with numerous participants, including individual and chain fashion specialty stores, as well as regional and national department stores. The Company faces a variety of competitive challenges, including:

	•		maintaining favorable brand recognition and effectively marketing its products to consumers in several diverse demographic markets; and
	•		sourcing merchandise efficiently.

There can be no assurance that the Company will be able to compete successfully in the future.

The Interruption of the Flow of Merchandise from Key Vendors and International Manufacturers Could Disrupt the Company’s Supply Chain.

The Company purchases the majority of its merchandise outside of the U.S. through arrangements with approximately 240 vendors which includes 451 foreign manufacturers located throughout the world, primarily in Asia and Central and South America. In addition, many of its domestic manufacturers maintain production facilities overseas. Political, social or economic instability in Asia, Central or South America, or in other regions in which the Company’s manufacturers are located, could cause disruptions in trade, including exports to the U.S. Other events that could also cause disruptions to exports to the U.S. include:

	•		the imposition of additional trade law provisions or regulations;
	•		the imposition of additional duties, tariffs and other charges on imports and exports;
	•		quotas imposed by bilateral textile agreements;
	•		foreign currency fluctuations;
	•		restrictions on the transfer of funds; and
	•		significant labor disputes, such as dock strikes.

In addition, the Company cannot predict whether the countries in which its merchandise is manufactured or may be manufactured in the future, will be subject to new or additional trade restrictions imposed by the U.S. or other foreign governments, including the likelihood, type or effect of any such restrictions. Trade restrictions, including new or increased tariffs or quotas, embargoes, safeguards and customs restrictions against apparel items, as well as U.S. or foreign labor strikes and work stoppages or boycotts, could increase the cost or reduce the supply of apparel available to the Company and adversely affect its business, financial condition or results of operations.

The Company Does not Own or Operate any Manufacturing Facilities and Therefore Depends Upon Independent Third Parties for the Manufacture of all its Merchandise.

The Company does not own or operate any manufacturing facilities. As a result, the continued success of the Company’s operations is tied to its timely receipt of quality merchandise from third-party manufacturers. A manufacturer’s inability to ship orders in a timely manner or meet the Company’s quality standards could cause delays in responding to consumer demands and negatively affect consumer confidence in the quality and value of the Company’s brands or negatively impact the Company’s competitive position, all of which could have a material adverse effect on the Company’s financial condition or results of operations. Furthermore, the Company is susceptible to increases in sourcing costs from manufacturers which may not be able to be passed onto the customer and could adversely affect the Company’s financial condition or results of operations.

The Company’s Reliance on Two Distribution Centers Located in the Same Vicinity Makes it Susceptible to Disruptions or Adverse Conditions Affecting its Distribution Centers.

The Company’s two DCs, located in New Albany, Ohio, manage the receipt, storage, sorting, packing and distribution of merchandise to its stores and direct-to-consumer customers. The Company also uses a third-party DC in the United Kingdom for distribution of merchandise to the Abercrombie & Fitch flagship located in London, England. As a result, the Company’s operations are susceptible to local and regional factors, such as accidents, system failures, economic and weather conditions, natural disasters, and demographic and population changes, as well as other unforeseen events and circumstances. If the Company’s distribution operations were disrupted, its ability to replace inventory in its stores and process direct-to-consumer orders could be interrupted and sales could be negatively impacted.

The Company’s Reliance on Third Parties to Deliver Merchandise from its Distribution Centers to its Stores and Direct-to-Consumer Customers Could Result in Disruptions to its Business.

The efficient operations of the Company’s stores and direct-to-consumer operations depend on the timely receipt of merchandise from the Company’s DCs. Independent third party transportation companies deliver the Company’s merchandise to its stores and direct-to-consumer customers. The independent third parties employ personnel that may be represented by labor unions. Disruptions in the delivery of merchandise or work stoppages by employees or contractors of any of these third parties could delay the timely receipt of merchandise. There can be no assurance that such stoppages or disruptions will not occur in the future. Any failure by a third party to respond adequately to the Company’s distribution needs would disrupt its operations and could have a material adverse effect on its financial condition or results of operations.

The Company’s Growth Strategy Relies on the Addition of New Stores Each Year, Which May Strain the Company’s Resources and Adversely Impact the Current Store Base Performance.

The Company’s growth strategy largely depends on the opening of new stores, remodeling existing stores in a timely manner and operating them profitably. In Fiscal 2008, the Company expects to open approximately 110 new stores and remodel five to ten stores. Additional factors required for the successful implementation of the Company’s growth strategy include, but are not limited to, obtaining desirable prime store locations, negotiating acceptable leases, completing projects on budget, supplying proper levels of merchandise and successfully hiring and training store managers and sales associates. Additionally, the new stores may place increased demands on the Company’s operational, managerial and administrative resources, which could cause the Company to operate less efficiently. Furthermore, there is a possibility that new stores opened in existing markets may have an adverse effect on previously existing stores in such markets. Failure to properly implement the Company’s growth strategy could have a material adverse effect on the Company’s financial condition or results of operations.

The Company’s Long-Term Growth Strategy also Depends on the Development of New Brand Concepts.

Historically, the Company has internally developed and launched new brands that have contributed to the Company’s growth. Each new brand concept requires management’s focus and attention as well as significant capital investments. Furthermore, each new brand concept is susceptible to risks that include lack of customer acceptance, competition from existing or new retailers, product differentiation, production and distribution inefficiencies and unanticipated operating issues. There is no assurance that new brand concepts will achieve successful results. Any new brand concept that is not successfully launched could have a material adverse effect on the Company’s financial condition or results of operations.

The Company’s International Expansion Plan is Dependent on a Number of Factors, any of Which Could Delay or Prevent the Successful Penetration into New Markets and Strain its Resources.

As the Company expands internationally, it may incur significant costs related to starting up and maintaining foreign operations. Costs may include, but are not limited to, obtaining prime locations for stores, setting up foreign offices and DCs, as well as hiring experienced management. The Company may be unable to open and operate new stores successfully, and its growth will be limited, unless it can:

	•		identify suitable markets and sites for store locations;
	•		negotiate acceptable lease terms;
	•		hire, train and retain competent store personnel;
	•		gain acceptance from its foreign customers;
	•		foster current relationships and develop new relationships with vendors that are capable of supplying a greater volume of merchandise;
	•		manage inventory effectively to meet the needs of new and existing stores on a timely basis;
	•		expand its infrastructure to accommodate growth;
	•		generate sufficient operating cash flows or secure adequate capital on commercially reasonable terms to fund its expansion plan; and
	•		manage its foreign currency exchange risks effectively.

In addition, the Company’s international expansion plan will place increased demands on its operational, managerial and administrative resources. These increased demands may cause the Company to operate its business less efficiently, which in turn could cause deterioration in the performance of its existing stores. Furthermore, the Company’s ability to conduct business in international markets may be affected by legal, regulatory, political and economic risks.

The Company’s Net Sales and Inventory Levels Fluctuate on a Seasonal Basis, Causing its Results of Operations to be Particularly Susceptible to Changes in Back-to-School and Holiday Shopping Patterns.

Historically, the Company’s operations have been seasonal, with a significant amount of net sales and net income occurring in the fourth fiscal quarter, due to the increased sales during the Holiday selling season and, to a lesser extent, the third fiscal quarter, reflecting increased sales during the Back-to-School selling season. The Company’s net sales and net income during the first and second fiscal quarters typically are lower due, in part, to the traditional retail slowdown immediately following the Holiday season. As a result of this seasonality, net sales and net income during any fiscal quarter cannot be used as an accurate indicator of the Company’s annual results. Any factors negatively affecting the Company during the third and fourth fiscal quarters of any year, including adverse weather or unfavorable economic conditions, could have a material adverse effect on its financial condition or results of operations for the entire year.

Furthermore, in order to prepare for the Back-to-School and Holiday selling seasons, the Company must order and keep significantly more merchandise in stock than it would carry during other parts of the year. Therefore, the inability to accurately plan and allocate merchandise could have a material adverse effect on the Company’s financial condition or results of operations. High inventory levels due to unanticipated decreases in demand for the Company’s products during peak selling seasons, misidentification of fashion trends or excess inventory purchases could require the Company to sell merchandise at a substantial markdown, which could reduce its net sales and gross margins and negatively impact its profitability.

The Company’s Ability to Attract Customers to its Stores Depends Heavily on the Success of the Shopping Centers in Which They are Located.

In order to generate customer traffic, the Company locates many of its stores in prominent locations within successful shopping centers. The Company cannot control the development of new shopping centers, the availability or cost of appropriate locations within existing or new shopping centers, competition with other retailers for prominent locations or the success of individual shopping centers. In addition, factors beyond the Company’s control impact shopping center traffic, such as general economic conditions and consumer spending levels. A slowdown in the U.S. economy could negatively affect consumer spending and reduce shopping center traffic. A significant decrease in shopping center traffic could have a material adverse effect on the Company’s financial condition or results of operations.

Furthermore, in pursuing its growth strategy, the Company will be competing with other retailers for prominent locations within successful shopping centers. If the Company is unable to secure these locations or is unable to renew store leases on acceptable terms, it may not be able to continue to attract the number or quality of customers it normally has attracted or would need to attract in order to sustain its projected growth. All of these factors may impact the Company’s ability to meet its growth targets and could have a material adverse effect on its financial condition or results of operations.

Comparable Store Sales Will Fluctuate on a Regular Basis, Which in Turn May Cause Volatility in the Price of the Company’s Class A Common Stock.

The Company’s comparable store sales, defined as year-over-year sales for a store that has been open as the same brand at least one year and the square footage of which has not been expanded or reduced by more than 20%, have fluctuated significantly in the past on an annual, quarterly and monthly basis and are expected to continue to fluctuate in the future. During the past three fiscal years, the comparable sales results have fluctuated as follows: (a) from (1%) to 26% for annual results; (b) from (4%) to 30% for quarterly results; and (c) from (15%) to 38% for monthly results. The Company believes that a variety of factors affect comparable store sales results including, but not limited to, fashion trends, actions by competitors, economic conditions, weather conditions, opening and/or closing of Company stores near each other, and the calendar shifts of tax free and holiday periods. Comparable store sales fluctuations may have been an important factor in the volatility of the price of the Company’s Class A Common Stock in the past, and it is likely that future comparable store sales fluctuations will contribute to stock price volatility in the future.

The Company’s Litigation Exposure Could Exceed Expectations, Having a Material Adverse Effect on Its Financial Condition or Results of Operations.

The Company is involved, from time-to-time, in litigation incidental to its business, such as litigation regarding overtime compensation and other employment related matters. Additionally, the Company is involved in several purported class action lawsuits and several shareholder derivative actions, as well as an SEC investigation, all regarding trading in the Company’s Class A Common Stock in the summer of Fiscal 2005 (collectively, the “Securities Matters”, see “ITEM 3. LEGAL PROCEEDINGS.”) Management is unable to assess the potential exposure of the aforesaid matters. The Company’s current exposure could change in the event of the discovery of damaging facts with respect to legal matters pending against the Company or determinations by judges, juries or other finders of fact that are not in accordance with management’s evaluation of the claims. Should management’s evaluation prove incorrect, particularly in regard to the class action overtime compensation and other employment related claims and the Securities Matters, the Company’s exposure could greatly exceed expectations and have a material adverse effect on the financial condition, results of operations or cash flows of the Company.

The Company’s Failure To Adequately Protect Its Trademarks, Abercrombie & Fitch^®, abercrombie^®, Hollister Co.^®, Ruehl No. 925^® and Gilly Hicks, Could Have a Negative Impact on Its Brand Image and Limit Its Ability To Penetrate New Markets.

The Company believes that its trademarks, Abercrombie & Fitch^®, abercrombie^®, Hollister Co.^®, Ruehl No. 925^®, Gilly Hicks and the “Moose,” “Seagull,” “Bulldog” and “Koala” logos, are an essential element of the Company’s strategy. The Company has obtained or applied for federal registration of these trademarks with the U.S. Patent and Trademark Office and the registries where stores are located or may be located in the future and has pending trademark registration applications for other trademarks in the U.S. and has applied for or obtained registrations from the registries in many foreign countries in which its manufacturers are located. There can be no assurance that the Company will obtain registrations that have been applied for or that the registrations the Company obtains will prevent the imitation of its products or infringement of its intellectual property rights by others. If any third party copies the Company’s products in a manner that projects lesser quality or carries a negative connotation, the Company’s brand image could be materially adversely affected.

