Abercrombie & Fitch Co (ANF) 2003 Q4 法說會逐字稿

Good afternoon.

My name is Rocky and I will be your conference facilitator today.

At this time, I would like to welcome everyone to the ANF fourth quarter 2003 earnings release conference call.

All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question and answer period.

If you would like to ask a question during this time, simply press star, then the number one on your telephone key pad.

If you would like to withdraw your question, press the pound key.

Thank you.

Mr. Tom Lennox, you may begin your conference.

Good afternoon and welcome to our fourth quarter conference call.

After the market close, we'll e-mail to your offices the fourth quarter sales and earnings release, balance sheet, income statement and an updated financial history.

If you haven't received these materials, please call Courtney Depenhart at 614-283-6751 and she will forward them to you.

This call is being taped.

It can be replayed through 1-800-642-1687.

You will need to reference the conference ID number 6756028 to access the replay.

You may also access the replay through the internet at www.abercrombie.com.

With me today are Mike Jeffries, our Chairman and Chief Executive Officer, Seth Johnson, Executive Vice President and Chief Operating Officer, and Mike Stevenson, Vice President of Finance.

After Seth reviews our financial results, Mike will discuss the business from a merchandising prospective, and then we will take your questions.

Before we begin, I remind that you any forward-looking statements we may make today are subject to the Safe Harbor statement found in our SEC filings.

Now to Seth.

Good afternoon.

Total sales for the fourth quarter were $560.4 million, up 5% over last year's fourth quarter sales of $534.5 million.

Comparable store sales decreased 11% for the quarter.

For the full year, sales reached $1.7 billion, up 7% over fiscal 2002.

For the year, comp store sales decreased 9%.

By business, comps were as follows.

In the adult Abercrombie & Fitch business, comp store sales declined 14%, with Men's and women's both negative for the quarter.

In our kids business, Abercrombie comps decreased 7%, with girls positive and boys negative.

In Hollister, comps with are flat to last year for the quarter.

Girls posted positive comps, guys comps were negative.

On a regional basis, comps were strongest in the West and weakest in the Midwest.

Our best markets were stores located in Florida, Southern California and the New York Metropolitan area.

The gross income rate for the quarter was 46.6%, up 110 basis points from last year's rate of 45.5%.

Increase in gross income rate resulted largely from an increase in initial markup, partially offset by a higher markdown rate and an increase in occupancy costs as a percent of sales.

We continue to make great progress in sourcing, which has been an important factor in improving our markup and profits.

In the fourth quarter, we had significant improvement in all three businesses.

In both Hollister and kids, our improvement was over 400 basis points since last year.

We are now operating all three of our businesses at similar margins, both in initial markup and merchandise margin.

Increase in occupancy costs reflects the inability to leverage fixed costs such as rent, depreciation and CAM charges with the comp store decrease.

The markdown rate exceeded last year for the quarter due to the weaker than expected pre-Christmas business.

We were very aggressive in markdowns in the back half of January, which left us with a clean carryover inventory position entering the first quarter.

In Abercrombie & Fitch, end of quarter carryover inventory dollars per average store were less than last year.

For the full year, gross income rate was 42% versus 41.1% last year, an increase of 90 basis points.

The increase was driven largely by improvements in initial markup that were partially offset by increased buying and occupancy costs as a percent of sales.

We ended the fourth quarter with inventories up 3% per gross square foot versus last year at cost.

This is consistent with the guidance we provided in our third quarter conference call where we estimated that year end inventory per square foot would be flat up slightly versus last year.

At this point, we expect to end the first quarter fiscal 2004 roughly flat to last year in inventory per square foot.

The fourth quarter SG&A rate was 19.0% of sales, 150 basis points higher than last year's 17.5% rate.

The increase largely reflects a loss of leverage due to the double digit drop in comp store sales.

We reduced store hours per average store by 2% in Abercrombie & Fitch and held wage rates relatively flat.

Overall, our SG&A related store expenses grew at roughly the rate of our square footage growth.

Our distribution center continues to achieve record levels of productivity.

During the fourth quarter, units processed per labor hour were 18% higher than last year.

This year's increase was on top of a 39% increase last year and a 50% increase two years ago.

For the year, SG&A expenses were 22.6% of sales, 110 basis points higher than last year's 21.5%.

Again, the increase for the year reflects a loss of leverage due to the comp store decrease.

Our e-commerce business continues to grow rapidly.

In the fourth quarter, our net sales from the Internet increased 42% versus last year.

For the year, the increase was 39%.

Our Hollister e-commerce business, which we started in 2003, is continuing to gain momentum, as is our international e-commerce business.

In 2003, we had over $13 million in international orders, more than doubling the prior year and an indication of the continuing strength of the Abercrombie & Fitch brand.

From an operational standpoint, we continue to make great progress in the direct business.

For both the fourth quarter and the year, our expenses per order were 40% lower than last year, resulting in annual expense savings of over $3 million.

Operating income increased 3% for the quarter, from $149.6 million to $154.3 million.

For the year, we achieved a 6% increase in operating income, reaching $331.6 million.

We are pleased that in a very difficult sales year, our operating margin dropped by only 20 basis points, and at 19.4% remains one of the highest in the retail industry.

We have made great progress in improving Hollister's operating margin.

For the fourth quarter and the year, Hollister's operating margin was at the same level as Abercrombie & Fitch.

This has been an important achievement for the business, since most of our square footage growth in the next several years will come from Hollister.

For the fourth quarter, net income increased from $92.8 million to $94.3 million, an increase of 2%.

For the year, net income increased 5% versus last year, reaching $205.1 million.

Fourth quarter earnings per share on a fully diluted basis were 96 cents versus 93 cents last year, an increase of 3%.

For fiscal 2003, earnings per share on a fully diluted basis were $2.06, a 6% increase versus last year $1.94.

We opened 5 Abercrombie & Fitch stores, 1 Abercrombie store and 43 Hollister stores during the fourth quarter, ending the year with 357 Abercrombie & Fitch stores, 171 Abercrombie stores, and 172 Hollister stores.

For the total year of fiscal 2003, we opened 19 new Abercrombie & Fitch stores, 9 Abercrombie stores and 79 Hollister stores, for a total of 107 stores.

We closed2 Abercrombie & Fitch stores and 2 Abercrombie stores during the year due to lease expirations.

For fiscal 2004, we plan to open approximately 15 Abercrombie & Fitch stores, 10 Abercrombie stores and 85 Hollister stores, and expect to remodel 10 to 15 Abercrombie & Fitch stores.

