ABERCROMBIE & FITCH CO /DE/ [ANF] Filings

10-Q 1 anf-20221029.htm 10-Q anf-20221029

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


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

For the quarterly period ended October 29, 2022


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

For the transition period from to

Commission File Number 001-12107

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


Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, $0.01 Par Value

ANF

New York Stock Exchange

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. x Yes ¨ No

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). x Yes ¨ No

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


Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes x No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class A Common Stock						Shares outstanding as of December 2, 2022
$0.01 Par Value						49,001,742

Table of Contents


PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income	3
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Stockholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	7
	Index for Notes to Condensed Consolidated Financial Statements	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	37
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 6.	Exhibits	39
	Signatures	40


Abercrombie & Fitch Co.			2			2022 3Q Form 10-Q

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Abercrombie & Fitch Co.

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income

(Thousands, except per share amounts)

(Unaudited)




	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
Net sales	$	880,084	$	905,160	$	2,497,937	$	2,551,415
Cost of sales, exclusive of depreciation and amortization	359,268		328,916		1,061,684		916,552
Gross profit	520,816		576,244		1,436,253		1,634,863
Stores and distribution expense	367,333		351,815		1,045,667		993,170
Marketing, general and administrative expense	133,201		146,269		379,518		391,129

Asset impairment	3,744		6,749		9,336		10,199
Other operating income, net	(1,005)		(1,320)		(3,894)		(4,586)
Operating income	17,543		72,731		5,626		244,951
Interest expense, net	7,295		7,270		21,519		27,151
Income (loss) before income taxes	10,248		65,461		(15,893)		217,800
Income tax expense	10,966		16,383		14,413		15,560
Net (loss) income	(718)		49,078		(30,306)		202,240
Less: Net income attributable to noncontrolling interests	1,496		1,845		5,211		4,739
Net (loss) income attributable to A&F	$	(2,214)	$	47,233	$	(35,517)	$	197,501

Net (loss) income per share attributable to A&F
Basic	$	(0.04)	$	0.80	$	(0.70)	$	3.24
Diluted	$	(0.04)	$	0.77	$	(0.70)	$	3.10

Weighted-average shares outstanding
Basic	49,486		58,796		50,673		60,879
Diluted	49,486		61,465		50,673		63,770

Other comprehensive (loss) income
Foreign currency translation adjustments, net of tax	$	(11,021)	$	(5,629)	$	(26,338)	$	(8,889)
Derivative financial instruments, net of tax	(1,206)		4,416		(1,223)		9,718
Other comprehensive (loss) income	(12,227)		(1,213)		(27,561)		829
Comprehensive (loss) income	(12,945)		47,865		(57,867)		203,069
Less: Comprehensive income attributable to noncontrolling interests	1,496		1,845		5,211		4,739
Comprehensive (loss) income attributable to A&F	$	(14,441)	$	46,020	$	(63,078)	$	198,330

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.


Abercrombie & Fitch Co.			3			2022 3Q Form 10-Q

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Abercrombie & Fitch Co.

Condensed Consolidated Balance Sheets

(Thousands, except par value amounts)

(Unaudited)


	October 29, 2022		January 29, 2022
Assets
Current assets:
Cash and equivalents	$	257,332	$	823,139
Receivables	108,468		69,102
Inventories	741,963		525,864
Other current assets	112,602		89,654
Total current assets	1,220,365		1,507,759
Property and equipment, net	542,138		508,336
Operating lease right-of-use assets	713,166		698,231
Other assets	218,325		225,165
Total assets	$	2,693,994	$	2,939,491
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	322,128	$	374,829
Accrued expenses	378,366		395,815
Short-term portion of operating lease liabilities	211,304		222,823
Income taxes payable	23,694		21,773
Total current liabilities	935,492		1,015,240
Long-term liabilities:
Long-term portion of operating lease liabilities	708,512		697,264
Long-term borrowings, net	296,532		303,574
Other liabilities	97,393		86,089
Total long-term liabilities	1,102,437		1,086,927
Stockholders’ equity
Class A Common Stock: $0.01 par value: 150,000 shares authorized and 103,300 shares issued for all periods presented	1,033		1,033
Paid-in capital	411,041		413,190
Retained earnings	2,330,730		2,386,156
Accumulated other comprehensive loss, net of tax (“AOCL”)	(142,267)		(114,706)
Treasury stock, at average cost: 54,300 and 50,315 shares as of October 29, 2022 and January 29, 2022, respectively	(1,954,306)		(1,859,583)
Total Abercrombie & Fitch Co. stockholders’ equity	646,231		826,090
Noncontrolling interests	9,834		11,234
Total stockholders’ equity	656,065		837,324
Total liabilities and stockholders’ equity	$	2,693,994	$	2,939,491

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.