Because the Company has not yet registered all of its trademarks in all categories, or in all foreign countries in which it sources or offers its merchandise now or may do so in the future, its international expansion and its merchandising of products using these marks could be limited. For example, the Company cannot ensure that others will not try to block the manufacture, export or sale of its products as a violation of their trademarks or other proprietary rights. The pending applications for international registration of various trademarks could be challenged or rejected in those countries because third parties of whom the Company is not currently aware have already registered similar marks in those countries. Accordingly, it may be possible, in those foreign countries where the status of various applications is pending or unclear, for a third-party owner of the national trademark registration for a similar mark to prohibit the manufacture, sale or exportation of branded goods in or from that country. If the Company is unable to reach an arrangement with any such party, the Company’s manufacturers may be unable to manufacture its products, and the Company may be unable to sell in those countries. The Company’s inability to register its trademarks or purchase or license the right to use its trademarks or logos in these jurisdictions could limit its ability to obtain supplies from, or manufacture in, less costly markets or penetrate new markets should the Company’s business plan include selling its merchandise in those non-U.S. jurisdictions.

The Company has an anti-counterfeiting program, under the auspices of the Abercrombie & Fitch Brand Protection Team, whose goal is to eliminate the supply of illegal pieces of the Company’s products. The Brand Protection Team interacts with investigators, customs officials and law enforcement entities throughout the world to combat the illegal use of the Company’s trademarks. Although brand security initiatives are being taken, the Company cannot guarantee that its efforts against the counterfeiting of its brands will be successful.

Modifications and/or Upgrades to Information Technology Systems may Disrupt Operations.

The Company regularly evaluates its information technology systems and requirements and is currently implementing modifications and/or upgrades to the information technology systems that support the business. Modifications include replacing legacy systems with successor systems, making changes to legacy systems or acquiring new systems with new functionality. The Company is aware of inherent risks associated with replacing and modifying these systems, including inaccurate system information and system disruptions. The Company believes it is taking appropriate action to mitigate the risks through testing, training and staging implementation as well as securing appropriate commercial contracts with third-party vendors supplying such replacement technologies. Information technology system disruptions and inaccurate system information, if not anticipated and appropriately mitigated, could have a material adverse effect on the Company’s financial condition or results of operations. Additionally, there is no assurance that a successfully implemented system will deliver value to the Company.

Our Business Could Suffer if the Company’s Computer Systems are Disrupted or Cease to Operate Effectively.

The Company relies heavily on its computer systems to record and process transactions and manage and operate the Company’s operations. Given the significant number of transactions that are completed annually, it is vital to maintain constant operation of the computer hardware and software systems. Despite efforts to prevent such an occurrence, the Company’s systems are vulnerable from time-to-time to damage or interruption from computer viruses, power outages and other technical malfunctions. If our systems are damaged or fail to function properly, the Company may have to make monetary investments to repair or replace the systems and the Company could endure delays in its operations. Any material interruption could have a material adverse effect on the Company’s business or results of operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES.

The Company’s headquarters and support functions, consisting of the home office and distribution and shipping facilities, are centralized on a 467-acre campus-like setting in New Albany, Ohio that is owned by the Company. Additionally, the Company leases small facilities to house its design and sourcing support centers in Hong Kong, New York City and Santa Monica, California, as well as offices in the United Kingdom (“U.K.”), Switzerland and Italy for its European operations.

All of the retail stores operated by the Company, as of March 21, 2008, are located in leased facilities, primarily in shopping centers throughout the U.S., Canada and the U.K. As of March 21, 2008, the Company operated two stand-alone flagships in New York, New York and London, England. The leases expire at various dates, principally between 2008 and 2028.

The Company’s home office, distribution and shipping facilities, design support centers and stores are generally suitable and adequate.

As of March 21, 2008, the Company’s 1,042 stores were located in 49 states, the District of Columbia, Canada and the U.K., as follows:

Alabama			15			Kentucky			15			North Dakota			2
Alaska			1			Louisiana			15			Ohio			41
Arizona			17			Maine			3			Oklahoma			10
Arkansas			7			Maryland			18			Oregon			15
California			128			Massachusetts			32			Pennsylvania			46
Colorado			11			Michigan			34			Rhode Island			4
Connecticut			20			Minnesota			22			South Carolina			15
Delaware			4			Mississippi			6			South Dakota			2
District of Columbia			1			Missouri			20			Tennessee			22
Florida			69			Montana			2			Texas			90
Georgia			27			Nebraska			5			Utah			7
Hawaii			5			Nevada			15			Vermont			2
Idaho			4			New Hampshire			9			Virginia			27
Illinois			47			New Jersey			37			Washington			20
Indiana			26			New Mexico			4			West Virginia			5
Iowa			7			New York			49			Wisconsin			16
Kansas			6			North Carolina			30			Canada			6
												U.K.			1

ITEM 3. LEGAL PROCEEDINGS.

A&F is a defendant in lawsuits arising in the ordinary course of business.

On June 23, 2006, Lisa Hashimoto, et al. v. Abercrombie & Fitch Co. and Abercrombie & Fitch Stores, Inc., was filed in the Superior Court of the State of California for the County of Los Angeles. In that action, three plaintiffs allege, on behalf of a putative class of California store managers employed in Hollister and abercrombie stores, that they were entitled to receive overtime pay as “non-exempt” employees under California wage and hour laws. The complaint seeks injunctive relief, equitable relief, unpaid overtime compensation, unpaid benefits, penalties, interest and attorneys’ fees and costs. The defendants filed an answer to the complaint on August 21, 2006. The parties are engaging in discovery. On December 10, 2007, the defendants reached an agreement in principle with plaintiffs’ counsel to settle certain claims in the action. The agreement resulted in a written Stipulation and Settlement Agreement, effective as of February 7, 2008, settling all claims of Hollister and abercrombie store managers who served in stores from June 23, 2002 to April 30, 2004. Neither the agreement in principle nor the Stipulation affects claims which are alleged to have arisen in the period commencing on April 30, 2004. On February 27, 2008, the Court entered an order noting its preliminary approval of the Stipulation and Settlement Agreement and setting a noticed hearing for June 9, 2008, to determine whether the proposed settlement should be finally approved. The cost of the settlement, if approved, is not expected to be material.

On September 2, 2005, a purported class action, styled Robert Ross v. Abercrombie & Fitch Company, et al., was filed against A&F and certain of its officers in the United States District Court for the Southern District of Ohio on behalf of a purported class of all persons who purchased or acquired shares of A&F’s Common Stock between June 2, 2005 and August 16, 2005. In September and October of 2005, five other purported class actions were subsequently filed against A&F and other defendants in the same Court. All six securities cases allege claims under the federal securities laws, and seek unspecified monetary damages, as a result of a decline in the price of A&F’s Common Stock during the summer of 2005. On November 1, 2005, a motion to consolidate all of these purported class actions into the first-filed case was filed by some of the plaintiffs. A&F joined in that motion. On March 22, 2006, the motions to consolidate were granted, and these actions (together with the federal court derivative cases described in the following paragraph) were consolidated for purposes of motion practice, discovery and pretrial proceedings. A consolidated amended securities class action complaint (the “Complaint”) was filed on August 14, 2006. On October 13, 2006, all defendants moved to dismiss that Complaint. On August 9, 2007, the Court denied the motions to dismiss. On September 14, 2007, defendants filed answers denying the material allegations of the Complaint and asserting affirmative defenses. On October 26, 2007, plaintiffs moved to certify their purported class. The motion has not been fully briefed or submitted.

On September 16, 2005, a derivative action, styled The Booth Family Trust v. Michael S. Jeffries, et al., was filed in the United States District Court for the Southern District of Ohio, naming A&F as a nominal defendant and seeking to assert claims for unspecified damages against nine of A&F’s present and former directors, alleging various breaches of the directors’ fiduciary duty and seeking equitable and monetary relief. In the following three months (October, November and December of 2005), four similar derivative actions were filed (three in the United States District Court for the Southern District of Ohio and one in the Court of Common Pleas for Franklin County, Ohio) against present and former directors of A&F alleging various breaches of the directors’ fiduciary duty and seeking equitable and monetary relief. A&F is also a nominal defendant in each of the four later derivative actions. On November 4, 2005, a motion to consolidate all of the federal court derivative actions with the purported securities law class actions described in the preceding paragraph was filed. On March 22, 2006, the motion to consolidate was granted, and the federal court derivative actions have been consolidated with the aforesaid purported securities law class actions for purposes of motion practice, discovery and pretrial proceedings. A consolidated amended derivative complaint was filed in the federal proceeding on July 10, 2006. A&F filed a motion to stay the consolidated federal derivative case and that motion was granted. The state court action was also stayed. On February 16, 2007, A&F announced its Board of Directors received a report of the Special Litigation Committee established by the Board to investigate and act with respect to claims asserted in certain previously disclosed derivative lawsuits brought against current and former directors and management, including Chairman and Chief Executive Officer Michael S. Jeffries.

The Special Litigation Committee has concluded that there is no evidence to support the asserted claims and directed the Company to seek dismissal of the derivative actions. On September 10, 2007, the Company moved to dismiss the federal derivative cases on the authority of the Special Litigation Committee report and on October 18, 2007, the state court stayed further proceedings until resolution of the consolidated federal derivative cases.

In December 2005, the Company received a formal order of investigation from the SEC concerning trading in shares of A&F’s Common Stock. The SEC has requested information from A&F and certain of its current and former officers and directors. The Company and its personnel have cooperated fully with the SEC.

Management intends to defend the aforesaid matters vigorously, as appropriate. Management is unable to quantify the potential exposure of the aforesaid matters. However, management’s assessment of the Company’s current exposure could change in the event of the discovery of additional facts with respect to legal matters pending against the Company or determinations by judges, juries or other finders of fact that are not in accord with management’s evaluation of the claims.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.

Set forth below is certain information regarding the executive officers of A&F as of March 21, 2008.

Michael S. Jeffries, 63, has been Chairman of A&F since May 1998. Mr. Jeffries has been Chief Executive Officer of A&F since February 1992. From February 1992 to May 1998, Mr. Jeffries held the position of President of A&F. Under the terms of the Amended and Restated Employment Agreement, dated as of August 15, 2005, between A&F and Mr. Jeffries, A&F is obligated to cause Mr. Jeffries to be nominated as a director of A&F during his employment term.

Diane Chang, 52, has been Executive Vice President – Sourcing of A&F since May 2004. Prior thereto, Ms. Chang held the position of Senior Vice President – Sourcing of A&F from February 2000 to May 2004 and the position of Vice President – Sourcing of A&F from May 1998 to February 2000.

Leslee K. Herro, 47, has been Executive Vice President – Planning and Allocation of A&F since May 2004. Prior thereto, Ms. Herro held the position of Senior Vice President – Planning and Allocation of A&F from February 2000 to May 2004 and the position of Vice President — Planning & Allocation of A&F from February 1994 to February 2000.

Michael W. Kramer, 43, has been Executive Vice President and Chief Financial Officer of A&F since November 2006. He joined A&F in August 2005 as Senior Vice President and Chief Financial Officer. Prior to that, he served as Chief Financial Officer, Apple Retail for Apple Computer, Inc. since April 2001.

David S. Cupps, 71, joined A&F in April 2007 as Senior Vice President, General Counsel and Secretary of A&F. Prior thereto, he was a partner in the law firm of Vorys, Sater, Seymour and Pease LLP from January 1974 through December 2006 and Of Counsel to that law firm from January 2007 through March 2007.

The executive officers serve at the pleasure of the Board of Directors of A&F and, in the case of Mr. Jeffries, pursuant to an employment agreement.

