What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-06-08 compared with 2021-12-06 · 224 added, 336 removed, 220 unchanged (72% 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 Condensed Consolidated Financial Statements and notes thereto included in this Quarterly Report on Form 10-Q in “ ITEM 1.

FINANCIAL STATEMENTS (UNAUDITED) ,” to which all references to Notes in MD&A are made.

F inancial S tatements (U naudited ) ,” to which all references to Notes in MD&A are made.

SPECIAL NOTE REGARDING 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 Quarterly Report on Form 10-Q or made by the Company, its management or 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,” “should,” “are confident,” or the negative version of those words or other comparable words 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 Quarterly Report on Form 10-Q will prove to be accurate.

Factors that could cause results to differ from those expressed in the Company’s forward-looking statements include, but are not limited to, the risks described or referenced in Part I, Item 1A.

“Risk Factors,” in the Company’s Annual Report on Fiscal 2021 Form 10-K for the fiscal year ended January 29, 2022 and otherwise in our reports and filings with the SEC, as well as the following:

• risks and uncertainty related to the ongoing COVID-19 pandemic and any other adverse public health developments;

• risks related to changes in global economic and financial conditions, and the resulting impact on consumer confidence and consumer spending, as well as other changes in consumer discretionary spending habits;

• risks related to recent inflationary pressures with respect to labor and raw materials and global supply chain constraints that have, and could continue to, affect freight, transit and other costs;

• risks related to geopolitical conflict, including the on-going hostilities in Ukraine, acts of terrorism, mass casualty events, social unrest, civil disturbance or disobedience;

• risks related to our failure to engage our customers, anticipate customer demand and changing fashion trends, and manage our inventory;

• risks related to our ability to successfully invest in customer, digital and omnichannel initiatives;

• risks related to our ability to execute on our global store network optimization initiative;

• risks related to our international growth strategy;

• risks related to cyber security threats and privacy or data security breaches or the potential loss or disruption of our information systems;

• risks associated with climate change and other corporate responsibility issues;

• uncertainties related to future legislation, regulatory reform, policy changes, or interpretive guidance on existing legislation.

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.

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

Except as may be required by applicable law, the Company assumes no obligation to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

Abercrombie & Fitch Co.

2022 1Q Form 10-Q

MD&A is provided as a supplement to the accompanying Condensed Consolidated Financial Statements and notes thereto to help provide an understanding of the Company’s results of operations, financial condition, and liquidity.

MD&A is organized as follows:

This section provides a general description of the Company’s business and certain segment information.

A general description of the Company’s business and certain segment information.

• Current Trends and Outlook .

This section provides a discussion related to certain of the Company’s focus areas for the current fiscal year and discussion of certain risks and challenges, such as COVID-19, as well as a summary of the Company’s performance for the thirteen and thirty-nine weeks ended October 30, 2021 and October 31, 2020.

A discussion related to certain of the Company’s focus areas for the current fiscal year and discussion of certain risks and challenges as well as a summary of the Company’s performance for the thirteen weeks ended April 30, 2022 and May 1, 2021.

• Results of Operations .

This section provides an analysis of certain components of the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen and thirty-nine weeks ended October 30, 2021 and October 31, 2020.

An analysis of certain components of the Company’s Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the thirteen weeks ended April 30, 2022 and May 1, 2021.

• Liquidity and Capital Resources .

This section provides a discussion of the Company’s expected primary sources and uses of cash, financial condition and liquidity as of October 30, 2021, which includes (i) an analysis of financial condition as compared to January 30, 2021;

(ii) an analysis of changes in cash flows for the thirty-nine weeks ended October 30, 2021 as compared to the thirty-nine weeks ended October 31, 2020;

and (iii) an analysis of liquidity, including discussion related to the Company’s Senior Secured Notes and ABL Facility, the Company’s share repurchase and dividend programs, and outstanding debt and covenant compliance.

A discussion of the Company’s financial condition, changes in financial condition and liquidity as of April 30, 2022, which includes (i) an analysis of financial condition as compared to January 29, 2022;

(ii) an analysis of changes in cash flows for the thirteen weeks ended April 30, 2022 as compared to the thirteen weeks ended May 1, 2021;

and (iii) an analysis of liquidity, including availability under the Company’s credit facility, the Company’s share repurchase program, and outstanding debt and covenant compliance.

• Recent Accounting Pronouncements .

The recent accounting pronouncements the Company has adopted or is currently evaluating, including the dates of adoption and/or expected dates of adoption, and anticipated effects on the Company’s Condensed Consolidated Financial Statements, are discussed, as applicable.

• 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 management in their application.

A discussion, as applicable, of the recent accounting pronouncements the Company has adopted or is currently evaluating, including the dates of adoption and/or expected dates of adoption, and anticipated effects on the Company’s Condensed Consolidated Financial Statements.

• Critical Accounting E stimates .

A discussion of the accounting estimates 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 management in their application.

• Non-GAAP Financial Measures .

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This section includes certain reconciliations between GAAP and non-GAAP financial measures and additional details on non-GAAP financial measures, including information as to why the Company believes the non-GAAP financial measures provided within MD&A are useful to investors.

The following risks, categorized by the primary nature of the associated risk, including the disclosures in “ITEM 1A.

RISK FACTORS” of A&F’s Annual Report on Form 10-K for Fiscal 2020 in some cases have affected and in the future could affect the Company’s financial performance and cause actual results for Fiscal 2021 and beyond to differ materially from those expressed or implied in any of the forward-looking statements included in this Quarterly Report on Form 10-Q or otherwise made by management.

The following risks, or a combination of risks, may be exacerbated by COVID-19 and could result in adverse impacts on the Company’s business, results of operations, financial condition and cash flows.

Macroeconomic and industry risks include:

• COVID‐19 has and may continue to materially adversely impact and cause disruption to our business;

• Changes in global economic and financial conditions, and the resulting impact on consumer confidence and consumer spending, as well as other changes in consumer discretionary spending habits could have a material adverse impact on our business;

• Failure to engage our customers, anticipate customer demand and changing fashion trends, and manage our inventory commensurately could have a material adverse impact on our business;

• Our failure to operate effectively in a highly competitive and constantly evolving industry could have a material adverse impact on our business;

• Fluctuations in foreign currency exchange rates could have a material adverse impact on our business;

• Our ability to attract customers to our stores depends, in part, on the success of the shopping malls or area attractions that our stores are located in or around;

• The impact of war, acts of terrorism, mass casualty events, social unrest, civil disturbance or disobedience could have a material adverse impact on our business;

• The impact of extreme weather, infectious disease outbreaks, including COVID-19, and other unexpected events could result in an interruption to our business, as well as to the operations of our third-party partners, and have a material adverse impact on our business.

