What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-12-04 compared with 2023-09-01 · 138 added, 136 removed, 400 unchanged (41% of the section changed)

9 unchanged sentences

“Risk Factors,” in the Company’s Fiscal 2022 Form 10-K and otherwise in our reports and filings with the SEC, as well as the following:

• risks related to changes in global economic and financial conditions, including volatility in the financial markets as a result of the failure, or rumored failure, of financial institutions, and the resulting impact on consumer confidence and consumer spending, as well as other changes in consumer discretionary spending habits;

• risks related to continued 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 ongoing geopolitical challenges between the United States and China, the on-going hostilities in Ukraine, acts of terrorism, mass casualty events, social unrest, civil disturbance or disobedience;

• risks related to changes in global economic and financial conditions, including inflation, and the resulting impact on consumer spending generally and on our operating results, financial condition, and expense management, and our ability to adequately mitigate the impact;

• risks related to geopolitical conflict, armed conflict, the conflicts between Russia and Ukraine or Israel and Hamas and the possible expansion of conflict in the surrounding areas , acts of terrorism, mass casualty events, social unrest, civil disturbance or disobedience;

• risks related to natural disasters and other unforeseen catastrophic events;

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

• risks related to reputational harm to the Company, its officers, and directors;

• risks related to actual or threatened litigation;

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

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• Current Trends and Outlook .

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 and twenty-six weeks ended July 29, 2023 and July 30, 2022.

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 and thirty-nine weeks ended October 28, 2023 and October 29, 2022.

• Results of Operations .

An analysis of certain components of the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen and twenty-six weeks ended July 29, 2023 and July 30, 2022.

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 28, 2023 and October 29, 2022.

• Liquidity and Capital Resources .

A discussion of the Company’s financial condition, changes in financial condition and liquidity as of July 29, 2023, which includes (i) an analysis of financial condition as compared to January 28, 2023;

(ii) an analysis of changes in cash flows for the twenty-six weeks ended July 29, 2023, as compared to the twenty-six weeks ended July 30, 2022;

A discussion of the Company’s financial condition, changes in financial condition and liquidity as of October 28, 2023, which includes (i) an analysis of financial condition as compared to January 28, 2023;

(ii) an analysis of changes in cash flows for the thirty-nine weeks ended October 28, 2023, as compared to the thirty-nine weeks ended October 29, 2022;

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

15 unchanged sentences

Corporate functions and other income and expenses are evaluated on a consolidated basis and are not allocated to the Company’s segments, and therefore are included as a reconciling item between segment and total operating income (loss).

There was no impact on consolidated net sales, operating income (loss) or net income (loss) per share as a result of these changes.

There was no impact on consolidated net sales, operating income (loss) or net income (loss) as a result of these changes.

All prior periods presented are recast to conform to the new segment presentation.

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

The Company’s brands include Abercrombie brands, which includes Abercrombie & Fitch and abercrombie kids, and Hollister brands, which includes Hollister, Gilly Hicks, and Social Tourist.

These 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.

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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 focused brand growth plans

• Drive Abercrombie brands through marketing and store investment;

• Optimize the Hollister product and brand voice to enable growth in the second half of Fiscal 2023;

• Support Gilly Hicks growth with an evolved assortment mix

• Execute focused brand growth plans for Abercrombie brands and Hollister brands by:

• Using our playbooks globally to align the brands’ products, voices, and experiences with customers, both digitally and in-store

• Accelerate an enterprise-wide digital revolution

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

• Operate with financial discipline

Abercrombie & Fitch Co.

2023 3Q Form 10-Q

• 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 and impact of inflation

Current macroeconomic conditions and impact of inflation

Macroeconomic conditions, including inflation, higher interest rates, foreign exchange rate fluctuations, and declines in consumer discretionary spending continue to negatively impact our business.

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

Supply chain disruptions

Previously, the Company experienced inflationary pressures with respect to labor, cotton, freight and other raw materials and other costs, which has negatively impacted expenses and margins.

While freight costs have decreased and supply chain constraints are waning, there continues to be inflationary pressures with respect to cotton and other raw materials, as well as other operating costs.