PART II

A&F’s Class A Common Stock (the “Common Stock”) is traded on the New York Stock Exchange under the symbol “ANF.” The table below sets forth the high and low sales prices of A&F’s Common Stock on the New York Stock Exchange for Fiscal 2007 and Fiscal 2006:

		Sales Price
		High				Low
Fiscal 2007
4th Quarter		$	84.54			$	66.05
3rd Quarter		$	85.77			$	67.91
2nd Quarter		$	84.16			$	67.72
1st Quarter		$	84.92			$	71.75
Fiscal 2006
4th Quarter		$	81.70			$	65.75
3rd Quarter		$	79.42			$	51.76
2nd Quarter		$	65.19			$	49.98
1st Quarter		$	70.94			$	54.50

Beginning in Fiscal 2004, the Board of Directors of A&F voted to initiate a cash dividend at an annual rate of $0.50 per share. A quarterly dividend of $0.125 per share was paid in March and June 2005. In August 2005, the A&F Board of Directors increased the quarterly dividend to $0.175 per share, which was paid in September and December of Fiscal 2005. A quarterly dividend, of $0.175 per share, was paid in March, June, September and December of Fiscal 2006 and Fiscal 2007. A&F expects to continue to pay a dividend, subject to the Board of Directors’ review of the Company’s cash position and results of operations.

As of March 21, 2008, there were approximately 4,929 stockholders of record. However, when including investors holding shares in broker accounts under street name, active associates who participate in A&F’s stock purchase plan, and associates who own shares through A&F-sponsored retirement plans, A&F estimates that there are approximately 102,000 stockholders.

The following table provides information regarding the purchase of shares of the Common Stock of A&F made by or on behalf of A&F or any “affiliated purchaser” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended, during each fiscal month of the quarterly period ended February 2, 2008:

										Total Number of
										Shares Purchased as				Maximum Number of
		Total Number				Average				Part of Publicly				Shares that May Yet Be
		of Shares				Price Paid				Announced Plans or				Purchased under the
Fiscal Month		Purchased				per Share				Programs				Plans or Programs (1)(2)
November 4, 2007 - December 1, 2007			—				—				—				12,029,200
December 2, 2007 - January 5, 2007			—				—				—				12,029,200
January 6, 2008 - February 2, 2008			—				—				—				12,029,200
Totals			—				—				—				12,029,200

During Fiscal 2007, A&F repurchased approximately 3.6 million shares of A&F’s Common Stock with a value of approximately $287.9 million. A&F did not repurchase any shares of A&F’s Common Stock during Fiscal 2006. During Fiscal 2005, A&F repurchased approximately 1.8 million shares of A&F’s Common Stock with a value of approximately $103.3 million. Both the Fiscal 2007 and Fiscal 2005 repurchases were pursuant to A&F Board of Directors’ authorizations. As shown in the table set forth above, A&F did not repurchase any shares of A&F’s Common Stock during the fiscal quarter ended February 2, 2008.

Subsequent to February 2, 2008, A&F repurchased approximately 0.7 million shares of A&F’s Common Stock with a value of approximately $50.0 million from the approximately 12.0 million shares of Common Stock remaining authorized for repurchase at February 2, 2008.

The following graph shows the changes, over the five-year period ended February 2, 2008 (the last day of A&F’s 2007 fiscal year), in the value of $100 invested in (i) shares of A&F’s Common Stock; (ii) the Standard & Poor’s 500 Stock Index (the “S&P 500 Index”) and (iii) the Standard & Poor’s Apparel Retail Composite Index (the “S&P Apparel Retail Index”), including reinvestment of dividends. The plotted points represent the closing price on the last day of the fiscal year indicated (and if such day was not a trading day, the closing price on the last day immediately preceding the trading day).

PERFORMANCE GRAPH ⁽¹⁾

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Abercrombie & Fitch Co., The S&P 500 Index
And The S&P Apparel Retail Index

ITEM 6. SELECTED FINANCIAL DATA.

ABERCROMBIE & FITCH

FINANCIAL SUMMARY

(Thousands, except per share and per square foot amounts, ratios and store and associate data)

Fiscal Year		2007				2006*				2005				2004				2003
Summary of Operations
Net Sales		$	3,749,847			$	3,318,158			$	2,784,711			$	2,021,253			$	1,707,810
Gross Profit		$	2,511,367			$	2,209,006			$	1,851,416			$	1,341,224			$	1,083,170
Operating Income		$	740,497			$	658,090			$	542,738			$	347,635			$	331,180
Operating Income as a Percentage of Net Sales			19.7	%			19.8	%			19.5	%			17.2	%			19.4	%
Net Income		$	475,697			$	422,186			$	333,986			$	216,376			$	204,830
Net Income as a Percentage of Net Sales			12.7	%			12.7	%			12.0	%			10.7	%			12.0	%
Dividends Declared Per Share		$	0.70			$	0.70			$	0.60			$	0.50				—
Net Income Per Weighted-Average
Share Results
Basic		$	5.45			$	4.79			$	3.83			$	2.33			$	2.12
Diluted		$	5.20			$	4.59			$	3.66			$	2.28			$	2.06
Diluted Weighted-Average Shares Outstanding			91,523				92,010				91,221				95,110				99,580
Other Financial Information
Total Assets		$	2,567,598			$	2,248,067			$	1,789,718			$	1,386,791			$	1,401,369
Return on Average Assets			20	%			21	%			21	%			16	%			16	%
Net Cash Provided from Operations		$	817,825			$	582,171			$	453,590			$	423,784			$	340,814
Capital Expenditures		$	403,345			$	403,476			$	256,422			$	185,065			$	159,777
Long-Term Debt			—				—				—				—				—
Shareholders’ Equity		$	1,618,313			$	1,405,297			$	995,117			$	669,326			$	857,764
Return on Average Shareholders’ Equity			31	%			35	%			40	%			28	%			26	%
Comparable Store Sales**			(1	%)			2	%			26	%			2	%			(9	%)
Net Retail Sales Per Average Gross Square Foot		$	489			$	500			$	464			$	360			$	345
Stores at End of Year and Average Associates
Total Number of Stores Open			1,035				944				851				788				700
Gross Square Feet			7,337,000				6,693,000				6,025,000				5,590,000				5,016,000
Average Number of Associates			94,600				80,100				69,100				48,500				30,200

*		Fiscal 2006 was a fifty-three week year.
**		A store is included in comparable store sales when it has been open as the same brand at least one year and its square footage has not been expanded or reduced by more than 20% within the past year. Note that Fiscal 2007 comparable store sales are compared to store sales for the comparable fifty-two weeks ended February 3, 2007. Note that Fiscal 2006 comparable store sales are compared to store sales for the comparable fifty-three weeks ended February 4, 2006.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

OVERVIEW

The Company’s fiscal year ends on the Saturday closest to January 31, typically resulting in a fifty-two week year, but occasionally giving rise to an additional week, resulting in a fifty-three week year. A store is included in comparable store sales when it has been open as the same brand at least one year and its square footage has not been expanded or reduced by more than 20% within the past year.

Fiscal 2007 includes fifty-two weeks and Fiscal 2006 includes fifty-three weeks. For purposes of “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS”, the thirteen and fifty-two week periods ended February 2, 2008 are compared to the fourteen and fifty-three week periods ended February 3, 2007. For Fiscal 2007, comparable store sales compare the thirteen and fifty-two week periods ended February 2, 2008 to the thirteen and fifty-two week periods ended February 3, 2007. For Fiscal 2006, comparable store sales compare the fourteen and fifty-three week periods ended February 3, 2007 to the fourteen and fifty-three week periods ended February 4, 2006.

The Company had net sales of $3.750 billion for the fifty-two weeks ended February 2, 2008, up 13.0% from $3.318 billion for the fifty-three weeks ended February 3, 2007. Operating income for Fiscal 2007 increased 12.5% to $740.5 million from $658.1 million for Fiscal 2006. Net income was $475.7 million in Fiscal 2007, up 12.7% from $422.2 million in Fiscal 2006. Net income per diluted weighted-average share was $5.20 for Fiscal 2007 compared to $4.59 in Fiscal 2006, an increase of 13.3%.

The Company generated cash from operations of $817.8 million in Fiscal 2007 versus $582.2 million in Fiscal 2006, resulting primarily from a reduction in inventory and sales and earnings growth. During Fiscal 2007, the Company used cash from operations to finance its growth strategy, including the opening of 58 new Hollister stores, 25 new abercrombie stores, seven new RUEHL stores, six new Abercrombie & Fitch stores and three new Gilly Hicks stores, as well as the remodeling, converting or refreshing of existing Abercrombie & Fitch, abercrombie, Hollister and RUEHL stores.

The Company also used excess cash in Fiscal 2007 to pay dividends of $0.70 per share, for a total of $61.3 million and to repurchase approximately 3.6 million shares of A&F Common Stock with a value of approximately $287.9 million. The Company believes that share repurchases and dividends are an important way for the Company to deliver shareholder value, but the Company’s priority will be to invest in the business to support its domestic and international growth plans. The Company continues to be committed to maintaining sufficient cash on the balance sheet to support daily operations, fund growth initiatives and provide a degree of protection against unanticipated business volatility. In addition, the Company has $250 million available, less outstanding letters of credit, under its unsecured credit agreement to support operations.

The following data represents the Company’s Consolidated Statements of Net Income for the last three fiscal years, expressed as a percentage of net sales:

		2007				2006*				2005
NET SALES			100.0	%			100.0	%			100.0	%
Cost of Goods Sold			33.0				33.4				33.5
GROSS PROFIT			67.0				66.6				66.5
Stores and Distribution Expense			37.0				35.8				35.9
Marketing, General and Administrative Expense			10.6				11.3				11.3
Other Operating Income, Net			(0.3	)			(0.3	)			(0.2	)
OPERATING INCOME			19.7				19.8				19.5
Interest Income, Net			(0.5	)			(0.4	)			(0.2	)
INCOME BEFORE INCOME TAXES			20.2				20.3				19.7
Provision for Income Taxes			7.6				7.5				7.7
NET INCOME			12.7	%			12.7	%			12.0	%

FINANCIAL SUMMARY
The following summarized financial and operational data compares Fiscal 2007 to Fiscal 2006 and Fiscal 2006 to Fiscal 2005:

														Change
		2007				2006*				2005				2007-2006				2006-2005
Net sales by brand (thousands)		$	3,749,847			$	3,318,158			$	2,784,711				13	%			19	%
Abercrombie & Fitch		$	1,638,929			$	1,515,123			$	1,424,013				8	%			6	%
abercrombie		$	471,045			$	405,820			$	344,938				16	%			18	%
Hollister		$	1,589,452			$	1,363,233			$	999,212				17	%			36	%
RUEHL		$	50,191			$	33,982			$	16,548				48	%			105	%
Gilly Hicks***		$	230				n/a				n/a				n/a				n/a
Increase (decrease) in comparable store sales**			(1	)%			2	%			26	%
Abercrombie & Fitch			0	%			(4	)%			18	%
abercrombie			0	%			10	%			54	%
Hollister			(2	)%			5	%			29	%
RUEHL			(9	)%			14	%			n/a
Net retail sales increase attributable to new and remodeled stores, web sites and catalogue			14	%			17	%			12	%
Net retail sales per average store (thousands)		$	3,470			$	3,533			$	3,284				(2	)%			8	%
Abercrombie & Fitch		$	4,073			$	3,945			$	3,784				3	%			4	%
abercrombie		$	2,230			$	2,251			$	1,957				(1	)%			15	%
Hollister		$	3,550			$	3,732			$	3,442				(5	)%			8	%
RUEHL		$	2,602			$	3,248			$	2,903				(20	)%			12	%
Net retail sales per average gross square foot		$	489			$	500			$	464				(2	)%			8	%
Abercrombie & Fitch		$	463			$	450			$	432				3	%			4	%
abercrombie		$	493			$	513			$	446				(4	)%			15	%
Hollister		$	531			$	568			$	528				(7	)%			7	%
RUEHL		$	282			$	363			$	315				(22	)%			15	%
Transactions per average retail store			53,152				55,142				50,863				(4	)%			8	%
Abercrombie & Fitch			49,915				51,704				49,685				(3	)%			4	%
abercrombie			33,907				34,786				30,356				(3	)%			15	%
Hollister			65,564				68,740				64,913				(5	)%			6	%
RUEHL			31,880				38,554				26,215				(17	)%			47	%
Average retail transaction value		$	65.29			$	64.07			$	64.56				2	%			(1	)%
Abercrombie & Fitch		$	81.59			$	76.30			$	76.16				7	%			0	%
abercrombie		$	65.76			$	64.72			$	64.47				2	%			0	%
Hollister		$	54.15			$	54.30			$	53.03				0	%			2	%
RUEHL		$	81.61			$	84.24			$	110.74				(3	)%			(24	)%
Average units per retail transaction			2.42				2.35				2.25				3	%			4	%
Abercrombie & Fitch			2.37				2.26				2.18				5	%			4	%
abercrombie			2.82				2.78				2.66				1	%			5	%
Hollister			2.36				2.32				2.21				2	%			5	%
RUEHL			2.48				2.57				2.28				(4	)%			13	%
Average unit retail sold		$	26.98			$	27.26			$	28.69				(1	)%			(5	)%
Abercrombie & Fitch		$	34.43			$	33.76			$	34.94				2	%			(3	)%
abercrombie		$	23.32			$	23.28			$	24.24				0	%			(4	)%
Hollister		$	22.94			$	23.41			$	24.00				(2	)%			(2	)%
RUEHL		$	32.91			$	32.78			$	48.57				0	%			(33	)%