Abercrombie & Fitch Co.			4			2022 3Q Form 10-Q

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Abercrombie & Fitch Co.

Condensed Consolidated Statements of Stockholders’ Equity

(Thousands, except per share amounts)

(Unaudited)


	Thirteen Weeks Ended October 29, 2022
	Common Stock			Paid-in capital		Non-controlling interests		Retained earnings		AOCL		Treasury stock			Total stockholders’ equity
	Shares outstanding	Par value										Shares	At average cost
Balance, July 30, 2022	49,471	$	1,033	$	405,127	$	11,139	$	2,333,867	$	(130,040)	53,829	$	(1,948,199)	$	672,927
Net income (loss)	—	—		—		1,496		(2,214)		—		—	—		(718)
Purchase of Common Stock	(510)	—		—		—		—		—		510	(8,000)		(8,000)

Share-based compensation issuances and exercises	39	—		(1,396)		—		(923)		—		(39)	1,893		(426)
Share-based compensation expense	—	—		7,310		—		—		—		—	—		7,310
Derivative financial instruments, net of tax	—	—		—		—		—		(1,206)		—	—		(1,206)
Foreign currency translation adjustments, net of tax	—	—		—		—		—		(11,021)		—	—		(11,021)
Distributions to noncontrolling interests, net	—	—		—		(2,801)		—		—		—	—		(2,801)
Ending balance at October 29, 2022	49,000	$	1,033	$	411,041	$	9,834	$	2,330,730	$	(142,267)	54,300	$	(1,954,306)	$	656,065

	Thirteen Weeks Ended October 30, 2021
	Common Stock			Paid-in capital		Non-controlling interests		Retained earnings		AOCL		Treasury stock			Total stockholders’ equity
	Shares outstanding	Par value										Shares	At average cost
Balance, July 31, 2021	59,691	$	1,033	$	399,891	$	10,367	$	2,275,009	$	(100,265)	43,609	$	(1,619,102)	$	966,933
Net income	—	—		—		1,845		47,233		—		—	—		49,078
Purchase of Common Stock	(2,692)	—		—		—						2,692	(100,000)		(100,000)

Share-based compensation issuances and exercises	38	—		(918)		—		(1,442)		—		(38)	1,376		(984)
Share-based compensation expense	—	—		7,332		—		—		—		—	—		7,332
Derivative financial instruments, net of tax	—	—		—		—		—		4,416		—	—		4,416
Foreign currency translation adjustments, net of tax	—	—		—		—		—		(5,629)		—	—		(5,629)
Distributions to noncontrolling interests, net	—	—		—		(2,817)		—		—		—	—		(2,817)
Ending balance at October 30, 2021	57,037	$	1,033	$	406,305	$	9,395	$	2,320,800	$	(101,478)	46,263	$	(1,717,726)	$	918,329

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.


Abercrombie & Fitch Co.			5			2022 3Q Form 10-Q

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Abercrombie & Fitch Co.

Condensed Consolidated Statements of Stockholders’ Equity

(Thousands, except per share amounts)

(Unaudited)


	Thirty-Nine Weeks Ended October 29, 2022
	Common Stock			Paid-in capital		Non-controlling interests		Retained earnings		AOCL		Treasury stock			Total stockholders’ equity
	Shares outstanding	Par value										Shares	At average cost
Balance, January 29, 2022	52,985	$	1,033	$	413,190	$	11,234	$	2,386,156	$	(114,706)	50,315	$	(1,859,583)	$	837,324
Net income (loss)	—	—		—		5,211		(35,517)		—		—	—		(30,306)
Purchase of Common Stock	(4,770)	—		—		—		—		—		4,770	(125,775)		(125,775)

