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Item 7. Management’s Discussion and Analysis

2023-03-27 compared with 2022-03-28 · 183 added, 227 removed, 310 unchanged (57% of the section changed)

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The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) generally discusses our results of operations for Fiscal 2022 and Fiscal 2021 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.

For discussion and comparison of Fiscal 2021 and Fiscal 2020, 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 Fiscal 2021, filed with the SEC on March 28, 2022.

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.

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MD&A is organized as follows:

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 management in assessing the Company’s results.

• Current Trends and Outlook .

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.

A discussion of the Company’s long-term plans for growth and a summary of the Company’s performance over recent years, primarily Fiscal 2022 and Fiscal 2021.

• Results of Operations .

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.

An analysis of certain components of the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income for Fiscal 2022 as compared to Fiscal 2021.

• Liquidity and Capital Resources .

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.

A discussion of the Company’s financial condition, changes in financial condition and liquidity as of January 28, 2023, which includes (i) an analysis of changes in cash flows for Fiscal 2022 as compared to Fiscal 2021, (ii) an analysis of liquidity, including availability under the Company’s credit facility, and outstanding debt and covenant compliance and (iii) a summary of contractual and other obligations as of January 28, 2023.

• Recent Accounting Pronouncements .

The recent accounting pronouncements the Company has adopted or is currently evaluating, including the dates of adoption or expected dates of adoption, as applicable, and anticipated effects on the Company’s audited Consolidated Financial Statements, are included in Note 2 “ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES .”

• Critical Accounting Policies and Estimates .

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.

• Critical Accounting Estimates .

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 the Company’s management in their application.

• Non-GAAP Financial Measures .

MD&A provides a discussion of certain financial measures that have been determined to not be in accordance with accounting principles generally accepted in the U.S.

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

A discussion of the Company’s financial condition, changes in financial condition and results of operations for Fiscal 2020 as compared to Fiscal 2019, is incorporated by reference from “ ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ,” in PART II of A&F’s Annual Report on Form 10-K for Fiscal 2020, filed with the SEC on March 29, 2021.

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 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 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.

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.

A discussion of material risks that could affect the Company’s financial performance and cause actual results to differ materially from those expressed or implied in any of the forward-looking statements is included in “ ITEM 1A.

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

MD&A provides a discussion of certain financial measures that have been determined to not be presented in accordance with accounting principles generally accepted in the U.S.

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.

Abercrombie & Fitch Co.

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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.

The Company operates primarily in North America, Europe, Middle East and Asia.

The Company’s fiscal year ends on the Saturday closest to January 31.

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Fiscal year Year ended/ ending Number of weeks

Fiscal 2019 February 1, 2020 52

Fiscal 2020 January 30, 2021 52

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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 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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Key Performance Indicators

The following measurements are among the key performance indicators reviewed by various members of the Company’s management to gauge the Company’s results:

The following measurements are among the key performance indicators reviewed by the Company’s management in assessing the Company’s results:

• Changes in net sales and comparable sales;

• Comparative results of operations on a constant currency basis with the prior year’s results converted at the current year’s foreign currency exchange rate to remove the impact of foreign currency exchange rate fluctuation;

• Gross profit and gross profit rate;

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• Net income and net income attributable to A&F;

• Cash flow and liquidity measures, such as the Company’s current ratio, working capital and free cash flow;

• Cash flow and liquidity measures, such as the Company’s working capital, operating cash flow, and free cash flow;

• Inventory metrics, such as inventory turnover;

• Return on invested capital and return on equity;

• Store metrics, such as net sales per gross square foot, and store 4-wall operating margins;

• Store metrics, such as net sales per gross square foot, and store four-wall operating margins;

• Digital and omnichannel metrics, such as total shipping expense as a percentage of digital sales, and certain metrics related to our purchase-online-pickup-in-store and order-in-store programs;

• Transactional metrics, such as traffic and conversion, performance across key product categories, average unit retail, average unit cost, average units per transaction and average transaction values;

• Transactional metrics, such as traffic and conversion, performance across key product categories, average unit retail (“AUR’), average unit cost (“AUC”), average units per transaction and average transaction values, return rates;

• Customer-centric metrics such as customer satisfaction, customer retention and acquisition, and certain metrics related to the loyalty programs.