CURRENT TRENDS AND OUTLOOK

In Fiscal 2007, the Company once again produced record sales and earnings, driven by an increased gross profit rate and a lower marketing, general and administrative expense rate. The Company maintained high store sales productivity and a high operating margin, even as the Company continued to invest in the long-term positioning of its brands. The Company believes its ability to maintain the sale of full-priced merchandise and consistent high store sales productivity is a result of its commitment to offer trend-right merchandise, with the highest level of quality, and to create an exceptional in-store experience, which establishes an emotional connection with its customers.

The Company’s commitment to its brands is demonstrated by strategic investments made in the areas of stores, merchandise development and home office infrastructure, which the Company believes will enhance quality, improve productivity and support future growth. Specifically, major implementations in planning, merchandising and allocation information systems over the next year should generate supply chain improvements and serve as a platform for future growth and expansion, both domestically and internationally.

The Company believes it has significant growth potential both domestically and internationally. Domestically, the Company believes its growth potential will come from proven brands like Hollister and developing concepts like Gilly Hicks. Internationally, the Company believes its growth will come from its Abercrombie & Fitch, abercrombie and Hollister brands.

Recent international performance highlights the opportunity for expansion. In Fiscal 2007, the three Abercrombie & Fitch and three Hollister stores located in Canada continued to generate more than three times the sales productivity of the average U.S. counterpart and the Abercrombie & Fitch London flagship generated substantial sales per selling square foot similar to the strong performance of the Fifth Avenue flagship. “Tourist” stores, such as Fifth Avenue in New York, Ala Moana in Hawaii and Aventura Mall in Miami, are among the top performing stores in the chain. Additionally, international direct-to-consumer sales increased 72.4% from Fiscal 2006.

In 2008, the Company plans to open one Abercrombie & Fitch store, three abercrombie stores and three Hollister stores in Canada. The Company also plans to enter the U.K. market with Hollister with the opening of four shopping center-based stores in 2008. The first store is scheduled to open in October at Brent Cross Shopping Centre, outside of London.

Construction is currently underway for the first Hollister flagship in the SoHo area of New York City. The multi-level flagship is scheduled to open in Spring 2009. The Company anticipates the Hollister flagship to fortify the iconic status of the brand in order to support its international growth. Construction is also currently underway for the Abercrombie & Fitch flagship in Tokyo’s Ginza district, with a planned opening in late 2009. Opportunities are also being assessed for the Abercrombie & Fitch and Hollister brands in continental Europe and other sites in Japan.

In addition to a focus on the domestic and international expansion of existing iconic brands, the Company also views new concepts as an integral part of its long-term strategy.

In January 2008, the Company launched its fifth concept, Gilly Hicks. This concept provides the opportunity to expand the existing emotional connection with the Company’s female customers by offering bras, underwear, personal care products, sleepwear and at-home products. The Company operated three Gilly Hicks stores at the end of Fiscal 2007 and plans to open 15 stores in Fiscal 2008.

Although profitability was not achieved as originally expected, RUEHL made significant progress in Fiscal 2007 with improvements to gross margin and reductions in store operating and store construction costs. In Fiscal 2008, the Company will continue to focus on improving the quality level of the merchandise in order to be consistent with the brand’s positioning and pricing strategy. The Company expects brand awareness to grow from the RUEHL website which has offered a full product assortment since January 2008. However, the Company will moderate the pace of new store openings until RUEHL can be established as a proven concept.

The Company also views product line expansion through its existing brands as another promising growth opportunity. In October 2007, the Company launched a body care line in 93 Hollister stores for both Dudes and Bettys. Holiday purchases of body care products were primarily incremental transaction units indicating the product line is a way to help fuel organic sales growth. As a result, the Company has decided to expand the body care products to all Hollister stores in Fiscal 2008.

The Company is in the midst of an investment and expansion phase targeted at driving consistent and sustainable long-term value growth. The Company believes strongly in its brands and in the potential for its international expansion plan, and will continue to invest during economic cycles. If the current general macro-economic downturn persists and negatively impacts sales, the Company’s cost structure will be aligned accordingly, but resource cuts that could jeopardize the ability to implement the Company’s long-term growth initiatives will be avoided.

The following measurements are among the key business indicators reviewed by various members of management to gauge the Company’s results:

	•		Comparable store sales by brand, by product and by store, defined as year-over-year sales for a store that has been open as the same brand at least one year and its square footage has not been expanded or reduced by more than 20% within the past year;
	•		Direct-to-consumer sales growth;
	•		International and flagship stores performance;
	•		New store productivity;
	•		IMU;
	•		Selling margin, defined as sales price less original cost, by brand and by product category;
	•		Stores and distribution expense as a percentage of net sales;
	•		Marketing, general and administrative expense as a percentage of net sales;
	•		Store metrics such as sales per gross square foot, sales per selling square foot, average unit retail, average number of transactions per store, average transaction values, store contribution (defined as store sales less direct costs of running the store), and average units per transaction;
	•		Markdown rate;
	•		Gross profit rate;
	•		Operating income and operating income as a percentage of net sales;
	•		Net income;
	•		Inventory per gross square foot; and
	•		Cash flow and liquidity determined by the Company’s current ratio and cash provided by operations.

While not all of these metrics are disclosed publicly by the Company due to the proprietary nature of the information, the Company publicly discloses and discusses several of these metrics as part of its financial summary and in several sections within the Management’s Discussion and Analysis.

FISCAL 2007 COMPARED TO FISCAL 2006

FOURTH QUARTER RESULTS

Net Sales

Fourth quarter net sales for the thirteen week period ended February 2, 2008 were $1.229 billion, up 7.9% versus net sales of $1.139 billion for the fourteen week period ended February 3, 2007. The net sales increase was attributed primarily to the net addition of 91 stores and a 46.8% increase in direct-to-consumer business (including shipping and handling revenue), partially offset by an extra selling week in the fourth quarter of Fiscal 2006 and the resulting impact of the calendar shift in Fiscal 2007 due to Fiscal 2006 being a 53-week fiscal year, as well as a 1% decrease in comparable store sales.

Comparable store sales by brand for the fourth quarter of Fiscal 2007 were as follows: Abercrombie & Fitch increased 1% with men’s comparable store sales increasing by a low double-digit and women’s decreasing by a mid single-digit; abercrombie decreased 3% with boys’ increasing by a mid single-digit and girls’ decreasing by a mid single-digit; Hollister decreased 2% with dudes’ increasing by a high single-digit and bettys’ decreasing by a mid single-digit; and RUEHL decreased 19% with men’s decreasing by a high single-digit and women’s decreasing by the high twenties.

Comparable regional store sales ranged from increases in the high teens to decreases in the mid single-digits. Stores located in Canada and the Southwest and North Atlantic regions had the strongest comparable store sales performance, while stores located in the South, Midwest and West regions had the weakest comparable store sales performance on a consolidated basis.

From a merchandise classification standpoint across all brands, stronger performing masculine categories included graphic tees, fragrance and fleece, while pants, jeans and knits posted negative comparable sales. In the feminine businesses, across all brands, stronger performing categories included graphics tees, jeans and sweaters, while knits and fleece posted negative comparable sales.

Direct-to-consumer net merchandise sales, which are sold through the Company’s websites and catalogue in the fourth quarter of Fiscal 2007, were $108.6 million, an increase of 45.2% versus last year’s fourth quarter net merchandise sales of $74.8 million. Shipping and handling revenue for the corresponding periods was $15.6 million in Fiscal 2007 and $9.8 million in Fiscal 2006. The direct-to-consumer business, including shipping and handling revenue, accounted for 10.1% of total net sales in the fourth quarter of Fiscal 2007 compared to 7.4% in the fourth quarter of Fiscal 2006. The increase was driven by store expansion, both domestically and internationally, improved in-stock inventory availability, an improved targeted e-mail marketing strategy and improved website functionality.

Gross Profit

Gross profit during the fourth quarter of Fiscal 2007 was $825.6 million compared to $755.6 million for the comparable period in Fiscal 2006. The gross profit rate (gross profit divided by net sales) for the fourth quarter of Fiscal 2007 was 67.2%, up 80 basis points from last year’s fourth quarter rate of 66.4%. The increase in gross profit rate can be attributed to both a higher IMU rate and a lower shrink rate compared to the fourth quarter of Fiscal 2006, partially offset by a higher markdown rate.

Stores and Distribution Expense

Stores and distribution expense for the fourth quarter of Fiscal 2007 was $388.4 million compared to $349.8 million for the comparable period in Fiscal 2006. The stores and distribution expense rate (stores and distribution expense divided by net sales) for the fourth quarter of Fiscal 2007 was 31.6%, up 90 basis points from 30.7% in the fourth quarter of Fiscal 2006. The increase in rate is primarily related to the impact of minimum wage and management salary increases and higher store fixed cost rates.

The DC productivity level, measured in units processed per labor hour (“UPH”), was 16.1% higher in the fourth quarter of Fiscal 2007 versus the fourth quarter of Fiscal 2006, reflecting the realization of increased efficiencies due to the second DC being operational during Fiscal 2007.

Marketing, General and Administrative Expense

Marketing, general and administrative expense during the fourth quarter of Fiscal 2007 was $103.2 million compared to $101.6 million during the same period in Fiscal 2006. For the fourth quarter of Fiscal 2007, the marketing, general and administrative expense rate (marketing, general and administrative expense divided by net sales) was 8.4% compared to 8.9% in the fourth quarter of Fiscal 2006. The decrease in the marketing, general and administrative expense rate was a result of lower travel, samples and outside service expense rates, partially offset by an increase in the home office payroll expense rate.

Other Operating Income, Net

Fourth quarter net other operating income for Fiscal 2007 was $3.0 million compared to $4.6 million for the fourth quarter of Fiscal 2006. The decrease was driven primarily by losses on foreign currency transactions in the fourth quarter of Fiscal 2007 as compared to gains on foreign currency transactions in the fourth quarter of Fiscal 2006.

Operating Income

Operating income during the fourth quarter of Fiscal 2007 increased to $337.1 million from $308.8 million for the comparable period in Fiscal 2006, an increase of 9.2%. The operating income rate (operating income divided by net sales) for the fourth quarter of Fiscal 2007 was 27.4% compared to 27.1% for the fourth quarter of Fiscal 2006.

Interest Income, Net and Income Taxes

Fourth quarter net interest income was $6.4 million in Fiscal 2007 compared to $4.7 million during the comparable period in Fiscal 2006. The increase in net interest income was due to higher interest rates and higher available investment balances during the fourth quarter of Fiscal 2007 when compared to the fourth quarter of Fiscal 2006.

