What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-04-01 compared with 2023-03-27 · 167 added, 158 removed, 335 unchanged (49% of the section changed)

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• Results of Operations .

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.

An analysis of certain components of the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss) for Fiscal 2023 as compared to Fiscal 2022.

• Liquidity and Capital Resources .

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.

A discussion of the Company’s financial condition, changes in financial condition and liquidity as of February 3, 2024, which includes (i) an analysis of changes in cash flows for Fiscal 2023 as compared to Fiscal 2022, (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 February 3, 2024.

• Recent Accounting Pronouncements .

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Business Summary

The Company is a global, digitally-led omnichannel retailer.

The Company offers a broad assortment of apparel, personal care products and accessories for men, women and kids, which are sold primarily through its digital channels and Company-owned stores, as well as through various third-party arrangements.

The Company’s two brand-based operating segments are Hollister, which includes the Company’s Hollister, Gilly Hicks and Social Tourist brands, and Abercrombie, which includes the Company’s Abercrombie & Fitch and abercrombie kids brands.

These five brands share a commitment to offering unique products of enduring quality and exceptional comfort that allow customers around the world to express their own individuality and style.

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

Abercrombie & Fitch Co.

(“A&F”), a company incorporated in Delaware in 1996, through its subsidiaries (collectively, A&F and its subsidiaries are referred to as the “Company”), is a global, digitally-led omnichannel retailer.

The Company offers a broad assortment of apparel, personal care products and accessories for men, women and kids, which are sold primarily through its Company-owned stores and digital channels, as well as through various third-party arrangements.

During the second quarter of Fiscal 2023, to leverage the knowledge and experience of our regional teams to drive brand growth, the Company reorganized its structure and now primarily manages its business on a geographic basis, consisting of three reportable segments:

Europe, the Middle East and Africa (EMEA);

and Asia-Pacific (APAC).

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) 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 Abercrombie & Fitch and abercrombie kids, and Hollister brands, which includes Hollister and Gilly Hicks.

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.

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

This typically results in a fifty-two-week year, but occasionally gives rise to an additional week, resulting in a fifty-three-week year, as is the case in Fiscal 2023.

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

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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.

The Company experiences its greatest sales activity during Fall, due to back-to-school and holiday sales periods, respectively.

Fiscal 2024 February 1, 2025 52

Historically, the Company’s operations have been seasonal in nature and consist of two principal selling seasons:

the spring season, which includes the first and second fiscal quarters (“Spring”) and the fall season, which includes the third and fourth fiscal quarters (“Fall”).

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

The Company historically experiences its greatest sales activity during the Fall season due to back-to-school and holiday sales periods, respectively.

Key Performance Indicators

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• 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 (“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.

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Focus Areas for Fiscal 2024

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 toward initiatives that support this vision.

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

In June of Fiscal 2022, we announced our 2025 Always Forward Plan, which outlines our long-term strategy and goals, including growing shareholder value.

The 2025 Always Forward Plan is anchored on our strategic growth principles, which are to:

• Execute focused growth plans;

• 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.

The 2025 Always Forward Plan growth principles serve as a framework for the Company achieving sustainable and profitable growth and profitability in Fiscal 2024.

Below are some additional details specific to Fiscal 2024 objectives within the 2025 Always Forward Plan:

Execute focused growth plans by:

• driving sales growth across regions and brands primarily through marketing and store investment.

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

• using testing and chase strategies to deliver compelling assortments and product collections across genders.

Accelerate an enterprise-wide digital revolution to improve the customer and associate experience by:

• continuing to progress on our multi-year enterprise resource planning (“ERP”) transformation and cloud migration journey;

• investing in digital and technology to improve experiences across key parts of the customer journey while delivering a consistent omnichannel experience.

Operate with financial discipline by:

• actively managing inventory levels and positioning Abercrombie brands and Hollister brands to chase inventory as appropriate throughout the year;

• funding our growth strategies while properly balancing investments, impacts of inflation and efficiency efforts.

Current Macroeconomic Conditions

Macroeconomic conditions, including inflation, the geopolitical landscape, political uncertainty including elections in several countries, higher interest rates, foreign exchange rate fluctuations, and declines in consumer discretionary spending continue to negatively impact our business.

While freight costs have decreased in Fiscal 2023 and cotton costs waned towards the end of Fiscal 2023, there continues to be pricing volatility with respect to freight, cotton and other raw materials.

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

In addition, these macroeconomic conditions may result in delays in merchandise fulfillment and deliveries, increased costs to meet consumer demand (which we may not be able to pass on to customers through average unit retail (“AUR”)), or reduced consumer confidence.

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.

Global Events and Supply Chain Disruptions

As 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 the ongoing armed conflicts between Russia and Ukraine or Israel and Hamas, and conflict in the surrounding areas, which could adversely impact certain areas of the business.

Starting in late Fiscal 2023, disruptions to ocean vessels in the Red Sea have resulted in delayed deliveries to the EMEA region.

Such disruptions have also led to increased freight costs, which could impact the Company in Fiscal 2024.

The Company has taken certain mitigating actions in response to these events, including increasing air freight usage where appropriate and prioritizing critical orders earlier to allow for longer lead times.

Further mitigating actions may be needed as we continue in to Fiscal 2024, particularly if there is prolonged or escalating conflict in the Red Sea.

While freight costs decreased in Fiscal 2023, the recent disruptions in the Red Sea may offset anticipated future freight cost benefits.