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.

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

Abercrombie & Fitch Co.

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Focus Areas for Fiscal 2023

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.

During the second quarter of Fiscal 2022, the Company announced its Always Forward Plan, which outlines the Company’s long-term strategy and goals, including growing shareholder value.

The Always Forward Plan is anchored on three strategic growth principles, which are to:

• Execute focused brand growth plans;

• Accelerate an enterprise-wide digital revolution;

• Operate with financial discipline.

The following focus areas for Fiscal 2023 serve as a framework for the Company achieving sustainable growth and progressing toward the Always Forward Plan:

• Execute brand growth plans

• Drive Abercrombie brands through marketing and store investment;

• Optimize the Hollister product and brand voice to enable second half growth;

• Support Gilly Hicks growth with an evolved assortment mix

• Accelerate an enterprise-wide digital revolution

• Complete current phase of our modernization efforts around key data platforms;

• Continue to progress on our multi-year ERP transformation and cloud migration journey;

• Improve our digital and app experience across key parts of the customer journey

• Operate with financial discipline

• Maintain appropriately lean inventory levels that put Abercrombie and Hollister in a position to chase inventory throughout the year;

• Properly balance investments, inflation and efficiency efforts to improve profitability

Supply Chain Disruptions, Impact of Inflation and COVID-19

The current economic environment remained challenging in Fiscal 2022.

The COVID-19 pandemic and its effects on the global economy continued to impact the Company’s operations in Fiscal 2022, including through temporary store closures.

While trends in the severity of new cases of COVID-19 in the U.S.

improved throughout Fiscal 2022, caseloads have periodically increased in certain global regions, most notably, in the APAC region in conjunction with the easing of strict lockdowns and zero-tolerance policy shutdowns in China.

In addition, while the direct impacts of the COVID-19 pandemic have shown signs of abatement, the Company has experienced various other adverse impacts in the current economic environment, including supply chain disruptions, inflationary pressures including higher freight and labor costs, labor shortages, and weak store traffic.

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 through Fiscal 2022.

To mitigate supply chain constraints and higher freight rates, the Company took certain mitigating actions in early Fiscal 2022 that included scheduling earlier inventory receipts to allow for longer lead times, expanding its number of freight vendors, and reducing air freight usage where appropriate.

Freight costs began to stabilize in the latter half of Fiscal 2022 compared with the elevated air freight rates and usage in 2021.

While freight costs are stabilizing and supply chain constraints are waning, further mitigating actions may be needed in Fiscal 2023, particularly if supply chain constraints and/or transportation delays begin to reappear.

The Company has also experienced significant 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 its ability to maintain satisfactory margins.

The Company may be unsuccessful in passing these increased costs on to the customer through higher AUR.

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 or actual unfavorable economic conditions, consumers may reallocate available discretionary spending, which may adversely impact demand for our products.

The adverse consequences of the pandemic and of the current economic environment continue to impact the Company and may persist for some time.

The Company will continue to assess impacts on its operations and financial condition, and will respond as it deems appropriate.

For further information about how changes in global economic and financial conditions as well as continued impacts from COVID-19 could impact our operations, refer to “ ITEM 1A.

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

Abercrombie & Fitch Co.

2022 Form 10-K

Inflation Reduction Act of 2022

On August 16, 2022, the Inflation Reduction Act was signed into law, with tax provisions primarily focused on implementing a 15% corporate minimum tax on global adjusted financial statement income, expected to become applicable to the Company beginning in Fiscal 2023, and a 1% excise tax on share repurchases in tax years beginning after December 31, 2022.

The Company does not currently expect that the Inflation Reduction Act will have a material impact on its income taxes.

Global Store Network Optimization

Reflecting a continued focus on its key transformation initiative ‘Global Store Network Optimization,’ the Company delivered new store experiences across brands during Fiscal 2021 and Fiscal 2020.

The Company has a goal of opening smaller, omni-enabled stores that cater to local customers.

The Company continues to use data to inform its focus on aligning store square footage with digital penetration and the Company delivered new store experiences across brands during Fiscal 2022 and Fiscal 2021.