The effective tax rate for the fourth quarter of Fiscal 2007 was 36.9% as compared to 36.8% for the Fiscal 2006 comparable period.

Net Income and Net Income per Share

Net income for the fourth quarter of Fiscal 2007 was $216.8 million versus $198.2 million for the fourth quarter of Fiscal 2006, an increase of 9.4%. Net income per diluted weighted-average share outstanding for the fourth quarter of Fiscal 2007 was $2.40, versus $2.14 for the Fiscal 2006 comparable period, an increase of 12.2%.

FISCAL 2007 RESULTS

Net Sales

Net sales for Fiscal 2007 were $3.750 billion, an increase of 13.0% versus Fiscal 2006 net sales of $3.318 billion. The net sales increase was attributed to the combination of the net addition of 91 stores and a 50% increase in direct-to-consumer business (including shipping and handling revenue), partially offset by a 1% comparable store sales decrease and a fifty-three week year in Fiscal 2006 versus a fifty-two week year in Fiscal 2007.

For Fiscal 2007, comparable store sales by brand were as follows: Abercrombie & Fitch and abercrombie comparable sales were flat; Hollister decreased 2%; and RUEHL decreased 9%. In addition, the women’s, girls’ and bettys’ businesses continued to be more significant than the men’s, boys’ and dudes’. During Fiscal 2007, women’s, girls and bettys represented at least 60% of the net sales for each of their corresponding brands.

Direct-to-consumer merchandise net sales in Fiscal 2007 were $258.9 million, an increase of 49% versus Fiscal 2006 net merchandise sales of $174.1 million. Shipping and handling revenue was $39.1 million in Fiscal 2007 and $24.9 million in Fiscal 2006. The direct-to-consumer business, including shipping and handling revenue, accounted for 8.0% of total net sales in Fiscal 2007 compared to 6.0% of total net sales in Fiscal 2006. The increase was driven by store expansion, both domestically and internationally, improved in-stock inventory availability, an improved targeted e-mail marketing strategy and improved website functionality.

Gross Profit

For Fiscal 2007, gross profit increased to $2.511 billion from $2.209 billion in Fiscal 2006. The gross profit rate for Fiscal 2007 was 67.0% versus 66.6% the previous year, an increase of 40 basis points. The increase in the gross profit rate was driven primarily by a higher IMU rate and a lower shrink rate in the fourth quarter of Fiscal 2007, partially offset by a higher markdown rate.

Stores and Distribution Expense

Stores and distribution expense for Fiscal 2007 was $1.387 billion compared to $1.187 billion for Fiscal 2006. For Fiscal 2007, the stores and distribution expense rate was 37.0% compared to 35.8% in the previous year. The increase in rate resulted primarily from store payroll, including minimum wage and store manager salary increases, higher store fixed cost rates and store packaging and supply expenses.

The DCs’ UPH rate for Fiscal 2007 increased 9.1% as compared to Fiscal 2006, reflecting the realization of efficiencies obtained during Fiscal 2007 due to the second DC being operational. The Company expects the overall UPH level to continue to improve during Fiscal 2008, however at a lower rate than Fiscal 2007.

Marketing, General and Administrative Expense

Marketing, general and administrative expense during Fiscal 2007 was $395.8 million compared to $373.8 million in Fiscal 2006. For the current year, the marketing, general and administrative expense rate was 10.6%, a decrease of 70 basis points compared to last year’s rate of 11.3%. The decrease in rate resulted from reductions in travel, samples and outside services expense rates, partially offset by the increase in payroll expense rate.

Other Operating Income, Net

Other operating income for Fiscal 2007 was $11.7 million compared to $10.0 million for Fiscal 2006. The increase was primarily related to gift cards for which the Company has determined the likelihood of redemption to be remote, partially offset by decreases in gains related to foreign currency transactions. The comparable year-to-date period in Fiscal 2006 included other operating income related to insurance reimbursements for a fire-damaged store and a store damaged by Hurricane Katrina.

Operating Income

Fiscal 2007 operating income was $740.5 million compared to $658.1 million for Fiscal 2006, an increase of 12.5%. The operating income rate for Fiscal 2007 was 19.7% versus 19.8% in the previous year.

Interest Income, Net and Income Taxes

Net interest income for Fiscal 2007 was $18.8 million compared to $13.9 million for Fiscal 2006. The increase in net interest income was due to higher interest rates and higher available investment balances during Fiscal 2007 compared to Fiscal 2006.

The effective tax rate for Fiscal 2007 was 37.4% compared to 37.2% for Fiscal 2006.

Net Income and Net Income per Share

Net income for Fiscal 2007 was $475.7 million versus $422.2 million in Fiscal 2006, an increase of 12.7%. Net income per diluted weighted-average share was $5.20 in Fiscal 2007 versus $4.59 in Fiscal 2006, an increase of 13.3%.

FISCAL 2006 COMPARED TO FISCAL 2005

FOURTH QUARTER RESULTS

Net Sales

Net sales for the fourth quarter of Fiscal 2006 were $1.139 billion, up 18.5% versus net sales of $961.4 million in the fourth quarter of Fiscal 2005. The net sales increase was attributed primarily to the net addition of 93 stores, including the full quarter impact of the Abercrombie & Fitch Fifth Avenue flagship and six stores in Canada; a 58% increase in direct-to-consumer business (including shipping and handling revenue); and a fourteen week quarter in Fiscal 2006 versus a thirteen week quarter in Fiscal 2005, partially offset by a 3% decrease in comparable store sales.

Comparable store sales by brand for the fourth quarter of Fiscal 2006 versus the fourth quarter of Fiscal 2005 were as follows: Abercrombie & Fitch decreased 6% with women’s comparable store sales decreasing by a high single-digit and men’s decreasing by a mid single-digit; abercrombie increased 2% with boys’ achieving a mid single-digit increase and girls’ flat; Hollister was flat with bettys’ flat and dudes’ posting a decrease in the low single-digits; and RUEHL increased 6% with women’s realizing a mid single-digit increase and men’s posting a low single-digit increase.

On a regional basis, comparable store sales for the Company ranged from decreases in the high single-digits to increases in the low single-digits. Stores located in the North Atlantic region had the strongest comparable store sales performance and stores located in the West region had the weakest comparable store sales performance on a consolidated basis.

From a merchandise classification standpoint across all brands, stronger performing masculine categories included fleece, knit tops and underwear, while jeans, pants and sweaters posted negative comparable store sales. In the feminine businesses, across all brands, stronger performing categories included knit tops, fleece and shorts, while jeans, skirts and pants posted negative comparable store sales.

Direct-to-consumer net merchandise sales, sold through the Company’s websites and catalogue, in the fourth quarter of Fiscal 2006 were $74.8 million, an increase of 57.5% versus net merchandise sales of $47.5 million in the fourth quarter of Fiscal 2005. Shipping and handling revenue for the corresponding periods was $9.8 million in Fiscal 2006 and $6.2 million in Fiscal 2005. The direct-to-consumer business, including shipping and handling revenue, accounted for 7.4% of total net sales in the fourth quarter of Fiscal 2006 compared to 5.6% in the fourth quarter of Fiscal 2005.

Gross Profit

Gross profit during the fourth quarter of Fiscal 2006 was $755.6 million compared to $639.4 million for the comparable period in Fiscal 2005. The gross profit rate for the fourth quarter of Fiscal 2006 was 66.4%, down 10 basis points from the Fiscal 2005 fourth quarter rate of 66.5%. The decrease in gross profit rate largely resulted from a higher shrink rate and a slightly higher markdown rate compared to the fourth quarter of Fiscal 2005. Abercrombie & Fitch, abercrombie and Hollister all operated at similar IMU levels.

Stores and Distribution Expense

Stores and distribution expense for the fourth quarter of Fiscal 2006 was $349.8 million compared to $293.5 million for the comparable period in Fiscal 2005. The stores and distribution expense rate for the fourth quarter of Fiscal 2006 was 30.7%, up 20 basis points from 30.5% in the fourth quarter of Fiscal 2005. The increase in rate is primarily related to additional DC expenses associated with the second DC, which became fully operational in the fourth quarter, and direct-to-consumer expenses, which increased due to higher internet sales as a percentage of total sales. These increases were partially offset by decreased store expenses as a percentage of sales. Selling payroll, driven by management salary increases, state minimum wage increases and additional floor coverage to address shrink concerns increased as a percentage of sales. However, the increase in selling payroll was more than offset by leveraging other store related controllable expenses.

The DC productivity level, measured in UPH, was 9% higher in the fourth quarter of Fiscal 2006 versus the fourth quarter of Fiscal 2005. The UPH rate increase was due to the second DC becoming fully operational during the fourth quarter.

Marketing, General and Administrative Expense

Marketing, general and administrative expense during the fourth quarter of Fiscal 2006 was $101.6 million compared to $80.8 million during the fourth quarter of Fiscal 2005. For the fourth quarter of Fiscal 2006, the marketing, general and administrative expense rate was 8.9% compared to 8.4% in the fourth quarter of Fiscal 2005. The increase in the marketing, general and administrative expense rate was due to higher home office payroll and consulting expenses.

Other Operating Income, Net

Fourth quarter net other operating income for Fiscal 2006 was $4.6 million compared to $2.3 million for the fourth quarter of Fiscal 2005. Other operating income related primarily to gift cards for which the Company has determined the likelihood of redemption to be remote.

Operating Income

Operating income during the fourth quarter of Fiscal 2006 increased to $308.8 million from $267.5 million in the fourth quarter of Fiscal 2005, an increase of 15.4%. The operating income rate for the fourth quarter of Fiscal 2006 was 27.1% compared to 27.8% for the fourth quarter of Fiscal 2005.

Interest Income, Net and Income Taxes

Fourth quarter net interest income was $4.7 million in Fiscal 2006 compared to $2.4 million during the comparable period in Fiscal 2005. The increase in net interest income was due to higher interest rates and higher available investment balances during the fourth quarter of Fiscal 2006 when compared to the fourth quarter of Fiscal 2005.

The effective tax rate for the fourth quarter of Fiscal 2006 was 36.8% as compared to 39.0% for the Fiscal 2005 comparable period. The decrease in the effective tax rate was related primarily to favorable settlements of tax audits during the fourth quarter and the change in estimates of potential outcomes of certain state tax matters.

Net Income and Net Income per Share

Net income for the fourth quarter of Fiscal 2006 was $198.2 million versus $164.6 million for the fourth quarter of Fiscal 2005, an increase of 20.4%. Net income per diluted weighted-average share outstanding for the fourth quarter of Fiscal 2006 was $2.14, including $0.01 related to Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123(R)”), versus $1.80 for the comparable period in Fiscal 2005, an increase of 18.9%.

FISCAL 2006 RESULTS

Net Sales

Net sales for Fiscal 2006 were $3.318 billion, an increase of 19.1% versus Fiscal 2005 net sales of $2.785 billion. The net sales increase was attributed to the combination of the net addition of 93 stores, including the full year impact of the Abercrombie & Fitch Fifth Avenue flagship and six stores in Canada; a 2% comparable store sales increase; a 42% increase in direct-to-consumer business (including shipping and handling revenue); and a fifty-three week year in Fiscal 2006 versus a fifty-two week year in Fiscal 2005.

For Fiscal 2006, comparable store sales by brand were as follows: Abercrombie & Fitch decreased 4%; abercrombie increased 10%; Hollister increased 5%; and RUEHL increased 14%. In addition, the women’s, girls’ and bettys’ businesses continued to be more significant than the men’s, boys’ and dudes’.

Direct-to-consumer merchandise net sales in Fiscal 2006 were $174.1 million, an increase of 42.1% versus Fiscal 2005 net merchandise sales of $122.5 million. Shipping and handling revenue was $24.9 million in Fiscal 2006 and $17.6 million in Fiscal 2005. The direct-to-consumer business, including shipping and handling revenue, accounted for 6.0% of total net sales in Fiscal 2006 compared to 5.0% of net total sales in Fiscal 2005.