Share-based compensation issuances and exercises	785	—		(25,575)		—		(19,909)		—		(785)	31,052		(14,432)
Share-based compensation expense	—	—		23,426		—		—		—		—	—		23,426
Derivative financial instruments, net of tax	—	—		—		—		—		(1,223)		—	—		(1,223)
Foreign currency translation adjustments, net of tax	—	—		—		—		—		(26,338)		—	—		(26,338)
Distributions to noncontrolling interests, net	—	—		—		(6,611)		—		—		—	—		(6,611)
Ending balance at October 29, 2022	49,000	$	1,033	$	411,041	$	9,834	$	2,330,730	$	(142,267)	54,300	$	(1,954,306)	$	656,065

	Thirty-Nine Weeks Ended October 30, 2021
	Common Stock			Paid-in capital		Non-controlling interests		Retained earnings		AOCL		Treasury stock			Total stockholders’ equity
	Shares outstanding	Par value										Shares	At average cost
Balance, January 30, 2021	62,399	$	1,033	$	401,283	$	12,684	$	2,149,470	$	(102,307)	40,901	$	(1,512,851)	$	949,312
Net income	—	—		—		4,739		197,501		—		—	—		202,240
Purchase of Common Stock	(6,143)	—		—		—						6,143	(235,249)		(235,249)

Share-based compensation issuances and exercises	781	—		(17,247)		—		(26,171)		—		(781)	30,374		(13,044)
Share-based compensation expense	—	—		22,269		—		—		—		—	—		22,269
Derivative financial instruments, net of tax	—	—		—		—		—		9,718		—	—		9,718
Foreign currency translation adjustments, net of tax	—	—		—		—		—		(8,889)		—	—		(8,889)
Distributions to noncontrolling interests, net	—	—		—		(8,028)		—		—		—	—		(8,028)
Ending balance at October 30, 2021	57,037	$	1,033	$	406,305	$	9,395	$	2,320,800	$	(101,478)	46,263	$	(1,717,726)	$	918,329

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.


Abercrombie & Fitch Co.			6			2022 3Q Form 10-Q

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Abercrombie & Fitch Co.

Condensed Consolidated Statements of Cash Flows

(Thousands)

(Unaudited)


	Thirty-Nine Weeks Ended

	October 29, 2022		October 30, 2021
Operating activities
Net (loss) income	$	(30,306)	$	202,240
Adjustments to reconcile net (loss) income to net cash (used for) provided by operating activities:
Depreciation and amortization	98,393		107,787
Asset impairment	9,336		10,199
(Gain) loss on disposal	(198)		3,500
Benefit for deferred income taxes	(9,585)		(32,931)
Share-based compensation	23,426		22,269
(Gain) loss on extinguishment of debt	(52)		5,347
Changes in assets and liabilities:
Inventories	(221,414)		(140,393)
Accounts payable and accrued expenses	(87,463)		81,793
Operating lease right-of-use assets and liabilities	(8,364)		(105,046)
Income taxes	281		15,061
Other assets	(91,432)		(34,884)
Other liabilities	16,184		(3,655)
Net cash (used for) provided by operating activities	(301,194)		131,287
Investing activities
Purchases of property and equipment	(120,282)		(62,223)
Proceeds from the sale of property and equipment	11,891		—
Withdrawal of funds from Rabbi Trust assets	12,000		—
Net cash used for investing activities	(96,391)		(62,223)
Financing activities

Purchase of senior secured notes	(7,862)		(46,969)



Payment of debt issuance or modification costs and fees	(181)		(2,016)
Purchases of Common Stock	(125,775)		(235,249)

Other financing activities	(21,088)		(20,124)
Net cash used for financing activities	(154,906)		(304,358)
Effect of foreign currency exchange rates on cash	(14,871)		(8,560)
Net decrease in cash and equivalents, and restricted cash and equivalents	(567,362)		(243,854)
Cash and equivalents, and restricted cash and equivalents, beginning of period	834,368		1,124,157
Cash and equivalents, and restricted cash and equivalents, end of period	$	267,006	$	880,303
Supplemental information related to non-cash activities
Purchases of property and equipment not yet paid at end of period	$	64,477	$	31,561
Operating lease right-of-use assets additions, net of terminations, impairments and other reductions	196,003		26,473
Supplemental information related to cash activities
Cash paid for interest	13,574		14,950
Cash paid for income taxes	26,213		39,081
Cash received from income tax refunds	249		1,240
Cash paid for amounts included in measurement of operating lease liabilities, net of abatements	210,394		312,854

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.