Details related to these new store experiences follow:

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Right-sizes 8 5

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 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:

For the first time in more than a decade, the Company was a net store opener for the year.

During Fiscal 2022, the Company opened 59 new stores, while closing 26 stores.

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.

The actions taken in Fiscal 2022, combined with ongoing digital sales growth, are expected to continue to transform the Company's operating model and position the Company for the future.

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

Hollister (1)

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January 28, 2023 2,425 1,154 1,152 337 3,577 1,491 5,068

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

(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 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.

Excludes 12 and 9 international franchise stores as of January 28, 2023 and January 29, 2022, respectively.

Excludes 16 Company-operated temporary stores as of January 28, 2023 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 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.

Excludes 23 international franchise stores as of January 28, 2023 and 14 international franchise stores as of January 29, 2022.

Excludes three Company-operated temporary stores as of January 28, 2023 and five Company-operated temporary stores as of January 29, 2022.

(3) This store count excludes one international third-party operated multi-brand outlet store as of January 28, 2023.

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.

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 level of digital penetration will continue when stores operate at full capacity.

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, 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.

As 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 ongoing conflict in Ukraine, which could adversely impact certain areas of the business.

As a result management continues to monitor global events.

The Company continues to assess the potential impacts that 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.

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

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.

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GAAP Non-GAAP (1)

(in thousands, except change in net sales, gross profit rate, operating margin and per share amounts) Fiscal 2021 Fiscal 2020 Fiscal 2021 Fiscal 2020

(in thousands, except change in net sales, gross profit rate, operating income margin and per share amounts) Fiscal 2022 Fiscal 2021 Fiscal 2022 Fiscal 2021

Net sales $ 3,697,751 $ 3,712,768

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Gross profit rate (2)

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)

56.9 % 62.3 %

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

Operating income $ 92,648 $ 343,084 $ 106,679 $ 355,184

Operating income margin 2.5 % 9.2 % 2.9 % 9.6 %

Net income attributable to A&F (3)

$ 2,816 $ 263,010 $ 13,045 $ 272,689

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

$ 0.05 $ 4.20 $ 0.25 $ 4.35

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

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 .”

A reconciliation of 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 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.

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

Refer to Note 11, “ INCOME TAXES .”

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Inventories 505,621 525,864

Statement of Cash Flows data Fiscal 2021 Fiscal 2020

Net cash provided by operating activities $ 277,782 $ 404,918

Statements of Cash Flows data Fiscal 2022 Fiscal 2021

Net cash (used for) provided by operating activities $ (2,343) $ 277,782

Net cash used for investing activities (140,675) (96,979)

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

Net cash used for financing activities (155,329) (446,898)

Abercrombie & Fitch Co.

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

The Company’s net sales by operating segment for Fiscal 2022 and Fiscal 2021 were as follows:

(in thousands) Fiscal 2022 Fiscal 2021 $ Change % Change

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APAC 122,367 171,701 (49,334) (29)%

Other 133,837 111,894 21,943 20%

151,262 133,837 17,425 13%

International $ 939,457 $ 1,060,610 $ (121,153) (11)%

Total Company $ 3,697,751 $ 3,712,768 $ (15,017) 0%

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.

(1) Other includes all sales that do not fall within the United States, EMEA, or APAC regions, which are derived primarily in Canada.

For Fiscal 2022, net sales were essentially flat as compared to Fiscal 2021, with a year-over year increase in AUR, offset by the adverse impact of foreign currency exchange rates.

While sales in the United States grew 4% compared to Fiscal 2021, this was more than offset by an 11% decline in International, with continued softness in the APAC and EMEA regions.

Cost of Sales, Exclusive of Depreciation and Amortization

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Cost of sales, exclusive of depreciation and amortization $ 1,593,213 43.1% $ 1,400,773 37.7% 540

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.

For Fiscal 2022, cost of sales, exclusive of depreciation and amortization, as a percentage of net sales increased approximately 540 basis points as compared to Fiscal 2021.

The year-over-year increase was primarily driven by 520 basis points of higher freight and raw material costs and 40 basis points from the adverse impact of exchange rates, partially offset by higher average unit retail.