Continued inflationary pressures could further impact expenses and 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 its customers through higher average unit retail (“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.

Continued inflationary pressures could further impact expenses and have a long-term impact on the Company because increasing costs may impact its ability to maintain satisfactory margins.

Global Store Network Optimization

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

The Company has a goal of finding the right size, right location and right economics for 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 during the year-to-date period of Fiscal 2023, the Company opened 24 new stores, while closing 21 stores.

As part of this focus, the Company plans to be a net store opener again this year with approximately 35 new stores, while closing approximately 30 stores, during Fiscal 2023, pending negotiations with our landlord partners.

As part of this focus, the Company expects store count to remain steady with approximately 35 new stores, while closing approximately 35 stores, during Fiscal 2023, 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.

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Impact of global events and uncertainty

As we are a global multi-brand omnichannel specialty retailer, with operations in North America, Europe, the Middle East and Asia, among other regions, management is mindful of macroeconomic risks, global challenges and the changing global geopolitical environment, including ongoing geopolitical challenges between the United States and China and the ongoing hostilities in Ukraine, that could adversely impact certain areas of the business.

As we are a global multi-brand omnichannel specialty retailer, with operations in the Americas, EMEA, and APAC, among other regions, management is mindful of macroeconomic risks, global challenges and the changing global geopolitical environment, including t he ongoing conflicts between Russia and Ukraine, the conflict between Israel and Hamas and the possible expansion of conflict in the surrounding areas that could adversely impact certain areas of the business.

As a result, management continues to monitor global events.

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Summary of results

A summary of results for the thirteen and twenty-six weeks ended July 29, 2023 and July 30, 2022 was as follows:

A summary of results for the thirteen and thirty-nine weeks ended October 28, 2023 and October 29, 2022 was as follows:

GAAP Non-GAAP (1)

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

July 29, 2023

July 30, 2022

July 29, 2023

July 30, 2022

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

October 28, 2023

October 29, 2022

October 28, 2023

October 29, 2022

Thirteen Weeks Ended

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Gross profit rate 64.9 % 59.2 %

Operating income (loss) $ 89,842 $ (2,191) $ (21)

Operating income (loss) margin

Operating income $ 138,020 $ 17,543 $ 138,020 $ 21,287

Operating income margin

13.1 % 2.0 % 13.1 % 2.4 %

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Net income (loss) per share attributable to A&F 1.83 (0.04) 1.83 0.01

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Net sales $ 2,827,770 $ 2,497,937

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Gross profit rate 62.9 57.5

Operating income (loss) $ 123,850 $ (11,917) $ 128,286 $ (6,325)

Operating income (loss) margin

Operating income $ 261,870 $ 5,626 $ 266,306 $ 14,962

Operating income margin

9.3 % 0.2 % 9.4 % 0.6 %

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In light of store closures related to COVID-19, comparable sales for periods prior to Fiscal 2023 included in the Company’s Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q are not disclosed.

Certain components of the Company’s Condensed Consolidated Balance Sheets as of July 29, 2023 and January 28, 2023 were as follows:

(in thousands) July 29, 2023 January 28, 2023

Certain components of the Company’s Condensed Consolidated Balance Sheets as of October 28, 2023 and January 28, 2023 were as follows:

(in thousands) October 28, 2023 January 28, 2023

Cash and equivalents $ 649,489 $ 517,602

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Inventories 595,067 505,621

Certain components of the Company’s Condensed Consolidated Statements of Cash Flows for the twenty-six week periods ended July 29, 2023 and July 30, 2022 were as follows:

(in thousands) July 29, 2023 July 30, 2022

Certain components of the Company’s Condensed Consolidated Statements of Cash Flows for the thirty-nine week periods ended October 28, 2023 and October 29, 2022 were as follows:

(in thousands) October 28, 2023 October 29, 2022

Net cash provided by (used for) operating activities $ 350,142 $ (301,194)

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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.

The Company’s net sales by reportable segment for the thirteen and twenty-six weeks ended July 29, 2023 and July 30, 2022 were as follows:

Net sales by segment are presented by attributing revenues on the basis of the segment that fulfills the order.