Strategic risks include:

• Failure to successfully develop an omnichannel shopping experience, a significant component of our growth strategy, or failure to successfully invest in customer, digital and omnichannel initiatives could have a material adverse impact on our business;

• Our failure to optimize our global store network could have a material adverse impact on our business;

• Our failure to execute our international growth strategy successfully and inability to conduct business in international markets as a result of legal, tax, regulatory, political and economic risks could have a material adverse impact on our business;

• Our failure to appropriately address emerging environmental, social and governance matters could have a material adverse impact on our reputation and, as a result, our business.

Operational risks include:

• Failure to protect our reputation could have a material adverse impact on our business;

• If our information technology systems are disrupted or cease to operate effectively, it could have a material adverse impact on our business;

• We may be exposed to risks and costs associated with cyber-attacks, data protection, credit card fraud and identity theft that could have a material adverse impact on our business;

• Our reliance on our distribution centers makes us susceptible to disruptions or adverse conditions affecting our supply chain;

• Changes in the cost, availability and quality of raw materials, labor, transportation, and trade relations could have a material adverse impact on our business;

• We depend upon independent third parties for the manufacture and delivery of all our merchandise, and a disruption of the manufacture or delivery of our merchandise could have a material adverse impact on our business;

• We rely on the experience and skills of our executive officers and associates, and the failure to attract or retain this talent, eff ectively manage succession, and establish a diverse workforce could have a material adverse impact on our business;

• In the past, we have identified a material weakness in our internal control over financial reporting and may identify additional material weaknesses in the future.

If we fail to establish and maintain effective internal control over financial reporting, our ability to accurately and timely report our financial results could be adversely affected.

Legal, tax, regulatory and compliance risks include:

• Fluctuations in our tax obligations and effective tax rate may result in volatility in our results of operations could have a material adverse impact on our business;

• Our litigation exposure, or any securities litigation and shareholder activism, could have a material adverse impact on our business;

• Failure to adequately protect our trademarks could have a negative impact on our brand image and limit our ability to penetrate new markets which could have a material adverse impact on our business;

• Changes in the regulatory or compliance landscape could have a material adverse impact on our business;

• The agreements related to our senior secured asset-based revolving credit facility and our senior secured notes include restrictive covenants that limit our flexibility in operating our business and our inability to obtain credit on reasonable terms in the future could have an adverse impact on our business.

The factors listed above are not our only risks.

Additional risks may arise, and current evaluations of risks may change, which could lead to material, adverse effects on our business, operating results and financial condition.

Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “should,” “are confident,” 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 Quarterly Report on Form 10-Q will prove to be accurate.

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

Abercrombie & Fitch Co.

2022 1Q Form 10-Q

Business summary

6 unchanged sentences

All references herein to the Company’s fiscal years are as follows:

Fiscal year Year ended Number of weeks

Fiscal 2019 February 1, 2020 52

Fiscal year Year ended/ ending Number of weeks

Fiscal 2021 January 29, 2022 52

Fiscal 2022 January 28, 2023 52

Fiscal 2023 February 3, 2024 53

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

3 unchanged sentences

The Company remains committed to, and confident in, its long-term vision of being and becoming 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 on offense, and has made progress towards recouping COVID-19 driven 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 2021 serve as a framework to the Company achieving sustainable long-term operating margin expansion:

The following focus areas for Fiscal 2022 serve as a framework for the Company’s achievement of sustainable growth and long-term operating margin expansion:

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

• Increase marketing investments to build on momentum across brands and geographies;

• Invest in Gilly Hicks and the Company’s newest brand, Social Tourist, which launched on May 20, 2021;

• Optimize store square footage, while being opportunistic in global store expansion;

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

• 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 Company.

Supply chain disruptions, inflation and changing prices

The Company has continued to see global supply chain constraints impacting our business and operations.

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

During the latter half of Fiscal 2021, the Company increased its air freight usage in response to inventory delays imposed by temporary factory closures in Vietnam.

This disruption and the associated increased costs adversely impacted the Company during the latter half of Fiscal 2021 and into the first quarter of Fiscal 2022.

In addition, the Company has experienced and expects to continue to experience inflationary pressures affecting the Company’s freight, transit, and other costs, and such rates are likely to remain elevated throughout Fiscal 2022.

In order to mitigate supply chain constraints and higher freight rates, the Company has taken and expects to continue to take actions to manage the impact, including scheduling earlier inventory receipts to allow for longer lead times, expanding its number of freight vendors, and reducing air freight usage where possible.

It is possible that the Company’s responses to factory closures, transportation delays, or freight rates will not be adequate to mitigate the impact, and that these events could continue to adversely affect the Company’s business and results of operations.

The Company has also experienced inflationary pressures with respect to labor, cotton and other 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 increased costs 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 discretionary spending.

In periods of perceived unfavorable conditions, consumers may reallocate available discretionary

Abercrombie & Fitch Co.

2022 1Q Form 10-Q

spending to areas outside of our core business.

In addition, as COVID-19 restrictions begin to be lifted, consumers may use any remaining discretionary spending on travel and other experiences which may adversely impact demand for our products.

Global Store Network Optimization

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 Orchard Road, Singapore flagship location during the first quarter of Fiscal 2021.

This leaves the Company with six operating flagships at the end of the third quarter 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 129 non-flagship locations and eight flagship locations during Fiscal 2020.

These actions, combined with recent 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.

As part of its ongoing global store network optimization initiative, the Company has a stated goal of repositioning from larger format locations, such as, tourist dependent and flagship locations, to smaller, omni-enabled stores that cater to local customers.

The Company continues to focus on aligning store square footage with digital penetration, and during the first quarter of Fiscal 2022, the Company opened 4 new format stores, while closing 5 legacy stores.

As part of this focus, the Company plans to open 60 new stores, while closing 30 stores, during Fiscal 2022, pending negotiations with our landlord partners.

