ABERCROMBIE & FITCH CO /DE/ 10-Q

Item 1. Financial Statements (Unaudited) Abercrombie & Fitch Co. Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Thousands, except per share amounts) (Unaudited) Thirteen Weeks Ended Thirty-nine Weeks Ended October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020 Net sales $ 905,160 $ 819,653 $ 2,551,415 $ 2,003,340 Cost of sales, exclusive of depreciation and amortization 328,916 295,220 916,552 791,154 Gross profit 576,244 524,433 1,634,863 1,212,186 Stores and distribution expense 351,804 346,263 994,347 978,757 Marketing, general and administrative expense 146,269 121,000 391,129 326,509 Flagship store exit charges (benefits) 11 ( 8,063 ) ( 1,177 ) ( 12,490 ) Asset impairment 6,749 6,329 10,199 57,340 Other operating (income) loss, net ( 1,320 ) 288 ( 4,586 ) ( 1,562 ) Operating income (loss) 72,731 58,616 244,951 ( 136,368 ) Interest expense, net 7,270 8,808 27,151 19,277 Income (loss) before income taxes 65,461 49,808 217,800 ( 155,645 ) Income tax expense 16,383 5,779 15,560 38,565 Net income (loss) 49,078 44,029 202,240 ( 194,210 ) Less: Net income attributable to noncontrolling interests 1,845 1,758 4,739 2,203 Net income (loss) attributable to A&F $ 47,233 $ 42,271 $ 197,501 $ ( 196,413 ) Net income (loss) per share attributable to A&F Basic $ 0.80 $ 0.68 $ 3.24 $ ( 3.14 ) Diluted $ 0.77 $ 0.66 $ 3.10 $ ( 3.14 ) Weighted-average shares outstanding Basic 58,796 62,558 60,879 62,541 Diluted 61,465 63,877 63,770 62,541 Other comprehensive (loss) income Foreign currency translation $ ( 5,629 ) $ 2,142 $ ( 8,889 ) $ 5,477 Derivative financial instruments, net of tax 4,416 ( 5,234 ) 9,718 1,224 Other comprehensive (loss) income ( 1,213 ) ( 3,092 ) 829 6,701 Comprehensive income (loss) 47,865 40,937 203,069 ( 187,509 ) Less: Comprehensive income attributable to noncontrolling interests 1,845 1,758 4,739 2,203 Comprehensive income (loss) attributable to A&F $ 46,020 $ 39,179 $ 198,330 $ ( 189,712 ) The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements. 3 Table of Contents Abercrombie & Fitch Co. Condensed Consolidated Balance Sheets (Thousands, except par value amounts) (Unaudited) October 30, 2021 January 30, 2021 Assets Current assets: Cash and equivalents $ 865,622 $ 1,104,862 Receivables 83,447 83,857 Inventories 543,713 404,053 Other current assets 111,423 68,857 Total current assets 1,604,205 1,661,629 Property and equipment, net 516,176 550,587 Operating lease right-of-use assets 762,641 893,989 Other assets 229,512 208,697 Total assets $ 3,112,534 $ 3,314,902 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 424,560 $ 289,396 Accrued expenses 355,149 396,365 Short-term portion of operating lease liabilities 209,812 248,846 Income taxes payable 39,900 24,792 Total current liabilities 1,029,421 959,399 Long-term liabilities: Long-term portion of operating lease liabilities 764,346 957,588 Long-term borrowings, net 303,247 343,910 Other liabilities 97,191 104,693 Total long-term liabilities 1,164,784 1,406,191 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 406,305 401,283 Retained earnings 2,320,800 2,149,470 Accumulated other comprehensive loss, net of tax (“AOCL”) ( 101,478 ) ( 102,307 ) Treasury stock, at average cost: 46,263 and 40,901 shares as of October 30, 2021 and January 30, 2021, respectively ( 1,717,726 ) ( 1,512,851 ) Total Abercrombie & Fitch Co. stockholders’ equity 908,934 936,628 Noncontrolling interests 9,395 12,684 Total stockholders’ equity 918,329 949,312 Total liabilities and stockholders’ equity $ 3,112,534 $ 3,314,902 The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements. 4 Table of Contents Abercrombie & Fitch Co. Condensed Consolidated Statements of Stockholders’ Equity (Thousands, except per share amounts) (Unaudited) 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 Thirteen Weeks Ended October 31, 2020 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, August 1, 2020 62,365 $ 1,033 $ 392,272 $ 7,929 $ 2,025,911 $ ( 99,093 ) 40,935 $ ( 1,514,442 ) $ 813,610 Net income — — — 1,758 42,271 — — — 44,029 Share-based compensation issuances and exercises 19 — ( 436 ) — ( 661 ) — ( 19 ) 947 ( 150 ) Share-based compensation expense — — 4,669 — — — — — 4,669 Derivative financial instruments, net of tax — — — — — ( 5,234 ) — — ( 5,234 ) Foreign currency translation adjustments, net of tax — — — — — 2,142 — — 2,142 Distributions to noncontrolling interests, net — — — ( 262 ) — — — — ( 262 ) Ending balance at October 31, 2020 62,384 $ 1,033 $ 396,505 $ 9,425 $ 2,067,521 $ ( 102,185 ) 40,916 $ ( 1,513,495 ) $ 858,804 The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements. 5 Table of Contents Abercrombie & Fitch Co. Condensed Consolidated Statements of Stockholders’ Equity (Thousands, except per share amounts) (Unaudited) 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 Thirty-nine Weeks Ended October 31, 2020 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, February 1, 2020 62,786 $ 1,033 $ 404,983 $ 12,368 $ 2,313,745 $ ( 108,886 ) 40,514 $ ( 1,552,065 ) $ 1,071,178 Net income (loss) — — — 2,203 ( 196,413 ) — — — ( 194,210 ) Purchase of Common Stock ( 1,397 ) — — — — — 1,397 ( 15,172 ) ( 15,172 ) Dividends ($0.20 per share) — — — — ( 12,556 ) — — — ( 12,556 ) Share-based compensation issuances and exercises 995 — ( 22,053 ) — ( 37,255 ) — ( 995 ) 53,742 ( 5,566 ) Share-based compensation expense — — 13,575 — — — — — 13,575 Derivative financial instruments, net of tax — — — — — 1,224 — — 1,224 Foreign currency translation adjustments, net of tax — — — — — 5,477 — — 5,477 Distributions to noncontrolling interests, net — — — ( 5,146 ) — — — — ( 5,146 ) Ending balance at October 31, 2020 62,384 $ 1,033 $ 396,505 $ 9,425 $ 2,067,521 $ ( 102,185 ) 40,916 $ ( 1,513,495 ) $ 858,804 The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements. 