The Company’s net sales by reportable segment for the thirteen and thirty-nine weeks ended October 28, 2023 and October 29, 2022 were as follows:

Thirteen Weeks Ended

(in thousands, except ratios) July 29, 2023 July 30, 2022 $ Change % Change Comparable

(in thousands, except ratios) October 28, 2023 October 29, 2022 $ Change % Change Comparable

Americas $ 867,566 $ 713,860 $ 153,706 22 % 16 %

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Total $ 1,056,431 $ 880,084 $ 176,347 20 16

Twenty-Six Weeks Ended

(in thousands, except ratios) July 29, 2023 July 30, 2022 $ Change % Change Comparable

Thirty-Nine Weeks Ended

(in thousands, except ratios) October 28, 2023 October 29, 2022 $ Change % Change Comparable

Americas $ 2,264,415 $ 1,949,066 $ 315,349 16 % 12 %

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Refer to “ NON-GAAP FINANCIAL MEASURES, ” for further details on the comparable sales calculation.

For the second quarter of Fiscal 2023, net sales increased 16%, as compared to the second quarter of Fiscal 2022, primarily due to an increase in higher unit selling and AUR.

The year-over-year increase in net sales reflects a positive comparable sales of 13%, as compared to the second quarter of Fiscal 2022, with growth in the Americas, EMEA and APAC segments.

For the third quarter of Fiscal 2023, net sales increased 20%, as compared to the third quarter of Fiscal 2022, primarily due to an increase in units sold and AUR.

The year-over-year increase in net sales reflects a positive comparable sales of 16%, as compared to the third quarter of Fiscal 2022, with growth in the Americas, EMEA and APAC segments.

For the year-to-date period of Fiscal 2023, net sales increased 13%, as compared to the year-to-date period of Fiscal 2022, primarily due to an increase in AUR.

The year-over-year increase in net sales reflects positive comparable sales of 11%, as compared to the year-to-date period of Fiscal 2022, with comparable sales growth in the Americas, EMEA and APAC segments.

The Company’s net sales by brand for the thirteen and twenty-six weeks ended July 29, 2023 and July 30, 2022 were as follows:

The Company’s net sales by brand for the thirteen and thirty-nine weeks ended October 28, 2023 and October 29, 2022 were as follows:

Thirteen Weeks Ended

(in thousands, except ratios) July 29, 2023 July 30, 2022 $ Change % Change Comparable

(in thousands, except ratios) October 28, 2023 October 29, 2022 $ Change % Change Comparable

Abercrombie (2)

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Total $ 1,056,431 $ 880,084 $ 176,347 20 16

Twenty-Six Weeks Ended

(in thousands, except ratios) July 29, 2023 July 30, 2022 $ Change % Change Comparable

Thirty-Nine Weeks Ended

(in thousands, except ratios) October 28, 2023 October 29, 2022 $ Change % Change Comparable

Abercrombie (2)

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Refer to “ NON-GAAP FINANCIAL MEASURES, ” for further details on the comparable sales calculation.

(2) Includes Abercrombie & Fitch and abercrombie kids brands.

(3) Includes Hollister, Gilly Hicks, and Social Tourist brands.

(2) Includes Abercrombie & Fitch and abercrombie kids.

(3) Includes Hollister, Gilly Hicks, and Social Tourist.

Abercrombie & Fitch Co.

2 unchanged sentences

Thirteen Weeks Ended

July 29, 2023 July 30, 2022

October 28, 2023 October 29, 2022

(in thousands, except ratios) % of Net sales % of Net sales BPS Change

Cost of sales, exclusive of depreciation and amortization $ 370,762 35.1 % $ 359,268 40.8 % (570)

Twenty-Six Weeks Ended

July 29, 2023 July 30, 2022

Thirty-Nine Weeks Ended

October 28, 2023 October 29, 2022

(in thousands, except ratios) % of Net Sales % of Net Sales BPS Change

Cost of sales, exclusive of depreciation and amortization $ 1,047,927 37.1 % $ 1,061,684 42.5 % (540)

For the second quarter of Fiscal 2023, cost of sales, exclusive of depreciation and amortization, as a percentage of net sales decreased by approximately 460 basis points, as compared to the second quarter of Fiscal 2022.