Gross Profit, Exclusive of Depreciation and Amortization

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Stores and distribution expense $ 1,482,931 40.1% $ 1,428,323 38.5% 160

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.

For Fiscal 2022, stores and distribution expense increased 4% as compared to Fiscal 2021, primarily driven by a $40 million increase in digital fulfillment expense, reflecting higher shipping and handling and other fulfillment expenses, including costs associated with a new third-party fulfillment facility in the United States.

Marketing, General and Administrative Expense

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Marketing, general and administrative expense $ 517,602 14.0% $ 536,815 14.5% (50)

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

Fiscal 2021 Fiscal 2020

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

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

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 .

Asset impairment, exclusive of flagship store exit charges

For Fiscal 2022, marketing, general and administrative expense decreased 4% as compared to Fiscal 2021, primarily driven by a $26 million reduction in marketing and advertising expenses, as well as $26 million in lower incentive-based compensation.

These amounts were partially offset by $23 million in higher payroll and $6 million in higher consulting and information technology expense.

Asset Impairment

Fiscal 2022 Fiscal 2021

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

Asset impairment, exclusive of flagship store exit charges $ 12,100 0.3% $ 72,937 2.3% (200)

Asset impairment $ 14,031 0.4% $ 12,100 0.3% 10

Excluded items:

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Refer to Note 8, “ ASSET IMPAIRMENT ,” for further discussion.

Abercrombie & Fitch Co.

2021 Form 10-K

Other Operating Income, Net

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Other operating income, net $ 2,674 0.1% $ 8,327 0.2% (10)

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)

For Fiscal 2022, other operating income, net, decreased as compared to Fiscal 2021, primarily due to $5.9 million foreign currency losses recognized in Fiscal 2022.

Operating Income

Fiscal 2022 Fiscal 2021

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

Operating (loss) income $ 343,084 9.2% $ (20,469) (0.7)% 990

Operating income $ 92,648 2.5% $ 343,084 9.2% (670)

Excluded items:

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

Abercrombie & Fitch Co.

2022 Form 10-K

Interest Expense, Net

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Interest expense, net $ 25,632 0.7% $ 34,110 0.9% (20)

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.

For Fiscal 2022, interest expense, net, decreased 25% primarily driven by lower interest paid on a lower average outstanding balance in Fiscal 2022 resulting from current year and prior year debt repurchases, as compared to Fiscal 2021.

Income Tax Expense

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Adjusted non-GAAP income tax expense $ 60,433 74.6% $ 41,329 12.9%

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

(1) Refer to “ Operating Income ” 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 2021 was impacted by $42.5 million of tax benefits due to the release of valuation allowances, primarily in the U.S.

Refer to “NON-GAAP FINANCIAL MEASURES” for further details.

During Fiscal 2022, the Company did not recognize income tax benefits on $136.5 million of pre-tax losses, primarily in Switzerland, resulting in adverse tax impacts of $20.0 million.

The primary driver relates to lower sales volume, higher AUC and overall expense deleverage within the APAC and EMEA regions.

During Fiscal 2021, as a result of the improvement seen in business conditions, the Company recognized $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.

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Refer to Note 11, “ INCOME TAXES ,” for further discussion on factors that impacted the effective tax rate in Fiscal 2022 and Fiscal 2021.

Abercrombie & Fitch Co.

2021 Form 10-K

Net income (loss) attributable to A&F

Net Income Attributable to A&F

Fiscal 2022 Fiscal 2021

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

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

Net income attributable to A&F $ 2,816 0.1% $ 263,010 7.1% (700)

Excluded items, net of tax (1)

10,229 0.3% 9,679 0.3% —

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

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

$ 13,045 0.4% $ 272,689 7.3% (690)

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

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

(1) Excludes items presented above under “ Operating Income , ” and “ Income Tax Expense .