Gross Profit

For Fiscal 2006, gross profit increased to $2.209 billion from $1.851 billion in Fiscal 2005. The gross profit rate for Fiscal 2006 was 66.6% versus 66.5% for Fiscal 2005, an increase of 10 basis points.

Stores and Distribution Expense

Stores and distribution expense for Fiscal 2006 was $1.187 billion compared to $1.001 billion for Fiscal 2005. For Fiscal 2006, the stores and distribution expense rate was 35.8% compared to 35.9% in Fiscal 2005. The decrease in the rate resulted primarily from the Company’s ability to leverage store-related costs on a 2% increase in comparable store sales.

The DC’s UPH rate for the year was flat in Fiscal 2006 versus Fiscal 2005. During Fiscal 2006, while the second DC was being built, the overall DC’s UPH was impacted by the Company’s first DC reaching near capacity, a result of the Company’s focus on strategically flowing inventory to stores during Fiscal 2006.

Marketing, General and Administrative Expense

Marketing, general and administrative expense during Fiscal 2006 was $373.8 million compared to $313.5 million in Fiscal 2005. For Fiscal 2006, the marketing, general and administrative expense rate was 11.3%, which was flat compared to Fiscal 2005. Fiscal 2006 included a charge of $13.6 million related to the adoption of SFAS 123(R). Fiscal 2005 included a non-recurring charge of $13.5 million related to a severance agreement with an executive officer.

Other Operating Income, Net

Other operating income for Fiscal 2006 was $10.0 million compared to $5.5 million for Fiscal 2005. The increase was related to gift cards for which the Company has determined the likelihood of redemption to be remote and insurance reimbursements received during the first and second quarters of Fiscal 2006 related to stores damaged by fire and Hurricane Katrina, respectively.

Operating Income

Fiscal 2006 operating income was $658.1 million compared to $542.7 million for Fiscal 2005, an increase of 21.3%. The operating income rate for Fiscal 2006 was 19.8% versus 19.5% in Fiscal 2005.

Interest Income, Net and Income Taxes

Net interest income for Fiscal 2006 was $13.9 million compared to $6.7 million for Fiscal 2005. The increase in net interest income was due to higher interest rates and higher available investment balances during Fiscal 2006 compared to Fiscal 2005.

The effective tax rate for Fiscal 2006 was 37.2% compared to 39.2% for Fiscal 2005. The decrease in the effective tax rate primarily related to favorable settlements of tax audits, favorable changes in estimates of potential outcomes of certain state tax matters and an increase in tax exempt income during Fiscal 2006. Fiscal 2005 tax expense reflected a charge related to the Company’s change in estimate of the potential outcome of certain state tax matters.

Net Income and Net Income per Share

Net income for Fiscal 2006 was $422.2 million versus $334.0 million in Fiscal 2005, an increase of 26.4%. Net income included after-tax charges of $9.9 million in Fiscal 2006 related to the adoption of SFAS 123(R), and non-recurring charges of $8.2 million in Fiscal 2005 related to a severance agreement with an executive officer. Net income per diluted weighted-average share was $4.59 in Fiscal 2006 versus $3.66 in Fiscal 2005, an increase of 25.4%.

FINANCIAL CONDITION

Continued growth in net income and decreases in inventory resulted in increased cash provided by operating activities. A more detailed discussion of liquidity, capital resources and capital requirements follows.

LIQUIDITY AND CAPITAL RESOURCES

The Company expects that substantially all future operations, including projected growth, seasonal requirements and capital expenditures will be funded with cash from operations. In addition, the Company has $250 million available, less outstanding letters of credit, under its unsecured credit agreement to support operations. Furthermore, the Company expects that cash from operating activities will fund dividends currently being paid at a rate of $0.175 per share per quarter. The Board of Directors of A&F will review the Company’s cash position and results of operations and address the appropriateness of future dividend amounts.

A summary of the Company’s working capital (current assets less current liabilities) position and capitalization at the end of the last three fiscal years follows (thousands):

		2007				2006				2005
Working capital		$	597,142			$	581,451			$	455,530
Capitalization:
Shareholders’ equity		$	1,618,313			$	1,405,297			$	995,117

The increase in working capital during Fiscal 2007 versus Fiscal 2006 was the result of higher cash and marketable securities, resulting primarily from the Company’s increases in earnings, partially offset by capital expenditures for expansion, share repurchases and dividends paid. The increase in working capital in Fiscal 2006 versus Fiscal 2005 was the result of higher cash and marketable securities, resulting primarily from the increase in the Company’s net income and decreases in income taxes payable, partially offset by an increase in accrued expenses. Additionally, the Company did not make any share repurchases in Fiscal 2006 compared to $103.3 million of repurchases made in Fiscal 2005.

The Company considers the following to be measures of its liquidity and capital resources for the last three fiscal years:

		2007				2006				2005
Current ratio (current assets divided by current liabilities)			2.10				2.14				1.93
Net cash provided by operating activities (thousands)		$	817,825			$	582,171	*		$	453,590

Operating Activities

Net cash provided by operating activities, the Company’s primary source of liquidity, increased to $817.8 million for Fiscal 2007 from $582.2 million in Fiscal 2006. In Fiscal 2007, cash was provided primarily by current year net income, adjusted for non-cash items including depreciation and amortization, share-based compensation charges and amortization of deferred lease credits, collection of lessor construction allowances and decreases in inventory. Uses of cash in Fiscal 2007 consisted primarily of a decrease in income taxes payable.

Cash in Fiscal 2006 was provided primarily by current year net income, adjusted for non-cash items including, depreciation and amortization and share-based compensation charges, and lessor construction allowances collected. Uses of cash in Fiscal 2006 consisted primarily of increases in inventory and a decrease in income taxes payable.

Net cash provided by operating activities increased to $582.2 million for Fiscal 2006 from $453.6 million in Fiscal 2005. Cash in Fiscal 2005 was provided primarily by net income adjusted for non-cash items including depreciation and amortization and share-based compensation charges, collection of lessor construction allowances and an increase in income taxes payable. Uses of cash in Fiscal 2005 consisted primarily of increases in inventory.

The Company’s operations are seasonal and typically peak during the Back-to-School and Holiday selling periods. Accordingly, cash requirements for inventory expenditures are highest in the second and third fiscal quarters as the Company builds inventory in anticipation of these selling periods.

Investing Activities

Cash outflows for Fiscal 2007 were primarily for purchases of marketable securities and trust-owned life insurance policies and capital expenditures related primarily to new store construction, store remodels and refreshes, the purchase of an airplane and other various store, home office and DC projects, partially offset by proceeds from the sale of marketable securities.

Cash outflows for Fiscal 2006 were primarily for purchases of marketable securities, the purchase of trust-owned life insurance policies and capital expenditures.

Cash outflows for Fiscal 2005 were primarily for purchases of marketable securities and capital expenditures.

Financing Activities

Cash outflows related to financing activities consisted primarily of the repurchase of the Company’s Common Stock and the payment of dividends in Fiscal 2007 and Fiscal 2005. In Fiscal 2006, cash outflows for financing activities related primarily to the payment of dividends and a change in outstanding checks. Cash inflows in Fiscal 2007, Fiscal 2006 and Fiscal 2005 consisted primarily of stock option exercises and excess tax benefits related to stock option exercises and restricted stock issuances.

A&F repurchased approximately 3.6 million and 1.8 million shares of A&F’s Common Stock during Fiscal 2007 and Fiscal 2005, respectively. A&F did not repurchase any shares of A&F’s Common Stock during Fiscal 2006. Both the Fiscal 2007 and the Fiscal 2005 repurchases were pursuant to A&F Board of Directors’ authorizations. In August 2005, the A&F Board of Directors authorized A&F to repurchase 6.0 million shares of A&F’s Common Stock. In November 2007, the A&F Board of Directors authorized the repurchase of 10.0 million shares of A&F’s Common Stock, in addition to the approximately 2.0 million shares of A&F’s Common Stock which then remained available under the August 2005 repurchase authorization.

As of February 2, 2008, A&F had approximately 12.0 million shares remaining available to repurchase under the 6.0 million share authorization by the A&F Board of Directors in August 2005 and the 10.0 million share authorization by the Board of Directors in November 2007.

Subsequent to February 2, 2008, A&F repurchased approximately 0.7 million shares of A&F’s Common Stock with a value of approximately $50.0 million from the approximately 12.0 million shares of Common Stock remaining authorized for repurchase at February 2, 2008.

On December 15, 2004, the Company entered into an amended and restated $250 million syndicated unsecured credit agreement (the “Amended Credit Agreement”) with Abercrombie & Fitch Management Co., as borrower, and with A&F and its other domestic subsidiaries, as guarantors. The primary purposes of the Amended Credit Agreement are for financial support of trade and stand-by letters of credit and working capital. The Amended Credit Agreement has several borrowing options, including an option where interest rates are based on the agent bank’s “Alternate Base Rate,” and another using the London Interbank Offered Rate. The facility fees payable under the Amended Credit Agreement are based on the ratio of the Company’s leveraged total debt plus 600% of forward minimum rent commitments to consolidated earnings before interest, taxes, depreciation, amortization and rent for the trailing four fiscal quarter periods. The facility fees are projected to accrue at either 0.15% or 0.175% on the committed amounts per annum. The Amended Credit Agreement contains limitations on indebtedness, liens, sale-leaseback transactions, significant corporate changes including mergers and acquisitions with third parties, investments, restricted payments (including dividends and stock repurchases) and transactions with affiliates. The Amended Credit Agreement will mature on December 15, 2009. Trade letters of credit totaling approximately $61.6 million and $48.8 million were outstanding under the Amended Credit Agreement on February 2, 2008 and February 3, 2007, respectively. No borrowings were outstanding under the Amended Credit Agreement on February 2, 2008 or on February 3, 2007.

Standby letters of credit totaling approximately $14.5 million and $4.9 million were outstanding on February 2, 2008 and February 3, 2007, respectively. The standby letters of credit are set to expire during the fourth quarter of Fiscal 2008. The beneficiary, a merchandise supplier, has the right to draw upon the standby letters of credit if the Company authorizes or files a voluntary petition in bankruptcy. To date, the beneficiary has not drawn upon the standby letters of credit.

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have any off-balance sheet arrangements or debt obligations.

CONTRACTUAL OBLIGATIONS

As of February 2, 2008, the Company’s contractual obligations were as follows:

						Payments due by period (thousands)
																		More than 5
Contractual Obligations		Total				Less than 1 year				1-3 years				3-5 years				years
Operating Lease Obligations		$	2,173,795			$	254,456			$	515,928			$	449,994			$	953,417
Purchase Obligations			245,599				245,599				—				—				—
Other Obligations			115,044				90,943				24,075				26				—
Totals		$	2,534,438			$	590,998			$	540,003			$	450,020			$	953,417

Operating lease obligations consist primarily of future minimum lease commitments related to store operating leases. See Note 7, “Leased Facilities and Commitments”, of the Notes to Consolidated Financial Statements, located in ITEM 8 of this Annual Report on Form 10-K, for further discussion. Operating lease obligations do not include common area maintenance (“CAM”), insurance, marketing or tax payments for which the Company is also obligated. Total expense related to CAM, insurance, marketing and taxes was $129.6 million in Fiscal 2007. The obligations in the table above do not include unrecognized tax benefits at February 2, 2008 of $38.9 million. Additionally, the obligations in the table above do not include retirement benefits for the Company’s Chief Executive Officer at February 2, 2008 of $14.0 million due under the Chief Executive Officer Supplemental Executive Retirement Plan (the “SERP”). See Note 12, “Retirement Benefits”, of the Notes to Consolidated Financial Statements, located in ITEM 8 of this Annual Report on Form 10-K and the description of the SERP in the text under the caption “EXECUTIVE OFFICER COMPENSATION” in A&F’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on June 11, 2008, incorporated by reference in ITEM 11 of this Annual Report on Form 10-K. The purchase obligations category represents purchase orders for merchandise to be delivered during Spring 2008 and commitments for fabric to be used during upcoming seasons. Other obligations primarily represent letters of credit outstanding as of February 2, 2008, lease deposits and preventive maintenance and information technology contracts for Fiscal 2008. See Note 11, “Long-Term Debt”, of the Notes to Consolidated Financial Statements. The Company expects to fund all of these obligations with cash provided from operations.