The year-over-year decrease was primarily driven by a benefit of 400 basis points from year-over-year AUR growth and 340 basis points from lower freight costs, partially offset by 180 basis points from higher cotton costs and 60 basis points from the adverse impact from changes in foreign currency exchange rates.

For the third quarter of Fiscal 2023, cost of sales, exclusive of depreciation and amortization, as a percentage of net sales decreased by approximately 570 basis points, as compared to the third quarter of Fiscal 2022.

The year-over-year decrease was primarily driven by a benefit of 250 basis points from year-over-year AUR growth, approximately 200 basis points from lower freight costs, and approximately 200 basis points in lower levels of inventory write downs compared to last year, partially offset by 80 basis points from higher raw material costs.

For the year-to-date period of Fiscal 2023, cost of sales, exclusive of depreciation and amortization, as a percentage of net sales decreased by approximately 540 basis points, as compared to the year-to-date period of Fiscal 2022.

The year-over-year decrease was primarily attributable to a benefit from lower freight costs of approximately 540 basis points and 350 basis points from year-over-year AUR growth.

These benefits were partially offset by approximately 220 basis points from higher cotton costs and 80 basis points due to the adverse impact from changes in foreign currency exchange rates.

The year-over-year decrease was primarily attributable to a benefit from lower freight costs of approximately 420 basis points and approximately 360 basis points from year-over-year AUR growth.

These benefits were partially offset by approximately 120 basis points from higher raw material costs.

Gross profit, exclusive of depreciation and amortization

Thirteen Weeks Ended

July 29, 2023 July 30, 2022

October 28, 2023 October 29, 2022

(in thousands, except ratios) % of Net sales % of Net sales BPS Change

Gross profit, exclusive of depreciation and amortization $ 685,669 64.9 % $ 520,816 59.2 % 570

Twenty-Six Weeks Ended

July 29, 2023 July 30, 2022

Thirty-Nine Weeks Ended

October 28, 2023 October 29, 2022

(in thousands, except ratios) % of Net Sales % of Net Sales BPS Change

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Thirteen Weeks Ended

July 29, 2023 July 30, 2022

October 28, 2023 October 29, 2022

(in thousands, except ratios) % of Net sales % of Net sales BPS Change

Stores and distribution expense $ 383,883 36.3 % $ 367,333 41.7 % (540)

Twenty-Six Weeks Ended

July 29, 2023 July 30, 2022

Thirty-Nine Weeks Ended

October 28, 2023 October 29, 2022

(in thousands, except ratios) % of Net Sales % of Net Sales BPS Change

Stores and distribution expense $ 1,068,226 37.8 % $ 1,045,667 41.9 % (410)

For the second quarter of Fiscal 2023, stores and distribution expense increased 460 basis points, as compared to the second quarter of Fiscal 2022.

The increase was primarily driven by an increase in store occupancy expense, partially offset by a decrease in fulfillment costs as compared to the second quarter of Fiscal 2022.

For the year-to-date period of Fiscal 2023, stores and distribution expense increased 330 basis points, as compared to the year-to-date period of Fiscal 2022.

The increase was primarily driven by an increase in store occupancy expense compared to the year-to-date period of Fiscal 2022.

For the third quarter of Fiscal 2023, stores and distribution expense, as a percentage of net sales decreased, as compared to the third quarter of Fiscal 2022.

The decrease was primarily driven by expense leverage as a result of net sales growth, slightly offset with increases in store occupancy and fulfillment costs as compared to the third quarter of 2022.

For the year-to-date period of Fiscal 2023, stores and distribution expense, as a percentage of net sales decreased, as compared to the year-to-date period of Fiscal 2022.

The decrease was primarily driven by expense leverage as a result of net sales growth, slightly offset by an increase in store occupancy expense compared to the year-to-date period of Fiscal 2022.

Abercrombie & Fitch Co.