Abercrombie & Fitch Co.			7			2022 3Q Form 10-Q

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Abercrombie & Fitch Co.

Index for Notes to Condensed Consolidated Financial Statements (Unaudited)


		Page No.
Note 1.	NATURE OF BUSINESS	9
Note 2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	9

Note 3.	REVENUE RECOGNITION	10
Note 4.	NET (LOSS) INCOME PER SHARE	11
Note 5.	FAIR VALUE	11
Note 6.	PROPERTY AND EQUIPMENT, NET	12
Note 7.	LEASES	12
Note 8.	ASSET IMPAIRMENT	13
Note 9.	INCOME TAXES	13
Note 10.	BORROWINGS	14
Note 11.	SHARE-BASED COMPENSATION	15
Note 12.	DERIVATIVE INSTRUMENTS	16
Note 13.	ACCUMULATED OTHER COMPREHENSIVE LOSS	18
Note 14.	SEGMENT REPORTING	19


Abercrombie & Fitch Co.			8			2022 3Q Form 10-Q

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Abercrombie & Fitch Co.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. NATURE OF BUSINESS

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 global, digitally-led omnichannel retailer. The Company offers a broad assortment of apparel, personal care products and accessories for men, women and kids, which are sold primarily through its digital channels and Company-owned stores, as well as through various third-party arrangements. The Company’s two brand-based operating segments are Hollister, which includes the Company’s Hollister, Gilly Hicks, and Social Tourist brands, and Abercrombie, which includes the Company’s Abercrombie & Fitch and abercrombie kids brands. These five brands share a commitment to offering unique products of enduring quality and exceptional comfort that allow customers around the world to express their own individuality and style. The Company operates primarily in North America, Europe, and Asia.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The accompanying Condensed Consolidated Financial Statements include historical financial statements of, and transactions applicable to, the Company and reflect its financial position, results of operations and cash flows.

The Company has interests in an Emirati business venture and in a Kuwaiti business venture with Majid al Futtaim Fashion L.L.C. (“MAF”) and in a United States of America (the “U.S.”) business venture with Dixar L.L.C. (“Dixar”), each of which meets the definition of a variable interest entity (“VIE”). The purpose of the business ventures with MAF is to operate stores in the United Arab Emirates and Kuwait and the purpose of the business venture with Dixar is to hold the intellectual property related to the Social Tourist brand. The Company is deemed to be the primary beneficiary of these VIEs; therefore, the Company has consolidated the operating results, assets and liabilities of these VIEs, with the noncontrolling interests’ (“NCI”) portions of net (loss) income presented as net income attributable to NCI on the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income and the NCI portion of stockholders’ equity presented as NCI on the Condensed Consolidated Balance Sheets.

Fiscal year

The Company’s fiscal year ends on the Saturday closest to January 31. This typically results in a fifty-two week year, but occasionally gives rise to an additional week, resulting in a fifty-three week year. Fiscal years are designated in the Condensed Consolidated Financial Statements and notes, as well as the remainder of this Quarterly Report on Form 10-Q, by the calendar year in which the fiscal year commences. All references herein to the Company’s fiscal years are as follows:

Fiscal year

Year ended/ ending

Number of weeks

Fiscal 2021

January 29, 2022

Fiscal 2022

January 28, 2023

Fiscal 2023

February 3, 2024

Interim financial statements

The Condensed Consolidated Financial Statements as of October 29, 2022, and for the thirteen and thirty-nine week periods ended October 29, 2022 and October 30, 2021, are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim consolidated financial statements. Accordingly, the Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto contained in A&F’s Annual Report on Form 10-K for Fiscal 2021 filed with the SEC on March 28, 2022 (the “Fiscal 2021 Form 10-K”). The January 29, 2022 consolidated balance sheet data, included herein, were derived from audited consolidated financial statements, but do not include all disclosures required by accounting principles generally accepted in the U.S. (“GAAP”).

In the opinion of management, the accompanying Condensed Consolidated Financial Statements reflect all adjustments (which are of a normal recurring nature) necessary to state fairly, in all material respects, the financial position, results of operations and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for Fiscal 2022.