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.

Additional details related to store count and gross square footage follow:

The Company may also elect to exit or modify other leases, and could incur charges related to these actions.Additional details related to store count and gross square footage follow:

Hollister (1)

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Permanently closed — — (3) (2) (3) (2) (5)

October 30, 2021 355 151 181 48 536 199 735

April 30, 2022 352 156 171 49 523 205 728

Gross square footage (in thousands) :

October 30, 2021 2,344 1,204 1,224 387 3,568 1,591 5,159

April 30, 2022 2,318 1,218 1,146 347 3,464 1,565 5,029

(1) Hollister includes the Company’s Hollister and Gilly Hicks brands.

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

Excludes 10 international franchise stores as of October 30, 2021, and 9 international franchise stores as of January 30, 2021.

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

Excludes 8 international franchise stores as of April 30, 2022, and January 29, 2022.

Excludes 13 Company-operated temporary stores as of April 30, 2022 and 14 Company-operated temporary stores as of January 29, 2022.

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

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

Excludes 13 international franchise stores as of October 30, 2021 and 10 international franchise stores as of January 30, 2021.

Excludes four and two Company-operated temporary stores as of October 30, 2021 and January 30, 2021, respectively.

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

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 October 30, 2021, all Company-operated stores were fully open for in-store service.

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.

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

Total net sales increased approximately 10% and 27% for the thirteen and thirty-nine weeks ended October 30, 2021 as compared to the thirteen and thirty-nine weeks ended October 31, 2020 driven largely by increased store foot traffic relative to last year which was impacted by widespread temporary store closures due to COVID-19.

Digital net sales increased approximately 8% and increased 14% for the thirteen and thirty-nine weeks ended October 30, 2021 as compared to the thirteen and thirty-nine weeks ended October 31, 2020.

Digital net sales remained highly penetrated, representing 46% and 47% of total net sales for the thirteen and thirty-nine weeks ended October 30, 2021.

The Company’s digital operations across brands have continued to serve the Company’s customers during periods 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 leaned into its omnichannel capabilities by continuing to offer Purchase-Online-Pickup-in-Store, rolling out curbside pick-up at a majority of U.S.

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

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.

COVID-19 has also caused disruptions to 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 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, which adversely impacted the Company during the thirteen weeks ended October 30, 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.

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

Excludes 5 Company-operated temporary stores as of each of April 30, 2022 and January 29, 2022.

(3) This store count excludes one international third-party operated multi-brand outlet store as of each of April 30, 2022, and January 29, 2022.

There continues to be uncertainty surrounding ongoing COVID-19 pandemic and its impact on the global economy, including government-mandated restrictions, supply chain disruptions, inflationary pressures, higher freight and labor costs, and labor shortages.

As of April 30, 2022, all U.S.

stores were fully open for in-store service;

however, temporary store closures have 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.

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.

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

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, and the availability and acceptance of effective vaccines, boosters or medical treatments.

Abercrombie & Fitch Co.

2022 1Q Form 10-Q

Impact of global events and uncertainty

We are a global multi-brand omnichannel specialty retailer, with operations in North America, Europe and Asia, among other regions, management is mindful of macroeconomic risks, global challenges and the changing global geopolitical environment, including the on-going conflict 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 and update contingency plans to assist in mitigating potential impacts.

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 our actual results to differ materially from our expectations, refer to the disclosures under the heading “FORWARD-LOOKING STATEMENTS AND RISK FACTORS” in “ITEM 1A.

RISK FACTORS” of A&F’s Annual Report on Form 10-K for Fiscal 2020.

RISK FACTORS” on the Fiscal 2021 Form 10-K.

Summary of results

A summary of results for the thirteen and thirty-nine weeks ended October 30, 2021 and October 31, 2020 follows:

A summary of results for the thirteen weeks ended April 30, 2022 and May 1, 2021 follows:

GAAP Non-GAAP (1)

(in thousands, except change in net sales, gross profit rate, operating income (loss) margin and per share amounts) October 30, 2021 (2)

October 31, 2020 (3)

October 30, 2021 (2)

October 31, 2020 (3)

(in thousands, except change in net sales, gross profit rate, operating (loss) income margin and per share amounts) April 30, 2022

April 30, 2022

Thirteen Weeks Ended

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Gross profit rate 55.3 % 63.4 %

Operating income $ 72,731 $ 58,616 $ 79,480 $ 64,945

Operating income margin 8.0 % 7.2 % 8.8 % 7.9 %

Net income attributable to A&F $ 47,233 $ 42,271 $ 52,607 $ 48,231

Net income per diluted share attributable to A&F $ 0.77 $ 0.66 $ 0.86 $ 0.76

Thirty-nine Weeks Ended

Net sales $ 2,551,415 $ 2,003,340

Change in net sales 27.4 % (24.8) %

Gross profit rate 64.1 % 60.5 %

Operating income (loss) $ 244,951 $ (136,368) $ 255,150 $ (79,028)

Operating income (loss) margin

Operating (loss) income $ (9,726) $ 57,433 $ (6,304) $ 60,097

Operating (loss) income margin (1.2) % 7.3 % (0.8) % 7.7 %

Net (loss) income attributable to A&F $ (16,469) $ 41,768 $ (13,965) $ 43,983

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

(0.32) 0.64 (0.27) 0.67

Net income (loss) attributable to A&F $ 197,501 $ (196,413) $ 205,652 $ (142,708)

Net income (loss) per diluted share attributable to A&F $ 3.10 $ (3.14) $ 3.22 $ (2.28)

(1) Discussion as to why the Company believes that these non-GAAP financial measures are useful to investors and a reconciliation of the Non-GAAP measures to the most directly comparable financial measure calculated and presented in accordance with GAAP are provided below under “ NON-GAAP FINANCIAL MEASURES .”

(2) Results for Fiscal 2021 reflect tax benefits related to the release of income tax valuation allowances and the impact of a statutory rate change on the valuation of deferred tax assets.

Refer to Note 10, “ INCOME TAXES .”

(3) Results for Fiscal 2020 reflect significant adverse tax impacts related to valuation allowances on deferred tax assets and other tax charges.

Refer to Note 10, “ INCOME TAXES .”