2 unchanged sentences

Thirteen Weeks Ended

July 29, 2023 July 30, 2022

October 28, 2023 October 29, 2022

(in thousands, except ratios) % of Net sales % of Net sales BPS Change

Marketing, general and administrative expense $ 162,510 15.4 % $ 133,201 15.1 % 30

Twenty-Six Weeks Ended

July 29, 2023 July 30, 2022

Thirty-Nine Weeks Ended

October 28, 2023 October 29, 2022

(in thousands, except ratios) % of Net Sales % of Net Sales BPS Change

Marketing, general and administrative expense $ 449,643 15.9 % $ 379,518 15.2 % 70

For the second quarter of Fiscal 2023, marketing, general and administrative expense, as a percentage of net sales, was essentially flat, as compared to the second quarter of Fiscal 2022, primarily driven by an increase in technology expenses and incentive-based compensation, fully offset by decreases in payroll and marketing.

For the third quarter of Fiscal 2023, marketing, general and administrative expense, as a percentage of net sales, increased 30 basis points, as compared to the third quarter of Fiscal 2022, primarily driven by an increase in marketing and technology expenses and incentive-based compensation.

For the year-to-date period of Fiscal 2023, marketing, general and administration expense, as a percentage of net sales, increased 70 basis points as compared to the year-to-date period of Fiscal 2022, primarily due to an increase in technology expenses and incentive-based compensation.

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Thirteen Weeks Ended

July 29, 2023 July 30, 2022

October 28, 2023 October 29, 2022

(in thousands, except ratios) % of Net sales % of Net sales BPS Change

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$ — — $ — — —

Twenty-Six Weeks Ended

July 29, 2023 July 30, 2022

Thirty-Nine Weeks Ended

October 28, 2023 October 29, 2022

(in thousands, except ratios) % of Net Sales % of Net Sales BPS Change

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Refer to Note 8, “ ASSET IMPAIRMENT .”

Other operating income (loss), net

Other operating (loss) income, net

Thirteen Weeks Ended

July 29, 2023 July 30, 2022

October 28, 2023 October 29, 2022

(in thousands, except ratios) % of Net sales % of Net sales BPS Change

Other operating income (loss), net $ 2,694 0.3 % $ (953) (0.1) % 40

Twenty-Six Weeks Ended

July 29, 2023 July 30, 2022

Other operating (loss) income, net $ (1,256) (0.1) % $ 1,005 0.1 % (20)

Thirty-Nine Weeks Ended

October 28, 2023 October 29, 2022

(in thousands, except ratios) % of Net Sales % of Net Sales BPS Change

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2023 3Q Form 10-Q

Operating income (loss)

Operating income

Thirteen Weeks Ended

July 29, 2023 July 30, 2022

October 28, 2023 October 29, 2022

(in thousands, except ratios) % of Net sales % of Net sales BPS Change

Operating income (loss) $ 89,842 9.6 % $ (2,191) (0.3) % 990

Operating income $ 138,020 13.1 % $ 17,543 2.0 % 1,110

Excluded items:

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— — 3,744 0.4 (40)

Adjusted non-GAAP operating income (loss) ⁽¹⁾ $ 89,842 9.6 $ (21) 0.0 960

Twenty-Six Weeks Ended

July 29, 2023 July 30, 2022

Adjusted non-GAAP operating income ⁽¹⁾ $ 138,020 13.1 $ 21,287 2.4 1,070

Thirty-Nine Weeks Ended

October 28, 2023 October 29, 2022

(in thousands, except ratios) % of Net Sales % of Net Sales BPS Change

Operating income (loss) $ 123,850 7.0 % $ (11,917) (0.7) % 770

Operating income $ 261,870 9.3 % $ 5,626 0.2 % 910

Excluded items:

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4,436 0.2 9,336 0.4 (20)

Adjusted non-GAAP operating income (loss) $ 128,286 7.2 $ (6,325) (0.4) 760

Adjusted non-GAAP operating income $ 266,306 9.4 $ 14,962 0.6 880

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

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Thirteen Weeks Ended

July 29, 2023 July 30, 2022

October 28, 2023 October 29, 2022

(in thousands, except ratios) % of Net sales % of Net sales BPS Change

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Interest expense, net $ 671 0.1 $ 7,295 0.8 (70)

Twenty-Six Weeks Ended

July 29, 2023 July 30, 2022

Thirty-Nine Weeks Ended

October 28, 2023 October 29, 2022

(in thousands, except ratios) % of Net Sales % of Net Sales BPS Change

2 unchanged sentences

Interest expense, net $ 5,211 0.2 $ 21,519 0.9 (70)

For the second quarter of Fiscal 2023, interest expense, net decreased $5.8 million, as compared to the second quarter of Fiscal 2022, as a result of higher interest income due to the increase in balance and rates received on deposits and money market accounts.

