Abercrombie & Fitch Co.

—Transactions and
Financial Statements
Dupont ROE = NI = NI × EBT × EBIT × Sales × Assets
Model CSE EBT EBIT Sales Assets CSE

Food Lion -
1996 0.169 = 0.610 × 0.808 × 0.046 × 2.582 × 2.869
A&F - FY98 0.548 = 0.600 × 1.019 × 0.205 × 2.556 × 1.715
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Abercrombie & Fitch Co.—Transactions and

Financial Statements
a.
Cash and Equivalents Store Supplies
Beg. bal. 42,667
(3) 800,000
(5) 13,398 514,114 (6)
(7) 23,785 50,000 (8)
908 (10)
151,264 (11)
End bal. 163,564
Beg. bal. 5,592 705 (12b)
(2) 1,000
End bal. 5,887
Receivable from The Limited
Beg. bal. 23,785
23,785 (7)

End bal. 0
Accounts Receivable
Other Current Assets
Beg. bal. 1,695
(3) 15,804 13,398 (5)

End bal. 4,101

Beg. bal. 1,296 1,005 (12c)
(11) 400
End bal. 691
Inventories
Property & Equipment (net)
Beg. bal. 33,927 465,000 (4)
(1) 481,918 6,853 (12a)
End bal. 43,992
Beg. bal. 70,517
(9) 39,987 20,946 (12d)

End bal. 89,558

Accounts Payable
Deferred Income Taxes
Beg. bal. 15,968
(6) 514,114 481,918 (1)
1,000 (2)
39,987 (9)
End bal. 24,759
Beg. bal. 3,759
(11) 6,978

End bal. 10,737

Accrued Expenses Other Assets
Beg. bal. 35,143
25,054 (11)
3,685 (12e)
End bal. 63,882
Beg. bal. 0
(11) 631

End bal. 631

Income Taxes Payable Long-Term Debt
Beg. bal. 15,851
17,736 (11)
End bal. 33,587
Beg. bal. 50,000
(8) 50,000

End bal. 0
Other Long-Term Liabilities Common Stock
Beg. bal. 7,501
3,327 (11)
End bal. 10,828
Beg. bal. 511
6 (11)
End bal. 517
Paid-in Capital Retained Earnings (Deficit)
Beg. bal. 117,972
26,170 (11)
End bal. 144,142
Beg. bal. 58,931
102,062 (13)

End bal. 43,131

Treasury Stock
Beg. bal. 777
(10) 908
End bal. 1,685
 Fitch Co.—Transactions and
ancial Statements
× EBT × EBIT × Sales × Assets
EBIT Sales Assets CSE

× 0.808 × 0.046 × 2.582 × 2.869

× 1.019 × 0.205 × 2.556 × 1.715
CourseHero.com on 11-16-2022 03:13:13 GMT -06:00

Fitch Co.—Transactions and

ancial Statements
Store Supplies

Receivable from The Limited

pment (net)

xes
enses Other Assets

Payable Long-Term Debt

m Liabilities Common Stock

Retained Earnings (Deficit)

 Sales
Beg. bal. 0
(13) 815,804 815,804 (3)
End bal. 0
COGS, Occupancy, and Buying Costs Investment Income, net
Beg. bal. 0 471,853 (13)
(4) 465,000
(12a) 6,853
end bal. 0
Beg. bal. 0
(13) 3,144 3,144 (11)

End bal. 0
Provision for Income Taxes (Expense) General, Administrative, & Store
Operating Expenses
beg. bal. 0 68,040 (13)
(11) 68,040
end bal. 0