Certain components of the Company’s Condensed Consolidated Balance Sheets as of October 30, 2021 and January 30, 2021 were as follows:

(in thousands) October 30, 2021 January 30, 2021

Certain components of the Company’s Condensed Consolidated Balance Sheets as of April 30, 2022 and January 29, 2022 were as follows:

(in thousands) April 30, 2022 January 29, 2022

Cash and equivalents $ 468,378 $ 823,139

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Inventories 562,510 525,864

Certain components of the Company’s Condensed Consolidated Statements of Cash Flows for the thirty-nine week periods ended October 30, 2021 and October 31, 2020 were as follows:

(in thousands) October 30, 2021 October 31, 2020

Net cash provided by operating activities $ 131,287 $ 108,894

Certain components of the Company’s Condensed Consolidated Statements of Cash Flows for the thirteen week periods ended April 30, 2022 and May 1, 2021 were as follows:

(in thousands) April 30, 2022 May 1, 2021

Net cash used for operating activities $ (217,787) $ (131,350)

Net cash used for investing activities (18,541) (14,404)

Net cash (used for) provided by financing activities $ (304,358) $ 70,129

Net cash used for financing activities (116,945) (53,191)

Abercrombie & Fitch Co.

2022 1Q Form 10-Q

RESULTS OF OPERATIONS

The estimated basis point (“BPS”) change disclosed throughout this Results of Operations has been rounded based on the change in the percentage of net sales.

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:

The estimated basis point (“BPS”) change disclosed throughout this Results of Operations section has been rounded based on the change in the percentage of net sales.

For the first quarter of Fiscal 2022, net sales increased 4% as compared to the first quarter of Fiscal 2021, primarily due to an increase in stores sales, as well as an increase average unit retail driven by lower promotions and markdowns, partially offset by the adverse impact from changes in foreign currency exchange rates of approximately $9 million.

The Company’s net sales by operating segment for the thirteen weeks ended April 30, 2022 and May 1, 2021 were as follows:

Thirteen Weeks Ended

(in thousands) October 30, 2021 October 31, 2020 $ Change % Change

Hollister (1)

$ 522,311 $ 476,665 $ 45,646 10%

Abercrombie (2)

382,849 342,988 39,861 12%

Total $ 905,160 $ 819,653 $ 85,507 10%

Thirty-nine Weeks Ended

(in thousands) October 30, 2021 October 31, 2020 $ Change % Change

(in thousands) April 30, 2022 May 1, 2021 $ Change % Change

Hollister (1)

6 unchanged sentences

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.

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:

The Company’s net sales by geographic area for the thirteen weeks ended April 30, 2022 and May 1, 2021 were as follows:

Thirteen Weeks Ended

(in thousands) October 30, 2021 October 31, 2020 $ Change % Change

$ 654,858 $ 557,814 $ 97,044 17%

EMEA 179,156 190,214 (11,058) (6)%

APAC 38,215 43,618 (5,403) (12)%

Other 32,931 28,007 4,924 18%

International $ 250,302 $ 261,839 $ (11,537) (4)%

Total $ 905,160 $ 819,653 $ 85,507 10%

Thirty-nine Weeks Ended

(in thousands) October 30, 2021 October 31, 2020 $ Change % Change

(in thousands) April 30, 2022 May 1, 2021 $ Change % Change

$ 585,106 $ 553,846 $ 31,260 6%

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Total $ 812,762 $ 781,405 $ 31,357 4%

For the third quarter of Fiscal 2021, net sales increased 10% as compared to the third quarter of Fiscal 2020, primarily due to an increase in stores sales as a result of increased store foot traffic relative to last year, which was impacted by widespread temporary store closures due to COVID-19, and 8% digital sales growth.

Average unit retail increased year-over-year, driven by lower promotions and markdowns, with benefits from changes in foreign currency exchange rates of approximately $4 million.

For the year-to-date period of Fiscal 2021, net sales increased 27% as compared to the year-to-date period of Fiscal 2020, primarily due to an increase in units sold as a result of increased store foot traffic relative to last year, which was impacted by widespread temporary store closures due to COVID-19, and 14% 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 $33 million.

Cost of sales, exclusive of depreciation and amortization

Thirteen Weeks Ended

October 30, 2021 October 31, 2020

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

Cost of sales, exclusive of depreciation and amortization $ 328,916 36.3% $ 295,220 36.0% 30

Thirty-nine Weeks Ended

October 30, 2021 October 31, 2020

April 30, 2022 May 1, 2021

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

Cost of sales, exclusive of depreciation and amortization $ 363,216 44.7% $ 286,271 36.6% 810

For the third quarter of Fiscal 2021, cost of sales, exclusive of depreciation and amortization, as a percentage of net sales increased by approximately 30 basis points as compared to the third quarter of Fiscal 2020.

The year-over-year increase was driven by approximately 300 basis points of higher average unit cost from freight inflation and efforts to offset supply chain issues, almost fully offset by higher average unit retail on reduced promotions.

For the year-to-date period of Fiscal 2021, cost of sales, exclusive of depreciation and amortization, as a percentage of net sales decreased by approximately 360 basis points as compared to the year-to-date period of Fiscal 2020.

The year-over-year decline was primarily attributable to increased average unit retail on reduced promotions and markdowns.

For the first quarter of Fiscal 2022, cost of sales, exclusive of depreciation and amortization, as a percentage of net sales increased by approximately 810 basis points as compared to the first quarter of Fiscal 2021.

The year-over-year increase was driven by approximately $80 million higher average unit cost from freight inflation partially offset by higher average unit retail on lower promotions and higher ticket prices.

Abercrombie & Fitch Co.

2022 1Q Form 10-Q

Gross profit, exclusive of depreciation and amortization

Thirteen Weeks Ended

October 30, 2021 October 31, 2020

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

Gross profit, exclusive of depreciation and amortization $ 576,244 63.7% $ 524,433 64.0% (30)

Thirty-nine Weeks Ended

October 30, 2021 October 31, 2020

April 30, 2022 May 1, 2021

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

2 unchanged sentences

Thirteen Weeks Ended

October 30, 2021 October 31, 2020

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

Stores and distribution expense $ 351,804 38.9% $ 346,263 42.2% (330)

Thirty-nine Weeks Ended

October 30, 2021 October 31, 2020

April 30, 2022 May 1, 2021

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

Stores and distribution expense $ 337,543 41.5% $ 315,508 40.4% 110

For the third quarter of Fiscal 2021, stores and distribution expense increased 2% as compared to the third quarter of Fiscal 2020, primarily driven by a $13 million increase in digital sales marketing expense, a $5 million increase in digital direct expense, and a $3 million increase in digital shipping and handling expenses, reflecting 8% year-over-year digital sales growth.