During the first quarter of 2022, the Company reclassified flagship store exit benefits into stores and distribution expense on the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income. There were no changes to operating (loss) income or net (loss) income. Prior period amounts have been reclassified to conform to current year’s presentation.


Abercrombie & Fitch Co.			9			2022 3Q Form 10-Q

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Use of estimates

The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. Due to the inherent uncertainty involved with estimates, actual results may differ. Additionally, these estimates and assumptions may change as a result of the impact of global economic conditions such as the uncertainty regarding a slowing economy, rising interest rates, continued inflation, fluctuation in foreign exchange rates, the coronavirus ("COVID-19") pandemic, and the ongoing conflict in Ukraine and result in material impacts to the Company’s consolidated financial statements in future reporting periods.

Recent accounting pronouncements

The Company reviews recent accounting pronouncements on a quarterly basis and has excluded discussion of those not applicable to the Company and those that did not have, or are not expected to have, a material impact on the Company’s consolidated financial statements.

Condensed Consolidated Statements of Cash Flows reconciliation

The following table provides a reconciliation of cash and equivalents and restricted cash and equivalents to the amounts shown on the Condensed Consolidated Statements of Cash Flows:


(in thousands)	Location	October 29, 2022		January 29, 2022		October 30, 2021		January 30, 2021
Cash and equivalents	Cash and equivalents	$	257,332	$	823,139	$	865,622	$	1,104,862
Long-term restricted cash and equivalents	Other assets	9,674		11,229		11,401		14,814
Short-term restricted cash and equivalents	Other current assets	—		—		3,280		4,481
Cash and equivalents and restricted cash and equivalents		$	267,006	$	834,368	$	880,303	$	1,124,157

3. REVENUE RECOGNITION

Disaggregation of revenue

All revenues are recognized in net sales in the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income. For information regarding the disaggregation of revenue, refer to Note 14, “SEGMENT REPORTING.”

Contract liabilities

The following table details certain contract liabilities representing unearned revenue as of October 29, 2022, January 29, 2022 and October 30, 2021:


(in thousands)	October 29, 2022		January 29, 2022		October 30, 2021
Gift card liability	$	35,016	$	36,984	$	30,815
Loyalty programs liability	22,930		22,757		21,964

The following table details recognized revenue associated with the Company’s gift card program and loyalty programs for the thirteen and thirty-nine weeks ended October 29, 2022 and October 30, 2021:


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
(in thousands)	October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
Revenue associated with gift card redemptions and gift card breakage	$	21,194	$	17,801	$	66,847	$	51,310
Revenue associated with reward redemptions and breakage related to the Company’s loyalty programs	11,767		12,075		32,578		31,525


Abercrombie & Fitch Co.			10			2022 3Q Form 10-Q

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4. NET (LOSS) INCOME PER SHARE

Net (loss) income per basic and diluted share attributable to A&F is computed based on the weighted-average number of outstanding shares of Class A Common Stock (“Common Stock”). Additional information pertaining to net (loss) income per share attributable to A&F follows:


	Thirteen Weeks Ended		Thirty-Nine Weeks Ended
(in thousands)	October 29, 2022	October 30, 2021	October 29, 2022	October 30, 2021
Shares of Common Stock issued	103,300	103,300	103,300	103,300
Weighted-average treasury shares	(53,814)	(44,504)	(52,627)	(42,421)
Weighted-average — basic shares	49,486	58,796	50,673	60,879
Dilutive effect of share-based compensation awards	—	2,669	—	2,891
Weighted-average — diluted shares	49,486	61,465	50,673	63,770
Anti-dilutive shares (1)	4,199	1,228	4,285	1,212

(1)Reflects the total number of shares related to outstanding share-based compensation awards that have been excluded from the computation of net (loss) income per diluted share because the impact would have been anti-dilutive. Unvested shares related to restricted stock units with performance-based and market-based vesting conditions can achieve up to 200% of their target vesting amount and are reflected at the maximum vesting amount less any dilutive portion.

5. FAIR VALUE

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The inputs used to measure fair value are prioritized based on a three-level hierarchy. The three levels of inputs to measure fair value are as follows:

•Level 1—inputs are unadjusted quoted prices for identical assets or liabilities that are available in active markets that the Company can access at the measurement date.

•Level 2—inputs are other than quoted market prices included within Level 1 that are observable for assets or liabilities, directly or indirectly.