Beg. bal. 0
(11) 150,652 176,993 (13)
(12b) 705
(12c) 1,005
(12d) 20,946
(12e) 3,685
end bal. 0
Note: these T-accounts include the adjusting and closing entries from parts c and f. T
unadjusted trial balance in part b excludes those entries. The adjusted trial balance
the closing entry.
b. January 30, 1999 Unadjusted Trial Balance
Debits Credits
Cash 163,564
Accounts Receivable 4,101
Inventories 50,845
Store Supplies 6,592
Receivable from the Limited 0
Other Current Assets 1,696
Property and Equipment net 110,504
Deferred Income Taxes 10,737
Other Assets 631
Accounts Payable
Accrued Expenses
Income Taxes Payable
Long-Term Debt
Other Long-Term Liabilities
Common Stock
Paid-In Capital
Retained Earnings/Deficit 58,931
Treasury Stock 1,685
Net Sales
COGS, Occupancy, Buying Costs 465,000
Gen., Admin., and Store
Operating Expenses 150,652
Interest Income
Provision for Income Taxes 68,040
1,092,978 1,092
c. Adjusting Journal Entries (12a)
Dr. Cost of Goods Sold, Occupancy, and Buying Costs 6,853*
Cr. Inventories 6,853
To record physical inventory count.
* Unadjusted balance less physical count: $50,845 – $43,992 = $6,853.

(12b)
Dr. General, Administrative, & Store Operating Expenses 705
Store Supplies 705
To record physical count of store supplies.
* Unadjusted balance less physical count: $6,592 – $5,887 = $705. (12c)
Dr. General, Administrative, & Store Operating Expenses 1,005*
Cr. Other Current assets 1,005
To record remaining prepaid insurance.
 Investment Income, net

eneral, Administrative, & Store

closing entries from parts c and f. The

e entries. The adjusted trial balance excludes

Debits Credits

24,759
60,197
33,587
0
10,828
517
144,142

815,804
 3,144
68,040
1,092,978 1,092,978

Costs 6,853*
6,853

5 – $43,992 = $6,853.

Expenses 705
705

– $5,887 = $705. (12c)

Expenses 1,005*
1,005
* Unadjusted balance less unexpired premium: $1,696 – $691 = $1,005.
(12d)
Dr. General, Administrative, & Store Operating Expenses 20,946

Cr. PPE, net

To record depreciation.
(12d)
Dr. General, Administrative, & Store Operating Expenses 3,685

Cr. Accrued Liabilities

To record unpaid wages owed at year end.
d. January 30, 1999 Adjusted Trial Balance

Debits Credits
Cash 163,564
Accounts Receivable 4,101
Inventories 43,992
Store Supplies 5,887
Receivable from the Limited 0
Other Current Assets 691
P&E net 89,558
Deferred Income Taxes 10,737
Other Assets 631
Accounts Payable 24,759
Accrued Expenses 63,882
Income Taxes Payable 33,587
Long-Term Debt 0
Other Long-Term Liabilities 10,828
Common Stock 517
Paid-In Capital 144,142
Retained Earnings/Deficit 58,931
Treasury Stock 1,685
Net Sales 815,804
COGS, Occupancy, Buying Costs 471,853
Gen., Admin., and Store
Operating Expenses 176,993
Interest Income 3,144
Provision for Income Taxes 68,040
1,096,663 1,096
e. Fiscal 1999 Income Statement:
1999

Sales $815,804
Cost of Goods Sold, Occupancy and Buying Costs (471,853)
Gross Income (Gross Margin) 343,951
General, Administrative and Store Operating Expense (176,993)
Operating Income 166,958
Interest Income 3,144
Income Before Taxes 170,102
Provision for Income Taxes (68,040)
Net Income 102,062
 20,946

3,685

Credits

24,759
63,882
33,587
0
10,828
517
144,142

815,804

3,144
040
,663 1,096,663

1999

$815,804
(471,853)
343,951
(176,993)
166,958
3,144
170,102
(68,040)
102,062
f. Closing Entries
(13)
Dr. Sales 815,804
Dr. Interest Income 3,144
Cr. Cost of Goods Sold, Occupancy, and Buying Costs

Cr. General, Administrative, and Store Operating Exp.