Total square footage will grow roughly 15% in 2004, the same rate of growth as in 2003.

We continue to be pleased with the sales productivity generated by our new stores.

During the quarter, the new stores in all three concepts opened during the past 12 months average 98% of the sales per square foot of the existing store base.

During fiscal 2003, our capital expenditures were $121 million.

The vast majority of these expenditures were related to new store construction, with approximately $35 million invested in IT, distribution center projects, and our home office expansion.

We recently completed construction of additional home office space to accommodate the growth of Hollister and our fourth concept.

After capital expenditures, the business generated free cash flow in 2003 of over $180 million.

During the quarter, we repurchased 1.86 million shares in the open market as part of our previously authorized share repurchase program.

This leaves approximately 600,000 shares remaining to be purchased as part of our 5 million share repurchase authorization.

During 2003, we repurchased a total of 4.4 million shares at a total cost of $115 million.

Even with this large buyback expenditure, the opening of 107 new stores, a home office expansion and a very tough sales year, we continued to increase our cash balance, reaching over $500 million at year end.

Based on this level of financial strength, the Board of Directors has approved the initiation of a 50 cent per share annual cash dividend.

The first quarterly payment of 12.5 cents will be distributed on March 30, 2004 to shareholders of record on March 9, 2004.

The Board of Directors and Management of Abercrombie & Fitch are committed to increasing shareholder value, and the dividend will provide additional shareholder return while still enabling the company to pursue all of its planned growth initiatives.

I'd like to finish by discussing our profit expectations for the first quarter of 2004.

We are very confident about our prospects for 2004.

However, coming off a difficult fourth quarter, we must continue to be very cautious.

At this point, we are comfortable with the First Call consensus of 26 cents per diluted share for the first quarter.

Now Mike will talk about our results in more detail and describe our initiatives in merchandising, design and marketing.

Good afternoon.

I'm pleased that we achieved record profits for the quarter and the year.

Enhancing the brands and increasing the bottom line have always been our focus.

And to exceed $200 million in net income for the year in a tough sales environment reflects the real strength of our business.

That said, I'm not at all pleased with our top line sales performance.

We obviously had a very difficult Christmas and a tough year in terms of top comp store sales performance.

Driving top line volume is our single biggest focus in 2004.

However, this must be achieved in a manner that is consistent with the positioning of our brands.

We have taken or are taking a number of steps to reposition the organization to improve volume, and I'd like to go through these steps in more detail.

I'll discuss these initiatives as they relate first to design, second to merchandising and third to marketing and advertising.

Our objective is to be the clearly dominant aspirational or luxury brand for each of our age groups.

To achieve this, our brands must be perceived by our target customers to be the coolest brands.

The lifestyles portrayed must be compelling and authentic, and our assortments must be right in terms of fashion.

Our quality must be perceived as superior.

As I review our results over the past year, I do not believe we have sufficiently distinguished our brands from the competition.

We cannot be aspirational and promotional at the same time.

Our focus must be on separating ourselves from the pack in fashion and quality.

To address this, we have made a number of organizational changes that will strengthen our design and merchandising groups.

First, design.

Many of you are aware of the difficulties we have had in the Men's business in recent years.

Although much of this has been due to industry wide weakness in men's, I do not believe we have given the business enough attention.

I'm pleased to announce that we have hired Stephan [Milianich] as our new Vice President of Men's Design for Abercrombie & Fitch.

Stephan was most recently head of Men's Design for Banana Republic.

To further strengthen men's, I have also asked John Moore, the head of our conceptual design offices for men's and women's, to focus totally on the men's business.

With the addition of Stephan and John's full attention, I believe we can start to make major progress in men's.

On the women's side, we have also strengthened our team.

We have promoted Sarah Wills, previously the head of our London conceptual design office, to be the head of women's conceptual design.

Sarah is extremely talented and I believe can have a major impact on the women's business.

Within the Abercrombie & Fitch women's design group, we have also added strength.

I have asked Lisa Converse, our Vice President of Abercrombie & Fitch Women's Design to focus entirely on the women's bottoms business, and have promoted Mollie Hunt, previously the head of Hollister Girl's Design to be the vice president of design for Abercrombie & Fitch women's tops.

Maureen [Gukason] and [Trucia Agravat] will replace Mollie Hunt in heading Hollister Girl's Design.

With these changes, we will have much more design strength across the company.

Second, merchandising.

To better differentiate Abercrombie & Fitch, we must reinforce the image of quality.

To position the brand properly, we are adding premium price levels in key classifications at A&F.

The additional premium classifications will increase average retails, which I believe will both drive additional volume and position the brand at the right quality level.

The Abercrombie & Fitch brand has demonstrated great pricing power.

In Abercrombie & Fitch, I expect steady improvement in comps, but I do not expect it to happen overnight.

I'm encouraged by some of the early spring selling of men's in each of our brands.

As we go through the year, I expect to broaden the assortment in our masculine product lines and you will see some change in fit.

In each of the feminine brands, the strength is still in sexy feminine styles.

We reacted to early spring selling and expect to have our assortments more and more targeted as we get further into the season.

Third, advertising and marketing.

Our marketing must continue to reinforce our brand images.

Most of you are aware of the controversy that has surrounded our magazine.

It has been and continues to be my view that the Abercrombie & Fitch brand needs to have an edge to appeal to the target customer.

Although perhaps at times we've pushed the envelope too far, the A&F Quarterly has been an important element in the growth of our business.

However, we must continue to push the brand forward, and it was time for a change in our marketing emphasis.

We have discontinued the Quarterly, and although I can't be very detailed for competitive reasons, we plan to use a variety of marketing vehicles for Abercrombie & Fitch going forward.

Our primary focus continues to be in-store, but we also expect to employ lifestyle direct mail and national magazine lifestyle advertising.

The Abercrombie & Fitch advertising will be young, fun and sexy, and continue to represent aspirational college life.

We do not intend to use direct mail coupons or bouncebacks for any of our brands.

We have tried to be a little promotional and it doesn't work.

Our customers do not come to us for price.

The discounts have added minimal incremental volume.

I'm very optimistic about the future of our brands and from a volume point of view, I believe we'll continue to strengthen as the year progresses.

Although we are disappointed with Hollister's performance at Christmas, Hollister's comp was flat, the business picked up nicely in January.

Hollister's business is very solid and I expect a strong 2004 performance from it.

I'd like to finish by updating you on our new concept.