These increases were partially offset by a $19 million reduction in store occupancy expense reflecting a decrease in store count and favorable rent negotiations.

For the year-to-date period of Fiscal 2021, stores and distribution expense increased 2% as compared to the year-to-date period of Fiscal 2020, primarily driven by a $36 million increase in store payroll expense, reflecting the return of certain expenses saved last year from COVID-19 temporary store closures, a $24 million increase in digital sales marketing expense, and a $15 million increase in digital shipping and handling expense reflecting 14% year-over-year digital sales growth.

These increases were partially offset by a $75 million reduction in store occupancy expense reflecting a decrease in store count and favorable rent negotiations and include approximately $18 million in benefits related to rent abatements and a favorable resolution of a flagship store closure.

For the first quarter of Fiscal 2022, stores and distribution expense increased 7% as compared to the first quarter of Fiscal 2021.

Approximately half of the $22 million increase was due to the lapping of COVID19-related rent abatements and payroll credits last year, with the remaining primarily due to an increase in marketing and digital fulfillment expenses.

These increases were partially offset by a reduction in store occupancy expense reflecting a decrease in store count and favorable rent negotiations.

Marketing, general and administrative expense

Thirteen Weeks Ended

October 30, 2021 October 31, 2020

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

Marketing, general and administrative expense $ 146,269 16.2% $ 121,000 14.8% 140

Thirty-nine Weeks Ended

October 30, 2021 October 31, 2020

April 30, 2022 May 1, 2021

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

Marketing, general and administrative expense $ 122,149 15.0% $ 120,947 15.5% (50)

For the third quarter of Fiscal 2021, marketing, general and administrative expense increased 21% as compared to the third quarter of 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.

For the year-to-date period of Fiscal 2021, marketing, general and administration expense increased 20% as compared to the year-to-date period of Fiscal 2020, primarily driven by increased digital media spend, performance-based compensation, legal, consulting and information technology expense.

For the first quarter of Fiscal 2022, marketing, general and administrative expense increased 1% as compared to the first quarter of Fiscal 2021, primarily driven by increased digital media spend, consulting and information technology expense.

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

Flagship store exit charges (benefits)

Thirteen Weeks Ended

October 30, 2021 October 31, 2020

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

Flagship store exit charges (benefits) $ 11 —% $ (8,063) (1.0)% 100

Thirty-nine Weeks Ended

October 30, 2021 October 31, 2020

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

Flagship store exit charges (benefits) $ (1,177) —% $ (12,490) (0.6)% 60

Refer to Note 16, “ FLAGSHIP STORE EXIT CHARGE S ( BENEFITS ) .”

Asset impairment

Thirteen Weeks Ended

October 30, 2021 October 31, 2020

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

Asset impairment $ 6,749 0.7% $ 6,329 0.8% (10)

Excluded items:

Asset impairment charges (1)

(6,749) (0.7)% (6,329) (0.8)% 10

Adjusted non-GAAP asset impairment $ — 0.0% $ — —% —

Thirty-nine Weeks Ended

October 30, 2021 October 31, 2020

April 30, 2022 May 1, 2021

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

6 unchanged sentences

Refer to Note 8, “ ASSET IMPAIRMENT .”

Other operating income (loss), net

Abercrombie & Fitch Co.

2022 1Q Form 10-Q

Other operating income, net

Thirteen Weeks Ended

October 30, 2021 October 31, 2020

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

Other operating income (loss), net $ 1,320 0.1% $ (288) —% (10)

Thirty-nine Weeks Ended

October 30, 2021 October 31, 2020

April 30, 2022 May 1, 2021

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

Other operating income, net $ 3,842 0.5% $ 1,418 0.2% (30)

Operating income (loss)

For the first quarter of Fiscal 2022, other operating income, net increased $2.4 million as compared to the first quarter of Fiscal 2021, primarily driven by gains on foreign currency exchange forward contracts and a gain on the sale of property and equipment.

Operating (loss) income

Thirteen Weeks Ended

October 30, 2021 October 31, 2020

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

Operating income $ 72,731 8.0% $ 58,616 7.2% 80

Excluded items:

Asset impairment charges (1)

6,749 0.7% 6,329 0.8% (10)

Adjusted non-GAAP operating income $ 79,480 8.8% $ 64,945 7.9% 90

Thirty-nine Weeks Ended

October 30, 2021 October 31, 2020

April 30, 2022 May 1, 2021

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

Operating income (loss) $ 244,951 9.6% $ (136,368) (6.8)% 1,640

Operating (loss) income $ (9,726) (1.2)% $ 57,433 7.3% (850)

Excluded items:

1 unchanged sentence

3,422 0.4% 2,664 0.3% 10

Adjusted non-GAAP operating income (loss) $ 255,150 10.0% $ (79,028) (3.9)% 1,390

Adjusted non-GAAP operating (loss) income $ (6,304) (0.8)% $ 60,097 7.7% (850)

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

1 unchanged sentence

Thirteen Weeks Ended

October 30, 2021 October 31, 2020

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

Interest expense $ 7,802 0.9% $ 9,408 1.1% (20)

Interest income (532) (0.1)% (600) (0.1)% —

Interest expense, net $ 7,270 0.8% $ 8,808 1.1% (30)

Thirty-nine Weeks Ended

October 30, 2021 October 31, 2020

April 30, 2022 May 1, 2021

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

2 unchanged sentences

Interest expense, net $ 7,307 0.9% $ 8,606 1.1% (20)

For the third quarter of Fiscal 2021, interest expense, net decreased $1.5 million as compared to the third quarter of Fiscal 2020, primarily driven by lower interest expense as a result of lower borrowings in the current quarter due to the purchase of Senior Secured Notes in the second quarter of Fiscal 2021, as well as the settlement of a lease liability related to a previously closed store.

For the year-to-date period of Fiscal 2021, interest expense, net increased $7.9 million as compared to the year-to-date period of Fiscal 2020.

The increase in interest expense, net, is 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 at a higher interest rate.

