What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-28 compared with 2021-03-29 · 171 added, 227 removed, 366 unchanged (52% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read together with the Company’s audited Consolidated Financial Statements and notes thereto included in this Annual Report on Form 10-K in “ ITEM 8.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) generally discusses our results of operations for Fiscal 2021 and Fiscal 2020 and provides comparisons between such fiscal years.

For our discussion and comparison of Fiscal 2020 and Fiscal 2019, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended January 30, 2021.

This MD&A should be read together with the Company’s audited Consolidated Financial Statements and notes thereto included in this Annual Report on Form 10-K in “ ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA , ” to which all references to Notes in MD&A are made.

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MD&A is organized as follows:

This section provides a general description of the Company’s business and certain segment information, and an overview of key performance indicators reviewed by various members of management to gauge the Company’s results.

A general description of the Company’s business and certain segment information, and an overview of key performance indicators reviewed by various members of management to gauge the Company’s results.

• Current Trends and Outlook .

This section provides a discussion related to COVID-19’s impact on the Company’s business and discussion of the Company’s long-term plans for growth.

A discussion of the Company’s long-term plans for growth.

In addition, this section also provides a summary of the Company’s performance over recent years, primarily Fiscal 2021 and Fiscal 2020.

• Results of Operations .

This section provides an analysis of certain components of the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income for Fiscal 2020 as compared to Fiscal 2019.

An analysis of certain components of the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss) for Fiscal 2021 as compared to Fiscal 2020.

• Liquidity and Capital Resources .

This section provides a discussion of the Company’s financial condition, changes in financial condition and liquidity as of January 30, 2021, which includes (i) an analysis of changes in cash flows for Fiscal 2020 as compared to Fiscal 2019, (ii) an analysis of liquidity, including the availability under credit facilities, payments of dividends, and outstanding debt and covenant compliance, (iii) a summary of contractual and other obligations as of January 30, 2021 and (iv) a discussion related to actions taken during Fiscal 2020 to preserve liquidity in light of COVID-19.

A discussion of the Company’s financial condition, changes in financial condition and liquidity as of January 29, 2022, which includes (i) an analysis of changes in cash flows for Fiscal 2021 as compared to Fiscal 2020, (ii) an analysis of liquidity, including the availability under credit facilities, and outstanding debt and covenant compliance and (iii) a summary of contractual and other obligations as of January 29, 2022.

• Recent Accounting Pronouncements .

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• Critical Accounting Policies and Estimates .

This section discusses accounting policies considered to be important to the Company’s results of operations and financial condition, which typically require significant judgment and estimation on the part of the Company’s management in their application.

The accounting policies considered to be important to the Company’s results of operations and financial condition, which typically require significant judgment and estimation on the part of the Company’s management in their application.

• Non-GAAP Financial Measures .

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Safe harbor statement under the Private Securities Litigation Reform Act of 1995

The Company cautions that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this Annual Report on Form 10-K or made by the Company, its management or its spokespeople involve risks and uncertainties and are subject to change based on various important factors, many of which may be beyond the Company’s control.

Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” and similar expressions may identify forward-looking statements.

The Company cautions that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this Annual Report on Form 10-K or made by the Company, its management or its spokespeople involve risks and uncertainties and are subject to change based on various factors, many of which may be beyond the Company’s control.

Words such as “guidance,” “outlook,” “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “goal,” “should,” and similar expressions may identify forward-looking statements.

Future economic and industry trends that could potentially impact revenue and profitability are difficult to predict.

Therefore, there can be no assurance that the forward-looking statements included in this Annual Report on Form 10-K will prove to be accurate.

In light of the significant uncertainties in the forward-looking statements included herein, including the uncertainty surrounding COVID-19, the inclusion of such information should not be regarded as a representation by the Company, or any other person, that the objectives of the Company will be achieved.

In light of the significant uncertainties in the forward-looking statements included herein, including the on-going hostilities in Ukraine, the uncertainty surrounding COVID-19, the inclusion of such information should not be regarded as a representation by the Company, or any other person, that the objectives of the Company will be achieved.

The forward-looking statements included herein are based on information presently available to the management of the Company.

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RISK FACTORS ,” of this Annual Report on Form 10-K.

Abercrombie & Fitch Co.

2021 Form 10-K

Business summary

The Company is a global multi-brand omnichannel specialty retailer, whose products are sold primarily through its digital channels and Company-owned stores, as well as through various third-party arrangements.

The Company offers a broad assortment of apparel, personal care products and accessories for men, women and kids under the Company’s two brand-based operating segments:

Hollister, which includes the Company’s Hollister and Gilly Hicks brands, and Abercrombie, which includes the Company’s Abercrombie & Fitch and abercrombie kids brands.

The 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 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.

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Fiscal 2021 January 29, 2022 52

Fiscal 2022 January 28, 2023 52

Due to the seasonal nature of the retail apparel industry, the results of operations for any interim period are not necessarily indicative of the results expected for the full fiscal year and the Company could experience significant fluctuations in certain asset and liability accounts.

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While not all of these metrics are disclosed publicly by the Company due to the proprietary nature of the information, the Company publicly discloses and discusses many of these metrics within this MD&A.

Abercrombie & Fitch Co.

2021 Form 10-K

CURRENT TRENDS AND OUTLOOK

Impact of COVID-19

In January 2020, the Company began to experience business disruptions in the Asia-Pacific (“APAC”) region as a result of COVID-19.

In February 2020, the situation escalated as the scope of COVID-19 worsened beyond the APAC region, with the United States (the “U.S.”) and Europe, Middle East and Africa (“EMEA”) experiencing significant outbreaks.

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 have imposed travel restrictions and local statutory quarantines and the Company has recommended associates who are able to perform their role remotely continue to do so.

The Company is reacting to COVID-19 on a daily basis, including by conforming to local government guidance and monitoring developments in government legislation or other government actions in response to 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 the coronavirus and the availability and acceptance of effective vaccines or medical treatments.

As a result of COVID-19, in January 2020, the Company temporarily closed the majority of its stores in the APAC region and in March 2020, the Company temporarily closed its stores across brands in North America and the EMEA region.

The majority of APAC stores were reopened during March 2020, and the Company began to reopen stores in North America and the EMEA region on a rolling basis in late April 2020.

As of January 30, 2021 and March 24, 2021, approximately 88% and 91% of Company-operated stores were open for in-store service, respectively, with temporary store closures primarily in the EMEA region.

The Company plans to follow the guidance of local governments to determine when it can reopen closed stores and to evaluate whether further store closures will be necessary.

The Company has also implemented a range of precautionary health and safety measures with the well-being of the Company’s customers, associates and business partners in mind, including:

• Requiring associates to use face coverings, depending on geographic region;

• Encouraging or requiring customers to use face coverings, depending on geographic region;

• Conducting associate wellness checks in accordance with local government direction;

• Enhancing cleaning routines and installing plexiglass barriers in the majority of store locations;

• Implementing various measures to encourage social distancing, including managing occupancy limits;

• Encouraging contactless payment options, where available;

• Opening fitting rooms where permissible, with additional cleaning procedures for clothing that has been tried on;

• Removing returned merchandise from the sales floor for a period of time where mandated by local government;

• Reducing store hours in select locations;

• Continuing to offer purchase-online-pickup-in-store;

• Increasing its omnichannel capabilities by introducing curbside pick-up at a majority of U.S.