We announce the last year that we had a small team in place developing a fourth lifestyle brand to support our future growth.

Although we are still keeping the detail of this business as confidential as possible for competitive reasons, I will say that this business will target an older customer than our current brands.

We expect to open 5 test stores in August, with potentially 2 more over the balance of the year.

We have a strong merchandise and design team headed by Carol Kerner, former President of Donna Karen and DKNY women's, in place to start this business.

And as a result, I expect to continue to spend most of my time on Abercrombie & Fitch and Hollister.

Now we are available to take your questions.

Please limit yourself to one question so that we can speak with as many callers as possible.

After everyone has had a chance, we will be happy to take follow-up questions.

Thank you.

Ladies and gentlemen, to ask a question, press star one on your telephone key pad.

Your first question comes from Lauren Levitan from SG Cowen.

Thanks.

Good afternoon.

Mike, could you go through with us the components of the comp decline during the quarter by brand, between transactions and transaction size?

And then within that, could you talk about where you think those customers have gone and how you see the new components of the strategy in terms of the pricing strategy and the marketing and advertising strategy, how you see them being brought back in to shop in the Abercrombie adult brand over the coming year?

Thank you.

Can you give the break down?

Yeah, let me give the stats first.

For Abercrombie & Fitch for the quarter, the average transaction value was down about 3% with the transactions down around 11.

And the kid's business, transaction value was down about 8, transactions per store were up 2.

In Hollister, transaction value was up about 7% with the transactions down 7.

And the A&F again was?

Abercrombie & Fitch down 3 and down 11 in transactions per store.

Okay.

To answer your question about where those customers have gone, I think it's dispersed to a lot of areas.

I'm not even convinced that it's all to apparel.

I think that we just were not compelling enough as kind of the emotional experience that we described as critical to drive our business.

I think that our task is very simple.

We have to offer more aspiration to attract these customers back.

They might have gone to Sony or some non-apparel pursuits .

But I can't tell by looking at the figures or looking at anybody else's figures where they went, candidly.

And in terms of the marketing, how you expect to bring them back, I know you said you won't use bouncebacks and things of that nature.

Can you talk about how some of these, maybe, lapse customers will be brought back in to reconnect with the brand and maybe give us examples of where we should be watching for these new aspirational price points?

You should be watching -- the majority of what we do is in the store.

So the focus is going to be on product that is more compelling emotionally, more aspirational and presented in a more aspirational way.

We will back that up with national magazine advertising and national lifestyle direct mail.

I think they all -- they'll all work together.

But the major focus will be in store and that's what you have to keep watching.

Your next question comes from Kimberly Greenberger from Lehman Brothers.

Thank you.

Good afternoon.

Mike, I'm wondering if you could just give us a little bit more color on the merchandising strategy?

You mentioned, to broaden the assortment in men's and also make some changes to the fit.

Can you just talk about -- are you going back to, you know, a slightly looser fit from the muscle fit?

And then secondarily, the premium classifications you refer to, is this adding premium price points within existing classifications or are you talking about other products that you are not currently layered in the assortment?

Thanks.

Okay, let's take it from the back.

Premium price points will be within current classifications, with price points higher than we currently have that we'll be adding on top of the current price points that already exist.

So we're not abandoning the current price points but we're adding a level to them in the existing classifications.

In terms of fit and masculine product, I think our grading needs to be a little expanded.

We're doing two things.

One, I think our medium and small fits are fine and they are body, kind of, defining.

Our large needs to get a little bit bigger, which we've done, and our extra large needs to get a little bit bigger.

That's a grading issue.

We are doing that now and you'll start to see that in our assortments for summer.

We are also adding XXL in each of our masculine businesses.

So, easing -- not -- still body conscious style but easing it up and adding to the top, top layer.

In terms of broadening the classifications in men's, I think we've gotten too narrow in the existing classifications.

So you'll see a broadening in the twill classification, a broadening in denim.

Just a little more variety within each classification.

I think we've gotten too narrow, and the assortments aren't interesting enough because of it.

I think Stephan will help us out in this greatly.

Great.

That's very helpful.

Any thought to having an analyst day in Columbus where you'll showcase concept four for analysts or if you can give us any color on where, maybe, the first 4 stores might be opening?

I can't do that, but Seth, can you talk [inaudible] investors here?

Well, I -- we did an analyst day for a couple of years and it's something we may do in the future, we don't have any specific plans, I guess, for this year.

Okay, but we'll certainly think about it.

We want you guys to be the first to see the concept four.

Thank you.

Thanks.

Your next question comes from Jeff Klinefelter from Piper Jaffray.

Yes, Mike.

I wanted to ask a little bit more about those men's trends.

You said you saw somewhat encouraging trends happening across men's in all three businesses, including boy's and A&F kids.

Can you talk a little bit more about, you know, what you're seeing that you're encouraged by?

Is the number of transactions picking up, sell through of some of the key items?

And then just in terms of your marketing, are you going to basically transfer the spend from the magalog over to this new marketing strategy or are you going to be stepping up your marketing spend going forward?

In terms of the men's business, I am encouraged by transactions and sell through in the men's spring assortments.

And it's early days, but it's -- I haven't been able to say this to you guys for a long time.

There hasn't been much light at the end of the tunnel, but it's looking better to me.

In terms of the dollars on the marketing, we're still sorting our way through that.

We obviously have a lot of dollars to spend if we were just to anniversary the magazine dollars.

We're still sorting through it and it's kind of a bottom's up plan, what's going to give us what we want to achieve.

But I think that we're going to be able to make a pretty big impact with the dollars that we currently -- that we have been spending.

Your next question comes from Brian Tunick from JP Morgan.

Hi, guys.

I guess, first, housekeeping.

When you talk about international orders, Seth, does that include Canada?

Yes, it does.

But I would say that vast majority of those orders are from Asia. $13 million dollars of orders.

Okay.

I guess, Mike, trying to understand a little, the premium pricing perspective for the adult A&F business versus concept four.

You know, obviously, the street's had some concerns about cannibalization between Hollister and adult Abercrombie.

How do you view the premium pricing issue of adult Abercrombie, you know, potentially versus concept four that you're in development right now?

How do we get comfortable that there's not going to be a -- ?

Brian, that's a good question, but if I answered that question, I would be tipping my hat on terms on where concept four is going from a price strategy.

I think it's enough to say that we think this is a separate business for a separate customer.

It is an older customer.