STORES AND GROSS SQUARE FEET

Store count and gross square footage by brand were as follows for the thirteen weeks ended February 2, 2008 and the fourteen weeks ended February 3, 2007 respectively:

Store Activity		Abercrombie & Fitch				abercrombie				Hollister				RUEHL				Gilly Hicks				Total
November 3, 2007			362				198				434				20				—				1,014
New			2				4				17				2				3				28
Remodels/Conversions (net activity)			(3	)			(1	)			—				—				—				(4	)
Closed			(2	)			—				(1	)			—				—				(3	)
February 2, 2008			359				201				450				22				3				1,035
Gross Square Feet (thousands)
November 3, 2007			3,197				900				2,906				185				—				7,188
New			17				21				116				19				34				207
Remodels/Conversions (net activity)			(29	)			(4	)			—				—				—				(33	)
Closed			(18	)			—				(7	)			—				—				(25	)
February 2, 2008			3,167				917				3,015				204				34				7,337
Average Store Size			8,822				4,562				6,700				9,273				11,333				7,089

Store Activity		Abercrombie & Fitch				abercrombie				Hollister				RUEHL				Gilly Hicks				Total
October 28, 2006			358				171				372				11				—				912
New			3				8				21				4				—				36
Remodels/Conversions (net activity)			1				—				—				(1	) (1)			—				—
Closed			(2	)			(2	)			—				—				—				(4	)
February 3, 2007			360				177				393				14				—				944
Gross Square Feet (thousands)
October 28, 2006			3,138				753				2,450				100				—				6,441
New			29				41				152				39				—				261
Remodels/Conversions (net activity)			19				—				2				(9	) (1)			—				12
Closed			(15	)			(6	)			—				—				—				(21	)
February 3, 2007			3,171				788				2,604				130				—				6,693
Average Store Size			8,808				4,452				6,626				9,286				—				7,090

Store count and gross square footage by brand were as follows for the fifty-two weeks ended February 2, 2008 and the fifty-three weeks ended February 3, 2007, respectively:

Store Activity		Abercrombie & Fitch				abercrombie				Hollister				RUEHL				Gilly Hicks				Total
February 3, 2007			360				177				393				14				—				944
New			6				25				58				7				3				99
Remodels/Conversions (net activity)			(2	)			(1	)			—				1	(2)			—				(2	)
Closed			(5	)			—				(1	)			—				—				(6	)
February 2, 2008			359				201				450				22				3				1,035
Gross Square Feet (thousands)
February 3, 2007			3,171				788				2,604				130				—				6,693
New			64				126				418				65				34				707
Remodels/Conversions (net activity)			(23	)			3				—				9				—				(11	)
Closed			(45	)			—				(7	)			—				—				(52	)
February 2, 2008			3,167				917				3,015				204				34				7,337
Average Store Size			8,822				4,562				6,700				9,273				11,333				7,089

Store Activity		Abercrombie & Fitch				abercrombie				Hollister				RUEHL				Gilly Hicks				Total
January 29, 2006			361				164				318				8				—				851
New			8				19				70				7				—				104
Remodels/Conversions (net activity)			(2	) (1)			—				5	(1)			(1	)(2)			—				2
Closed			(7	)			(6	)			—				—				—				(13	)
February 3, 2007			360				177				393				14				—				944
Gross Square Feet (thousands)
January 29, 2006			3,157				716				2,083				69				—				6,025
New			66				94				482				70				—				712
Remodels/Conversions (net activity)			3	(1)			—				39	(1)			(9	) (2)			—				33
Closed			(55	)			(22	)			—				—				—				(77	)
February 3, 2007			3,171				788				2,604				130				—				6,693
Average Store Size			8,808				4,452				6,626				9,286				—				7,090

CAPITAL EXPENDITURES AND LESSOR CONSTRUCTION ALLOWANCES

Capital expenditures totaled $403.3 million, $403.5 million and $256.4 million for Fiscal 2007, Fiscal 2006 and Fiscal 2005, respectively.

In Fiscal 2007, total capital expenditures were $403.3 million, of which $252.8 million was used for store related projects related to new construction and remodels, conversions and refreshes of existing Abercrombie & Fitch, abercrombie and Hollister stores. The remaining $150.5 million was used for projects at the home office and the distribution centers, including home office expansion, information technology investments, the purchase of an airplane and other projects.

In Fiscal 2006, total capital expenditures were $403.5 million, of which $253.7 million was used for store related projects related to new store construction and remodels, conversions, and refreshes of existing Abercrombie & Fitch, abercrombie and Hollister stores. The remaining $149.8 million was used for projects at the home office, including the completion of the second DC, home office expansion, information technology investments and other projects.

In Fiscal 2005, total capital expenditures were $256.4 million, of which $204.7 million was used for store related projects, including new store construction and remodels, conversions and other projects. The remaining $51.7 million was used for projects at the home office, including home office improvements, information technology investments, DC improvements and other projects.

Lessor construction allowances are an integral part of the decision making process for assessing the viability of new store locations. In making the decision whether to invest in a store location, the Company calculates the estimated future return on its investment based on the cost of construction, less any construction allowances to be received from the landlord. The Company received $43.4 million, $49.4 million and $42.3 million in construction allowances during Fiscal 2007, Fiscal 2006 and Fiscal 2005, respectively.

During Fiscal 2008, the Company anticipates capital expenditures between approximately $420 million and $425 million. Approximately $300 million of this amount is allocated to new store construction and full store remodels, including $55 million allocated for the Hollister flagship in the SoHo area of New York City, the Abercrombie & Fitch flagships in Europe and Japan and the four new Hollister mall-based U.K. stores. Approximately $50 million is expected to be allocated to refresh existing stores. The store refreshes will include new floors, sound systems and fixture replacements at Abercrombie & Fitch and abercrombie stores. In addition, Hollister store refreshes will include the addition of video walls and the refitting of lighting and shelving to accommodate the rollout of the personal care product line. The Company is planning approximately $73 million in capital expenditures at the home office related to information technology investments, new direct-to-consumer distribution and logistics systems and other home office projects.

The Company intends to add approximately 760,000 gross square feet of stores during Fiscal 2008, which will represent an increase of approximately 10% over Fiscal 2007. The Company anticipates the increase during Fiscal 2008 will be primarily due to the addition of approximately 70 new Hollister stores, 16 new abercrombie stores, three new Abercrombie & Fitch stores, six new RUEHL stores and 15 new Gilly Hicks stores.

During Fiscal 2008, the Company expects the average construction cost per square foot, net of construction allowances, for non-flagship Abercrombie & Fitch stores to remain flat compared to Fiscal 2007’s cost of approximately $140; for new abercrombie stores to decrease from Fiscal 2007’s cost of approximately $171 to approximately $148; for new Hollister stores to decrease from Fiscal 2007’s cost of approximately $131 to approximately $126; and for RUEHL to decrease from Fiscal 2007’s cost of $267 to $257. The changes from Fiscal 2007’s estimates for Hollister, abercrombie and RUEHL stores were driven by a number of factors, including landlord allowance levels and lower construction costs. The Company expects the average construction cost per square foot, net of construction allowances, for new Gilly Hicks stores to be approximately $392 in Fiscal 2008.

The Company expects initial inventory purchases for the stores to average approximately $0.4 million, $0.2 million, $0.4 million, $0.5 million and $0.6 million per store for Abercrombie & Fitch, abercrombie, Hollister, RUEHL and Gilly Hicks, respectively.

The Company expects that substantially all future capital expenditures will be funded with cash from operations. In addition, the Company has $250 million available, less outstanding letters of credit, under its Amended Credit Agreement to support operations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). The preparation of these consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Since actual results may differ from those estimates, the Company revises its estimates and assumptions as new information becomes available.

The Company’s significant accounting policies can be found in Note 2, “Summary of Significant Accounting Policies”, of the Notes to Consolidated Financial Statements located in ITEM 8 of this Annual Report on Form 10-K. The Company believes that the following policies are most critical to the portrayal of the Company’s financial condition and results of operations.

Revenue Recognition

The Company recognizes retail sales at the time the customer takes possession of the merchandise. Direct-to-consumer sales are recorded upon customer receipt of merchandise. Amounts relating to shipping and handling billed to customers in a sale transaction are classified as revenue and the related direct shipping and handling costs are classified as stores and distribution expense. Associate discounts are classified as a reduction of revenue. The Company reserves for sales returns through estimates based on historical experience and various other assumptions that management believes to be reasonable. The sales return reserve was $10.7 million, $8.9 million and $8.2 million at February 2, 2008, February 3, 2007 and January 28, 2006, respectively.

The Company’s gift cards do not expire or lose value over periods of inactivity. The Company accounts for gift cards by recognizing a liability at the time a gift card is sold. The liability remains on the Company’s books until the earlier of redemption (recognized as revenue) or when the Company determines the likelihood of redemption is remote (recognized as other operating income). The Company determines the probability of the gift card being redeemed to be remote based on historical redemption patterns and recognizes the remaining balance as other operating income. At February 2, 2008 and February 3, 2007, the gift card liabilities on the Company’s Consolidated Balance Sheets were $68.8 million and $65.0 million, respectively.

The Company is not required by law to escheat the value of unredeemed gift cards to the states in which it operates. During Fiscal 2007, Fiscal 2006 and Fiscal 2005, the Company recognized other operating income for adjustments to the gift card liability of $10.9 million, $5.2 million and $2.4 million, respectively.

Inventory Valuation

Inventories are principally valued at the lower of average cost or market utilizing the retail method. The Company determines market value as the anticipated future selling price of the merchandise less a normal margin. An initial markup is applied to inventory at cost in order to establish a cost-to-retail ratio. Permanent markdowns, when taken, reduce both the retail and cost components of inventory on hand so as to maintain the already established cost-to-retail relationship. At first and third fiscal quarter end, the Company reduces inventory value by recording a markdown reserve that represents the estimated future anticipated selling price decreases necessary to sell-through the current season inventory. At second and fourth fiscal quarter end, the Company reduces inventory value by recording a markdown reserve that represents the estimated future selling price decreases necessary to sell-through any remaining carryover inventory from the season just passed. The markdown reserve was $5.4 million, $6.8 million and $10.0 million at February 2, 2008, February 3, 2007 and January 28, 2006, respectively.

Additionally, as part of inventory valuation, an inventory shrink estimate is made each period that reduces the value of inventory for lost or stolen items. The Company performs physical inventories throughout the year and adjusts the shrink reserve accordingly. The shrink reserve was $11.5 million, $7.7 million and $3.8 million at February 2, 2008, February 3, 2007 and January 28, 2006, respectively.

Inherent in the retail method calculation are certain significant judgments and estimates including, among others, markdowns and shrinkage, which could significantly impact the ending inventory valuation at cost as well as the resulting gross margins. An increase or decrease in the inventory shrink estimate of 10% would not have a material impact on the Company’s results of operations. Management believes this inventory valuation method is appropriate since it preserves the cost-to-retail relationship in ending inventory.

Property and Equipment

Depreciation and amortization of property and equipment are computed for financial reporting purposes on a straight-line basis, using service lives ranging principally from 30 years for buildings; the lesser of the useful life of the asset, which ranges from three to 15 years, or the term of the lease for leasehold improvements; the lesser of the useful life of the asset, which ranges from three to seven years, or the term of the lease when applicable for information technology; and three to 20 years for other property and equipment. The cost of assets sold or retired and the related accumulated depreciation or amortization are removed from the accounts with any resulting gain or loss included in net income. Maintenance and repairs are charged to expense as incurred. Major remodels and improvements that extend service lives of the assets are capitalized. Long-lived assets are reviewed at the store level periodically for impairment or whenever events or changes in circumstances indicate that full recoverability of net assets through future cash flows is in question. Factors used in the evaluation include, but are not limited to, management’s plans for future operations, recent operating results and projected cash flows.