• Following recommended cleaning and distancing measures in the Company's distribution centers;

• Maximizing work-from-home and digital collaboration alternatives to minimize in-person meetings whenever possible.

The Company has seen, and may continue to see, material reductions in sales across brands and regions as a result of COVID-19.

Total net sales decreased approximately 14% for Fiscal 2020 as compared to Fiscal 2019, primarily driven by temporary store closures and a decline in traffic as compared to the previous year as a result of COVID-19.

During Fiscal 2020, sales for stores that had reopened were approximately 75% of Fiscal 2019 levels.

The Company has experienced other material impacts as a result of COVID-19, including, but not limited to, deferred tax valuation allowances, long-lived asset impairment, adjustments of the carrying amount of inventory and changes in the effectiveness of its hedging instruments.

The Company’s digital operations across brands have continued to serve the Company’s customers during this unprecedented period of temporary store closures as the Company’s distribution centers implemented enhanced cleaning and social distancing measures in order to remain operational.

In response to elevated digital demand during this period, the Company has increased its omnichannel capabilities by continuing to offer Purchase-Online-Pickup-in-Store, including curbside pickup at a majority of U.S.

locations, and by utilizing ship-from-store capabilities.

In addition, to prepare for the Fiscal 2020 holiday season, the Company entered into a short-term lease for an additional distribution center and partnered with incremental carriers.

Digital net sales increased approximately 39% for Fiscal 2020 as compared to Fiscal 2019, resulting in digital sales accounting for 54% of total revenues in Fiscal 2020 compared to 33% in Fiscal 2019.

Despite the recent strength in digital sales, the Company has historically generated the majority of its annual net sales through stores and there can be no assurance that the current performance in the digital channel will continue.

The Company is also focused on managing inventories and the impacts COVID-19 has had, and continues to have, on its global supply chain, including potential disruptions of product deliveries.

The Company sources the majority of its merchandise outside of the U.S.

through arrangements with vendors primarily located in southeast Asia and, as of January 30, 2021, the vast majority of the factories the Company partners with were operating at full capacity.

In order to complete production, these manufacturing factories are dependent on raw materials from fabric mills that are primarily located in the APAC region.

The Company continues

to collaborate with its third-party partners to mitigate significant delays in delivery of merchandise, especially in light of disruptions across the supply chain, including port congestion and shipping container shortages.

During Fiscal 2020, the Company reduced certain orders that were not already in production, delayed and altered the cadence of deliveries and implemented various strategies to tightly manage inventories, including utilizing ship-from-store capabilities in select locations.

The Company’s progress executing against the following key transformation initiatives created the foundation to allow the Company to respond quickly to COVID-19 in Fiscal 2020:

• Optimizing the global store network;

• Enhancing digital and omnichannel capabilities;

• Increasing the speed and efficiency of the concept-to-customer product life cycle by further investing in capabilities to position the supply chain for greater speed, agility and efficiency, while leveraging data and analytics to offer the right product at the right time and the right price;

• Improving customer engagement through loyalty programs and marketing optimization.

The Company entered Fiscal 2020 with a healthy liquidity position, however in light of COVID-19 the Company took immediate, aggressive and prudent actions, including re-evaluating all expenditures, to balance short-term and long-term liquidity needs, in order to best position the business for the Company’s stakeholders during Fiscal 2020.

Actions to preserve liquidity and manage cash flows during Fiscal 2020, included, but were not limited to the following:

• Partnered with merchandise and non-merchandise vendors in regards to payment terms;

• Managed inventory receipts tightly to align inventory with expected market demand;

• Reduced expenses to better align operating costs with sales;

• Assessed government policy and economic stimulus responses to COVID-19 for both business and individuals;

• Borrowed $210.0 million under the ABL Facility in March 2020, which was then repaid in July 2020 along with the Term Loan Facility;

• Withdrew $50.0 million from the overfunded Rabbi Trust assets, representing the majority of excess funds in March 2020;

• Announced the temporary suspension of the Company's share repurchase and dividend programs in March 2020 and May 2020, respectively;

• Completed a private offering of $350.0 million aggregate principal amount of Senior Secured Notes in July 2020.

Reflecting ongoing global uncertainty and the near-term challenges that COVID-19 presents, such as continued temporary store closures, uncertainty surrounding the global economy and customer discretionary spending habits, the Company plans to conservatively manage cash and liquidity in the first half of Fiscal 2021, while prioritizing investments in the business and continuing to fund operating activities.

Regarding returns to shareholders, although the dividend program remains suspended, the Company recently announced that it plans to resume share repurchases beginning on or after March 4, 2021, dependent on various factors, such as market and business conditions, including the Company’s ability to accelerate investments in the business.

As of January 30, 2021, the Company had liquidity of $1.3 billion as compared to $0.9 billion as of February 1, 2020, comprised of cash and equivalents and borrowing available to the Company under the ABL Facility.

Despite the Company's recent history of partnering with its vendors regarding payment terms, certain payment term extensions were temporary and certain previously deferred payments have since been made.

There can be no assurance that the Company will be able to maintain extended payment terms or continue to defer payments, which may result in incremental operating cash outflows in future periods.

For further information about how COVID-19 could impact our operations, refer to “ ITEM 1A.

RISK FACTORS ,” of this Annual Report on Form 10-K.

Focus areas for Fiscal 2022

The Company remains committed to, and confident in, its long-term vision of being a digitally-led global omnichannel apparel retailer and continues to evaluate opportunities to make progress against initiatives that support this vision.

The Company entered Fiscal 2021 with positive momentum, and has made progress towards recovering from COVID-19 sales losses.

Reflecting ongoing global uncertainty, the Company plans to continue to actively manage inventories, optimize its distribution center capacity for digital demand and tightly manage expenses.

The following focus areas for Fiscal 2022 serve as a framework to the Company achieving sustainable growth and long-term operating margin expansion:

• Accelerate digital, data and technology investments to increase agility and improve the customer experience;

• Create a more personalized customer experience through a connected omnichannel ecosystem,

• Optimize our global distribution network to expand digital capacity and improve product delivery speed

• Opportunistically open new, omni-enabled stores in under penetrated markets, and

• Integrate environmental, social and governance practices and standards throughout the organization.

Global Store Network Optimization

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New stores 38 15

Remodels 4 24

Right-sizes 5 6

A component of optimizing the Company’s global store network is pivoting away from large format tourist-dependent flagship stores and opening smaller, omni-enabled stores that cater to local customers.

As a result, the Company closed twelve flagship locations during Fiscal 2019 and Fiscal 2020.

This leaves the Company with seven operating flagships at the end of Fiscal 2020, down from 15 at the beginning of the year.

Future closures could be completed through natural lease expirations, while certain

other leases include early termination options that can be exercised under specific conditions.

The Company may also elect to exit or modify other leases, and could incur charges related to these actions.