Income tax expense

For the first quarter of Fiscal 2022, interest expense, net decreased $1.3 million as compared to the first quarter of Fiscal 2021, primarily driven by lower interest expense as a result of lower borrowings in the current quarter due to the purchase of Senior Secured Notes in the second quarter of Fiscal 2021.

Abercrombie & Fitch Co.

2022 1Q Form 10-Q

Income tax (benefit) expense

Thirteen Weeks Ended

October 30, 2021 October 31, 2020

(in thousands, except ratios) Effective Tax Rate Effective Tax Rate

Income tax expense $ 16,383 25.0% $ 5,779 11.6%

Excluded items:

Tax effect of pre-tax excluded items (1)

Adjusted non-GAAP income tax expense $ 17,758 24.6% $ 6,148 11.0%

Thirty-nine Weeks Ended

October 30, 2021 October 31, 2020

April 30, 2022 May 1, 2021

(in thousands, except ratios) Effective Tax Rate Effective Tax Rate

Income tax expense $ 15,560 7.1% $ 38,565 (24.8)%

Income tax (benefit) expense $ (2,187) 12.8% $ 6,121 12.5%

Excluded items:

Tax effect of pre-tax excluded items (1)

Adjusted non-GAAP income tax expense $ 17,608 7.7% $ 42,200 (42.9)%

Adjusted non-GAAP income tax (benefit) expense $ (1,269) 9.3% $ 6,570 12.8%

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

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

Refer to “ Operating (loss) income ” and “ NON-GAAP FINANCIAL MEASURES ,” for details of pre-tax excluded items.

Refer to Note 9, “ INCOME TAXES .”

Net income (loss) attributable to A&F

Net (loss) income attributable to A&F

Thirteen Weeks Ended

October 30, 2021 October 31, 2020

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

Net income attributable to A&F $ 47,233 5.2% $ 42,271 5.2% —

Excluded items, net of tax (1)

5,374 0.6% 5,960 0.7% (10)

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

$ 52,607 5.8% $ 48,231 5.9% (10)

Thirty-nine Weeks Ended

October 30, 2021 October 31, 2020

April 30, 2022 May 1, 2021

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

Net income (loss) attributable to A&F $ 197,501 7.7% $ (196,413) (9.8)% 1,750

Net (loss) income attributable to A&F $ (16,469) (2.0)% $ 41,768 5.3% (730)

Excluded items, net of tax (1)

2,504 0.3% 2,215 0.3% —

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

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

$ (13,965) (1.7)% $ 43,983 5.6% (730)

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

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

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

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

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

Thirteen Weeks Ended

October 30, 2021 October 31, 2020 $ Change

Net income per diluted share attributable to A&F $ 0.77 $ 0.66 $0.11

Excluded items, net of tax (1)

$ 0.09 $ 0.09 $—

Adjusted non-GAAP net income per diluted share attributable to A&F $ 0.86 $ 0.76 $0.10

Impact from changes in foreign currency exchange rates

$ — $ (0.05) $0.05

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

April 30, 2022 May 1, 2021 $ Change

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

$ (0.32) $ 0.64 $(0.96)

Thirty-nine Weeks Ended

October 30, 2021 October 31, 2020 $ Change

Net income (loss) per diluted share attributable to A&F $ 3.10 $ (3.14) $6.24

Excluded items, net of tax (1)

0.05 0.03 0.02

Adjusted non-GAAP net income (loss) per diluted share attributable to A&F $ 3.22 $ (2.28) $5.50

Adjusted non-GAAP net (loss) income per diluted share attributable to A&F (0.27) 0.67 (0.94)

Impact from changes in foreign currency exchange rates — 0.05 (0.05)

$ — $ (0.02) $0.02

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

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

(0.27) 0.72 (0.99)

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

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

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

Abercrombie & Fitch Co.

2022 1Q Form 10-Q

LIQUIDITY AND CAPITAL RESOURCES

1 unchanged sentence

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 ABL Facility and/or the Senior Secured Notes.

For a discussion of the Company’s share repurchase activity and suspended dividend program, please see below under “Share repurchases and dividends.”

Primary sources and uses of cash

3 unchanged sentences

The Company relies on excess operating cash flows, which are largely generated in Fall, to fund operations throughout the year and to reinvest in the business to support future growth.

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 ”.

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

Over the next twelve months, the Company expects its primary cash requirements to be directed towards prioritizing investments in the business and continuing to fund 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 “Item 1.

BUSINESS - STRATEGY AND KEY BUSINESS PRIORITIES” of A&F’s Annual Report on Form 10-K for Fiscal 2020, including being opportunistic regarding growth opportunities, such as launching the Social Tourist brand.

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.

Business - STRATEGY AND KEY BUSINESS PRIORITIES” included on the Fiscal 2021 Form 10-K, including being opportunistic regarding growth opportunities.

Examples of potential investment opportunities include, but are not limited to, new store experiences, and investments in its digital and omnichannel initiatives.

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.

For the year-to-date period ended October 30, 2021, the Company used $62.2 million towards capital expenditures.

Total capital expenditures for Fiscal 2021 are expected to be approximately $100 million as compared to $101.9 million of capital expenditures in Fiscal 2020.

The Company entered Fiscal 2021 in a strong financial position, with cash and cash equivalents of $1.1 billion and total liquidity of approximately $1.3 billion.

This allows the Company to evaluate potential opportunities to strategically deploy excess cash and delever the balance sheet, depending on various factors, such as market and business conditions, including the Company’s ability to accelerate investments in the business.

For the year-to-date period ended April 30, 2022, the Company used $26.3 million towards capital expenditures.

Total capital expenditures for Fiscal 2022 are expected to be approximately $150 million.

The Company measures liquidity using total cash and cash equivalents and incremental borrowing available under the ABL Facility.

As of April 30, 2022, the Company has cash and cash equivalents of $0.5 billion and total liquidity of approximately $0.8 billion.

This compares with cash and cash equivalents of $0.8 billion and total liquidity of approximately $1.1 billion at the beginning of Fiscal 2022.

This allows the Company to evaluate potential opportunities to strategically deploy excess cash and/or deleverage the balance sheet, depending on various factors, such as market and business conditions, including the Company’s ability to accelerate investments in the business.