Cr. Provision for Income Taxes
Cr. Retained Earnings
g. Balance Sheet

ABERCROMBIE & FITCH CO. CONSOLIDATED BALANCE SHEETS

(Thousands)
January 30,
1999
ASSETS
CURRENT ASSETS:
Cash and Equivalents $163,564
Accounts Receivable 4,101
Inventories 43,992
Store Supplies 5,887
Receivable from The Limited -
Other 691

TOTAL CURRENT ASSETS 218,235

PROPERTY AND EQUIPMENT, NET 89,558

DEFERRED INCOME TAXES 10,737

OTHER ASSETS 631

TOTAL ASSETS $319,161

LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES:

Accounts Payable $24,759
Accrued Expenses 63,882
Income Taxes Payable 33,587

TOTAL CURRENT LIABILITIES 122,228

LONG-TERM DEBT -

OTHER LONG-TERM LIABILITIES 10,828

SHAREHOLDERS' EQUITY:
Common Stock 517
Paid-In Capital 144,142
Retained Earnings 43,131
187,790
Less: Treasury Stock, at Average Cost (1,685)

TOTAL SHAREHOLDERS' EQUITY 186,105

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $319,161

h. Sales in fiscal 1998 are up 56% over 1997 (521,617 / 335,372
and up another 56% in fiscal 1999 (815,804 / 521,617 = 1.56). The company is
experiencing sales growth which, all else equal, is positive news.
i. In dollar terms, there does not appear to be a pattern with respect to inventory
was $34,943 in 1997 and dropped 3% to $33,927 in 1998 (33,927 / 34,943 = 0.97). Then,
inventory climbed 30% to $43,992 (43,992 / 33,927 = 1.30).
But when inventory is scaled (or compared) to total assets a pattern emerges. Relative
levels have decreased from 33% in 1997 to 19% in 1998 to 14% for 1999. This indicates
toward lower or stable inventory levels, even though sales are increasing signifi
This indicates that the company is becoming more efficient at managing its inventor
addition, inventory is being sold more quickly —an especially important trend in the f
industry where tastes can change overnight. In particular, inventory turnover (cost of
inventory) has increased over the three years. In terms of average inventory holding p
days / inventory turnover) we see a positive trend with holding period dropping from 6
days. This reflects increased asset efficiency. The increase in gross margin
([sales – cost of sales] / sales) from 36.9% in 1997 to 38.5% in 1998 to 42.2% in 1999
further reflection of this increased efficiency.
471,853
176,993
68,040
102,062
 = 1.56)
company is

respect to inventory. Inventory

,943 = 0.97). Then, in 1999

rn emerges. Relative inventory

999. This indicates a trend
increasing significantly.
anaging its inventory. In
rtant trend in the fashion
ry turnover (cost of sales /
inventory holding period (365
riod dropping from 60 days to 34
in gross margin percent
998 to 42.2% in 1999 is a
 1999 1998
Inventory 43,992 33,927
Cost of Goods Sold, Occupancy & Buying Costs 471,853 320,537
Total Assets 319,161 183,238
Inventory as a % of total assets 13.8% 18.5%
Inventory Turnover (COGS / Inventory) 10.7 times 9.4 times
Inventory Holding Period (365/ Turnover) 34.0 days 38.6 days
j. Investors would benefit with information about the following:
 An overview of the state of the apparel industry in general. A detailed understandin
Abercrombie & Fitch’s competitors are doing. An assessment of how A&F is doing i
the overall industry.
 How much of Abercrombie & Fitch’s sales increases are attributable to new store open
how much is attributable to increases in sales from existing stores? “Same store sal
from stores open for at least a year is an important indicator of profitability and gr
retail industry.
 Can increases due to new store openings be sustained in the long-run?
 The proportion of A&F’s manufacturing that occurs off-shore. Domestic labor
expensive, how is the company affected by cheap imports?
 The company's commitment to design and fashion innovations. What is A&F doing to pre
fashion lines from becoming "stale?"
 1997
34,943
211,606
105,761
33.0%
6.1 times
60.3 days
owing:
. A detailed understanding of how
ent of how A&F is doing in context of

butable to new store openings and

stores? “Same store sales” or sales
r of profitability and growth in the

long-run?
f-shore. Domestic labor is more

What is A&F doing to prevent