As part of its ongoing global store network optimization initiative and stated goal of repositioning from larger format, tourist-dependent flagship locations to smaller, omni-enabled stores that cater to local customers, the Company closed its Abercrombie & Fitch brand Singapore and Hamburg flagship locations during Fiscal 2021.

This leaves the Company with five operating flagships at the end of Fiscal 2021, down from seven at the beginning of Fiscal 2021 and 15 at the beginning of Fiscal 2020.

In addition, the Company closed 42 non-flagship locations, resulting in 44 total store closures during Fiscal 2021.

Store optimization efforts in Fiscal 2021 reduced total Company store gross square footage by approximately 0.2 million gross square feet, or 3%, as compared to Fiscal 2020 year-end.

The actions taken in Fiscal 2020, combined with ongoing digital sales growth, are expected to continue to transform the Company's operating model and reposition the Company for the future as the Company continues to focus on aligning store square footage with digital penetration.

Store count and gross square footage by brand and geography as of February 1, 2020 and January 30, 2021 were as follows:

The actions taken in Fiscal 2021, combined with ongoing digital sales growth, are expected to continue to transform the Company's operating model and reposition the Company for the future as it continues to focus on aligning store square footage with digital penetration.

Store count and gross square footage by brand and geography as of January 30, 2021 and January 29, 2022 were as follows:

Hollister (1)

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Number of stores:

February 1, 2020 (4)

392 155 257 53 649 208 857

January 30, 2021 347 150 190 48 537 198 735

New 10 12 7 9 17 21 38

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Gross square footage (in thousands) :

February 1, 2020 (4)

2,605 1,263 1,829 617 4,434 1,880 6,314

January 30, 2021 2,309 1,219 1,311 393 3,620 1,612 5,232

January 29, 2022 2,312 1,212 1,161 367 3,473 1,579 5,052

(1) Hollister includes the Hollister and Gilly Hicks brands.

Locations with Gilly Hicks carveouts within Hollister stores are represented as a single store count.

Excludes nine international franchise stores as of each of January 30, 2021 and February 1, 2020.

Excludes 12 Company-operated temporary stores as of January 30, 2021 and 15 as of February 1, 2020.

Excludes nine international franchise stores as of each of January 29, 2022 and January 30, 2021.

Excludes 14 Company-operated temporary stores as of January 29, 2022 and 12 as of January 30, 2021.

(2) Abercrombie includes the Abercrombie & Fitch and abercrombie kids brands.

Locations with abercrombie kids carveouts within Abercrombie & Fitch stores are represented as a single store count.

Excludes 10 international franchise stores as of January 30, 2021 and seven as of February 1, 2020.

Excludes two Company-operated temporary stores as of January 30, 2021 and six as of February 1, 2020.

Excludes 14 international franchise stores as of January 29, 2022 and 10 as of January 30, 2021.

Excludes five Company-operated temporary stores as of January 29, 2022 and two as of January 30, 2021.

(3) This store count excludes one international third-party operated multi-brand outlet store as of January 30, 2021.

(4) Prior period numbers have been revised due to a change in the temporary store definition to only include store leases with original terms of 18 months or less.

United Kingdom’s withdrawal from the European Union (“Brexit”)

In June 2016, the United Kingdom passed a referendum to recommend withdrawing from the European Union.

Upon withdrawal from the European Union in January 2020 (“Brexit"), the United Kingdom entered into a formal transition period that expired on December 31, 2020, during which the United Kingdom and the European Union negotiated a post-Brexit trade agreement.

The ultimate impact of Brexit on the Company will depend on the effects of this agreement, which went into effect on January 1, 2021.

There is continued uncertainty related to the ultimate impact on consumer behavior, trade relations, economic conditions, foreign currency exchange rates and the free movement of goods, services, people and capital between the United Kingdom and the European Union during this time of transition.

The United Kingdom’s withdrawal from the European Union could also adversely impact other areas of the business, including, but not limited to, an increase in duties and delays in the delivery of merchandise from the Company’s Netherlands distribution center to its customers in the United Kingdom if trade barriers materialize.

The United Kingdom’s withdrawal from the European Union could also adversely impact the operations of the Company’s vendors and of our other third-party partners.

In order to mitigate the risks associated with the United Kingdom’s withdrawal from the European Union, the Company:

collaborated across the organization and tested systems;

worked with external partners to develop contingency plans for potential adverse impacts;

and took actions to reduce, to the extent possible, the potential impact of any incremental duty exposure.

It is possible that preparations for the events listed above are not adequate to mitigate their impact, and that these events could adversely affect the business and results of operations.

Abercrombie & Fitch Co.

2021 Form 10-K

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.

As of January 29, 2022, all U.S.

Company-operated stores were fully open for in-store service;

however, temporary store closures have subsequently been mandated in certain parts of the APAC 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.

Although U.S.

and global economies have begun to recover from the COVID-19 pandemic as many health and safety restrictions have been lifted and vaccine distribution has increased, certain adverse consequences of the pandemic continue to impact the macroeconomic environment and may persist for some time, including labor shortages and disruptions of global supply chains and temporary store closures.

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 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.

The Company plans to follow the guidance of local governments to evaluate whether future store closures will be necessary.

The Company’s digital operations across brands have continued to serve the Company’s customers during periods of temporary store closures.

In response to elevated digital demand during this period, the Company leveraged its omnichannel capabilities by continuing to offer Purchase-Online-Pickup-in-Store, including curbside pickup at a majority of U.S.

locations, and by utilizing ship-from-store capabilities, including same-day delivery across its entire U.S.

For further information about how COVID-19 could impact our operations, refer to “ ITEM 1A.

RISK FACTORS ,” of this Annual Report on Form 10-K.

Supply chain disruptions, inflation and changing price s

The Company has continued to see disruptions in global supply chains, including temporary closures of factories.

The inability to receive inventory in a timely manner could cause delays in responding to customer demand and adversely affect sales.

In addition, the Company has seen and expects to continue to see inflationary pressures affecting the Company’s transportation and other costs.

In order to mitigate the risk associated with supply chain constraints, the Company has taken and expects to continue to take actions to manage through the disruption, including shipping inventory by air and shifting production as necessary and where possible.

This adversely impacted the Company during the latter half of Fiscal 2021, and is likely to continue to cause increased inventory costs related to freight.

It is possible that responses to extended factory closures and transportation delays are not adequate to mitigate their impact, and that these events could adversely affect the business and results of operations.

The Company has also recently experienced inflation in labor, raw materials and other costs.

Inflation can have a long-term impact on the Company because increasing costs may impact the ability to maintain satisfactory margins.

The Company may be unsuccessful in passing these increases on to the customer through higher ticket prices.

Furthermore, Increases in inflation may not be matched by growth in consumer income, which also could have a negative impact on spending.

Impact of global events and uncertainty

As a global multi-brand omnichannel specialty retailer, with operations in North America, Europe and Asia, among other regions and, as a result, management is are mindful of macroeconomic risks and global challenges that could adversely impact certain areas of the business.

As a global multi-brand omnichannel specialty retailer, with operations in North America, Europe and Asia, among other regions and, as a result, management is are mindful of macroeconomic risks, global challenges and the changing global geopolitical environment, including the on-going hostilities in Ukraine, that could adversely impact certain areas of the business.