For the year-to-date period of Fiscal 2023, interest expense, net decreased $9.7 million, as compared to the year-to-date period of Fiscal 2022, as a result of higher interest income due to the increase in balance and rates received on deposits and money market accounts.

For the third quarter of Fiscal 2023, interest expense, net decreased $6.6 million, as compared to the third quarter of Fiscal 2022, as a result of lower borrowings in the current quarter due to the purchase of Senior Secured Notes as well as higher interest income due to the increase in balance and rates received on deposits and money market accounts.

For the year-to-date period of Fiscal 2023, interest expense, net decreased $16.3 million, as compared to the year-to-date period of Fiscal 2022, as a result of lower borrowings in the current quarter due to the purchase of Senior Secured Notes as well as higher interest income due to the increase in balance and rates received on deposits and money market accounts.

Abercrombie & Fitch Co.

2 unchanged sentences

Thirteen Weeks Ended

July 29, 2023 July 30, 2022

October 28, 2023 October 29, 2022

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

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Adjusted non-GAAP income tax expense ⁽¹⁾ $ 39,617 28.8 $ 11,942 85.3

Twenty-Six Weeks Ended

July 29, 2023 July 30, 2022

Thirty-Nine Weeks Ended

October 28, 2023 October 29, 2022

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

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(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) ” and “ NON-GAAP FINANCIAL MEASURES ” for details of pre-tax excluded items.

The change in the effective tax rates during the second quarter and year-to-date period of Fiscal 2023 is due to higher levels of income offsetting tax losses for which no benefit is recognized incurred outside of the U.S.

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

Compared with Fiscal 2022, the change in the effective tax rates during the third quarter and year-to-date period of Fiscal 2023 is due to higher levels of income offsetting tax losses incurred outside of the U.S., for which no benefit is recognized.

Refer to Note 9, “ INCOME TAXES .”

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Thirteen Weeks Ended

July 29, 2023 July 30, 2022

October 28, 2023 October 29, 2022

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

2 unchanged sentences

— — 2,768 0.4 (40)

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

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

$ 96,211 9.1 $ 554 0.1 900

Twenty-Six Weeks Ended

July 29, 2023 July 30, 2022

Thirty-Nine Weeks Ended

October 28, 2023 October 29, 2022

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

5 unchanged sentences

$ 172,905 6.1 $ (28,686) (1.1) 720

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

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

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

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Thirteen Weeks Ended

July 29, 2023 July 30, 2022 $ Change

October 28, 2023 October 29, 2022 $ Change

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

2 unchanged sentences

— 0.05 (0.05)

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

Adjusted non-GAAP net income per diluted share attributable to A&F

1.83 0.01 1.82

Impact from changes in foreign currency exchange rates — (0.06) 0.06

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)

1.83 (0.05) 1.88

Twenty-Six Weeks Ended

July 29, 2023 July 30, 2022 $ Change

Thirty-Nine Weeks Ended

October 28, 2023 October 29, 2022 $ Change

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

7 unchanged sentences

3.32 (0.77) 4.09

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

(1) Excluded 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.

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

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

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

The Company monitors financing market conditions and may in the future determine whether and when to amend, modify, repurchase, or restructure its ABL Facility and/or the Senior Secured Notes or repurchase shares of its Common Stock.

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

10 unchanged sentences

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 July 29, 2023, the Company used $89.8 million towards capital expenditures.

For the year-to-date period ended October 28, 2023, the Company used $128.6 million towards capital expenditures.

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

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

As of July 29, 2023, the Company had cash and cash equivalents of $617.3 million and total liquidity of approximately $974.3 million, compared with cash and cash equivalents of $517.6 million and total liquidity of approximately $865.7 million at the beginning of Fiscal 2023.