Net Income Per Diluted Share Attributable to A&F

Fiscal 2022 Fiscal 2021 $ Change

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

Net income per diluted share attributable to A&F $ 0.05 $ 4.20 $(4.15)

Excluded items, net of tax (1)

0.20 0.15 0.05

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

Adjusted non-GAAP net income per diluted share attributable to A&F $ 0.25 $ 4.35 $(4.10)

Impact from changes in foreign currency exchange rates — (0.36) 0.36

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

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

$ 0.25 $ 3.99 $(3.74)

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

(1) Excludes items presented above under “ Operating Income , ” and “ Income Tax Expense .

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

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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, 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.

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

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

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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 ”.

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.

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, including the modernization of our retail merchandising systems, 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 ”.

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.

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

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.

For Fiscal 2022, the Company used $164.6 million towards capital expenditures, up from $97.0 million of capital expenditures in Fiscal 2021.

Total capital expenditures for Fiscal 2023 are expected to be approximately $160 million.

Share Repurchases and Dividends

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.

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.

In November 2021, the Board of Directors approved a $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.

During Fiscal 2022, the Company repurchased 4.8 million shares for approximately $126 million.

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 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 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.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES ” of this Annual Report on Form 10-K for the amount remaining available for repurchase under the Company’s publicly announced stock repurchase authorization.

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

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 the Board of Directors.

The 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.

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 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 Consolidated Balance Sheet, net of the unamortized fees.

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.

Abercrombie & Fitch Co.

2022 Form 10-K

Credit Facility and Senior Secured Notes

During Fiscal 2022, A&F Management purchased $8.0 million of outstanding Senior Secured Notes and incurred a $0.1 million gain on extinguishment of debt, recognized in interest expense, net on the Consolidated Statements of Operations and Comprehensive (Loss) Income .

As of January 28, 2023, the Company had $299.7 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).

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

On March 15, 2023, the Company entered into the First Amendment to the Amended and Restated Credit Agreement to eliminate LIBO rate based loans and to use the current market definitions with respect to the Secured Overnight Financing Rate (“SOFR”)”, as well as to make other conforming changes.

The Company did not have any borrowings outstanding under the ABL Facility as of January 28, 2023 or as of January 29, 2022.

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

Details regarding the remaining borrowing capacity under the ABL Facility as of January 28, 2023 follow:

(in thousands) January 28, 2023

Borrowing base $ 279,105

Loan cap $ 387,425

Outstanding stand-by letters of credit (602)

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Minimum excess availability (1)

Borrowing available under the ABL Facility $ 248,291

Borrowing capacity available $ 348,080

(1) The Company must maintain excess availability equal to the greater of 10% of the loan cap or $30 million under the ABL Facility.

Refer to Note 12, “ BORROWINGS ,” for additional information.

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

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

federal income tax.

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As of January 28, 2023, $226.5 million of the Company’s $517.6 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 cash flow activities.

Refer to Note 11, “ 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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Cash and equivalents, and restricted cash and equivalents, beginning of period $ 834,368 $ 1,124,157

Net cash provided by operating activities 277,782 404,918

Net cash (used for) provided by operating activities (2,343) 277,782

Net cash used for investing activities (140,675) (96,979)

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

Net cash used for financing activities (155,329) (446,898)

Effects of foreign currency exchange rate changes on cash (8,452) (23,694)

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

Net decrease in cash and equivalents, and restricted cash and equivalents $ (306,799) $ (289,789)

Cash and equivalents, and restricted cash and equivalents, end of period $ 527,569 $ 834,368

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.

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.

Operating activities - For Fiscal 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.

Investing activities - For Fiscal 2022, net cash used for investing activities was primarily attributable to capital expenditures of $164.6 million, partially offset by the proceeds from the withdrawal of $12.0 million of excess funds from Rabbi Trust assets and the sale of property and equipment of $11.9 million, as compared to net cash used for investing activities of $97.0 million in Fiscal 2021, primarily attributable to capital expenditures.

Abercrombie & Fitch Co.

2022 Form 10-K

Financing activities - For Fiscal 2022, net cash used for financing activities primarily consisted of the repurchase of approximately 4.8 million shares of Common Stock in the open market with a market value of approximately $126 million, as well as the purchase of $8.0 million of outstanding Senior Secured Notes at a slight discount to par.

For Fiscal 2021, net cash used for financing activities primarily consisted of the repurchase of approximately 10.2 million shares of Common Stock in the open market with a market value of approximately $377 million.