As a result, in addition to the events listed within MD&A, management continues to monitor certain other global events.

The Company continues to assess the potential impacts these events and similar events may have on the business in future periods and continues to develop contingency plans to assist in mitigating potential impacts.

It is possible that the Company’s preparations for the events discussed within MD&A are not adequate to mitigate their impact, and that these events could further adversely affect its business and results of operations.

It is possible that the Company’s preparations for such events are not adequate to mitigate their impact, and that these events could further adversely affect its business and results of operations.

For a discussion of material risks that have the potential to cause actual results to differ materially from expectations, refer to “ ITEM 1A.

RISK FACTORS ,” included in this Annual Report on Form 10-K.

Focus areas for Fiscal 2021

Reflecting ongoing global uncertainty and the near-term challenges COVID-19 presents, in Fiscal 2021, the Company plans to continue to conservatively manage inventories, position its supply chain to optimize its capacity to fulfill digital orders and tightly manage expenses.

For Fiscal 2021, the Company plans to make progress recovering sales losses experienced in Fiscal 2020 as a result of COVID-19, while maintaining or improving on gross profit rate from Fiscal 2020 levels.

While the Company expects to see certain savings in operating expenses in Fiscal 2021, reflecting Fiscal 2020 permanent store closures and rent negotiations, certain operating expenses related to stores that were temporarily closed in Fiscal 2020 due to COVID-19 are expected to return in Fiscal 2021.

The Company plans to reposition expense savings towards customer-facing areas, specifically targeting the acceleration of marketing, digital and data investments.

The Company continues to evaluate opportunities to invest in and make progress on initiatives that position the business for sustainable long-term growth that align with the strategic pillars as described within “ ITEM 1.

BUSINESS - STRATEGY AND KEY BUSINESS PRIORITIES ,” included in this Annual Report on Form 10-K.

Abercrombie & Fitch Co.

2021 Form 10-K

Summary of results

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Gross profit rate (2)

60.5 % 59.4 %

Operating (loss) income (3)

$ (20,469) $ 70,068 $ 52,468 $ 82,820

Operating (loss) income margin (0.7) % 1.9 % 1.7 % 2.3 %

Net (loss) income attributable to A&F (3) (4)

Operating income (loss) $ 343,084 $ (20,469) $ 355,184 $ 52,468

Operating income (loss) margin 9.2 % (0.7) % 9.6 % 1.7 %

Net income (loss) attributable to A&F (3)

$ 263,010 $ (114,021) $ 272,689 $ (45,383)

Net (loss) income per diluted share attributable to A&F (3) (4)

Net income (loss) per diluted share attributable to A&F (3)

4.20 (1.82) 4.35 (0.73)

(1) Refer to “ RESULTS OF OPERATIONS ” for details on excluded items.

Discussion as to why the Company believes that these non-GAAP financial measures are useful to investors is provided below under “ NON-GAAP FINANCIAL MEASURES .”

A reconciliation from each non-GAAP financial measure presented in this Annual Report on Form 10-K to the most directly comparable financial measure calculated in accordance with GAAP, as well as a discussion as to why the Company believes that these non-GAAP financial measures are useful to investors is provided below under “ NON-GAAP FINANCIAL MEASURES .”

(2) Gross profit is derived from cost of sales, exclusive of depreciation and amortization.

(3) Fiscal 2019 results included $47 million of flagship store exit charges, which adversely impacted net income per diluted share attributable to A&F by approximately $0.53 per share, net of estimated tax effect.

Refer to Note 19, “ FLAGSHIP STORE EXIT (BENEFITS) CHARGES .”

(3) Fiscal 2021 results includes $42.5 million of tax benefits due to the release of valuation allowances as a result of the improvement seen in business conditions.

Fiscal 2020 results included $101 million of adverse tax impacts related to valuation allowances on deferred tax assets and other tax charges as a result of the COVID-19 pandemic, which adversely impacted net loss per diluted share by or $1.61 per share.

Refer to Note 12, “ INCOME TAXES .”

Certain components of the Company’s Consolidated Balance Sheets as of February 1, 2020 and January 30, 2021 and Consolidated Statements of Cash Flows for Fiscal 2020 and Fiscal 2019 were as follows:

Certain components of the Company’s Consolidated Balance Sheets as of January 29, 2022 and January 30, 2021 and Consolidated Statements of Cash Flows for Fiscal 2021 and Fiscal 2020 were as follows:

(in thousands)

Balance Sheets data January 30, 2021 February 1, 2020

Balance Sheets data January 29, 2022 January 30, 2021

Cash and equivalents $ 823,139 $ 1,104,862

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Net cash used for investing activities (96,979) (51,910)

Net cash provided by (used for) financing activities $ 69,717 $ (147,873)

Net cash (used for) provided by financing activities (446,898) 69,717

Abercrombie & Fitch Co.

2021 Form 10-K

RESULTS OF OPERATIONS

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Total Company $ 3,712,768 $ 3,125,384 $ 587,384 19%

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 the shipping location provided by customers for digital orders.

Net sales by geographic area are presented by attributing revenues on the basis of the country in which the merchandise was sold for in-store purchases and the shipping location provided by customers for digital orders.

The Company’s net sales by geographic area for Fiscal 2021 and Fiscal 2020 were as follows:

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Total Company $ 3,712,768 $ 3,125,384 $ 587,384 19%

For Fiscal 2020, net sales decreased 14% as compared to Fiscal 2019, primarily due to a decrease in units sold driven by reduced store traffic, including as it related to temporary store closures as a result of COVID-19, partially offset by 39% digital sales growth.

Average unit retail increased year-over-year, driven by lower promotions, with benefits from changes in foreign currency exchange rates of approximately $22 million.

For Fiscal 2021, net sales increased 19% as compared to Fiscal 2020, primarily due to an increase in units sold as a result of increased store traffic relative to last year, which was impacted by widespread temporary store closures due to COVID-19, and 4% digital sales growth.

Average unit retail increased year-over-year, driven by less promotions and lower clearance levels, with benefits from changes in foreign currency exchange rates of approximately $26 million.

Cost of sales, exclusive of depreciation and amortization

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Cost of sales, exclusive of depreciation and amortization $ 1,400,773 37.7% $ 1,234,179 39.5% (180)

For Fiscal 2020, cost of sales, exclusive of depreciation and amortization, as a percentage of net sales decreased approximately 110 basis points as compared to Fiscal 2019, reflecting benefits of approximately 30 basis points from changes in foreign currency exchange rates.

The year-over-year decrease was primarily attributable to increased average unit retail driven by lower promotions.

Average unit cost remained relatively flat, reflecting, among other items, adverse impacts of approximately 50 basis points related to charges to reduce the carrying value of inventory during the thirteen weeks ended May 2, 2020, primarily as a result of COVID-19 and the temporary closure of the Company’s stores and benefits of approximately 30 basis points from inventory shrink favorability.

For Fiscal 2021, cost of sales, exclusive of depreciation and amortization, as a percentage of net sales decreased approximately 180 basis points as compared to Fiscal 2020.