Income Taxes

Income taxes are calculated in accordance with SFAS No. 109,”Accounting for Income Taxes,” which requires the use of the asset and liability method. Deferred tax assets and liabilities are recognized based on the difference between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using current enacted tax rates in effect for the years in which those temporary differences are expected to reverse. Inherent in the measurement of deferred balances are certain judgments and interpretations of enacted tax law and published guidance with respect to applicability to the Company’s operations. A valuation allowance is established against deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has recorded a valuation allowance against the deferred tax asset arising from the net operating loss of a foreign subsidiary. No other valuation allowances have been provided for deferred tax assets. The effective tax rate utilized by the Company reflects management’s judgment of expected tax liabilities within the various tax jurisdictions.

In June 2006, the FASB issued Financial Accounting Standards Board Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Tax — an interpretation of FASB Statement No. 109.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of tax expense.

The provision for income taxes is based on the current estimate of the annual effective tax rate adjusted to reflect the tax impact of items discrete to the quarter. The Company records tax expense or benefit that does not relate to ordinary income in the current fiscal year discretely in the period in which it occurs pursuant to the requirements of APB Opinion No. 28, “Interim Financial Reporting” and FIN 18, “Accounting for Income Taxes in Interim Periods — an Interpretation of APB Opinion No. 28.” Examples of such types of discrete items include, but are not limited to, changes in estimates of the outcome of tax matters related to prior years, provision-to-return adjustments, tax-exempt income and the settlement of tax audits.

Foreign Currency Translation

The majority of the Company’s international operations use local currencies as the functional currency. In accordance with SFAS No. 52, “Foreign Currency Translation”, assets and liabilities denominated in foreign currencies were translated into U.S. dollars (the reporting currency) at the exchange rate prevailing at the balance sheet date. Equity accounts denominated in foreign currencies were translated into U.S. dollars at historical exchange rates. Revenues and expenses denominated in foreign currencies were translated into U.S. dollars at the monthly average exchange rate for the period. Gains and losses resulting from foreign currency transactions are included in the results of operations; whereas, translation adjustments are reported as an element of other comprehensive income in accordance with SFAS No. 130, “Reporting Comprehensive Income”.

Contingencies

In the normal course of business, the Company must make continuing estimates of potential future legal obligations and liabilities, which requires the use of management’s judgment on the outcome of various issues. Management may also use outside legal advice to assist in the estimating process. However, the ultimate outcome of various legal issues could be different than management estimates, and adjustments may be required.

Equity Compensation Expense

Prior to January 29, 2006, the Company reported share-based compensation through the disclosure-only requirements of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No.123”), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an Amendment of FASB Statement No. 123,” but elected to measure compensation expense using the intrinsic value method in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”, for which no expense was recognized for stock options if the exercise price was equal to the market value of the underlying Common Stock on the date of grant, and provided the required pro forma disclosures in accordance with SFAS No. 123, as amended.

Effective January 29, 2006, the Company adopted the provisions of SFAS No. 123(R) which requires stock options to be accounted for under the fair value method and requires the use of an option-pricing model for estimating fair value. Accordingly, share-based compensation is measured at the grant date, based on the fair value of the award.

The Company’s equity compensation expense related to stock options is estimated using the Black-Scholes option-pricing model to determine the fair value of the stock option grants, which requires the Company to estimate the expected term of the stock option grants and expected future stock price volatility over the expected term. Estimates of the expected term, which represents the expected period of time the Company believes the stock options will be outstanding, are based on historical information. Estimates of the expected future stock price volatility are based on the volatility of A&F’s Common Stock for the most recent historical period equal to the expected term of the stock option. The Company calculates the historic volatility as the annualized standard deviation of the differences in the natural logarithms of the weekly stock closing price, adjusted for stock splits.

The fair value calculation under the Black-Scholes valuation model is particularly sensitive to changes in the expected term and volatility assumptions. Increases in expected term or volatility will result in a higher fair valuation of stock option grants. Assuming all other assumptions disclosed in Note 4, “Share-Based Compensation” of the Notes to Consolidated Financial Statements, located in ITEM 8 of this Annual Report on Form 10-K being equal, a 10% increase in term will yield a 5% increase in the Black-Scholes valuation, while a 10% increase in volatility will yield a 7% increase in the Black-Scholes valuation. The Company believes that changes in expected term and volatility would not have a material effect on the Company’s results since the number of stock options granted during the periods presented was not material.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB released SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 establishes a common definition for fair value under GAAP and also establishes a framework for measuring fair value and expands disclosure requirements about such fair value measurements. In February 2008, the FASB issued FASB Staff Position (“FSP”) 157-1 that eliminates SFAS No. 13, "Accounting for Leases”, from the scope of SFAS 157. In February 2008, the FASB issued FSP 157-2 that partially defers the effective date of SFAS No. 157 for one year for non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a non-recurring basis. Consequently, SFAS No. 157 was effective for the Company on February 3, 2008, for financial assets and liabilities carried at fair value and non-financial assets and liabilities that are recognized or disclosed at fair value on a recurring basis and will be effective on February 1, 2009, for non-recurring non-financial assets and liabilities that are recognized or disclosed at fair value. The Company is currently evaluating the potential impact of adopting SFAS No. 157 and the related FSPs on the consolidated results of operations and consolidated financial condition.

In February 2007, the FASB released SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits companies to measure many financial instruments and certain other assets and liabilities at fair value on an instrument by instrument basis. SFAS 159 also establishes presentation and disclosure requirements to facilitate comparisons between companies that select different measurement attributes for similar types of assets and liabilities. SFAS 159 was effective for the Company on February 3, 2008. The Company is currently evaluating the potential impact on the consolidated financial statements of adopting SFAS 159.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company maintains its cash equivalents in financial instruments, primarily money market accounts, with original maturities of 90 days or less. The Company also holds investments in investment grade auction rate securities (“ARS”), all classified as available-for-sale that have maturities ranging from eight to 34 years. As of February 2, 2008, the Company held approximately $530.5 million in ARS classified as marketable securities. Approximately $272.1 million of these securities were invested in closed end municipal bond funds and approximately $258.4 million were invested in securities issued by state agencies which issue student loans.

Despite the underlying long-term maturity of ARS, such securities were priced and subsequently traded as short-term investments because of the interest rate reset feature. Interest rates reset through a Dutch auction process at predetermined periods ranging from seven to 35 days. If there are insufficient buyers, the auction is said to “fail” and the holders are unable to liquidate the investments through auction. A failed auction does not result in a default of the debt instrument. The securities will continue to accrue interest and be auctioned until the auction succeeds, the issuer calls the securities or the securities mature. On February 13, 2008, the Company began to experience failed auctions on some of its ARS. As of March 27, 2008, the Company held approximately $365.9 million in ARS, of which $326.9 million were also held as of February 2, 2008.

As of February 2, 2008, approximately 99% of the Company’s ARS were “AAA” rated by one or more major credit rating agencies. The ratings take into account insurance policies guaranteeing both the principal and accrued interest. Each investment in student loans is substantially guaranteed by the U.S. government under the Federal Family Education Loan Program.

The Company does not believe that failures in the auction market will have a material impact on the Company’s liquidity. The Company believes that it currently has adequate working capital to fund operations based on access to cash and cash equivalents and expected operating cash flows. In addition, the Company has $250 million available, less outstanding letters of credit, under its unsecured credit agreement to support operations.

The current market for the ARS is uncertain and the Company will continue to monitor and evaluate the market. If auctions continue to fail, it may be necessary to reflect the securities as long-term investments on its consolidated balance sheet for the period ending May 3, 2008 or thereafter. If the Company sells any of the ARS, prior to maturity, at an amount below original purchase value, or if it becomes probable that the Company will not receive 100% of the principal and interest from the issuer as to any of the ARS, the Company will be required to recognize an other-than-temporary impairment charge against net income.

The Company established an irrevocable rabbi trust (the “Rabbi Trust”) during the third quarter of Fiscal 2006, the purpose of which is to be a source of funds to match respective funding obligations to participants in the Abercrombie & Fitch Nonqualified Savings and Supplemental Retirement Plan and the Chief Executive Officer Supplemental Executive Retirement Plan. As of February 2, 2008, total assets held in the Rabbi Trust were $51.3 million, which included $18.6 million of available-for-sale municipal notes and bonds, trust-owned life insurance policies with a cash surrender value of $31.3 million and $1.4 million held in money market accounts. As of February 3, 2007, total assets held in the Rabbi Trust were $33.5 million, which included $18.3 million of available-for-sale municipal notes and bonds and trust-owned life insurance policies with a cash surrender value of $15.3 million. The Rabbi Trust assets are consolidated in accordance with Emerging Issues Task Force (“EITF”) 97-14, “Accounting for Deferred Compensation Agreements Where Amounts Earned Are Held in a Rabbi Trust and Invested” (“EITF 97-14”) and recorded at fair value in other assets on the Consolidated Balance Sheets and are restricted as to their use as noted above.

There were $0.4 million in realized losses for the fifty-two weeks ended February 2, 2008 and no realized gains or losses for the fifty-three weeks ended February 3, 2007, all related to available-for-sale securities. Net unrealized gains were approximately $.01 million as of February 2, 2008 and net unrealized losses were approximately $0.7 million as of February 3, 2007, all related to available-for-sale securities.

The Company does not enter into financial instruments for trading purposes.

As of February 2, 2008, the Company had no long-term debt outstanding. Future borrowings would bear interest at negotiated rates and would be subject to interest rate risk.

The Company has exposure to changes in currency exchange rates associated with foreign currency transactions, including inter-company transactions. Such foreign currency transactions are denominated in Euros, Canadian Dollars, Japanese Yen, Danish Krones, Swiss Francs and British Pounds. The Company has established a program that primarily utilizes foreign currency forward contracts to partially offset the risks associated with the effects of certain foreign currency exposures. Under this program, increases or decreases in foreign currency exposures are partially offset by gains or losses on forward contracts, to mitigate the impact of foreign currency transaction gains or losses. The Company does not use forward contracts to engage in currency speculation.

All outstanding foreign currency forward contracts are marked to market at the end of each fiscal period. The Company’s ultimate realized gain or loss with respect to foreign currency fluctuations will depend on the foreign currency exchange rate changes and other factors in effect as the contracts mature.

     ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

ABERCROMBIE & FITCH

CONSOLIDATED STATEMENTS OF NET INCOME AND COMPREHENSIVE INCOME

(Thousands, except per share amounts)

		2007				2006 *				2005
NET SALES		$	3,749,847			$	3,318,158			$	2,784,711
Cost of Goods Sold			1,238,480				1,109,152				933,295
GROSS PROFIT			2,511,367				2,209,006				1,851,416
Stores and Distribution Expense			1,386,846				1,187,071				1,000,755
Marketing, General & Administrative Expense			395,758				373,828				313,457
Other Operating Income, Net			(11,734	)			(9,983	)			(5,534	)
OPERATING INCOME			740,497				658,090				542,738
Interest Income, Net			(18,828	)			(13,896	)			(6,674	)
INCOME BEFORE INCOME TAXES			759,325				671,986				549,412
Provision for Income Taxes			283,628				249,800				215,426
NET INCOME		$	475,697			$	422,186			$	333,986
NET INCOME PER SHARE:
BASIC		$	5.45			$	4.79			$	3.83
DILUTED		$	5.20			$	4.59			$	3.66
WEIGHTED-AVERAGE SHARES OUTSTANDING:
BASIC			87,248				88,052				87,161
DILUTED			91,523				92,010				91,221
DIVIDENDS DECLARED PER SHARE		$	0.70			$	0.70			$	0.60
OTHER COMPREHENSIVE INCOME
Cumulative Foreign Currency Translation Adjustments		$	7,328			$	(239	)		$	(78	)
Unrealized Gains (Losses) on Marketable Securities, net of taxes of ($502), $20 and $0 for Fiscal 2007, Fiscal 2006 and Fiscal 2005, respectively			784				41				(718	)
Other Comprehensive Income (Loss)		$	8,112			$	(198	)		$	(796	)
COMPREHENSIVE INCOME		$	483,809			$	421,988			$	333,190