6 Table of Contents Abercrombie & Fitch Co. Condensed Consolidated Statements of Cash Flows (Thousands) (Unaudited) Thirty-nine Weeks Ended As Restated October 30, 2021 October 31, 2020 Operating activities Net income (loss) $ 202,240 $ ( 194,210 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 107,787 127,248 Asset impairment 10,199 57,340 Loss on disposal 3,500 7,586 (Benefit) provision for deferred income taxes ( 32,931 ) 27,432 Share-based compensation 22,269 13,575 Loss on extinguishment of debt 5,347 — Changes in assets and liabilities: Inventories ( 140,393 ) ( 109,665 ) Accounts payable and accrued expenses 81,793 186,806 Operating lease right-of-use assets and liabilities ( 105,046 ) ( 41,976 ) Income taxes 15,061 ( 7,168 ) Other assets ( 34,884 ) 30,403 Other liabilities ( 3,655 ) 11,523 Net cash provided by operating activities 131,287 108,894 Investing activities Purchases of property and equipment ( 62,223 ) ( 91,748 ) Withdrawal of funds from Rabbi Trust assets — 50,000 Net cash used for investing activities ( 62,223 ) ( 41,748 ) Financing activities Proceeds from issuance of senior secured notes — 350,000 Purchase of senior secured notes ( 46,969 ) — Proceeds from borrowings under the senior secured asset-based revolving credit facility — 210,000 Repayment of borrowings under the term loan facility — ( 233,250 ) Repayment of borrowings under the senior secures asset-based revolving credit facility — ( 210,000 ) Payment of debt issuance or modification costs and fees ( 2,016 ) ( 7,151 ) Purchases of Common Stock ( 235,249 ) ( 15,172 ) Dividends paid — ( 12,556 ) Other financing activities ( 20,124 ) ( 11,742 ) Net cash (used for) provided by financing activities ( 304,358 ) 70,129 Effect of foreign currency exchange rates on cash ( 8,560 ) 2,269 Net (decrease) increase in cash and equivalents, and restricted cash and equivalents ( 243,854 ) 139,544 Cash and equivalents, and restricted cash and equivalents, beginning of period 1,124,157 692,264 Cash and equivalents, and restricted cash and equivalents, end of period $ 880,303 $ 831,808 Supplemental information related to non-cash activities Purchases of property and equipment not yet paid at end of period $ 31,561 $ 26,554 Operating lease right-of-use assets additions, net of terminations, impairments and other reductions $ 26,473 $ ( 41,305 ) Supplemental information related to cash activities Cash paid for interest $ 14,950 $ 9,182 Cash paid for income taxes $ 39,081 $ 10,412 Cash received from income tax refunds $ 1,240 $ 4,001 Cash paid for amounts included in measurement of operating lease liabilities, net of abatements $ 312,854 $ 224,827 The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements. 7 Table of Contents 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. IMPACT OF COVID-19 11 Note 4. REVENUE RECOGNITION 12 Note 5. NET INCOME (LOSS) PER SHARE 12 Note 6. FAIR VALUE 12 Note 7. PROPERTY AND EQUIPMENT, NET 14 Note 8. LEASES 14 Note 9. ASSET IMPAIRMENT 15 Note 10. INCOME TAXES 15 Note 11. BORROWINGS 16 Note 12. SHARE-BASED COMPENSATION 17 Note 13. DERIVATIVE INSTRUMENTS 19 Note 14. ACCUMULATED OTHER COMPREHENSIVE LOSS 21 Note 15. SEGMENT REPORTING 22 Note 16. FLAGSHIP STORE EXIT CHARGES ( BENEFITS ) 23 Note 17. SUBSEQUENT EVENTS 23 8 Table of Contents 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 these 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 income presented as net income attributable to NCI on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) 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 2019 February 1, 2020 52 Fiscal 2020 January 30, 2021 52 Fiscal 2021 January 29, 2022 52 Interim financial statements The Condensed Consolidated Financial Statements as of October 30, 2021, and for the thirteen and thirty-nine week periods ended October 30, 2021 and October 31, 2020, 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 2020 filed with the SEC on March 29, 2021. The January 30, 2021 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 2021. 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 9 Table of Contents 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. The extent to which the current outbreak of coronavirus disease (“COVID-19”) continues to impact the Company’s business and financial results will depend on numerous evolving factors including, but not limited to: the duration and spread of COVID-19 and the emergence of new variants, such as the Delta and Omicron variants, of coronavirus, the availability and acceptance of effective vaccines, boosters or medical treatments, the impact of COVID-19 on the length or frequency of store closures, and the extent to which COVID-19 impacts worldwide macroeconomic conditions including interest rates, the speed of the economic recovery, and governmental, business and consumer reactions to the pandemic. The Company’s assessment of these, as well as other factors, could impact management's estimates 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. Restatement of previously issued financial information As previously disclosed within “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of A&F’s Fiscal 2020 Form 10-K, a classification error was identified within the Company’s Condensed Consolidated Statements of Cash Flows in the Condensed Consolidated Financial Statements as of and for the periods ended May 2, 2020, August 1, 2020, and October 31, 2020, related to the presentation of the withdrawal of excess funds from the Company’s Rabbi Trust that occurred during the fiscal quarter ended May 2, 2020. This withdrawal of $ 50.0 million was originally presented incorrectly as a cash inflow from operating activities, rather than as a cash inflow from investing activities. The effects of the classification error on the Condensed Consolidated Statement of Cash Flows were disclosed in “Note 21. Correction of Error in Previously Reported Interim Financial Statements (Unaudited)” of the Notes to Consolidated Financial Statements included within “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of A&F’’s Fiscal 2020 Form 10-K. The effects of the classification error on the Condensed Consolidated Statement of Cash Flows for the thirty-nine weeks ended October 31, 2020 is shown in the table below. Thirty-nine Weeks Ended As Originally Reported As Restated (in thousands) October 31, 2020 Adjustment October 31, 2020 Net cash provided by operating activities $ 158,894 $ ( 50,000 ) $ 108,894 Net cash used for investing activities $ ( 91,748 ) $ 50,000 $ ( 41,748 ) Net cash provided by financing activities $ 70,129 — $ 70,129 Effect of foreign currency exchange rates on cash $ 2,269 — $ 2,269 Net increase in cash and equivalents, and restricted cash and equivalents $ 139,544 — $ 139,544 Cash and equivalents, and restricted cash and equivalents, beginning of period $ 692,264 — $ 692,264 Cash and equivalents, and restricted cash and equivalents, end of period $ 831,808 — $ 831,808 The Company’s Condensed Consolidated Statement of Cash Flows for the thirty-nine weeks ended October 31, 2020 included within this Quarterly Report on Form 10-Q has been restated to reflect the correction of this error. 