The year-over-year decrease was primarily attributable to approximately 550 basis points of increased average unit retail as a result of lower promotions and markdowns, partially offset by higher average unit cost related to approximately 414 basis points of increased freight costs as well as other costs incurred to offset supply chain issues.

Gross profit, exclusive of depreciation and amortization

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Gross profit, exclusive of depreciation and amortization $ 2,311,995 62.3% $ 1,891,205 60.5% 180

Abercrombie & Fitch Co.

2021 Form 10-K

Stores and distribution expense

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Stores and distribution expense $ 1,429,476 38.5% $ 1,391,584 44.5% (600)

For Fiscal 2020, stores and distribution expense decreased 10% as compared to Fiscal 2019, primarily driven by a $117 million reduction in store occupancy expense, reflecting the impact of COVID-19 on operations including temporary store closures and benefits from rent abatements recognized as variable lease cost and a $92 million reduction in payroll expense, which was inclusive of a benefit of $18 million related to government subsidies in certain jurisdictions where the Company qualifies.

These reductions in expense were partially offset by a $67 million increase in shipping and handling expense related to the 39% year-over-year digital sales growth.

For Fiscal 2021, stores and distribution expense increased 3% as compared to Fiscal 2020, primarily driven by a a $42 million increase in digital sales marketing expense, $36 million increase in payroll expense, reflecting the return of certain expenses not incurred in Fiscal 2020 due to COVID-19 temporary store closures, a $15 million increase in digital shipping and handling expense reflecting 4% year-over-year digital sales growth and a $11 million increase in digital direct expense.

These increases in expense were partially offset by a $68 million reduction in store occupancy expense, due to a decrease in store count and favorable rent negotiations and include approximately $17.9 million in benefits related to rent abatements and a favorable resolution of a flagship store closure.

Marketing, general and administrative expense

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Marketing, general and administrative expense $ 536,815 14.5% $ 463,843 14.8% (30)

For Fiscal 2020, marketing, general and administrative expense was approximately flat as compared to Fiscal 2019, reflecting reductions in marketing and other controllable expenses, and an increase in payroll expense as a result of higher performance-based compensation.

For Fiscal 2021, marketing, general and administrative expense increased 16% as compared to Fiscal 2020, primarily driven by increased digital media spend, performance-based compensation, legal, consulting and information technology expense.

These increases were partially offset by a decrease in depreciation expense.

Flagship store exit (benefits) charges

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Flagship store exit (benefits) charges $ (1,153) 0.0% $ (11,636) (0.4)% 40

For Fiscal 2020, flagship store exit benefits primarily related to the closure of several international Abercrombie & Fitch flagship stores.

Flagship store exit charges for Fiscal 2019 primarily related to the closure of the Company’s SoHo Hollister flagship in New York City.

For Fiscal 2021, flagship store exit benefits primarily related to the closure of two international Abercrombie & Fitch flagship stores.

Refer to Note 19, “ FLAGSHIP STORE EXIT (BENEFITS) CHARGES .

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Refer to Note 9, “ ASSET IMPAIRMENT ,” for further discussion.

Abercrombie & Fitch Co.

2021 Form 10-K

Other operating income, net

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Other operating income, net $ 8,327 0.2% $ 5,054 0.2% —

For Fiscal 2020, other operating income, net, increased as compared to Fiscal 2019, primarily due to foreign currency exchange related gains in Fiscal 2020.

Operating (loss) income

For Fiscal 2021, other operating income, net, increased as compared to Fiscal 2020, primarily due to sublease rental income recognized in Fiscal 2021.

Operating income (loss)

Fiscal 2021 Fiscal 2020

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Interest expense, net $ 34,110 0.9% $ 28,274 0.9% —

For Fiscal 2020, interest expense, net, increased primarily driven by higher interest expense in the current year related to the issuance of the Senior Secured Notes, as well as lower interest income earned on the Company’s investments and cash holdings.

For Fiscal 2021, interest expense, net, increased 21% primarily driven by the loss on the extinguishment of debt related to the purchase of Senior Secured Notes and higher interest expense in the current year, reflecting higher average borrowings outstanding than before the completion of the Senior Secured Notes private offering.

Income tax expense

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Adjusted non-GAAP income tax expense $ 41,329 12.9% $ 64,510 266.6%

(1) Refer to “ Operating (loss) income ” for details of pre-tax excluded items.

(1) Refer to “ Operating income (loss) ” for details of pre-tax excluded items.

The tax effect of pre-tax excluded items is the difference between the tax provision calculation on a GAAP basis and an adjusted non-GAAP basis.

The Company’s effective tax rate for Fiscal 2020 was impacted by $101.4 million of adverse tax impacts, ultimately giving rise to income tax expense on a consolidated pre-tax loss.

These adverse tax impacts were as follows:

• The Company did not recognize income tax benefits on $203.4 million of pre-tax losses generated in Fiscal 2020 in certain jurisdictions, resulting in adverse tax impacts of $39.5 million.

• The Company recognized charges of $61.9 million related to the establishment of valuation allowances and other tax charges in certain jurisdictions, including, but not limited to, the U.S., Switzerland, Germany and Japan principally as a result of the significant adverse impacts of COVID-19.

The Company’s effective tax rate for Fiscal 2021 was impacted by $42.5 million of 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 did not recognize income tax benefits on $25.3 million of pre-tax losses generated in Fiscal 2021 primarily in Switzerland, resulting in adverse tax impacts of $4.6 million.

Refer to Note 12, “ INCOME TAXES ,” for further discussion on factors that impacted the effective tax rate in Fiscal 2021 and Fiscal 2020.

Net (loss) income attributable to A&F

Abercrombie & Fitch Co.

2021 Form 10-K

Net income (loss) attributable to A&F

Fiscal 2021 Fiscal 2020

(in thousands) % of Net Sales % of Net Sales BPS Change

Net (loss) income attributable to A&F $ (114,021) (3.6)% $ 39,358 1.1% (470)

Net income (loss) attributable to A&F $ 263,010 7.1% $ (114,021) (3.6)% 1,070

Excluded items, net of tax (1)

9,679 0.3% 68,638 2.2% (190)

Adjusted non-GAAP net income attributable to A&F (2)

Adjusted non-GAAP net income (loss) attributable to A&F (2)

$ 272,689 7.3% $ (45,383) (1.5)% 880

(1) Excludes items presented above under “ Operating (loss) income , ” and “ Income tax expense .

Net (loss) income per diluted share attributable to A&F

(1) Excludes items presented above under “ Operating income (loss) , ” and “ Income tax expense .

Net income (loss) per diluted share attributable to A&F

Fiscal 2021 Fiscal 2020 $ Change

Net (loss) income per diluted share attributable to A&F $ (1.82) $ 0.60 $(2.42)

Net income (loss) per diluted share attributable to A&F $ 4.20 $ (1.82) $6.02

Excluded items, net of tax (1)

0.15 1.10 (0.95)

Adjusted non-GAAP net (loss) income per diluted share attributable to A&F $ (0.73) $ 0.73 $(1.46)

Adjusted non-GAAP net income (loss) per diluted share attributable to A&F $ 4.35 $ (0.73) $5.08

Impact from changes in foreign currency exchange rates — 0.01 (0.01)

Adjusted non-GAAP net (loss) income per diluted share attributable to A&F on a constant currency basis (2)

Adjusted non-GAAP net income (loss) per diluted share attributable to A&F on a constant currency basis (2)

$ 4.35 $ (0.74) $5.09

(1) Excludes items presented above under “ Operating (loss) income , ” and “ Income tax expense .