As of October 28, 2023, the Company had cash and cash equivalents of $649.5 million and total liquidity of approximately $1.0 billion, compared with cash and cash equivalents of $517.6 million and total liquidity of approximately $865.7 million at the beginning of Fiscal 2023.

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 purchasing outstanding Senior Secured Notes.

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

Share repurchases and dividends

In November 2021, A&F’s 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 the year-to-date period ended July 29, 2023, the Company did not repurchase any shares of its common stock pursuant to this share repurchase authorization.

During the year-to-date period ended October 28, 2023, the Company did not repurchase any shares of its common stock pursuant to this share repurchase authorization.

The Company has $232 million in share repurchase authorization remaining under the authorization approved in November 2021.

12 unchanged sentences

Credit facility and Senior Secured Notes

As of July 29, 2023, the Company had $299.7 million of gross borrowings outstanding under the Senior Secured Notes.

As of October 28, 2023, the Company had $249.7 million of gross borrowings outstanding under the Senior Secured Notes.

During the thirteen weeks ended October 28, 2023, A&F Management purchased $50.0 million of outstanding Senior Secured Notes in the open market and incurred a $1.3 million loss on extinguishment of debt, comprised of a premium of $0.9 million and the write-off of unamortized fees of $0.4 million, recognized in interest expense, net on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

In addition, the Amended and Restated Credit Agreement, as amended by the First Amendment (as defined below), provides for the ABL Facility, which is a senior secured asset-based revolving credit facility of up to $400 million.

As of July 29, 2023, the Company did not have any borrowings outstanding under the ABL Facility.

As of October 28, 2023, 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 July 29, 2023 are as follows:

(in thousands) July 29, 2023

Details regarding the remaining borrowing capacity under the ABL Facility as of October 28, 2023 are as follows:

(in thousands) October 28, 2023

Loan cap $ 400,000

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 July 29, 2023, $205.9 million of the Company’s $617.3 million of cash and equivalents were held by foreign affiliates.

As of October 28, 2023, $213.1 million of the Company’s $649.5 million of cash and equivalents were held by foreign affiliates.

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 twenty-six weeks ended July 29, 2023 and July 30, 2022:

Twenty-Six Weeks Ended

July 29, 2023 July 30, 2022

The table below provides certain components of the Company’s Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks ended October 28, 2023 and October 29, 2022:

Thirty-Nine Weeks Ended

October 28, 2023 October 29, 2022

(in thousands)

6 unchanged sentences

Cash and equivalents, and restricted cash and equivalents, end of period $ 658,128 $ 267,006

Operating activities - During the year-to-date period ended July 29, 2023, net cash provided by operating activities included increased cash receipts as a result of the 9% year-over-year increase in net sales as well as increased payments to vendors in the fourth quarter of Fiscal 2022 which resulted in lower cash payments in the first quarter of Fiscal 2023.

Investing activities - During the year-to-date period ended July 29, 2023, net cash used for investing activities was primarily used for capital expenditures of $89.8 million.

Net cash used for investing activities for the year-to-date period ended July 30, 2022 was primarily used for capital expenditures of $59.6 million, partially offset by the proceeds from the sale of property and equipment of $8.0 million.

Operating activities - During the year-to-date period ended October 28, 2023, net cash provided by operating activities included increased cash receipts as a result of the 13% year-over-year increase in net sales as well as increased payments to vendors in the fourth quarter of Fiscal 2022 which resulted in lower cash payments in the first quarter of Fiscal 2023.

Abercrombie & Fitch Co.

2023 3Q Form 10-Q

Financing activities - During the year-to-date period ended July 29, 2023, net cash used for financing activities included amounts related to shares of Common Stock withheld (repurchased) to cover tax withholdings upon vesting of share-based compensation awards.

During the year-to-date period ended July 30, 2022, net cash used for financing activities included the repurchase of approximately 4.3 million shares of Common Stock with a market value of approximately $117.8 million.

Investing activities - During the year-to-date period ended October 28, 2023, net cash used for investing activities was primarily used for capital expenditures of $128.6 million.