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 30, 2021 January 30, 2021 October 31, 2020 February 1, 2020 Cash and equivalents Cash and equivalents $ 865,622 $ 1,104,862 $ 812,881 $ 671,267 Long-term restricted cash and equivalents Other assets 11,401 14,814 14,633 18,696 Short-term restricted cash and equivalents Other current assets 3,280 4,481 4,294 2,301 Cash and equivalents and restricted cash and equivalents $ 880,303 $ 1,124,157 $ 831,808 $ 692,264 10 Table of Contents 3. IMPACT OF COVID-19 In March 2020, the COVID-19 outbreak was declared to be a global pandemic by the World Health Organization. In response to COVID-19, certain governments imposed travel restrictions and local statutory quarantines and the Company experienced widespread temporary store closures. The Company has seen, and may continue to see, material adverse impacts as a result of COVID-19. The extent of future impacts of COVID-19 on the Company’s business, including the duration and impact on overall customer demand, are uncertain as current circumstances are dynamic and depend on future developments, including, but not limited to, the duration and spread of COVID-19, the emergence of new variants of coronavirus, such as the Delta and Omicron variants, and the availability and acceptance of effective vaccines, boosters or medical treatments. During the thirteen and thirty-nine weeks ended October 31, 2020, the Company experienced a material adverse impact to net sales across brands and regions as a result of widespread temporary store closures in response to COVID-19, which was not offset by year-over-year digital sales growth. During the thirteen and thirty-nine weeks ended October 30, 2021, the vast majority of Company-operated stores were fully open for in-store service. As of October 30, 2021, there were no COVID-19 related store closures of Company-operated stores, although additional temporary store closures have subsequently been mandated in certain parts of the Europe, Middle East and Africa (“EMEA”) region in response to COVID-19. During periods of temporary store closures, reductions in revenue have not been offset by proportional decreases in expense, as the Company continues to incur store occupancy costs such as operating lease costs, net of rent abatements agreed upon during the period, depreciation expense, and certain other costs such as compensation, net of government payroll relief, and administrative expenses resulting in a negative effect on the relationship between the Company’s costs and revenues. During the thirteen weeks ended May 2, 2020, the Company recognized $ 14.8 million of charges to reduce the carrying value of inventory, primarily as a result of COVID-19 and the temporary closure of the Company’s stores, in cost of sales, exclusive of depreciation and amortization on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). Further negative developments in the COVID-19 pandemic could result in additional charges to reduce the carrying value of inventory. As a result of COVID-19, the Company has suspended certain rent payments for periods of store closures, and continues to engage with its landlords to find a mutually beneficial and agreeable path forward. As of October 30, 2021 and January 30, 2021, the Company had $ 16.5 million and $ 24.2 million, respectively, related to suspended rent payments classified within accrued expenses on the Condensed Consolidated Balance Sheets. The Company obtained rent abatements of $ 1.7 million and $ 14.6 million, respectively, during the thirteen and thirty-nine weeks ended October 30, 2021, and $ 1.9 million and $ 18.9 million, respectively, during the thirteen and thirty-nine weeks ended October 31, 2020. All of the benefits related to these abatements were recognized within variable lease cost during the applicable periods. During the thirteen weeks ended October 30, 2021 and October 31, 2020, the Company recognized qualified payroll-related credits reducing payroll expenses by approximately $ 0.6 million and $ 2.8 million, respectively, in the Condensed Consolidated Statements of Operations and Comprehensive Income. During the thirty-nine weeks ended October 30, 2021 and October 31, 2020, the Company recognized qualified payroll-related credits reducing payroll expenses by approximately $ 5.4 million and $ 14.7 million, respectively, in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). There are also instances where governments have provided wage subsidies through direct payments to the Company’s associates. In these instances, no benefits are recognized on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), but the Company does see a reduction in expense incurred. The Company also intends to continue to defer qualified payroll and other tax payments as permitted by applicable government laws and regulations. The Company has recognized asset impairment charges related to the Company’s operating lease right-of-use assets and property and equipment, which are principally the result of the impact of COVID-19 on store cash flows. Refer to Note 9, “ ASSET IMPAIRMENT ,” for additional information. The Company has also experienced other material impacts as a result of COVID-19, such as deferred tax valuation allowances and other tax charges. Refer to Note 10, “ INCOME TAXES ,” for additional information. In March 2020, in an effort to improve the Company’s then near-term cash position as a precautionary measure in response to COVID-19, the Company borrowed $ 210.0 million under its senior secured asset-based revolving credit facility (the “ABL Facility”) and withdrew the majority of excess funds from the overfunded Rabbi Trust assets, providing the Company with $ 50.0 million of additional cash. In July 2020, the Company took additional actions to preserve liquidity in light of the continued global uncertainty then presented by COVID-19, and completed a private offering of $350.0 million aggregate principal amount of senior secured notes (the “Senior Secured Notes”). The Company used the net proceeds of such offering to repay all outstanding borrowings under the Company’s term loan facility (the “Term Loan Facility”), to repay a portion of the outstanding borrowings under the ABL Facility and to pay fees and expenses in connection with such repayments and the offering. 