(1) Excludes items presented above under “ Operating income (loss) , ” and “ Income tax expense .

(2) Refer to “ NON-GAAP FINANCIAL MEASURES ,” for further details.

Abercrombie & Fitch Co.

2021 Form 10-K

LIQUIDITY AND CAPITAL RESOURCES

The Company’s capital allocation strategy, priorities and investments are reviewed by A&F’s Board of Directors considering both liquidity and valuation factors.

Regarding returns to shareholders, although the dividend program remains suspended, the Company recently announced that it plans to resume share repurchases on or after March 4, 2021, dependent on various factors, such as market and business conditions, including the Company’s ability to accelerate investments in the business.

Regarding returns to shareholders, although the dividend program remains suspended, during Fiscal 2021, the Company resumed share repurchases.

The timing and amount of any future share repurchases will depend on various factors, such as market and business conditions, including the Company’s ability to accelerate investments in the business.

The Company believes that it will have adequate liquidity to fund operating activities over the next 12 months.

The Company monitors financing market conditions and may in the future determine whether and when to amend, modify, or restructure its Credit Facilities and/or Senior Secured Notes.

Primary sources and uses of cash

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The Company also has the ABL Facility available as a source of additional funding, which is described further below under “ Credit facilities and Senior Secured Notes ”.

In an effort to improve the Company’s near-term cash position, as a precautionary measure in response to COVID-19, in March 2020, the Company borrowed $210.0 million under the ABL Facility to improve its near-term cash position and withdrew $50.0 million from the overfunded Rabbi Trust assets, which represented the majority of excess funds.

In July 2020, the Company completed the issuance of the Senior Secured Notes and received gross proceeds of $350.0 million.

The Company used the net proceeds from the offering of the Senior Secured Notes, along with existing cash on hand, to repay outstanding borrowings and accrued interest under the Term Loan Facility and the ABL Facility, with the remaining net proceeds used towards fees and expenses in connection with such repayments and the offering of the Senior Secured Notes.

Over the next twelve months, the Company expects its primary cash requirements to be directed towards funding operating activities, including the acquisition of inventory, and obligations related to compensation, marketing, leases and any lease buyouts or modifications it may exercise, taxes and other operating activities.

The Company evaluates opportunities for investments in the business that are in line with initiatives that position the business for sustainable long-term growth that align with its strategic pillars as described within “ I TEM 1.

Over the next 12 months, the Company expects its primary cash requirements to be directed towards funding operating activities, including the acquisition of inventory, and obligations related to compensation, marketing, leases and any lease buyouts or modifications it may exercise, taxes and other operating activities.

BUSINESS - STRATEGY AND KEY BUSINESS PRIORITIES ”.

Examples of potential investment opportunities include, but are not limited to, new store experiences and options to early terminate store leases, investments in its omnichannel initiatives and investments to increase the Company’s capacity to fulfill digital orders.

Historically, the Company has utilized free cash flow generated from operations to fund any discretionary capital expenditures, which have been prioritized towards new store experiences, as well as digital and omnichannel investments, information technology, and other projects.

Historically, the Company has utilized cash flow generated from operations to fund any discretionary capital expenditures, which have been prioritized towards new store experiences, as well as digital and omnichannel investments, information technology, and other projects.

For Fiscal 2021, the Company used $97.0 million towards capital expenditures, down from $101.9 million of capital expenditures in Fiscal 2020.

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Share repurchases and dividends

In order to preserve liquidity and maintain financial flexibility in light of COVID-19, in March 2020, the Company announced that it had temporarily suspended its share repurchase program and in May 2020, the Company announced that it had temporarily suspended its dividend program.

The Company has since announced it plans to resume share repurchase activity beginning on or after March 4, 2021.

The timing and amount of any future share repurchases will depend on various factors, including market and business conditions.

In order to preserve liquidity and maintain financial flexibility in light of COVID-19, the Company announced that it had temporarily suspended its dividend and share repurchase programs in Fiscal 2020..

The Company has since adopted a new share repurchase program and may repurchase shares in the future, but the timing and amount of any further repurchases are dependent on various factors, such as market and business conditions, including the Company’s ability to accelerate investments in the business.

The Company’s dividend program remains suspended.

The Company may in the future review its dividend program to determine, in light of facts and circumstances at that time, whether and when to reinstate.

Historically, the Company has repurchased shares of its Common Stock from time to time, dependent on market and business conditions, with the objectives of offsetting dilution from issuances of Common Stock associated with the exercise of employee stock appreciation rights and the vesting of restricted stock units and returning excess cash to shareholders.

In November 2021, the A&F Board of Directors approved a new $500 million share repurchase authorization, replacing the prior February 19, 2021 share repurchase authorization of 10.0 million shares, which had approximately 3.9 million shares remaining available at termination.

During Fiscal 2021, the Company repurchased 10.2 million shares and returned $377 million to shareholders through share repurchase s .

The timing and amount of any future share repurchases will depend on various factors, including market and business conditions.

The Company has repurchased shares of its Common Stock from time to time, dependent on market and business conditions, with the objectives of returning excess cash to shareholders and offsetting dilution from issuances of Common Stock associated with the exercise of employee stock appreciation rights and the vesting of restricted stock units.

Shares may be repurchased in the open market, including pursuant to any trading plans established in accordance with Rule 10b5-1 of the Exchange Act, through privately negotiated transactions or other transactions or by a combination of such methods.

Refer to “ ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER

PURCHASES OF EQUITY SECURITIES ” for additional information regarding the Company’s share repurchases during the fourth quarter of Fiscal 2020 and the number of shares remaining available for purchase under the Company’s publicly announced stock repurchase authorization.

Dividends are declared at the discretion of A&F’s Board of Directors.

A quarterly dividend, of $0.20 per share outstanding, was declared in February for Fiscal 2020 and in each of February, May, August and November in Fiscal 2019.

Dividends were paid in March for Fiscal 2020, and in each of March, June, September and December in Fiscal 2019.

A&F’s Board of Directors reviews and establishes a dividend amount, if any, based on A&F’s financial condition, results of operations, capital requirements, current and projected cash flows, business prospects and other factors, including the potential severity of impacts to the business resulting from COVID-19 and any restrictions under the Company’s agreements related to the Senior Secured Notes and the ABL Facility.

There can be no assurance that the Company will pay dividends in the future or, if dividends are paid, that they will be in amounts similar to past dividends.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES ” for additional information regarding the Company’s share repurchases during the fourth quarter of Fiscal 2021 and the number of shares remaining available for purchase under the Company’s publicly announced stock repurchase authorization.

A&F’s Board of Directors reviews and establishes a dividend amount, if at all, based on A&F’s financial condition, results of operations, capital requirements, current and projected cash flows, business prospects and other factors, including the potential severity of impacts to the business resulting from COVID-19 and any restrictions under the Company’s agreements related to the Senior Secured Notes and the ABL Facility.

