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June22,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

Takeaways from the Abercrombie & Fitch Investor Presentation at the Jefferies 2017 Global Consumer Conference

AttheJefferies2017GlobalConsumerConference,whichwasheldthisweekinNantucket,Massachusetts,Abercrombie&FitchCEOFranHorowitzprovidedarecapofthecompany’sfirst-quarterperformance,alongwithCFOJoanneCrevoiseratandVPofInvestorRelationsBrianLogan.Theteamalsoprovidedanoutlookontheremainderof2017andanupdateonthecompany’sstrategicinitiatives.Keytakeawaysinclude:

1) Abercrombie&Fitchexpectscompsalestoremainchallenging,andtoseetrendimprovementsinthesecondhalfoftheyear.Thecompanyexpectsthegrossprofitratefortheyeartobeslightlybelowlastyear’sadjustedrateof61%.Intermsofoperatingexpenses,thecompanyexpectstodeliver$100millioninexpensereductions.

2) Thecompanyplanstoinvestnearly$100millionin2017,including$70millionfornewstoresandrenovationsofcurrentstores.Thecompanyplanstoclose60storesintheUSbytheendofthisyear,andtoremodel47storesandopensevenfull-pricestoresandtwooutlets.Managementsaidthecompanyplanstospend$20milliontoenhanceitsdigitalfoundation,includinginvestmentsintherolloutofitsinternationalomnichannelcapabilities.

3) Thecompany’sstrategicinitiativesincludestrengtheningitsomnichannelpresence,engagingwithcustomersthroughloyaltyprogramsandsocialmedia,renovatingstoresthroughanupdatedprototypemodel,andpartneringwithwholesalersandfranchiserstoreachmoreconsumers.

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June22,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

AttheJefferies2017GlobalConsumerConference,whichwasheldthisweekinNantucket,Massachusetts,Abercrombie&FitchCEOFranHorowitzprovidedarecapofthecompany’sfirst-quarterperformance,alongwithCFOJoanneCrevoiseratandVPofInvestorRelationsBrianLogan.Theteamalsoprovidedanoutlookontheremainderof2017andanupdateonthecompany’sstrategicinitiatives.Belowareourkeytakeawaysfromthepresentation.

FinancialResultsfor1Q17Managementreportedthatoverallresultsforthefirstquarterwereinlinewithexpectations.Thecompany’snetsalesweredown4%andgrossmarginwaspressuredbysteeptrafficheadwindsandmorepromotionalactivitythanhadbeenplanned.Theoperatinglossforthequarterwas$70million,comparedwitha$55millionlossinthesamequarterlastyear.Thenetlossperdilutedsharewas$0.91comparedwitha$0.59intheyear-agoquarter.

Comparablesaleswereinlinewithexpectationsandhaveimprovedsequentiallyoverthepastfewquartersacrossallbrands,geographiesandchannels.Inthequarter,Hollister’scompsaleswereup3%,Abercrombie’scompsalesweredown10%andthecompany’soverallcompsalesweredown3%.

Managementreportedthatthecompanyendedthefirstquarterwith$421millionincash,with$258millioningrossborrowingsoutstandingcomparedwith$293millionintheyear-agoperiod.Thecompanyexpectstogeneratethecashneededtooperatethebusiness,meetitsexpensesandmaintainthedividend.

OutlookfortheFullYearAbercrombie&Fitchexpectscompsalestoremainchallengingforthefullyear,andtoseetrendimprovementsinthesecondhalfoftheyear.Thecompanyexpectsthegrossprofitratefortheyeartobeslightlylowerthanlastyear’sadjustedrateof61%.Intermsofoperatingexpenses,thecompanyexpectstodeliver$100millioninexpensereductions.Thecompanyexpectsoperatingexpensestobedown3%fromlastyear,with65%ofthereductionoccurringinthesecondhalfoftheyear.

ChannelOptimizationSince2010,Abercrombie&Fitchhasclosedapproximately400storesintheUSandremodelednearly150stores.Overthesametimeperiod,thecompanyhasinvested$400millioninwebandmobileexperiencesandomnichannelandCRMcapabilities.

Source:abercrombie.com.hk

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June22,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

For2017,thecompanyexpectscapitalexpenditurestobenearly$100million.Ofthat,thecompanyplanstoinvest$70millioninnewstoresandstorerenovations.Thecompanyexpectstoremodel40Hollisterstores,including10downsizes.ItplanstoremodelsevenAbercrombie&Fitchprototypestores,withfourdownsizes,andtoopensevennewfull-pricestoresandtwonewoutletstores.Bytheendoftheyear,thecompanyexpectstoclose60storesintheUSthroughnaturalleaseexpirations.Approximately50%ofthecompany’sUSleasesexpirebytheendof2018.

Abercrombie&Fitchexpectstospend$20milliontoenhanceitsdigitalfoundationtosupporttheinternationalrolloutofitsomnichannelcapabilities.

StrategicInitiativesThecompanyreportedthatoverallresultswereinlinewiththeplanandthatHollistercontinuestodemonstratepotential.Managementcharacterizedthecompanyasaworkinprogress.Abercrombie&Fitchisemphasizingitsbrandingstory“whenever,whereverandhowever”customerschoosetoengagewithitsbrands.Theomnichannelstrategyiscentraltothisbranding.Thecompanyreportedthatdirect-to-consumersalesaccountedfor27%oftotalsalesinthefirstquarterof2017,upfrom24%intheprior-yearperiod.Thecompanyhasincreaseditsomnichannelofferingstoincludeanumberofservicesandfeatures,includingpurchaseonline,pickupinstore;reserveinstore;orderinstore;onlineandin-storereturns;andasharedcartbetweenmobileanddesktopdevices.

Loyaltyprogramsareanotherstrategicinitiativeforengagingwithcustomers.ThecompanyrolledoutaloyaltyprogramforAbercrombie&FitchcalledClubCali,whichisaddingapproximately250,000memberspermonth.TheClubCaliloyaltyprogramendedthefirstquarterof2017with5.7millionmembers.Thecompanyisalsousingsocialmediatoengagewithconsumers.Hollisterfeatureda“Thisissummer”campaignonitsYouTubechannel,whichhadover5millionfollowers.Duringthefirstquarter,HollisteralsolaunchedasurfgameonMobilePlaythatreceived27millionsocialmediaimpressionsacrosstheplatform.

Managementreportedthatitisalsoupdatingitsstoreprototypestoasmaller-formatstorewithupdatedfixturesreminiscentofthecompany’shistory.ThefirstAbercrombie&Fitchprototypestoreopenedinthefirstquarterofthisyear.Thecompanyreportedthatthestorehasgeneratedhigherproductivityandthatitplanstorolloutsixmoreprototypestoresin2017.

Managementhighlightedthatitsfranchiseandwholesalepartnershipcollaborations—includingwithfranchisepartnersGrupoAxoandMajidAlFuttaimandwholesalepartnersASOS,Next,ZalandoandZalora—arehelpingAbercrombie&Fitchprovidenewplatformsforreachingconsumers.Forexample,thecompanyprojectsthatitsnewpartnershipwithe-commerceretailerZalorawillhelpAbercrombie&Fitchreachmorethan600millionconsumersinSoutheastAsia.

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June22,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comErinSchmidtResearchAssociate

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