It will be price appropriate, and we're very conscious of keeping cannibalization to a minimal level but I can't really comment on what our pricing strategy is going to be there.

Your next question comes from Janet Kloppenburg from JJK Research.

Hi, Mike, hi, Seth.

Hi, Janet.

How are you?

Congratulations.

Couple questions.

You're changing -- moving up some prices at A&F.

Are there going to be pricing strategy at Hollister or at kid's?

Good question.

None.

No change, so -- ?

They will be absolutely where they are today and be in parity to the current Abercrombie & Fitch pricing strategy before we add the premium prices.

And will this pricing serve to better differentiate the adult business from the kids' business, Mike?

Yes, it will.

Absolutely will.

Okay.

Will there be any intent on styling differentiation?

I know there will be some quality differentiation but what about styling?

Yeah, I think we're making progress there, we have, which we didn't announce last time, a new designer in just Abercrombie girl's.

She's been on board for about six months now, is making a big difference and the differential difference between the brands, I think, is really coming online.

So, answer -- yes.

Your next question comes from John Morris from Harris Nesbitt.

Good afternoon.

I guess, Seth, if you could just remind, us as you are looking into Q1 and Q2 what you, guys did last year for promotional marketing, couponing, that sort of thing?

And then also if you can give us, let's see, how much the freight costs you incurred last year that you didn't have to incur last year, kind of what that differential was, if you could just remind us of those.

Thanks.

We didn't really do that much last year in the first half.

I think we had a bounceback in May, but we were not very promotional last year in terms of coupons.

Great.

Your next question comes from Steve [inaudible] from Burnman Capital.

Maybe you could respond to the --

Hi, guys.

Great quarter.

If I could ask one question just to get some clarification.

On the inventory, you said that your same store inventory is up 3% on the press release, I guess the inventory dollars are up significantly larger -- higher than the sales increase, which makes -- which is somewhat confusing, so wanted to kind of get a sense from you -- the 3%, is that in dollars, is that in units?

And if we're lowering prices, does that mean that the inventory on a comparable basis in units is higher than the 3% that you are stating in dollars?

Well, let me clarify that.

The 3% was inventory dollars at cost per square foot.

So it's on a per square foot basis and it's dollars, not units.

You really can't, in a business like this, you can't shrink your inventory at every point in time just to match the sales number.

There's -- when we start any season, there's a certain element of opening inventory you need to have just for the in-store presentation.

End of January is the low volume period but you still have to have the store filled with merchandise.

The way we manage the difference between sales and inventory is by the flow of inventory.

For example, this year we happened to deliver a little more of our initial spring in January than last year.

Our February deliveries of spring will be less than they were last year, so when you look at the flow of goods, we really were really delivering to the sales trend.

We're also not -- we don't believe it's the right thing for the business to expect that we're going to continue a minus 11% comp through 2004.

You can -- there's an approach you can take in retail, which is if you plan conservatively enough, you can guarantee that you won't do enough business.

So that's not our approach.

We believe we're very positive about our chances for spring.

We're managing the downside as well with flow.

Inventory is a tough thing to look at relative of sales because it's a point in time, where sales obviously covers a longer period, but we feel we're in very good inventory position.

Our carry over dollars are below last year, and so we think it's very clean.

Thanks, Steve.

Your next question comes from Dana Cohen from Banc of America.

Hi, good afternoon, guys.

Hi, Dana.

I just have one follow-up from Janet and then I have a question.

Mike, you said earlier something about the prices not changing at Hollister and Abercrombie but you said something about parity.

I didn't understand that.

We operate those businesses at roughly a 70% parity in terms of retail price to Abercrombie & Fitch.

It will continue at 70% to the base business of Abercrombie & Fitch.

We will add premium prices to Abercrombie & Fitch so that parity will drop.

And how big do you foresee that premium pricing as a percentage of the mix?

I can't tell you at this moment.

We're just in the process of doing the planning.

But it will be an important stake that we put in the ground for that brand.

And will you be taking inventory out of the regular pricing, sort of like, you know, if you had $100 to spend will, I'm making up numbers, but will all of a sudden 10 or 20% of the assortment, and then you'll reduce percentage in the other?

As always, we're very conservative so we'll probably split the difference as we get started with it.

But it would -- I would expect a net increase.

But probably not to the total level of the increment.

Your next question comes from Dorothy Lakner from CIBC World Markets.

Hi.

Good afternoon, everyone.

Just a follow up to Dana's question in terms of the premium segment as a percent of the business.

Can we expect that to pick up over the course of the year?

Correct.

Okay.

Absolutely correct.

It will be a growing percentage of the business.

Okay.

And then -- ?

And the first impact will be back to school.

Back to school?

Exactly.

It'll start back to school and grow during the fourth quarter.

Okay, great.

Then just going to Hollister for a second, you said you'd be spending more time on A&F and Hollister now.

I just wondered if you could touch on why you think the fourth quarter, the holiday season wasn't great.

You said you were pleased to see the pickup in January, so just what happened in December that didn't work for Hollister and what's different going into this year?

I think we weren't -- there's two factors in my mind.

I think we weren't right, as we thought we were going to be, in the female top classifications in all of our businesses.

I think we missed the mark in some classifications in the female tops.

Two, I think that we tried to be a little promotional.

We did direct mail and candidly, I think there was no volume, we could have taken volume away from ourselves by doing so.

I don't think we distinguished ourselves from the competition as best we could.

So I think we missed the mark in female top classification.

I think we did not distinguish ourselves and that was a function of being half promotional, and I think we just didn't look as -- enough as the aspirational brands for each of our age groups.

Your next question comes from Robin Murchison from Jefferies & Company.

Hi, good afternoon.

What magazines and how soon?

And then secondly, as -- men's, as a percentage of mix, do you anticipate that changing with a sort of refocus on the group, on the second?

I would say that probably the ratio -- to answer the second part of the question first, I would say our percentage of men's to business to women's is roughly two -- by -- across the brands, two times women's business to men's.

Twice as much women's business as men's.

I'd say that ratio would stay pretty static.

I'd hope that we can grow the men's and the women's business at equal rates.

That ratio should stay the same.

The first national magazine and direct mail campaign will preview in -- will happen in March -- April editions of national magazines and a mailing that will ge out in March.

Talking to the media, I don't think we really need to discuss it, but it will be a national magazine advertising in the April edition issues.

Your next question comes from Joe Teklits from Wachovia.

Thanks and hi, guys.

Hi, Joe.

Mike, question for you.

If driving the top line volume is your number one focus now for 2004, do you think your stores are understaffed?

And if they are, when you implement this new merchandising strategy, might you get more aggressive there and kind of stop worrying about every little bottom line penny and start trying to do some business.

I think that's a really good question, Joe.

And we're really going through looking at our stores in very great detail.

We're really looking at each position in the store -- store's organization from store management up.

We're working on giving the stores and this organization better information and we're looking to see what the correct staffing level is.

It is a priority of mine.

I have to tell you, I spent last weekend in our stores all over the country because I think this has to go hand in hand with what we're doing from a merchandising point of view.

I can't give you any answer, that we have to spend $5 more or we're on track, but it is something we're looking at very, very carefully.

That's a really good question, Joe.

Thanks.

Your next question comes from Dana Telsey from Bear Stearns.

Good afternoon, everyone.

Hi, Dana.

Hi.

Can you talk a little bit about the position announcements that you just mentioned, are they replacements or new hires?

And how do you imagine the process changing and when do you think the product reflects any of these changes?

Well, I think the product will -- from the changes that we just made, I think you'll see change for some back to school, a little bit, but mostly the Christmas season.

They were -- in women's design, we simply asked Lisa Converse, who was in charge of all women's design, to just concentrate on bottoms so it was an add by putting Mollie into tops.

So that was an add to the organization.

Stephan replaced Jamie Rupp, who went back to merchandising, is now merchandising all outer wear for the corporation.

So that was a replacement.

The conceptual design changes were really replacements.

So it's not a net add to the organization.

But we strengthened with different people.

And then the IMU sounds like did much better.

Should we expect to continue seeing that throughout 2004?

Seth, what would you like to say about that?

Well, I think we should expect to see some improvement in the first quarter.

I think the levels of improvement will diminish over the course of the year because we'll start to be up against much stronger numbers from the year we just finished.

I would not -- we don't expect the levels of improvement next year that we realized this year.

Because some of that improvement, Dana, came from Hollister and Abercrombie catching up to the A&F level.

They are pretty much at that level now.

Your next question comes from Richard Baum from CSFB.

Good afternoon, everybody.

Hey, Richard.

Just a couple questions.

One housekeeping-wise on the tax rate, Seth.

It was 39.3 in the fourth quarter. 38.8 for the year, and that fourth quarter one was higher.

Was it catch up, and what should we look forward to for next year?

That's a good question, Richard.

The somewhat higher fourth quarter rate was really a catch up in some of our reserves.

As most people know, the states are becoming much more aggressive in going after tax revenue, and to protect ourselves better in terms of some of these contingencies we've been a little more conservative in our reserve position.

That was a one time thing.

So I think the fourth quarter rate is higher than we will expect in '04, I think one, good numbers to use for the first couple of quarters about four would probably be about 39.4 as an effective rate.

That's the same as it was in the third quarter -- I mean the fourth quarter?

I'm sorry, excuse me. 38.6 and 38.8.

Oh, okay.

I'm sorry.

What's a few basis points amongst friends?

A big deal, Richard.

Let me ask you one other question, which is, without the catalog or a magalog now in the first half of the year and the fact that you blessed this consensus number for the first quarter, I guess I'm just wondering the basis of your optimism for the first half, because it sounds like most, you know, most of the new things will be coming in the second half of the year.

Is it just the fact that you're starting to get some early reads or are there other things happening in the business that cause you to believe that the first half is going to be okay?

I think it's the former, the first thing.

We're feeling good about where we are right now.

I have to tell you, I think -- I've said enough.

We're happy with where we are for first half.

I think we've made some good progress.

Your next question comes from Rob Wilson from Tiburon Research.

Yes, Mike, can you tell us what's going to constitute success in your mind as you shift from these design, merchandising, marketing initiatives?

Are you looking for a particular sales per square foot or a flattening of comps?

I'm looking for the comps to start becoming positive and to escalate.

That to me is the sign of success here.

Okay.

And one other quick one, do you feel like you're less differentiated this spring than you were last spring?

Less differentiating by brand?

In your product.

You mean from brand to brand or the competition?

Competition.

Oh, I think we're much different than the competition.

Versus last year?

Yeah.

Yeah.

Absolutely.

Okay.

Yep.

And I spent the weekend in the malls so I would attest to that.

Absolutely believe that.

Your next question comes from Stacy Pak from Prudential.

Hi.

Hi, Stacy.

Couple questions.

One is, I was wondering if there were any changes made in the creative staff when you are thinking about your print campaign, et cetera.

Two is, I'm curious.

Can you at least say how much prices are going up in the premium part of the core business?

And then three, I'm just having a hard time understanding, what are you getting a positive read of in spring now, and if you're getting a positive read now, why make these design changes?

So I'm just trying to understand all of this.

Okay.

Okay.

So let me go with each thing.

Creative, Bruce Webber is doing the photography.

He continues to do the photography.

I think he is a genius and great partner to us.

Sam [Shahitu]'s our art director, it's done by the same creative team, it's just a different focus and a different campaign.

Two, premium prices, I can't tell you, they will be higher than the A&F prices and I can't tell you at this point what the percentage is.

We're working on them classification by classification.

Three, I've seen really positive changes in what's happening to our business -- I've seen positive changes in what's happening to the business now.

I think the changes are being made just to make us stronger.

I think we can do better.

And you know, I'm a perfectionist.

We're going to go for the very best we can.

It is a big complex business now, and I need the best talent in the business.

And that's what I think we have.

Mike, can you still hear me?

Yeah.

Is January a good read on the business?

I mean, January was all about sales -- No, no.

What are you looking at now that -- ?

I'm looking at spring product and how it's performing.

But I can't predict over the quarter or the half from it.

I'm saying that for the first time I'm seeing men's performing -- it's performing as on a turnover basis.

It's performing on a transactional basis.

It's the first sign of life I've seen, Stacy.

Men's is comping positively for the first time in a few years.

Stacy, I think you are trying to overinterpret Mike's feeling good about some of the reads.

We're not making a projection of comps for the season.

We don't believe you can read a whole business off January business anyway, so we're being very cautious but we've seen some positive things.

Right.

And I think we should leave it at that.

I think that's exactly right, Stacy, because I've not been able to say for a long time that there was encouragement.

How great an encouragement, I can't read it now, but I think it's better than it's been.

Your next question comes from Marni Shapiro from Merrill Lynch.

Hey, guys.

Hey, Marni.

A couple of questions.

Mike, if you could just clarify.

You talked about the message coming out maybe in the fourth quarter with the markdowns, the small markdowns that you gave, the promotional activity didn't necessarily nudge the needle in any direction.

Do you feel that's because what you are looking for is a consistency in your message, either you are going to be promotional and you have to go for it or you're going to be full price and you have to stick with it?

That's exactly what I think.

Okay.

You can't be a little promotional.

It just doesn't work.

We are the aspirational brands, each of our brands is aspirational and you can't mix promotion with that.

I tried to straddle the line, I failed.

So, I go forward, hopefully I learned from my past.

Right, take your poison.

I was wrong, right.

Okay, wanted to clarify that.

And then, if you guys could just -- a breakdown of where men's and women's ended up at the end of the quarter or the end of the year at Abercrombie and where you foresee it for '04?

And then finally, on the women's side, we've been in the stores constantly, and there are definitely items that have been selling out.

And it sounded like, in talking to the sales people during the fourth quarter, this was true in the fourth quarter.

I guess, how are you going about chasing these key items or reinventing them to get back in the store fast enough, because while it's not an overall huge problem, when you do have a hot item, there isn't price resistance and it is selling out before you can get it back in the store it seems.

I think the answer to that is that we -- fashion is moving faster and faster for us, Marni, it really is.

And that's why we've invested more in conceptual design and design in terms of upgrading our -- focusing our staffs.

And we've got to make these big calls up front then move to the next thing.

I'm not too concerned about selling out of items.

I want to sell out of items just so long as I have replacement hot items for them.

That's where we are as a company.

That's been our strategy and that's -- we're just focusing more and more that way.

So you're right, we sell out of a lot of items and good for us.

We've got to move on to the next one.

Just to give you some stats for the end for the fourth quarter.

For Abercrombie & Fitch, women's was about 61% of the business in the fourth quarter.

For the year it was 63%.

In Hollister, it was about 69% for the fourth quarter and it was about 69% also for the year.

As we said before, Abercrombie & Fitch is always stronger in men's in the fourth quarter relative to the rest of the year.

I don't think we have a projection going forward.

That obviously depends on the strength of the men's business and we're just hoping that we have a strong year in both men's and women's.

Keep the percentage the way it is.

Right.

Your next question comes from Richard Jaffe from UBS.

Thanks very much.

Mike, it's pretty exciting some of the initiatives you're putting in place, but I guess looking at the strength, particularly at Hollister, any kind of changes or initiatives taking place either on the merchandising or design team to reinvigorate that brand, as you've discussed with Abercrombie?

Sure.

I think we -- I feel very good about where we are for spring.

We had some missteps in Hollister girl's fourth quarter.

It really started in October and I think we're going to do better for spring.

So I don't think it's about reinvigorating the brand.

I think it's just getting more fashion right and the area that I think we're doing that is women's tops, which should drive that business.

Your next question comes from Gabrielle [Kivitz].

That question has been withdrawn.

Your next question comes from Margaret Mager.

Margaret, your line is open, from Goldman Sachs.

The line has withdrawn from question.

Your next question comes from Michael Dowaher from Jefferies.

Good afternoon.

Great comeback, the new spring goods look real good.

Mike, are the 5950 wovens on the guy's side an example of these new premium goods?

No they're not, but we've been underpricing those shirts.

They were $49, they're now $59.

That will be the new base price for men's shirts.

We've just been, honestly, for the quality level of those shirts giving them away.

And interestingly enough, raising the retail to $59, we're getting -- we escalated the trend in that business in terms of dollars and unit sales.

So that's a real great question.

Yeah, I've seen those goods selling and they look beautiful, but those do not represent this new premium?

No, that would be the base.

That's one of the few places we're raising the base price.

So when the $49.50 goods on the floor be reticketed or you'll just sell through those?

They're being reticketed.

Even though they're a little different, looks like, finally treatment than in the 5950 goods?

Yeah, race in and buy it before it goes up.

They don't fit me.

Spread the word!

I need to wait for the bigger specs.

Okay, thank you.

Your next question comes from Mark [Katzerlwitz], private investor.

Hi, guys.

Hi.

Very excited about all of the stuff you guys have going on.

A question for you about -- well, actually I'll hold my question for concept four.

Question about your Internet business.

I'm very excited to learn that with the growth you mentioned, the Internet business is up to about $100 million business, and please confirm that with the growth rates that I've been tracking with you guys.

Can you please expand a little bit on the international aspect of your e-commerce business across the different brands and how you guys see growing that business?

Thanks very much.

It's not quite at $100 million in business.

It should be this year.

In terms of the international, this is really just people ordering from our regular web site and we charge, obviously, a higher shipping cost to foreign countries.

And the way we -- one of the reasons we focus on, is that it is a good indicator of how the brand is perceived worldwide.

And there's been tremendous growth in the last year or so in sales from Asia in particular.

It's predominantly Abercrombie & Fitch at this point, but we are getting some Hollister, too, as the Hollister site takes off.

As you recall, Hollister sites just went up around the middle of this past year, so we haven't done anything unusual to push the international business.

It's really something that we just -- we keep aware of because it affects where we think we can ultimately take the brand in terms of worldwide expansion.

Your next question comes from [Miriam Maglan] from [Goat Mountain Partners].

Been answered, thank you.

The question has been answered.

Your next question comes from William Connor from [Aspen Extremes].

Good afternoon, gentlemen.

Just a quick question for you.

I understand that A&F Quarterly was withdrawn in the fourth quarter. [Inaudible] some color commentary about that.

But I can't tell from the financial documents that I've seen what the liability is that you've accrued for balances that may be due to subscribers.

Oh, yeah, it's not a significant amount and it really had no financial impact because we hadn't recognized the income previously from magazines that had not been mailed.

We only recognized the income as the magazines were mailed.

So it was a zero financial impact.

Thank you.

Your next question comes from Joe Tecklits from Wachovia.

Hi again.

Seth, question for you, follow-up.

What is the cost of all of this, this new strategy, the new people, et cetera?

Are you kind of in essence raising the risk reward, the risk being continued bottom line growth in order to try to dry some newness in the stores?

Well, that's a good question.

I think the net result of these organizational changes is some increase in home office payroll and probably travel, but I don't think it's significant.

It really is insignificant.

There aren't that many of the jobs that are new in terms of the changes in marketing.

I think we can, as Mike said, we can fund a lot of what we're talking about with just what we were spending on the magazine.

So I think we'll be in good shape there, but really, I think we, as Mike described, we need to start driving the top line.