There can be no assurance that the Company will declare and pay dividends in the future or, if dividends are paid, that they will be in amounts similar to past dividends.

Credit facilities and Senior Secured Notes

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The Company’s debt related to the Senior Secured Notes is presented on the Consolidated Balance Sheet, net of the unamortized fees.

As of January 30, 2021, the Company had $350.0 million of gross borrowings outstanding under the Senior Secured Notes.

In addition, the ABL Facility provides for a senior secured asset-based revolving credit facility of up to $400 million.

As of January 30, 2021, the Company did not have any borrowings outstanding under the ABL Facility.

The ABL Facility matures on October 19, 2022.

During Fiscal 2021, the Company repurchased $42.3 million of its outstanding Senior Secured Notes and incurred $5.3 million of loss on extinguishment of debt, comprised of a repayment premium of $4.7 million and the write-off of unamortized fees of $0.6 million.

As of January 29, 2022, the Company had $307.7 million of gross indebtedness outstanding under the Senior Secured Notes.

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).

The Company did not have any borrowings outstanding under the ABL Facility as of January 29, 2022 or as of January 30, 2021.

Details regarding borrowing available to the Company under the ABL Facility as of January 29, 2022 follow:

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Refer to Note 13, “ BORROWINGS ,” for additional information.

The Company’s earnings and profits from its foreign subsidiaries could be repatriated to the U.S., without incurring additional federal income tax.

The Company’s earnings and profits from its foreign subsidiaries may be repatriated to the U.S., without incurring additional U.S.

federal income tax.

The Company determined that the balance of the Company’s undistributed earnings and profits from its foreign subsidiaries as of February 2, 2019 are considered indefinitely reinvested outside of the U.S., and if these funds were to be repatriated to the U.S., the Company would expect to incur an insignificant amount of state income taxes and foreign withholding taxes.

The Company accrues for both state income taxes and foreign withholding taxes with respect to earnings and profits earned after February 2, 2019, in such a manner that these funds could be repatriated without incurring additional tax expense.

As of January 30, 2021, $410.1 million of the Company’s $1.1 billion of cash and equivalents were held by foreign affiliates.

The Company accrues for both state income taxes and foreign withholding taxes with respect to earnings and profits earned after February 2, 2019, in such a manner that these funds may be repatriated without incurring additional tax expense.

As of January 29, 2022, $380.6 million of the Company’s $823.1 million of cash and equivalents were held by foreign affiliates.

The Company is not dependent on dividends from its foreign affiliates to fund its U.S.

operations or to fund investing and financing activities.

operations or to fund investing and financing cash flow activities.

Refer to Note 12, “ INCOME TAXES ,” for additional details regarding the impact certain events related to the Company’s income taxes had on the Company’s Consolidated Financial Statements.

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Net cash used for investing activities (96,979) (51,910)

Net cash provided by (used for) financing activities 69,717 (147,873)

Net cash (used for) provided by financing activities (446,898) 69,717

Effects of foreign currency exchange rate changes on cash (23,694) 9,168

Net increase (decrease) in cash and equivalents, and restricted cash and equivalents 431,893 (53,565)

Net (decrease) increase in cash and equivalents, and restricted cash and equivalents $ (289,789) $ 431,893

Cash and equivalents, and restricted cash and equivalents, end of period $ 834,368 $ 1,124,157

Operating activities - The year-over-year change in operating cash flows was primarily due to actions taken by the Company during Fiscal 2020 to preserve liquidity and manage cash flows in light of COVID-19, including, but not limited to:

• Partnering with merchandise and non-merchandise vendors regarding payment terms;

• Reducing and altering the cadence of inventory receipts to align inventory with expected market demand;

• Reducing expenses to align operating costs with sales;

• Suspending rent payments for a significant number of stores that were closed for a period of time during Fiscal 2020 as a result of COVID-19, which, coupled with rent abatements and changes in payment cadence, attributed to a year-over-year decrease in cash paid for operating lease liabilities.

These benefits to operating cash flows were partially offset by lower cash receipts as a result of the 14% decrease in net sales from last year driven by temporary store closures and a decline in store traffic in response to COVID-19 during Fiscal 2020.

While the Company has been successful in obtaining certain rent abatements and landlord concessions of rent payable during Fiscal 2020 as a result of COVID-19 store closures, the Company continues to engage with its landlords to find a mutually beneficial and agreeable path forward for certain of its other leases.

In addition, despite the Company's recent history of partnering with its vendors regarding payment terms, certain payment term extensions were temporary and certain previously deferred payments have since been made.

Operating activities - For Fiscal 2021 the Company recognized higher cash receipts as compared to Fiscal 2020 as a result of the 19% year-over-year increase in net sales as the Company experienced widespread temporary store closures in response to COVID-19 during Fiscal 2020.

The Company also took various immediate, aggressive actions during Fiscal 2020 to preserve liquidity and manage cash flows in light of COVID-19 in order to best position the business for key stakeholders, including, but not limited to (i) partnering with merchandise and non-merchandise vendors in regards to payment terms;

(ii) tightly managing inventory receipts to align inventory with expected market demand;

and (iii) significantly reducing expenses to better align operating costs with sales.

The Company also suspended rent payments for a larger proportion of its stores in Fiscal 2020 than it has in Fiscal 2021 related to stores that were closed for a period of time as a result of COVID-19.

Certain payment term extensions were temporary and certain previously deferred payments have since been made.

There can be no assurance that the Company will be able to maintain extended payment terms or continue to defer payments, which may result in incremental operating cash outflows in future periods.

Investing activities - For Fiscal 2020, net cash outflows for investing activities were used for capital expenditures of $101.9 million as compared to $202.8 million in Fiscal 2019, reflecting actions taken in Fiscal 2020 to preserve liquidity and manage cash flows in light of the COVID-19 pandemic.

Fiscal 2020 net cash used for investing activities also reflects the withdrawal of $50.0 million from the overfunded Rabbi Trust assets, which represented the majority of excess funds.

Financing activities - For Fiscal 2020, net cash provided by financing activities primarily consisted of the issuance of the Senior Secured Notes and receipt of related gross proceeds of $350.0 million and borrowings under the ABL Facility of $210.0 million.

In addition, during Fiscal 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 Fiscal 2028.

The new agreement resulted in an acceleration of payments and provided for a discount resulting in an operating cash outflow of $63.8 million during Fiscal 2021.

While the Company has been successful in obtaining certain rent abatements and landlord concessions of rent payable during Fiscal 2021 as a result of COVID-19 store closures, the Company continues to engage with its landlords to find a mutually beneficial and agreeable path forward for certain of its other leases.

Investing activities - For Fiscal 2021, net cash outflows for investing activities were used for capital expenditures of $97.0 million as compared to $101.9 million in Fiscal 2020.

In addition, Fiscal 2020 reflects the withdrawal of $50.0 million from the overfunded Rabbi Trust assets, which represented the majority of excess funds, improving the Company’s near-term cash position in light of COVID-19.

Financing activities - For Fiscal 2021, net cash used by financing activities primarily consisted of the repurchase of approximately 10.2 million shares of A&F’s Common stock in the open market with a market value of approximately $377 million.