Such opportunities include, but are not limited to, returning cash to shareholders through share repurchases or repurchasing outstanding Senior Secured Notes.

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 resumed share repurchases and may repurchase shares in the future, dependent on various factors, such as market and business conditions, including the Company’s ability to accelerate investments in the business.

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

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.

During the year-to-date period ended April 30, 2022, the Company repurchased approximately 3.3 million shares and returned approximately $100.0 million to shareholder through repurchases.

Historically, 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 trading plans established in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), through privately negotiated transactions or other transactions or by a combination of such methods.

Refer to “ ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS ” of Part II of this Quarterly Report on Form 10-Q for the amount remaining available for purchase under the Company’s publicly announced stock repurchase authorization.

Refer to “ I tem 2.

U nregistered S ales of E quity S ecurities and U se of Proceeds ” of Part II of this Quarterly Report on Form 10-Q for the amount remaining available for purchase under the Company’s publicly announced stock repurchase authorization.

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

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.

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

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.

A quarterly dividend, of $0.20 per share outstanding, was declared in February and paid in March of Fiscal 2020.

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.

Credit facilities and Senior Secured Notes

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

The Senior Secured Notes will mature on July 15, 2025 and bear interest at a rate of 8.75% per annum, with semi-annual interest payments which began in January 2021.

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

During the thirty-nine weeks ended October 30, 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 premium of $4.7 million and the write-off of unamortized fees of $0.6 million.

As of October 30, 2021, the Company had $307.7 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 October 30, 2021, the Company did not have any borrowings outstanding under the ABL Facility.

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 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.

Abercrombie & Fitch Co.

2022 1Q Form 10-Q

Credit facility and Senior Secured Notes

As of April 30, 2022, the Company had $307.7 million of gross borrowings outstanding under the Senior Secured Notes.

In addition, the Amended and Restated Credit Agreement provides for the ABL Facility, which is a senior secured asset-based revolving credit facility of up to $400 million.

As of April 30, 2022, the Company did not have any borrowings outstanding under the ABL Facility.

The ABL Facility matures on April 29, 2026.

Details regarding the remaining borrowing capacity under the ABL Facility as of October 30, 2021 are as follows:

(in thousands) October 30, 2021

Details regarding the remaining borrowing capacity under the ABL Facility as of April 30, 2022 are as follows:

(in thousands) April 30, 2022

Borrowing base $ 350,232

9 unchanged sentences

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 October 30, 2021, $405.5 million of the Company’s $865.6 million of cash and equivalents were held by foreign affiliates.

As of April 30, 2022, $317.0 million of the Company’s $468.4 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 pay dividends, if any, to A&F’s stockholders.

operations or to fund investing and financing cash flow activities.

Refer to Note 9, “ INCOME TAXES .”

Analysis of cash flows

The table below provides certain components of the Company’s Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks ended October 30, 2021 and October 31, 2020:

Thirty-nine Weeks Ended

October 30, 2021 October 31, 2020

The table below provides certain components of the Company’s Condensed Consolidated Statements of Cash Flows for the thirteen weeks ended April 30, 2022 and May 1, 2021:

Thirteen Weeks Ended

April 30, 2022 May 1, 2021

(in thousands)

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

Net cash provided by operating activities 131,287 108,894

Net cash used for operating activities (217,787) (131,350)

Net cash used for investing activities (18,541) (14,404)

Net cash (used for) provided by financing activities (304,358) 70,129

Net cash used for financing activities (116,945) (53,191)

Effect of foreign currency exchange rates on cash (2,617) (1,021)

Net (decrease) increase in cash and equivalents, and restricted cash and equivalents (243,854) 139,544

Net decrease in cash and equivalents, and restricted cash and equivalents (355,890) (199,966)

Cash and equivalents, and restricted cash and equivalents, end of period $ 478,478 $ 924,191

Operating activities - During the year-to-date period ended October 30, 2021, the Company recognized higher cash receipts as compared to the year-to-date period ended October 31, 2020 as a result of the 27% 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.

In addition, during the year-to-date period ended October 30, 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.

Operating activities - During the year-to-date period ended April 30, 2022, net cash used for operating activities included the acquisition of inventory and increased payments to vendors, including additional rent payments made during the period due to fiscal calendar shifting relative to monthly rent due dates, partially offset by increased cash receipts as a result of the 4% year-over-year increase in net sales.

In addition, during the year-to-date period 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 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 the year-to-date period ended October 30, 2021.

Investing activities - During the year-to-date period ended October 30, 2021, net cash outflows for investing activities were used for capital expenditures of $62.2 million as compared to $91.7 million for the year-to-date period ended October 31, 2020.

In addition, the year-to-date period ended October 31, 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 - During the year-to-date period ended October 30, 2021, net cash used by financing activities included the purchase of $42.3 million of outstanding Senior Secured Notes at a premium of $4.7 million.

During the year-to-date period ended October 31, 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 ABL Facility, with the remaining net proceeds used towards fees and expenses in connection with such repayments and the offering.

In addition, the Company returned $27.7 million to shareholders through share repurchases and dividends during the year-to-date period ended October 31, 2020, prior to the Company’s decision to temporarily suspend its share repurchase and dividend programs in light of COVID-19.

The Company resumed share repurchase activity beginning March 2021 and repurchased approximately 6.1 million shares of A&F’s Common Stock with a market value of approximately $235.2 million during the year-to-date period ended October 30, 2021.

Off-balance sheet arrangements

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

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 the year-to-date period ended May 1, 2021.

Abercrombie & Fitch Co.

2022 1Q Form 10-Q

Investing activities - During the year-to-date period ended April 30, 2022, net cash used for investing activities were primarily used for capital expenditures of $26.3 million, partially offset by the proceeds from the sale of property and equipment of $7.8 million.

This compared net cash used for investing activities of capital expenditures of $14.4 million for the year-to-date period ended May 1, 2021.

Financing activities - During the year-to-date period ended April 30, 2022, net cash used for financing activities included the purchase of approximately 3.3 million shares of Common Stock with a market value of approximately $100.0 million.

During the year-to-date period ended May 1, 2021, net cash used for financing activities primarily consisted of the purchase of approximately 1.1 million shares of Common Stock with a market value of approximately $35.2 million.

Contractual obligations

1 unchanged sentence

These contractual obligations impact the Company’s short-term and long-term liquidity and capital resource needs.