We need to do what it takes to get that done, and I think we can manage that within our normal parameters of needing to improve the profit every quarter.

It's just making me work more hours, Joe.

Your next question comes from [Don Whitaker] from D.C.W. Incorporated.

Good afternoon, gentlemen.

Congratulations on a great quarter.

Thank you.

My question pertains to the men's pant.

I know a few years ago, you guys offered a more restricted sizing selection.

And subsequently being a 30-34 waist, I'm unable to purchase product at A&F.

I know that competitors offer offsizing via online or over the phone.

I'm wondering if with regards to what Mike said about changing the men's sizing, if that would include this?

We are reviewing it.

I cannot tell you about specifically 30-34, but we are looking at that.

Your next question comes from Robin Murchison from Jefferies & Company.

Hey, just a follow-up.

Last year, I think you spent or the past few years you've spent $30 to $33 million or so in terms of marketing and advertising and that sort of thing.

I think the lion's share of that would have had to have been the magalog, of course.

Do you anticipate spending the same dollar amount on a go-forward basis just on these other things including the sized down catalogs?

We think we can spend up to that, but we're not sure that we will.

We're creating a bottom's up plan that would give us the coverage that we're looking for, so I can't answer that question as of this moment.

I think our approach has been to decide what is it that we need to do and accomplish and then what does it cost to do that?

It's not just let's take that what we spent before and divvy it up another way.

It's really a bottom's up plan.

Okay, thank you.

Thank you.

Your next question comes from Janet Kloppenburg from JJK Research.

Just a couple of follow-ups.

First, if the fourth concept would be -- put some pressure on your EPS outlook for this year?

And second of all, Mike, I was confused when you were talking about current trends and about the trend in the men's business.

I just want to hear that again, whether it is positive or it's looking like it's going to be positive, or -- ?

It's looking as if it's better, Janet.

I can't give you a number looking at January sales.

But clearly, the trend is better than it has been.

And it's been better for enough time that it's giving you encouragement?

I'm encouraged.

Okay.

That business is so tricky, it could whack me over the head in the third week of March.

But I'm more encouraged than I have been.

Right, I'm wondering if there is a change in -- is it the woven business or has the knit business picked up or is it across the board?

In other words, is it a particular category that's improving or is it, you're just seeing improvement across the board?

We're seeing improvement -- it's pretty broad based, but as you can look at our stores, the woven business is very good.

Yeah, well, you have the best wovens in the business.

And on the skirt side, I assume that business is good?

The what side?

The skirts.

Oh, the skirt business is phenomenal.

Okay, and Seth, just on the earnings side?

Yeah, well, as we said before, we've had a team in place for a while to work on the fourth concept, so we've already been funding that obviously in 2003.

In 2004 we'll have more staff there, but I think we're fully covering it in our internal budgeting, and that really is similar to the way we've grown our other businesses, the initial growth of Hollister, in terms of home office organization, was quite similar to what we're doing here in terms of the impact on the total company's profitability.

So I think it's something that we're just having to manage within our payroll constraints.

But we've planned this all along, so I don't think it's any aberration in trend.

Okay.

Thank you.

Thanks, Janet.

Thank you, guys.

Your next question comes from Bryan Tunick from JP Morgan.

Thanks.

Seth, did you give annual comps by concept?

No, I did not.

But he will.

I guess you would like me to.

That would be great.

For Abercrombie & Fitch, minus 12, the kid's business, minus 6 and Hollister, plus 7.

And just second question, you know, what was sort of the timing as far as the Board's, you know, dividend, you know, thinking?

Why now?

You've had all of this cash for quite a while.

Mike, are you really seeing something that you went to the Board and said, you know, we've got to do it now.

You know, it sounds like we've been waiting a long time for some of these shareholder things.

Just curious on the timing.

The real honest answer, Brian, is that Seth's been after me to do it and I'm paranoid about lack of cash and he convinced me that we'd never run out, so I finally said yes?

How's that for a direct answer?

So if you do run out it's Seth's fault?

That's it.

You got it.

He'll have bigger problems than that.

Okay, thanks very much.

Okay.

Your next question comes from Margaret Mager from Goldman Sachs.

Hi.

Hi, Margaret.

Sorry about that.

That's okay.

Thanks.

I have a couple questions.

First of all, the -- just curious how you think you get the traffic coming back into the stores?

Will there be something really strikingly different from the guy walking past an Abercrombie store in the mall that they'll say, hey, I need to go back in Abercrombie?

And then I have a question about your your quality statement, that you really feel that you need to be really great on quality.

Is there any tradeoff there for margins or do you think, you know, your gross margins are very, very good already, that they can go up from here so just how does that fit together?

I'm not projecting major increases on gross margin rate.

I think we have good quality.

I think we can push to make it even better, candidly, within our cost structure, we're still in a deflationary industry here.

So I don't think that's a problem.

It's a mind set about how we push the envelope farther and farther in terms of quality.

And again, that's quality for each of our age groups, it's not the same for Hollister as it is for A&F.

In terms of people coming into the store, I would hope that our advertising is going to be more compelling, having switched out of the magazine, which was more limited.

And I think we're in the best locations in the major malls in the country.

And I think they shop us as it is.

And I think by doing a better job, we're going to get more of their dollars.

So the advertising, do you think -- will it be a striking change in the advertising for Abercrombie or a subtle change?

It will be a subtle change.

We will still be about great looking college kids.

That's our -- the iconic nature of the brand and that will continue.

It will be in different places than it's been before, and it will have a different feeling.

Will it be strikingly different?

No, absolutely not.

OKay, and then, just curious.

Do you see anything that's different about kids now than maybe when you were really hot with Abercrombie in terms of what they are aspiring to or what's grabbing their attention?

Sure.

I think it changes practically by quarter .

But I think there's -- our target customer continues to be in an aspirational mode and wants to be in the popular group and that's kind of an ongoing generational thing.

There's always the aspirational ideal.

And that's what we aspire to in each of our brands.

And we succeed if we hit that.

That's what I'm suggesting that we are going about doing.

Your next question comes from Richard Jaffe from UBS.

Just a quick follow-up on your share buyback program and plans to continue that kind of activity in 2004.

Could you comment on -- well, you commented on what's left, which isn't much, and if you think you'd put another plan in place for 2004?

At this point, we have 600,000 shares left on our last buyback authorization.

We expect to complete that in 2004.

I think for now that's the only authorization that the Board has done.

We're going forward with the dividend right now.

I think what we do in terms of additional buybacks in the future relates to what's going on in the business.

I think we're very committed to, obviously, shareholder return and I think the dividend is a big step.

We don't want to be aggressively doing both at the same time right now.

Okay, thanks very much.

Thank you.

Your next question comes from Kimberly Greenberger from Lehman Brothers.

Could you just give us the end of quarter square footage and the actual share count at the end of the quarter ?

Actual shares outstanding at the end of the fourth quarter were 94,607,000.

And the gross square feet at the end of the period was 5,021,000.

And that 94 million share count, that's your diluted shares, right?

No, that's actually actual shares less treasury.

I'm sorry, if you could give us diluted shares outstanding but not the weighted average, for the quarter?

For the year?

No, no, at the end of the fourth quarter, the diluted shares outstanding, but not the weighted average for the fourth quarter.

Does that make sense?

I'm not sure what you are asking.

I think the diluted on the last day of the year.

Yes.

Oh.

I'm not sure we have that right here with us.

We can get that for you.

Okay.

Great.

Thanks.

Your next question comes from Dennis Van Zelfden from SunTrust Robinson.

Mike, going back to these premium items in each classification as to exactly why you're doing it again, is it because there hasn't been any price resistance to the prices so far from the customer, or is it is there a demand from the customer for better quality, or is it simply just increase to aspirational part of the brand again?

I'm sorry, Dennis, could you hang on with that question for a minute.

Mike had to step out for a second.

Okay.

I'm sorry, Dennis, could you repeat the question?

I had to leave the room for a minute.

Sorry, Dennis.

Going back to the premium items in each classification that you are going to be coming out later with on this year, as to exactly why you are even doing it in the first place, I mean, is it because there hasn't been any price resistance to your products?

Correct.

We really have shown that our product is very inelastic in terms of price.

And it's not that we'll add premium prices to every classification, we'll add them to classifications that make sense, where there is some kind of history of premium pricing in the apparel business working.

But we're doing it because we have a powerful brand in terms of what's, as I call, pricing power.

We do not have price resistance in the brand at all.

Is it something from the customer side saying look, we would want a better quality this or that, and then be willing to pay more for it?

Absolutely.

It's not just better quality, it's a product twisted in a little different way to make it look more aspirational.

But it's the best quality we can put into it.

Okay, thank you.

Thank you.

Your next question comes from Robert Wilson from Tiburon Research.

Yeah, Seth, do you have the depreciation on the quarter?

Yes.

Also, while you are tracking that down, did you buyback shares in Q4 of 2002?

Hang on a second.

The depreciation for the third quarter was $18.7 million.

I'm sorry your buyback question?

Yeah, did you buy back shares in Q4 of the prior year?

No, we did not.

Okay, thank you.

Your next question comes from Joe Teklits from Wachovia.

I think this is a really important discussion, so thanks for one more.

Mike, can you give us -- you had like $100 plus jeans on the women's side of your adult business a couple of seasons ago.

Can you tell us how they sold through?

And then in terms of this price resistance issue, you just finished another pretty negative comp in the adult concept.

For the second year in a row, your business really didn't kick in until, speaking about the fourth quarter for the second year in a row, until after Christmas when your big sale kicked in.

That's when you basically blew through all of your merchandise.

It was in essence on sale, so how do you look at that, what we just experienced again in Q4, and say there's no real price resistance in your business?

I think honestly the business kicking in had to do -- well one, I think it was across the industry.

I think if you look at it across the industry, the beginning of December was tough for everybody, and then it got better after.

So I think -- and I don't think for us it was the sale.

I think it was our customers shopping.

Candidly, our customers shopping rather than their parents.

And I think that's where we directed our business.

But I can tell you, Joe, that as we look at item by item, we don't get the bill that you would expect by decreasing prices on an ongoing basis in the business.

Naturally when your whole stock goes on sale, you're going to get a hike, but that's different from day in, day out operating of the business.

And we can track that on an item by item basis.

And that's why our sales will be four times a year, in terms of clearing inventory, clearing styles as we go through, but it's for the most part not as elastic as you would imagine.

So how about that denim because, that is one classification where we've seen a lot of price increases.

Yeah, and we've had no problem with raising the prices in our denim.

Our denim now is $59, was for back to school, was for Christmas.

That was higher than it had been.

There was no price resistance at all.

If anything, I've had a tough time staying in the denim business across the brands at higher retails than they've been.

We did have a $98 destroyed jean that performed surprisingly well.

I reduced the price thinking that I could make a much better business out of it, I didn't.

If you'll recall, they were $98 and I made them $68, I think.

Had no impact on those goods at all.

I think in fact there was status to the fact that they were $100.

Right.

So I think that's the kind of business we're in today.

And we have a brand that's strong enough to command that.

That's our strategic advantage.

I don't think our competitors are there, truthfully.

I don't think they'd have the same results that we have, and that's what we're going to play on.

I think the world's being divided into kind of two camps.

Yes, agree.

Good luck.

Thank you, Joe.

Your next question comes from Dana Cohen from Bear Stearns.

Any updates on CFO search?

And also, any commentary on 2005 quota and would you need to bring in more buy air or how are you looking at the quota situation given how uncertain it is lately?

Thank you.

I don't think we have any comment on quota for 2005 at this point.

In terms of the CFO search, I think we're very close to announcing something, so I would just stay tuned.

Your next question comes from Dorothy Lakner from CIBC World Markets.

Thanks, just a follow up.

Are there other categories -- you talked about men's shirts earlier, where you raised prices and that this is not part of the premium price grouping or assortment that you'll have.

Are there other categories where that will also happen over the course of '04?

Probably not.

The price levels at A&F, the base price levels will be pretty constant.

Thank you.

Your next question comes from Margaret Mager from Goldman Sachs.

A quick follow-up on advertising.

Haven't you used Bruce Webber for your photography pretty much, you know -- ?

Yeah, we've used Bruce for the last eight years, but he's been consistently a partner in the business.

Do you plan to change that with your new initiatives?

No.

I think he's a major, major creative talent in the business.

I don't think anybody takes pictures of our target customers the way Bruce does.

Okay.

And when, do you think, will we be able to notice changes in the imaging at Abercrombie?

Is that back to school with the quality, the premium pricing program, or is -- ?

Back to school, right.

Okay, thank you.

Bye-bye.

At this time, if there are no further questions or comments, I would like to thank you all for joining today's ANF fourth quarter 2003 earnings conference call.

You may now disconnect.