•Level 3—inputs to the valuation methodology are unobservable.

The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy. The three levels of the hierarchy and the distribution of the Company’s assets measured at fair value on a recurring basis, as of October 29, 2022 and January 29, 2022, were as follows:


	Assets and Liabilities at Fair Value as of October 29, 2022
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents (1)	$	51,722	$	—	$	—	$	51,722
Derivative instruments (2)	—		3,802		—		3,802
Rabbi Trust assets (3)	1		51,347		—		51,348
Restricted cash equivalents (1)	1,544		5,150		—		6,694
Total assets	$	53,267	$	60,299	$	—	$	113,566

Liabilities:
Derivative instruments (2)	$	—	$	10	$	—	$	10
Total liabilities	$	—	$	10	$	—	$	10


	Assets at Fair Value as of January 29, 2022
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents (1)	$	49,309	$	11,643	$	—	$	60,952
Derivative instruments (2)	—		4,973		—		4,973
Rabbi Trust assets (3)	1		62,272		—		62,273
Restricted cash equivalents (1)	5,391		2,326		—		7,717
Total assets	$	54,701	$	81,214	$	—	$	135,915

(1) Level 1 assets consisted of investments in money market funds and U.S. treasury bills. Level 2 assets consisted of time deposits.

(2) Level 2 assets consisted primarily of foreign currency exchange forward contracts.

(3) Level 1 assets consisted of investments in money market funds. Level 2 assets consisted of trust-owned life insurance policies.


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The Company’s Level 2 assets consisted of:

•Trust-owned life insurance policies, which were valued using the cash surrender value of the life insurance policies;

•Time deposits, which were valued at cost, approximating fair value, due to the short-term nature of these investments; and

•Derivative instruments, primarily foreign currency exchange forward contracts, which were valued using quoted market prices of the same or similar instruments, adjusted for counterparty risk.

Fair value of long-term borrowings

The Company’s borrowings under its senior secured notes, which have a fixed 8.75% interest rate and mature on July 15, 2025 (the “Senior Secured Notes”) are carried at historical cost in the accompanying Condensed Consolidated Balance Sheets. The carrying amount and fair value of the Company’s long-term gross borrowings were as follows:


(in thousands)	October 29, 2022		January 29, 2022
Gross borrowings outstanding, carrying amount	$	299,730	$	307,730
Gross borrowings outstanding, fair value	283,245		327,732

6. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of:


(in thousands)	October 29, 2022		January 29, 2022
Property and equipment, at cost	$	2,502,008	$	2,453,493
Less: Accumulated depreciation and amortization	(1,959,870)		(1,945,157)
Property and equipment, net	$	542,138	$	508,336

Refer to Note 8, “ASSET IMPAIRMENT,” for details related to property and equipment impairment charges incurred during the thirteen and thirty-nine weeks ended October 29, 2022 and October 30, 2021.

7. LEASES

The Company is a party to leases related to its Company-operated retail stores as well as for certain of its distribution centers, office space, information technology and equipment.

The following table provides a summary of the Company’s operating lease costs for the thirteen and thirty-nine weeks ended October 29, 2022 and October 30, 2021:


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
(in thousands)	October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
Single lease cost (1)	$	63,263	$	66,969	$	182,796	$	207,046
Variable lease cost (2)	40,681		26,409		106,359		68,875
Operating lease right-of-use asset impairment (3)	1,205		5,512		4,693		8,216
Sublease income (4)	(908)		(1,068)		(2,869)		(3,256)
Total operating lease cost	$	104,241	$	97,822	$	290,979	$	280,881

(1)Included amortization and interest expense associated with operating lease right-of-use assets and the impact from remeasurement of operating lease liabilities.

(2)Includes variable payments related to both lease and nonlease components, such as contingent rent payments made by the Company based on performance, and payments related to taxes, insurance, and maintenance costs, as well as the benefit of $0.8 million and $3.3 million of rent abatements during the thirteen and thirty-nine weeks ended October 29, 2022, respectively, related to the effects of the COVID-19 pandemic that resulted in the total payments required by the modified contract being substantially the same as or less than total payments required by the original contract. The benefit related to rent abatements recognized during the thirteen and thirty-nine weeks ended October 30, 2021 was $1.7 million and $14.6 million respectively.