11 Table of Contents 4. REVENUE RECOGNITION Disaggregation of revenue All revenues are recognized in net sales in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). For information regarding the disaggregation of revenue, refer to Note 15, “ SEGMENT REPORTING . ” Contract liabilities The following table details certain contract liabilities representing unearned revenue as of October 30, 2021, January 30, 2021, October 31, 2020 and February 1, 2020: (in thousands) October 30, 2021 January 30, 2021 October 31, 2020 February 1, 2020 Gift card liability $ 30,815 $ 28,561 $ 22,910 $ 28,844 Loyalty program liability $ 21,964 $ 20,426 $ 19,640 $ 23,051 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 30, 2021 and October 31, 2020: Thirteen Weeks Ended Thirty-nine Weeks Ended (in thousands) October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020 Revenue associated with gift card redemptions and gift card breakage $ 17,801 $ 11,717 $ 51,310 $ 32,792 Revenue associated with reward redemptions and breakage related to the Company’s loyalty programs $ 12,075 $ 9,686 $ 31,525 $ 23,377 5. NET INCOME (LOSS) PER SHARE Net income (loss) 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 income (loss) per share attributable to A&F follows: Thirteen Weeks Ended Thirty-nine Weeks Ended (in thousands) October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020 Shares of Common Stock issued 103,300 103,300 103,300 103,300 Weighted-average treasury shares ( 44,504 ) ( 40,742 ) ( 42,421 ) ( 40,759 ) Weighted-average — basic shares 58,796 62,558 60,879 62,541 Dilutive effect of share-based compensation awards 2,669 1,319 2,891 — Weighted-average — diluted shares 61,465 63,877 63,770 62,541 Anti-dilutive shares (1) 1,228 1,828 1,212 1,988 (1) Reflects the total number of shares related to outstanding share-based compensation awards that have been excluded from the computation of net income (loss) 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. 6. 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. 12 Table of Contents The three levels of the hierarchy and the distribution of the Company’s assets and liabilities that were measured at fair value on a recurring basis, as of October 30, 2021 and January 30, 2021, were as follows: Assets and Liabilities at Fair Value as of October 30, 2021 (in thousands) Level 1 Level 2 Level 3 Total Assets: Cash equivalents (1) $ 42,307 $ 46,622 $ — $ 88,929 Derivative instruments (2) — 5,082 — 5,082 Rabbi Trust assets (3) 1 61,917 — 61,918 Restricted cash equivalents (1) 3,104 5,115 — 8,219 Total assets $ 45,412 $ 118,736 $ — $ 164,148 Liabilities: Derivative instruments (2) $ — $ 86 $ — $ 86 Total liabilities $ — $ 86 $ — $ 86 Assets and Liabilities at Fair Value as of January 30, 2021 (in thousands) Level 1 Level 2 Level 3 Total Assets: Cash equivalents (1) $ 296,279 $ 11,589 $ — $ 307,868 Derivative instruments (2) — 79 — 79 Rabbi Trust assets (3) 1 60,789 — 60,790 Restricted cash equivalents (1) 2,943 7,775 — 10,718 Total assets $ 299,223 $ 80,232 $ — $ 379,455 Liabilities: Derivative instruments (2) $ — $ 4,694 $ — $ 4,694 Total liabilities $ — $ 4,694 $ — $ 4,694 (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 and liabilities 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. The Company’s Level 2 assets and liabilities 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 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 30, 2021 January 30, 2021 Gross borrowings outstanding, carrying amount $ 307,730 $ 350,000 Gross borrowings outstanding, fair value $ 332,641 $ 389,813 13 Table of Contents 7. PROPERTY AND EQUIPMENT, NET Property and equipment, net consisted of: (in thousands) October 30, 2021 January 30, 2021 Property and equipment, at cost $ 2,490,552 $ 2,488,957 Less: Accumulated depreciation and amortization ( 1,974,376 ) ( 1,938,370 ) Property and equipment, net $ 516,176 $ 550,587 Refer to Note 9, “ ASSET IMPAIRMENT ,” for details related to property and equipment impairment charges incurred during the thirteen and thirty-nine weeks ended October 30, 2021 and October 31, 2020. 8. 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 30, 2021 and October 31, 2020: Thirteen Weeks Ended Thirty-nine Weeks Ended (in thousands) October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020 Single lease cost (1) $ 66,969 $ 83,743 $ 207,046 $ 264,932 Variable lease cost (2) 26,409 14,428 68,875 61,763 Operating lease right-of-use asset impairment (3) 5,512 3,979 8,216 44,397 Sublease income (4) ( 1,068 ) — ( 3,256 ) — Total operating lease cost $ 97,822 $ 102,150 $ 280,881 $ 371,092 (1) Included amortization and interest expense associated with operating lease right-of-use assets and the impact from remeasurement of operating lease liabilities. (2) Included variable payments related to both lease and nonlease components, such as contingent rent payments made by the Company based on net sales performance, and payments related to taxes, insurance, and maintenance costs, as well as the benefit of $ 1.7 million and $ 14.6 million of rent abatements during the thirteen and thirty-nine weeks ended October 30, 2021 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 31, 2020 was $ 1.9 million and $ 18.9 million respectively. (3) Refer to Note 9, “ 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 A&F’s Annual Report on Form 10-K for Fiscal 2020. Sublease income is recognized in other operating income (loss), net on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). The Company has suspended rent payments for a number of stores that were closed as a result of COVID-19, and has been successful in obtaining certain rent abatements and landlord concessions of rent payable. Refer to Note 3. “ IMPACT OF COVID-19 ”, for additional details. As of October 30, 2021, the Company had minimum commitments related to additional operating lease contracts the terms of which have not yet commenced, primarily for its Company-operated retail stores, of approximately $ 8.7 million. 14 Table of Contents 9. ASSET IMPAIRMENT Asset impairment charges for the thirteen and thirty-nine weeks ended October 30, 2021 and October 31, 2020 were as follows: Thirteen Weeks Ended Thirty-nine Weeks Ended (in thousands) October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020 Operating lease right-of-use asset impairment $ 5,512 $ 3,979 $ 8,216 $ 44,397 Property and equipment asset impairment 1,237 2,350 1,983 12,943 Total asset impairment $ 6,749 $ 6,329 $ 10,199 $ 57,340 Asset impairment charges for the thirteen and thirty-nine weeks ended October 30, 2021 related to certain of the Company’s stores across brands, geographies and store formats. 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. Asset impairment charges for the thirteen and thirty-nine weeks ended October 31, 2020 were principally the result of the impact of COVID-19 and were related to certain of the Company’s stores across brands, geographies and store formats. The impairment charges for the thirty-nine weeks ended October 31, 2020 reduced the then carrying amount of the impaired stores’ assets to their fair value of approximately $ 102.2 million, including $ 94.2 million related to operating lease right-of-use assets. 10. 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. Impact of valuation allowances and other tax charges During the thirteen weeks ended October 30, 2021, as a result of the improvement seen in business conditions, 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, as a result of the improvement seen in business conditions, 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 has previously been established. During the thirty-nine weeks ended October 31, 2020, the Company recognized $ 77.4 million of tax charges, ultimately giving rise to income tax expense on a consolidated pre-tax year-to-date loss. Further details regarding these adverse tax impacts are as follows: • The Company anticipated pre-tax losses for the full fiscal year in certain jurisdictions, based on information then available, primarily due to the significant adverse impacts of COVID-19. The Company did not recognize income tax benefits on $ 180.7 million of pre-tax losses during the thirty-nine weeks ended October 31, 2020, resulting in an adverse tax impact of $ 41.8 million. • The Company recognized charges of $ 35.6 million related to the establishment of valuation allowances and other tax charges in certain jurisdictions during the thirty-nine weeks ended October 31, 2020, principally as a result of the significant adverse impacts of COVID–19. These charges related to valuation allowances recognized by the Company of $ 10.6 million and $ 6.0 million related to the U.S. and Germany, respectively, as well as valuation allowances and other tax charges in certain other jurisdictions against underlying tax asset balances that existed as of February 1, 2020. The Company also recognized valuation allowances of $ 78.9 million related to Switzerland with a U.S. branch equally offsetting amount, which in net, did not have an impact on the Condensed Consolidated Statement of Operations and Comprehensive Income (Loss). 15 Table of Contents The Company continues to review the need for valuation allowances in certain jurisdictions, principally Japan, Korea and Switzerland, on a quarterly basis. It is reasonably possible, if business conditions continue to improve, that there could be material adjustments over the next 12 months to the total amount of valuation allowances as circumstances may be such that sufficient evidence would exist to indicate that additional deferred taxes currently subject to a valuation allowance are more likely than not to be utilized. Changes in assumptions may occur based on new information that becomes available resulting in adjustments in the period in which a determination is made. Share-based compensation Refer to Note 12, “ 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 30, 2021 and October 31, 2020. 11. BORROWINGS Details on the Company’s long-term borrowings, net, as of October 30, 2021 and January 30, 2021 are as follows: (in thousands) October 30, 2021 January 30, 2021 Long-term portion of borrowings, gross at carrying amount $ 307,730 $ 350,000 Unamortized fees ( 4,483 ) ( 6,090 ) Long-term borrowings, net $ 303,247 $ 343,910 Senior Secured Notes On July 2, 2020, Abercrombie & Fitch Management Co. (“A&F Management”), a wholly-owned indirect subsidiary of A&F, completed the private offering of the Senior Secured Notes, with $ 350.0 million aggregate principal amount due in 2025, at an offering price of 100% of the principal amount thereof and bearing interest at a rate of 8.75 % per annum, with semi-annual interest payments which began in January 2021. The Senior Secured Notes were issued pursuant to an indenture, dated as of July 2, 2020, by and among A&F Management, A&F and certain of A&F’s wholly-owned subsidiaries, as guarantors, and U.S. Bank National Association, as trustee, and as collateral agent. During the thirty-nine weeks ended October 30, 2021, A&F Management purchased $ 42.3 million of its outstanding Senior Secured Notes and incurred $ 5.3 million of loss on extinguishment of debt, comprised of a premium of $ 4.7 million and the write-off of unamortized fees of $ 0.6 million, in interest expense, net on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). The terms of the Senior Secured Notes have not changed materially from those disclosed in Note 13, “BORROWINGS,” of the Notes to Consolidated Financial Statements contained in “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of A&F’s Annual Report on Form 10-K for Fiscal 2020. ABL Facility On April 29, 2021, A&F Management, in A&F Management’s capacity as the lead borrower, and the other borrowers and guarantors party thereto, amended and restated in its entirety the Credit Agreement, dated as of August 7, 2014, as amended on September 10, 2015 and as further amended on October 19, 2017 (as amended and restated, the “Amended and Restated Credit Agreement”), among A&F Management, the other borrowers and guarantors party thereto, the lenders party thereto, Wells Fargo Bank, National Association, as administrative agent for the lenders, and the other parties thereto. The Amended and Restated Credit Agreement continues to provide for a senior secured revolving credit facility of up to $ 400.0 million (the “ABL Facility”), and (i) extends the maturity date of the ABL Facility from October 19, 2022 to April 29, 2026 ; and (ii) modifies the required fee on undrawn commitments under the ABL Facility from 0.25% per annum to either 0.25% or 0.375% per annum (with the ultimate amount dependent on the conditions detailed in the Amended and Restated Credit Agreement). Except for these changes, the terms of the ABL Facility remained substantially 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 A&F’s Annual Report on Form 10-K for Fiscal 2020. The Company did not have any borrowings outstanding under the ABL Facility as of October 30, 2021 or as of January 30, 2021. As of October 30, 2021, availability under the ABL Facility was $ 301.0 million, net of $ 0.8 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 $ 270.8 million as of October 30, 2021. Representations, warranties and covenants 16 Table of Contents 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 Company’s or A&F Management’s assets 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 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 30, 2021. 12. 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 30, 2021 and October 31, 2020: Thirteen Weeks Ended Thirty-nine Weeks Ended (in thousands) October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020 Share-based compensation expense $ 7,332 $ 4,669 $ 22,269 $ 13,575 Income tax benefit associated with share-based compensation expense recognized (1) $ 806 $ — $ 2,492 $ — (1) No income tax benefit was recognized during the thirteen and thirty-nine weeks ended October 31, 2020 due to the establishment of a valuation allowance. 