There have been no material changes during the thirteen weeks ended October 30, 2021 in the contractual obligations as of January 30, 2021, with the exception of those obligations which occurred in the normal course of business (primarily changes in the Company’s merchandise inventory-related purchases and lease obligations, which fluctuate throughout the year as a result of the seasonal nature of the Company’s operations).

There have been no material changes during the thirteen weeks ended April 30, 2022 in the contractual obligations as of January 29, 2022, with the exception of those obligations which occurred in the normal course of business (primarily changes in the Company’s merchandise inventory-related purchases and lease obligations, which fluctuate throughout the year as a result of the seasonal nature of the Company’s operations).

RECENT ACCOUNTING PRONOUNCEMENTS

The Company describes its significant accounting policies in Note 2, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES , ” 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.

Financial Statements and Supplementary Data” included on the Fiscal 2021 Form 10-K.

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.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company describes its critical accounting policies and estimates in “ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” of A&F’s Annual Report on Form 10-K for Fiscal 2020.

CRITICAL ACCOUNTING ESTIMATES

The Company describes its critical accounting estimates in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included on the Fiscal 2021 Form 10-K.

There have been no significant changes in critical accounting policies and estimates since the end of Fiscal 2021.

Abercrombie & Fitch Co.

2022 1Q Form 10-Q

NON-GAAP FINANCIAL MEASURES

This Quarterly Report on Form 10-Q includes discussion of certain financial measures calculated and presented on both a GAAP and a non-GAAP basis.

The Company believes that each of the non-GAAP financial measures presented in this “ ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ” is useful to investors as it provides a meaningful basis to evaluate the Company’s operating performance excluding the effect of certain items that the Company believes may not reflect its future operating outlook, such as certain asset impairment charges related to the Company’s flagship stores and significant impairments primarily attributable to the COVID-19 pandemic, thereby supplementing investors’ understanding of comparability of operations across periods.

The Company believes that each of the non-GAAP financial measures presented in this “ I tem 2.

M anagement ’ s D iscussion and A nalysis of F inancial C ondition and R esults of O perations ” is useful to investors as it provides a meaningful basis to evaluate the Company’s operating performance excluding the effect of certain items that the Company believes may not reflect its future operating outlook, such as certain asset impairment charges related to the Company’s flagship stores and significant impairments primarily attributable to the COVID-19 pandemic, thereby supplementing investors’ understanding of comparability of operations across periods.

Management used these non-GAAP financial measures during the periods presented to assess the Company’s performance and to develop expectations for future operating performance.

5 unchanged sentences

The most directly comparable GAAP financial measure is change in net sales.

In light of store closures related to COVID-19, the Company has not disclosed comparable sales for Fiscal 2020 or Fiscal 2021.

In light of store closures related to COVID-19, the Company has not disclosed comparable sales since Fiscal 2019.

Excluded items

2 unchanged sentences

Excluded items

Asset impairment Asset impairment charges

Operating income (loss) Asset impairment charges

Income tax expense (2)

Operating (loss) income Asset impairment charges

Income tax (benefit) expense (2)

Tax effect of pre-tax excluded items

Net income (loss) and net income (loss) per share attributable to A&F (2)

Net (loss) income and net (loss) income per share attributable to A&F (2)

Pre-tax excluded items and the tax effect of pre-tax excluded items

1 unchanged sentence

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

Abercrombie & Fitch Co.

2022 1Q Form 10-Q

Financial information on a constant currency basis

3 unchanged sentences

The per diluted share effect from foreign currency exchange rates is calculated using a 26% effective tax rate.

A reconciliation of non-GAAP financial metrics on a constant currency basis to financial measures calculated and presented in accordance with GAAP for the thirteen and thirty-nine weeks ended October 30, 2021 and October 31, 2020 follows:

(in thousands, except change in net sales, gross profit rate, operating margin and per share data) Thirteen Weeks Ended Thirty-nine Weeks Ended

Net sales October 30, 2021 October 31, 2020 % Change October 30, 2021 October 31, 2020 % Change

A reconciliation of non-GAAP financial metrics on a constant currency basis to financial measures calculated and presented in accordance with GAAP for the thirteen weeks ended April 30, 2022 and May 1, 2021 follows:

(in thousands, except change in net sales, gross profit rate, operating margin and per share data) Thirteen Weeks Ended

Net sales April 30, 2022 May 1, 2021 % Change

GAAP $ 812,762 $ 781,405 4%

1 unchanged sentence

Non-GAAP on a constant currency basis $ 812,762 $ 772,876 5%

Gross profit, exclusive of depreciation and amortization expense October 30, 2021 October 31, 2020 BPS Change (1)

October 30, 2021 October 31, 2020 BPS Change (1)

Gross profit, exclusive of depreciation and amortization expense April 30, 2022 May 1, 2021 BPS Change (1)

GAAP $ 449,546 $ 495,134 (810)

1 unchanged sentence

Non-GAAP on a constant currency basis $ 449,546 $ 491,851 (830)

Operating income (loss) October 30, 2021 October 31, 2020 BPS Change (1)

October 30, 2021 October 31, 2020 BPS Change (1)

Operating (loss) income April 30, 2022 May 1, 2021 BPS Change (1)

GAAP $ (9,726) $ 57,433 (850)

4 unchanged sentences

Adjusted non-GAAP on a constant currency basis $ (6,304) $ 64,438 (910)

Net income (loss) per diluted share attributable to A&F October 30, 2021 October 31, 2020 $ Change October 30, 2021 October 31, 2020 $ Change

Net (loss) income attributable to A&F per diluted share April 30, 2022 May 1, 2021 $ Change

GAAP $ (0.32) $ 0.64 $(0.96)

5 unchanged sentences

(1) The estimated basis point change has been rounded based on the change in the percentage of net sales.

(2) Excluded items for the thirteen and thirty-nine weeks ended October 30, 2021 and October 31, 2020 consisted of pre-tax store asset impairment charges and the tax effect of pre-tax excluded items.

(2) Excluded items for the thirteen weeks ended April 30, 2022 and May 1, 2021 consisted of pre-tax store asset impairment charges and the tax effect of pre-tax excluded items.

Abercrombie & Fitch Co.

2022 1Q Form 10-Q

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-Q

Item 2. Management’s Discussion and Analysis