(3)Refer to Note 8, “ASSET IMPAIRMENT,” for details related to operating lease right-of-use asset impairment charges.

(4)The terms of the sublease agreement entered into by the Company with a third party during Fiscal 2020 related to one of its previous flagship store locations have not changed materially from that disclosed in Note 8, “LEASES,” of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data” of the Fiscal 2021 Form 10-K. Sublease income is recognized in other operating income, net on the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.

The Company had minimum commitments related to operating lease contracts that have not yet commenced, primarily for its Company-operated retail stores, of approximately $31.5 million as of October 29, 2022.


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8. ASSET IMPAIRMENT

Asset impairment charges for the thirteen and thirty-nine weeks ended October 29, 2022 and October 30, 2021 were as follows:


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
(in thousands)	October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
Operating lease right-of-use asset impairment	$	1,205	$	5,512	$	4,693	$	8,216
Property and equipment asset impairment (1)	2,539		1,237		4,643		1,983
Total asset impairment	$	3,744	$	6,749	$	9,336	$	10,199

(1) Amounts include $0.6 million of store asset impairment and $1.9 million other asset impairment for the thirteen weeks ended October 29, 2022 and

$2.7 million of store asset impairment and $1.9 million other asset impairment for the thirty-nine weeks ended October 29, 2022. Amounts for the thirteen and thirty-nine weeks ended October 30, 2021 only include store asset impairment.

Asset impairment charges for the thirteen and thirty-nine weeks ended October 29, 2022 and October 30, 2021 related to certain of the Company’s assets including stores across brands, geographies and store formats and other assets. The store impairment charges for the thirty-nine weeks ended October 29, 2022 reduced the then carrying amount of the impaired stores’ assets to their fair value of approximately $38.7 million, including $37.8 million related to operating lease right-of-use assets. The impairment charges for the thirty-nine weeks ended October 30, 2021 reduced the then carrying amount of the impaired stores’ assets to their fair value of approximately $19.5 million, including $17.0 million related to operating lease right-of-use assets.

9. INCOME TAXES

The quarterly provision for income taxes is based on the current estimate of the annual effective income tax rate and the tax effect of discrete items occurring during the quarter. The Company’s quarterly provision and the estimate of the annual effective tax rate are subject to significant variation due to several factors. These factors include variability in the pre-tax jurisdictional mix of earnings, changes in how the Company does business including entering into new businesses or geographies, changes in foreign currency exchange rates, changes in laws, regulations, interpretations and administrative practices, relative changes in expenses or losses for which tax benefits are not recognized and the impact of discrete items. In addition, jurisdictions where the Company anticipates an ordinary loss for the fiscal year for which the Company does not anticipate future tax benefits are excluded from the overall computation of estimated annual effective tax rate and no tax benefits are recognized in the period related to losses in such jurisdictions. The impact of these items on the effective tax rate will be greater at lower levels of pre-tax earnings.

On August 16, 2022, the Inflation Reduction Act of 2022 (the “Inflation Reduction Act”) was enacted into law. The Company does not currently expect that the Inflation Reduction Act will have a material impact on its income taxes.

Impact of valuation allowances and other tax charges

During the thirteen and thirty-nine weeks ended October 29, 2022, the Company did not recognize income tax benefits on $30.0 million and $69.7 million, respectively, of pretax losses, primarily in Switzerland, resulting in adverse tax impacts of $5.6 million and $12.8 million, respectively.

As of October 29, 2022, there were approximately $11.2 million of net deferred tax assets in China. The realization of these net deferred tax assets is dependent upon the future generation of sufficient taxable profits in China. During the thirty-nine weeks ended October 29, 2022, the company recorded a $0.2 million valuation allowance on net operating losses currently not projected to be utilized in future years. While the Company believes that the remaining net deferred tax assets are more-likely-than-not to be realized, it is not a certainty, as the Company continues to evaluate and respond to certain situations, such as the COVID-19 pandemic. The Company is closely monitoring its operations in China. Should circumstances change, the net deferred tax assets may become subject to additional valuation allowances in the future. Additional valuation allowances would result in additional tax expense.

During the thirteen weeks ended October 30, 2021, the Company recognized $3.5 million of tax benefits due to the expected utilization of deferred tax assets against projected pre-tax income for the full fiscal year, primarily in the U.S. and Germany, based on information available, on which a valuation allowance had previously been established.