Net cash used for investing activities for the year-to-date period ended October 29, 2022 was primarily used for capital expenditures of $120.3 million, partially offset by the proceeds from the withdrawal of $12.0 million of excess funds by Rabbi Trust assets and the sale of property and equipment of $11.9 million.

Financing activities - During the year-to-date period ended October 28, 2023, net cash used for financing activities included the purchase of $50.0 million of outstanding Senior Secured Notes at a premium of $0.9 million as well as amounts related to shares of Common Stock withheld (repurchased) to cover tax withholdings upon vesting of share-based compensation awards.

During the year-to-date period ended October 29, 2022, net cash used for financing activities included the repurchase of approximately 4.8 million shares of Common Stock with a market value of approximately $125.8 million as well as amounts related to shares of Common Stock withheld (repurchased) to cover tax withholdings upon vesting of share-based compensation awards.

Contractual obligations

17 unchanged sentences

Comparable sales

At times, the Company provides comparable sales, defined as the year-over-year percentage change in the aggregate of (1) net sales for stores that have been open as the same brand at least one year and 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 net 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.

The Company provides comparable sales, defined as the year-over-year percentage change in the aggregate of (1) net sales for stores that have been open as the same brand at least one year and 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 net 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 excludes revenue other than store and digital sales.

8 unchanged sentences

Excluded items

Operating income (loss) Asset impairment charges

Operating income Asset impairment charges

Income tax expense (2)

9 unchanged sentences

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

Reconciliations of non-GAAP financial metrics on a constant currency basis to financial measures calculated and presented in accordance with GAAP for the thirteen and twenty-six weeks ended July 29, 2023 and July 30, 2022 were as follows:

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

Net sales July 29, 2023 July 30, 2022 % Change July 29, 2023 July 30, 2022 % Change

Reconciliations 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 28, 2023 and October 29, 2022 were as 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 28, 2023 October 29, 2022 % Change October 28, 2023 October 29, 2022 % Change

GAAP $ 1,056,431 $ 880,084 20 % $ 2,827,770 $ 2,497,937 13 %

1 unchanged sentence

Non-GAAP on a constant currency basis $ 1,056,431 $ 887,021 19 $ 2,827,770 $ 2,499,150 13

Gross profit, exclusive of depreciation and amortization expense July 29, 2023 July 30, 2022 BPS Change (1)

July 29, 2023 July 30, 2022 BPS Change (1)

Gross profit, exclusive of depreciation and amortization expense October 28, 2023 October 29, 2022 BPS Change (1)

October 28, 2023 October 29, 2022 BPS Change (1)

GAAP $ 685,669 $ 520,816 570 $ 1,779,843 $ 1,436,253 540

1 unchanged sentence

Non-GAAP on a constant currency basis $ 685,669 $ 523,722 590 $ 1,779,843 $ 1,423,582 590

Operating income (loss) July 29, 2023 July 30, 2022 BPS Change (1)

July 29, 2023 July 30, 2022 BPS Change (1)

Operating income October 28, 2023 October 29, 2022 BPS Change (1)

October 28, 2023 October 29, 2022 BPS Change (1)

GAAP $ 138,020 $ 17,543 1,110 $ 261,870 $ 5,626 910

4 unchanged sentences

Adjusted non-GAAP on a constant currency basis $ 138,020 $ 17,057 1,120 $ 266,306 $ 1,121 940

Net income (loss) per share attributable to A&F July 29, 2023 July 30, 2022 $ Change July 29, 2023 July 30, 2022 $ Change

Net income (loss) per share attributable to A&F October 28, 2023 October 29, 2022 $ Change October 28, 2023 October 29, 2022 $ Change

GAAP $ 1.83 $ (0.04) $ 1.87 $ 3.25 $ (0.70) $ 3.95

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 twenty-six weeks ended July 29, 2023 and July 30, 2022 consisted of pre-tax store asset impairment charges and the tax effect of pre-tax excluded items.

(2) Excluded items for the thirteen and thirty-nine weeks ended October 28, 2023 and October 29, 2022 consisted of pre-tax store asset impairment charges, and pre-tax store asset and other asset impairment charges, respectively and the tax effect of pre-tax excluded items.

Abercrombie & Fitch Co.

1 unchanged sentence

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