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 30, 2021 and October 31, 2020: Thirteen Weeks Ended Thirty-nine Weeks Ended (in thousands) October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020 Income tax discrete benefits realized for tax deductions related to the issuance of shares (1) $ 150 $ — $ 4,166 $ — Income tax discrete charges realized upon cancellation of stock appreciation rights (1) — — ( 3 ) — Total income tax discrete benefits related to share-based compensation awards (1) $ 150 $ — $ 4,163 $ — (1) No income tax discrete charges were recognized during the thirteen and thirty-nine weeks ended October 31, 2020 due to the establishment of a valuation allowance. The following table details the amount of employee tax withheld by the Company upon the issuance of shares associated with restricted stock units vesting and the exercise of stock appreciation rights for the thirteen and thirty-nine weeks ended October 30, 2021 and October 31, 2020: Thirteen Weeks Ended Thirty-nine Weeks Ended (in thousands) October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020 Employee tax withheld upon issuance of shares (1) $ 984 $ 150 $ 13,044 $ 5,566 (1) Classified within other financing activities on the Condensed Consolidated Statements of Cash Flows. 17 Table of Contents Restricted stock units The following table summarizes activity for restricted stock units for the thirty-nine weeks ended October 30, 2021: Service-based Restricted Stock Units Performance-based Restricted Stock Units Market-based Restricted Stock Units Number of Underlying Shares Weighted- Average Grant Date Fair Value Number of Underlying Shares Weighted- Average Grant Date Fair Value Number of Underlying Shares Weighted- Average Grant Date Fair Value Unvested at January 30, 2021 3,037,098 $ 11.62 297,216 $ 22.43 721,879 $ 21.46 Granted 725,926 32.73 157,645 32.09 78,827 56.99 Adjustments for performance achievement — — ( 106,715 ) 21.31 ( 6,084 ) 33.69 Vested ( 1,081,929 ) 12.23 — — ( 100,634 ) 33.69 Forfeited ( 98,340 ) 16.89 ( 7,997 ) 29.92 ( 13,804 ) 25.13 Unvested at October 30, 2021 (1) 2,582,755 $ 17.10 340,149 $ 27.08 680,184 $ 22.81 (1) Unvested shares related to restricted stock units with performance-based and market-based vesting conditions are reflected at 100% of their target vesting amount in the table above. Unvested shares related to restricted stock units with performance-based and market-based vesting conditions can be achieved at up to 200% of their target vesting amount. The following table details unrecognized compensation cost and the remaining weighted-average period over which these costs are expected to be recognized for restricted stock units as of October 30, 2021: (in thousands) Service-based Restricted Stock Units Performance-based Restricted Stock Units Market-based Restricted Stock Units Unrecognized compensation cost $ 33,405 $ 8,532 $ 8,047 Remaining weighted-average period cost is expected to be recognized (years) 1.3 1.2 1.0 Additional information pertaining to restricted stock units for the thirty-nine weeks ended October 30, 2021 and October 31, 2020 follows: (in thousands) October 30, 2021 October 31, 2020 Service-based restricted stock units: Total grant date fair value of awards granted $ 23,760 $ 19,541 Total grant date fair value of awards vested $ 13,232 $ 13,769 Performance-based restricted stock units: Total grant date fair value of awards granted $ 5,059 $ — Total grant date fair value of awards vested $ — $ 4,635 Market-based restricted stock units: Total grant date fair value of awards granted $ 4,492 $ 8,443 Total grant date fair value of awards vested $ 3,390 $ 4,132 The weighted-average assumptions used for market-based restricted stock units in the Monte Carlo simulation during the thirty-nine weeks ended October 30, 2021 and October 31, 2020 were as follows: October 30, 2021 October 31, 2020 Grant date market price $ 36.15 $ 12.31 Fair value $ 56.99 $ 16.24 Assumptions: Price volatility 65 % 67 % Expected term (years) 2.5 2.4 Risk-free interest rate 0.3 % 0.2 % Dividend yield — % — % Average volatility of peer companies 76.0 % 66.0 % Average correlation coefficient of peer companies 0.5130 0.4967 18 Table of Contents Stock appreciation rights The following table summarizes stock appreciation rights activity for the thirty-nine weeks ended October 30, 2021: Number of Underlying Shares Weighted-Average Exercise Price Aggregate Intrinsic Value Weighted-Average Remaining Contractual Life (years) Outstanding at January 30, 2021 384,757 $ 33.04 Granted — — Exercised ( 109,768 ) 26.78 Forfeited or expired ( 34,150 ) 54.87 Outstanding at October 30, 2021 240,839 $ 32.80 $ 2,258,144 2.6 Stock appreciation rights exercisable at October 30, 2021 240,839 $ 32.80 $ 2,258,144 2.6 No stock appreciation rights were exercised during the thirty-nine weeks ended October 31, 2020. Information pertaining to stock appreciation rights exercised during the thirty-nine weeks ended October 30, 2021 follows: (in thousands) October 30, 2021 Total grant date fair value of awards exercised $ 1,042 13. DERIVATIVE INSTRUMENTS The Company is exposed to risks associated with changes in foreign currency exchange rates and uses derivative instruments, primarily forward contracts, to manage the financial impacts of these exposures. The Company does not use forward contracts to engage in currency speculation and does not enter into derivative financial instruments for trading purposes. The Company uses derivative instruments, primarily foreign currency exchange forward contracts designated as cash flow hedges, to hedge the foreign currency exchange rate exposure associated with forecasted foreign-currency-denominated intercompany inventory sales to foreign subsidiaries and the related settlement of the foreign-currency-denominated intercompany receivables. Fluctuations in foreign currency exchange rates will either increase or decrease the Company’s intercompany equivalent cash flows and affect the Company’s U.S. Dollar earnings. Gains or losses on the foreign currency exchange forward contracts that are used to hedge these exposures are expected to partially offset this variability. Foreign currency exchange forward contracts represent agreements to exchange the currency of one country for the currency of another country at an agreed upon settlement date. These foreign currency exchange forward contracts typically have a maximum term of twelve months. The sale of the inventory to the Company’s customers will result in the reclassification of related derivative gains and losses