During the thirty-nine weeks ended October 30, 2021, the Company recognized $23.4 million of discrete tax benefits due to the release of valuation allowances, primarily in the U.S. and Germany, and a discrete tax benefit of $3.9 million due to a rate change in the U.K. The Company also recognized $13.6 million of tax benefits due to the expected utilization of deferred tax assets against projected pre-tax income for the full fiscal year, primarily in the U.S. and Germany, based on information available, on which a valuation allowance had previously been established.

The Company continues to maintain valuation allowances in certain jurisdictions, principally Switzerland and Japan.


Abercrombie & Fitch Co.			13			2022 3Q Form 10-Q

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Share-based compensation

Refer to Note 11, “SHARE-BASED COMPENSATION,” for details on income tax benefits and charges related to share-based compensation awards during the thirteen and thirty-nine weeks ended October 29, 2022 and October 30, 2021.

10. BORROWINGS

Details on the Company’s long-term borrowings, net, as of October 29, 2022 and January 29, 2022 are as follows:


(in thousands)	October 29, 2022		January 29, 2022
Long-term portion of borrowings, gross at carrying amount	$	299,730	$	307,730
Unamortized fees	(3,198)		(4,156)
Long-term borrowings, net	$	296,532	$	303,574

Senior Secured Notes

During the thirteen weeks ended October 29, 2022, Abercrombie & Fitch Management Co.(“A&F Management”), a wholly-owned indirect subsidiary of A&F, purchased $8.0 million of outstanding Senior Secured Notes and incurred a $0.1 million gain on extinguishment of debt, recognized in interest expense, net on the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.

The terms of the Senior Secured Notes have remained unchanged from those disclosed in Note 13, “BORROWINGS,” of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data” of on the Fiscal 2021 Form 10-K.

ABL Facility

The terms of the Company’s senior secured revolving credit facility of up to $400.0 million (the “ABL Facility”) have remained unchanged from those disclosed in Note 13, “BORROWINGS,” of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data” of the Fiscal 2021 Form 10-K.

The Company did not have any borrowings outstanding under the ABL Facility as of October 29, 2022 or as of January 29, 2022.

As of October 29, 2022, availability under the ABL Facility was $399.4 million, net of $0.6 million in outstanding stand-by letters of credit. As the Company must maintain excess availability equal to the greater of 10% of the loan cap or $30 million under the ABL Facility, borrowing capacity available to the Company under the ABL Facility was $359.4 million as of October 29, 2022.

Representations, warranties and covenants

The agreements related to the Senior Secured Notes and the ABL Facility contain various representations, warranties and restrictive covenants that, among other things and subject to specified exceptions, restrict the ability of the Company and its subsidiaries to: grant or incur liens; incur, assume or guarantee additional indebtedness; sell or otherwise dispose of assets, including capital stock of subsidiaries; make investments in certain subsidiaries; pay dividends, make distributions or redeem or repurchase capital stock; change the nature of their business; and consolidate or merge with or into, or sell substantially all of the assets of the Company or A&F Management to another entity.

The Senior Secured Notes are guaranteed on a senior secured basis, jointly and severally, by A&F and each of the existing and future wholly-owned domestic restricted subsidiaries of A&F that guarantee or will guarantee A&F Management’s Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) or certain future capital markets indebtedness.

Certain of the agreements related to the Senior Secured Notes and the ABL Facility also contain certain affirmative covenants, including reporting requirements such as delivery of financial statements, certificates and notices of certain events, maintaining insurance and providing additional guarantees and collateral in certain circumstances.

The Company was in compliance with all debt covenants under these agreements as of October 29, 2022.


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11. SHARE-BASED COMPENSATION

Financial statement impact

The following table details share-based compensation expense and the related income tax impacts for the thirteen and thirty-nine weeks ended October 29, 2022 and October 30, 2021:


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
(in thousands)	October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
Share-based compensation expense	$	7,310	$	7,332	$	23,426	$	22,269
Income tax benefit associated with share-based compensation expense recognized	635		806		2,615		2,492

The following table details discrete income tax benefits and charges related to share-based compensation awards during the thirteen and thirty-nine weeks ended October 29, 2022 and October 30, 2021:

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

(in thousands)

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

Income tax discrete (charges) benefits realized for tax deductions related to the issuance of shares

(29)