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

Contractual Obligations

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(2) Purchase obligations primarily consist of non-cancelable purchase orders for merchandise to be delivered during Fiscal 2023 and commitments for fabric expected to be used during upcoming seasons.

In addition, purchase obligations include agreements to purchase goods or services, including, but not limited to, information technology, digital and marketing contracts, as well as estimated obligations related to the Company’s 13-year, 100% renewable energy supply agreement for its global home office and Company-owned distribution centers which is expected to begin in the Company’s fiscal year ending January 28, 2023.

(3) Long-term debt obligations consist of principal payments under the Senior Secured Notes.

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estimated asset retirement obligations;

accrued rent related to stores where the Company suspended payments in light of COVID-19 temporary store closures and continues to engage with its landlords on a agreeable path forward;

the amount of the employer-paid portion of social security taxes deferred in light of COVID-19;

payments from the Supplemental Executive Retirement Plan;

known and scheduled payments related to the Company’s deferred compensation and supplemental retirement plans;

tax payments associated with the provisional, mandatory one-time deemed repatriation tax on accumulated foreign earnings, net payable over eight years pursuant to the Act;

tax payments associated with the provisional, mandatory one-time deemed repatriation tax on accumulated foreign earnings, net payable over eight years pursuant to the The Tax Cuts and Jobs Act;

and minimum contractual obligations related to leases signed but not yet commenced, primarily related to the Company’s stores.

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However, it is not reasonably practicable to estimate the timing and amounts for the remainder of these obligations, therefore, those amounts have been excluded in the contractual obligations table.

A&F had historically paid quarterly dividends on its Common Stock.

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.

A&F had historically paid quarterly dividends on Common Stock prior to the suspension of the dividend program in May 2020.

Because the dividend program remains suspended and the payment of future dividends is subject to determination and approval by the Board of Directors, there are no amounts included in the contractual obligations table related to dividends.

RECENT ACCOUNTING PRONOUNCEMENTS

The Company describes its significant accounting policies in Note 2, “ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES .” 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 significant accounting policies in Note 2, “ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Recent accounting pronouncements .” The Company reviews recent accounting pronouncements on a quarterly basis and has excluded discussion of those not applicable to the Company and those that did not have, or are not expected to have, a material impact on the Company’s consolidated financial statements.

Abercrombie & Fitch Co.

2022 Form 10-K

CRITICAL ACCOUNTING ESTIMATES

The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements which have been prepared in accordance with GAAP.

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Since actual results may differ from those estimates, the Company revises its estimates and assumptions as new information becomes available.

The Company believes the following policies are the most critical to the portrayal of the Company’s financial condition and results of operations.

Note 2, “ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ,” describes the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements.

The estimates and assumptions discussed below include those that the Company believes are the most critical to the portrayal of the Company’s financial condition and results of operations.

Policy Effect if Actual Results Differ from Assumptions

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The Company reduces the inventory valuation when the carrying cost of specific inventory items on hand exceeds the amount expected to be realized from the ultimate sale or disposal of the goods, through a lower of cost and net realizable value (“LCNRV”) adjustment.

The LCNRV adjustment reduces inventory to its net realizable value based on the Company’s consideration of multiple factors and assumptions, including demand forecasts, current sales volumes, expected sell-off activity, composition and aging of inventory, historical recoverability experience and risk of obsolescence from changes in economic conditions or customer preferences.

The LCNRV adjustment reduces inventory to its net realizable value based on the Company’s consideration of multiple factors and assumptions, expected sell-off activity, composition and aging of inventory, historical recoverability experience and risk of obsolescence from changes in economic conditions or customer preferences.

The Company does not expect material changes to the underlying assumptions used to measure the LCNRV estimate as of January 28, 2023.

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An increase or decrease in the LCNRV adjustment of 10% would have affected pre-tax loss by approximately $3.6 million for Fiscal 2022.

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.

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.

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 does not expect material changes in the judgments, assumptions or interpretations used to calculate the tax provision for Fiscal 2023.