that are reported in AOCL into earnings. The Company also uses foreign currency exchange forward contracts to hedge certain foreign-currency-denominated net monetary assets/liabilities. Examples of monetary assets/liabilities include cash balances, receivables and payables. Fluctuations in foreign currency exchange rates result in transaction gains or losses being recorded in earnings, as U.S. GAAP requires that monetary assets/liabilities be remeasured at the spot exchange rate at quarter-end or upon settlement. The Company has chosen not to apply hedge accounting to these instruments because there are no differences in the timing of gain or loss recognition on the hedging instruments and the hedged items. As of October 30, 2021, the Company had outstanding the following foreign currency exchange forward contracts that were entered into to hedge either a portion, or all, of forecasted foreign-currency-denominated intercompany inventory sales, the resulting settlement of the foreign-currency-denominated intercompany accounts receivable, or both: (in thousands) Notional Amount (1) Euro $ 132,850 British pound $ 80,441 Canadian dollar $ 20,621 Japanese yen $ 8,328 (1) Amount reported is the U.S. Dollar notional amount outstanding as of October 30, 2021. 19 Table of Contents The fair value of derivative instruments is valued using quoted market prices of the same or similar instruments, adjusted for counterparty risk. The location and amounts of derivative fair values of foreign currency exchange forward contracts on the Condensed Consolidated Balance Sheets as of October 30, 2021 and January 30, 2021 were as follows: (in thousands) Location October 30, 2021 January 30, 2021 Location October 30, 2021 January 30, 2021 Derivatives designated as cash flow hedging instruments Other current assets $ 5,082 $ 79 Accrued expenses $ 86 $ 4,694 Derivatives not designated as hedging instruments Other current assets — — Accrued expenses — — Total $ 5,082 $ 79 $ 86 $ 4,694 Information pertaining to derivative gains or losses from foreign currency exchange forward contracts designated as cash flow hedging instruments for the thirteen and thirty-nine weeks ended October 30, 2021 and October 31, 2020 follows: Thirteen Weeks Ended Thirty-nine Weeks Ended (in thousands) October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020 Gain recognized in AOCL (1) $ 4,589 $ 93 $ 6,818 $ 12,328 Gain (loss) reclassified from AOCL to cost of sales, exclusive of depreciation and amortization (2) $ 141 $ 5,327 $ ( 3,010 ) $ 11,104 (1) Amount represents the change in fair value of derivative contracts. As a result of COVID-19, there was a significant change in the expected timing of previously hedged intercompany sales transactions, resulting in a dedesignation of the related hedge instruments during the thirty-nine weeks ended October 31, 2020. At the time of dedesignation of these hedges, they were in a net gain position of approximately $ 12.6 million. Due to the extenuating circumstances leading to dedesignation, gains associated with these hedges at the time of dedesignation were deferred in AOCL until being reclassified into cost of goods sold, exclusive of depreciation and amortization when the originally forecasted transactions occurred and the hedged items affected earnings. Subsequent to the dedesignation of these hedges, these hedge contracts were settled in Fiscal 2020. (2) Amount represents gain (loss) reclassified from AOCL to cost of sales, exclusive of depreciation and amortization, on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) when the hedged item affects earnings, which is when merchandise is converted to cost of sales, exclusive of depreciation and amortization. Substantially all of the unrealized gain will be recognized in costs of sales, exclusive of depreciation and amortization, on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) over the next twelve months . Additional information pertaining to derivative gains or losses from foreign currency exchange forward contracts not designated as hedging instruments for the thirteen and thirty-nine weeks ended October 30, 2021 and October 31, 2020 follows: Thirteen Weeks Ended Thirty-nine Weeks Ended (in thousands) October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020 Gain (loss) recognized in other operating income, net $ 487 $ — $ 324 $ 742 20 Table of Contents 14. ACCUMULATED OTHER COMPREHENSIVE LOSS Fo r the thirteen and thirty-nine weeks ended October 30, 2021, the activity in AOCL was as follows: Thirteen Weeks Ended October 30, 2021 (in thousands) Foreign Currency Translation Adjustment Unrealized Gain (Loss) on Derivative Financial Instruments Total Beginning balance at July 31, 2021 $ ( 101,032 ) $ 767 $ ( 100,265 ) Other comprehensive (loss) income before reclassifications ( 5,629 ) 4,589 ( 1,040 ) Reclassified gain from AOCL (1) — ( 141 ) ( 141 ) Tax effect — ( 32 ) ( 32 ) Other comprehensive (loss) income after reclassifications ( 5,629 ) 4,416 ( 1,213 ) Ending balance at October 30, 2021 $ ( 106,661 ) $ 5,183 $ ( 101,478 ) Thirty-nine Weeks Ended October 30, 2021 (in thousands) Foreign Currency Translation Adjustment Unrealized Gain (Loss) on Derivative Financial Instruments Total Beginning balance at January 30, 2021 $ ( 97,772 ) $ ( 4,535 ) $ ( 102,307 ) Other comprehensive (loss) income before reclassifications ( 8,889 ) 6,818 ( 2,071 ) Reclassified loss from AOCL (1) — 3,010 3,010 Tax effect — ( 110 ) ( 110 ) Other comprehensive (loss) income after reclassifications ( 8,889 ) 9,718 829 Ending balance at October 30, 2021 $ ( 106,661 ) $ 5,183 $ ( 101,478 ) (1) Amount represents (gain) loss reclassified from AOCL to cost of sales, exclusive of depreciation and amortization, on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). For the thirteen and thirty-nine weeks ended October 31, 2020, the activity in AOCL was as follows: Thirteen Weeks Ended October 31, 2020 (in thousands) Foreign Currency Translation Adjustment Unrealized Gain (Loss) on Derivative Financial Instruments Total Beginning balance at August 1, 2020 $ ( 106,632 ) $ 7,539 $ ( 99,093 ) Other comprehensive income before reclassifications 2,142 93 2,235 Reclassified gain from AOCL (1) — ( 5,327 ) ( 5,327 ) Other comprehensive income (loss) after reclassifications (2) 2,142 ( 5,234 ) ( 3,092 ) Ending balance at October 31, 2020 $ ( 104,490 ) $ 2,305 $ ( 102,185 ) Thirty-nine Weeks Ended October 31, 2020 (in thousands) Foreign Currency Translation Adjustment Unrealized Gain (Loss) on Derivative Financial Instruments Total Beginning balance at February 1, 2020 $ ( 109,967 ) $ 1,081 $ ( 108,886 ) Other comprehensive income before reclassifications 5,477 12,328 17,805 Reclassified gain from AOCL (1) — ( 11,104 ) ( 11,104 ) Other comprehensive income after reclassifications (2) 5,477 1,224 6,701 Ending balance at October 31, 2020 $ ( 104,490 ) $ 2,305 $ ( 102,185 ) (1) Amount represents gain reclassified from AOCL to cost of sales, exclusive of depreciation and amortization, on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). (2) No income tax benefit was recognized during the period due to the establishment of a valuation allowance. 