In addition, the Company repurchased $42.3 million of its outstanding Senior Secured Notes at a premium of $4.7 million.

For Fiscal 2020, net cash provided by financing activities primarily consisted of the issuance of the Senior Secured Notes and receipt of related gross proceeds of $350.0 million and borrowings under the ABL Facility of $210.0 million.

The gross proceeds from the Senior Secured Notes offering were used along with existing cash on hand, to repay all then outstanding borrowings and accrued interest under the Term Loan Facility and the ABL Facility, with the remaining net proceeds used towards fees and expenses in connection with such repayments and the offering.

In addition, the Company repurchased approximately 1.4 million shares of A&F’s Common Stock with a market value of approximately $15.2 million and paid dividends of $12.6 million during Fiscal 2020, prior to the Company’s decision to temporarily suspend its share repurchase and dividend programs in light of COVID-19.

For Fiscal 2019, net cash used for financing activities consisted primarily of the repurchase of approximately 4.0 million shares of A&F’s Common Stock in the open market with a market value of approximately $63.5 million, dividend payments of $51.5 million and voluntary debt repayments of $20.0 million.

Contractual obligations

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Refer to Note 8, “ LEASES ,” Note 12, “ INCOME TAXES ,” Note 13, “ BORROWINGS ,” and Note 17, “ SAVINGS AND RETIREMENT PLANS ,” for further discussion.

In Fiscal 2019, the Company entered into a nine-year service and distribution agreement for a facility to be located in the Phoenix, Arizona area, with services expected to commence in Fiscal 2021.

Due to uncertainty as to the ultimate minimum commitments related to this agreement, these expected obligations are excluded from the contractual obligations table.

Due to uncertainty as to the amounts and timing of future payments, tax related to uncertain tax positions, including accrued interest and penalties, of $1.2 million as of January 29, 2022 is excluded from the contractual obligations table.

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Due to the fact that the dividend program is currently suspended and given the payment of future dividends are subject to determination and approval by A&F’s Board of Directors, there are no amounts included in the contractual obligations table related to dividends.

Off-balance sheet arrangements

As of January 30, 2021, the Company did not have any material off-balance sheet arrangements.

RECENT ACCOUNTING PRONOUNCEMENTS

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Policy Effect if Actual Results Differ from Assumptions

Revenue Recognition

The Company maintains loyalty programs, which primarily provide customers with the opportunity to earn points toward future merchandise discount rewards with qualifying purchases.

The Company accounts for expected future merchandise discount reward redemptions by recognizing an unearned revenue liability as customers accumulate points, taking into account expected future redemptions, which remains until revenue is recognized at the earlier of redemption or expiration, as a component of net sales.

This assessment requires management to make assumptions and judgments related to the probability that accumulated points will be converted into merchandise discount rewards, the probability that merchandise discount rewards will be redeemed by customers and the pattern of redemption activity.

The Company determines its estimates of these factors based on historical redemption patterns.

The Company does not expect material changes to the underlying assumptions used to estimate deferred revenue associated with loyalty programs as of January 30, 2021.

However, actual results could vary from estimates and could result in material gains or losses.

An increase of 10% in the Company’s point expiration and reward redemption estimates as of January 30, 2021 would have affected pre-tax loss by approximately $3.4 million for Fiscal 2020.

Inventory Valuation

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An increase or decrease in the LCNRV adjustment of 10% would have affected pre-tax loss by approximately $1.7 million for Fiscal 2021.

Valuation of deferred tax assets

The provision for income taxes is determined using the asset and liability approach.

Tax laws often require items to be included in tax filings at different times than the items are being reflected in the financial statements.

A current liability is recognized for the estimated taxes payable for the current year.

Deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid.

Deferred taxes are adjusted for enacted changes in tax rates and tax laws.

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

The Company continues to review the need for valuation allowances on a quarterly basis.

It is reasonably possible, if business conditions 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 some or all of the deferred taxes currently subject to a valuation allowance will be utilized.

The Company does not expect that sufficient evidence to release the valuation allowance is likely to exist at any time prior to the fourth quarter of Fiscal 2021, and there is no guarantee that such evidence will exist or that deferred taxes will be utilized.

Changes in these judgments, assumptions or interpretations may occur and should those changes be significant, they could have a material impact on the Company’s income tax provision.

As January 30, 2021, the Company had recorded valuation allowances of $174.3 million.

Legal Contingencies

The Company is a defendant in lawsuits and other adversarial proceedings arising in the ordinary course of business.

Legal costs incurred in connection with the resolution of claims and lawsuits are expensed as incurred, and the Company establishes estimated liabilities for the outcome of litigation where it is probable that a loss has been incurred and the amount of loss, or range of loss, is reasonably estimable.

For probable losses, the Company accrues to the low end of an estimated range of loss, unless another amount within the range is determined to be more likely.

Significant judgment may be applied in assessing the probability of loss and in estimating the amount of such loss.

Actual liabilities may differ from the amounts recorded, and there can be no assurance that the final resolution of legal contingencies will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

Valuation allowances are recorded in certain jurisdictions to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

The Company does not expect material changes in the judgments, assumptions or interpretations used to calculate the tax provision for Fiscal 2022.

However, changes in these judgments, assumptions or interpretations may occur and should those changes be significant, they could have a material impact on the Company’s income tax provision.

As of the end of Fiscal 2021, the Company had recorded valuation allowances of $110.1 million

Policy Effect if Actual Results Differ from Assumptions

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The Company’s impairment assessment requires management to make assumptions and judgments related, but not limited, to management’s expectations for future operations and projected cash flows.

The key assumptions used in the Company’s undiscounted future store cash flow models include sales, gross profit and, to a lesser extent, operating expenses.

The key assumption used in the Company’s undiscounted future store cash flow models is estimated sales growth rate.

An impairment loss may be recognized when these undiscounted future cash flows are less than the carrying amount of the asset group.

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Fair value of the Company’s store-related assets is determined at the individual store level based on the highest and best use of the asset group.

The key assumptions used in the Company’s fair value analysis may include discounted future store cash flows and comparable market rents.

The key assumptions used in the Company’s fair value analysis are estimated sales growth and comparable market rents.

Store assets that were tested for impairment as of January 29, 2022 and not impaired, had long-lived assets with a net book value of $60.6 million, which included $53.6 million of operating lease right-of-use assets as of January 29, 2022.

Store assets that were previously impaired as of January 29, 2022, had a remaining net book value of $80.9 million, which included $73.5 million of operating lease right-of-use assets, as of January 29, 2022.

If actual results are not consistent with the estimates and assumptions used in assessing impairment or measuring impairment losses, there may be a material impact on the Company’s financial condition or results of operation.

While the Company If actual results are not consistent with the estimates and assumptions used in assessing impairment or measuring impairment losses, there may be a material impact on the Company’s financial condition or results of operation.

The Company’s lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term.

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Excluded items

The following financial measures are disclosed on a GAAP and on an adjusted non-GAAP basis excluding the following items, as applicable:

The following financial measures are disclosed on a GAAP basis and on an adjusted non-GAAP basis excluding the following items, as applicable:

Financial measures (1)

41 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis