This is the key to being able to charge a premium price at retail. The game here is to guess how long this will continue. If you have college aged children ask them what they think of ANF products.
Charging premium prices seems to be the main component of the ANF "upscale" buisiness plan. The importance of maintaining the high prices can be seen in the valuation ratios: P/B = 103, P/E = 50, P/S = 4.7. Also the profit margin is 7.5%, not as high as I would have expected for such high priced merchandise.
This means even a small decrease in demand and hence price will lead to a large drop in the profit margin and the profitablity of the company.
You are absolutely right! When and if the demand falls off slightly, Mike and his crew will have trouble dealing with it. probably not fatal, however.
It will be interesting to see how Mike functions without Les's watchful eye and the LTD disciplines, after the spin off. Mike's a great merchant, however as a real CEO, don't know. Go back and research his first venture in the late 80's Alcott and Andrews.