21 Table of Contents 15. SEGMENT REPORTING The Company’s two operating segments are brand-based: 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 operating segments have similar economic characteristics, classes of consumers, products, and production and distribution methods, operate in the same regulatory environments, and have been aggregated into one reportable segment. Amounts shown below include net sales from wholesale, franchise and licensing operations, which are not a significant component of total revenue, and are aggregated within their respective operating segment and geographic area. The Company’s net sales by operating segment for the thirteen and thirty-nine weeks ended October 30, 2021 and October 31, 2020 were as follows: Thirteen Weeks Ended Thirty-nine Weeks Ended (in thousands) October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020 Hollister $ 522,311 $ 476,665 $ 1,479,202 $ 1,178,925 Abercrombie 382,849 342,988 1,072,213 824,415 Total $ 905,160 $ 819,653 $ 2,551,415 $ 2,003,340 Net sales by geographic area are presented by attributing revenues to an individual country on the basis of the country in which the merchandise was sold for in-store purchases and on the basis of the shipping location provided by customers for digital orders. The Company’s net sales by geographic area for the thirteen and thirty-nine weeks ended October 30, 2021 and October 31, 2020 were as follows: Thirteen Weeks Ended Thirty-nine Weeks Ended (in thousands) October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020 U.S. $ 654,858 $ 557,814 $ 1,810,471 $ 1,339,347 EMEA 179,156 190,214 528,998 474,165 APAC (1) 38,215 43,618 125,489 117,768 Other 32,931 28,007 86,457 72,060 International $ 250,302 $ 261,839 $ 740,944 $ 663,993 Total $ 905,160 $ 819,653 $ 2,551,415 $ 2,003,340 (1) Asia-Pacific Region (“APAC”) 22 Table of Contents 16. FLAGSHIP STORE EXIT CHARGES (BENEFITS) Reflecting a continued focus on one of the Company’s key transformation initiatives ‘Global Store Network Optimization,’ the Company continues to pivot away from its large format flagship stores and strives to open smaller, more productive omnichannel focused brand experiences. As a result, the Company has closed certain of its flagship stores and may have additional closures as it executes against this strategy. The Company recognizes impacts related to the exit of its flagship stores in flagship store exit charges (benefits) on the Consolidated Statements of Operations and Comprehensive Income (Loss). Details of the charges (benefits) recognized during the thirteen and thirty-nine weeks ended October 30, 2021 and October 31, 2020 related to this initiative follow: Thirteen Weeks Ended Thirty-nine Weeks Ended (in thousands) October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020 Operating lease cost — ( 1,729 ) ( 841 ) ( 6,959 ) Gain on lease assignment — ( 5,237 ) — ( 5,237 ) Asset disposals and other store-closure benefits (1) — ( 405 ) ( 514 ) ( 3,610 ) Employee severance and other employee transition costs (benefits) 11 ( 692 ) 178 3,316 Total flagship store exit charges (benefits) $ 11 $ ( 8,063 ) $ ( 1,177 ) $ ( 12,490 ) (1) Amounts represent costs incurred or benefits realized associated with returning the store to its original condition, including updated estimates to previously established accruals for asset retirement obligations and costs to remove inventory and store assets . During the thirteen weeks ended May 1, 2021, the Company finalized an agreement with and paid its landlord partner to settle all remaining obligations related to the SoHo Hollister flagship store in New York City, which closed during the second quarter of Fiscal 2019. Prior to this new agreement, the Company was required to make payments in aggregate of $ 80.1 million pursuant to the lease agreements through the fiscal year ending January 30, 2029 (“Fiscal 2028”). The new agreement resulted in an acceleration of payments and provided for a discount resulting in a reduction of operating lease liabilities of $ 65.0 million and a cash outflow of $ 63.8 million to settle all remaining obligations related to this location. This cash outflow was classified within operating lease right-of-use assets and liabilities within operating activities on the Condensed Consolidated Statement of Cash Flows during the thirty-nine weeks ended October 30, 2021. The Company recognized a gain of $ 0.9 million in flagship store exit benefits on the Consolidated Statement of Operations and Comprehensive Income (Loss) related to this transaction. In addition, during Fiscal 2020, the Company announced the early exit of four European Abercrombie & Fitch flagship locations, Three of the leases were transferred through assignment while the fourth lease has been subleased to a new tenant. The Company no longer has lease obligations for the three transfers and is scheduled to receive payments to fully offset its lease obligations on the sublease. Refer to Note 8, “ LEASES ,” for additional information on the sublease arrangement. As the Company continues its ‘Global Store Network Optimization’ efforts, it may incur future cash expenditures or incremental charges or realize benefits not currently contemplated due to events that may occur as a result of, or that are associated with, previously announced flagship store closures and flagship store closures that have not yet been finalized. At this time, the Company is not able to quantify the amount of future impacts, including any cash expenditures that may take place in future periods resulting from any potential flagship store closures given the unpredictable nature of lease exit negotiations and ultimate lease renewal decisions. 17. SUBSEQUENT EVENTS In November 2021, the A&F Board of Directors approved a new share repurchase program of $500 million of outstanding common stock, replacing the prior 2021 share repurchase program of 10.0 million shares, which had approximately 3.9 million shares remaining. The timing and actual number of common shares to be repurchased will depend on market conditions, eligibility to trade, and other factors. 23 Table of Contents