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As of the end of Fiscal 2022 , the Company had recorded valuation allowances of $130.6 million

Policy Effect if Actual Results Differ from Assumptions

Long-lived Assets

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Store assets that were previously impaired as of January 28, 2023, had a remaining net book value of $68.4 million, which included $62.3 million of operating lease right-of-use assets, as of January 28, 2023.

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.

The Company’s lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

On the lease commencement date, the Company recognizes an asset for the right to use a leased asset and a liability based on the present value of remaining lease payments over the lease term on the Consolidated Balance Sheets.

In measuring the Company’s lease liabilities, the remaining lease payments are discounted to present value using a discount rate.

As the rates implicit in the Company’s leases are not readily determinable, the Company uses its incremental borrowing rate based on the transactional currency of the lease and the lease term for the initial measurement of the lease right-of-use asset and the lease liability.

For leases existing before the adoption of the new lease accounting standard, the Company used its incremental borrowing rate as of the date of adoption, determined using the remaining lease term as of the date of adoption.

For leases commencing on or after the adoption of the new lease accounting standard, the incremental borrowing rate is determined using the remaining lease term as of the lease commencement date.

The Company estimates its incremental borrowing rate on a quarterly basis, based on the rate of interest that the Company would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment.

The Company does not expect material changes to the underlying assumptions used to measure its lease liabilities as of January 29, 2022.

An increase or decrease of 10% in the Company’s weighted-average discount rate as of January 29, 2022, would impact both the Company’s total assets and total liabilities by less than 1% and would not have a material impact on the Company’s pre-tax loss for Fiscal 2021.

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.

Abercrombie & Fitch Co.

2022 Form 10-K

NON-GAAP FINANCIAL MEASURES

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The Company believes that each of the non-GAAP financial measures presented in this “ ITEM 7.

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 do 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, therefore supplementing investors’ understanding of comparability of operations across periods.

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 do not reflect its future operating outlook, such as certain asset impairment charges, therefore 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.

These non-GAAP financial measures should be used as a supplement to, and not as an alternative to, the Company’s GAAP financial results, and may not be calculated in the same manner as similar measures presented by other companies.

Comparable sales

At times, the Company provides comparable sales, defined as the year-over-year percentage change in the aggregate of (1) sales for stores that have been open as the same brand at least one year and whose square footage has not been expanded or reduced by more than 20% within the past year, with the prior year’s net sales converted at the current year’s foreign currency exchange rates to remove the impact of foreign currency exchange rate fluctuations, and (2) digital sales with the prior year’s net sales converted at the current year’s foreign currency exchange rates to remove the impact of foreign currency exchange rate fluctuations.

Comparable sales exclude revenue other than store and digital sales.

Historically, management had used comparable sales to understand the drivers of year-over-year changes in net sales as well as a performance metric for certain performance-based restricted stock units.

The Company believes comparable sales can be a useful metric as it can assist investors in distinguishing the portion of the Company’s revenue attributable to existing locations from the portion attributable to the opening or closing of stores.

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 2021.

Excluded Items

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Excluded items

Asset impairment, exclusive of flagship store exit charges Certain asset impairment charges

Operating (loss) income Certain asset impairment charges

Asset impairment Certain asset impairment charges

Operating income (loss) Certain asset impairment charges

Income tax expense (2)

Tax effect of pre-tax excluded items

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

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

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

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(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 Form 10-K

Financial Information on a Constant Currency Basis

13 unchanged sentences

Gross profit on a constant currency basis $ 2,104,538 $ 2,245,149 (490)

Operating (loss) income Fiscal 2021 Fiscal 2020 BPS Change (1)

Operating income Fiscal 2022 Fiscal 2021 BPS Change (1)

GAAP $ 92,648 $ 343,084 (670)

4 unchanged sentences

Adjusted non-GAAP on a constant currency basis $ 106,679 $ 325,054 (610)

Net (loss) income per diluted share attributable to A&F Fiscal 2021 Fiscal 2020 $ Change

Net income per diluted share attributable to A&F Fiscal 2022 Fiscal 2021 $ Change

GAAP $ 0.05 $ 4.20 $(4.15)

7 unchanged sentences

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

Abercrombie & Fitch Co.

2022 Form 10-K

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