Management continues to monitor global events and assess the potential impacts that these events and similar events may have on the business in future periods.

Although management also develops and updates 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.

Abercrombie & Fitch Co.

2023 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

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 the Company delivered new store experiences across brands during Fiscal 2023 and Fiscal 2022.

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New stores 35 59

Remodels 13 1

Right-sizes 9 8

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

During Fiscal 2023, the Company opened 35 new stores, while closing 32 stores.

This compares with 59 new stores and 26 closures during Fiscal 2022 .

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:

Fifty-Three Weeks Ended February 3, 2024

Total Company

Abercrombie (4)

Hollister (5)

Abercrombie (4)

Total Company (3)

United States International United States International United States International Total

Number of stores:

Hollister (5)

Abercrombie (4)

Hollister (5)

Abercrombie (4)

Hollister (5)

January 28, 2023 184 389 29 112 20 28 233 529 762

New 14 7 4 6 4 — 22 13 35

Closed (4) (10) (6) (6) (10) (16) (26)

January 28, 2023 380 149 180 53 560 202 762

Permanently closed (4) (12) (4) (10) — (2) (8) (24) (32)

February 3, 2024 194 384 29 108 24 26 247 518 765

Gross square footage (in thousands) :

January 28, 2023 1,176 2,487 181 907 132 185 1,489 3,579 5,068

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

(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 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 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.

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 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.

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

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

February 3, 2024 1,188 2,459 187 828 149 169 1,524 3,456 4,980

(1) The Americas segment includes the results of operations in North America and South America.

(2) The EMEA segment includes the results of operations in Europe, the Middle East and Africa.

(3) The APAC segment includes the results of operations in the Asia-Pacific region, including Asia and Oceania.

(4) Abercrombie brands includes Abercrombie & Fitch and abercrombie kids.

(5) Hollister brands includes Hollister and Gilly Hicks.

(6) This store count excludes temporary and international franchise stores.

Pillar Two Model Rules

In 2021, the Organization for Economic Cooperation and Development (“OECD”) released Pillar Two Global Anti-Base Erosion model rules (“Pillar Two Rules”), designed to ensure large corporations are taxed at a minimum rate of 15% in all countries of operation.

Although the U.S.

has not yet enacted legislation implementing Pillar Two Rules, other countries where the Company does business, including the U.K.

and Germany, have enacted legislation implementing Pillar Two Rules which are effective from January 1, 2024.

The Company does not expect the implementation of the Pillar Two Rules in each jurisdiction in which it operates will have a material impact on the Company’s effective tax rate.

The Company will continue to evaluate the impact as jurisdictions implement legislation and provide further guidance.

Abercrombie & Fitch Co.

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Change in net sales from the prior fiscal year 16 % — %

Comparable sales (2)

Gross profit rate (3)

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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) Comparable sales are calculated on a constant currency basis and exclude revenue other than store and digital sales.

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

In light of store closures related to COVID-19, comparable sales for periods prior to Fiscal 2023 included in this Annual Report on Form 10-K are not disclosed.

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

(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 .”

Certain components of the Company’s Consolidated Balance Sheets as of January 28, 2023 and January 29, 2022 and Consolidated Statements of Cash Flows for Fiscal 2022 and Fiscal 2021 were as follows:

Gross profit rate is is derived from cost of sales, exclusive of depreciation and amortization as a percentage of total net sales.

Certain components of the Company’s Consolidated Balance Sheets as of February 3, 2024 and January 28, 2023 and Consolidated Statements of Cash Flows for Fiscal 2023 and Fiscal 2022 were as follows:

(in thousands)

Balance Sheets data January 28, 2023 January 29, 2022

Balance Sheets data February 3, 2024 January 28, 2023

Cash and equivalents $ 900,884 $ 517,602

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Statements of Cash Flows data Fiscal 2023 Fiscal 2022

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

Net cash provided by (used for) operating activities $ 653,422 $ (2,343)

Net cash used for investing activities (157,182) (140,675)

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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

Hollister $ 1,962,885 $ 2,147,979 $ (185,094) (9)%

Abercrombie 1,734,866 1,564,789 170,077 11%

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

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

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

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

United States $ 2,758,294 $ 2,652,158 $ 106,136 4%

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 Fiscal 2023 and Fiscal 2022 were as follows:

(in thousands) Fiscal 2023 Fiscal 2022 $ Change % Change Comparable Sales (1)

$ 3,455,674 $ 2,920,157 $ 535,517 18% 13%

EMEA 687,095 658,794 28,301 4% 7%

APAC 137,908 118,800 19,108 16% 26%

Total Company $ 4,280,677 $ 3,697,751 $ 582,926 16% 13%

(1) Comparable sales are calculated on a constant currency basis.

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

For Fiscal 2023, net sales increased 16%, as compared to Fiscal 2022, primarily due to an increase in units sold and AUR.

The additional week in fiscal 2023 benefited net sales by approximately $50 million.

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

The Company’s net sales by brand for Fiscal 2023 and Fiscal 2022 were as follows:

(in thousands) Fiscal 2023 Fiscal 2022 $ Change % Change Comparable Sales (1)

Abercrombie (2)

$ 2,201,686 $ 1,734,866 $ 466,820 27% 23%

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

Hollister (3)

2,078,991 1,962,885 116,106 6% 4%

Total Company $ 4,280,677 $ 3,697,751 $ 582,926 16% 13%

(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.

(1) Comparable sales are calculated on a constant currency basis.

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

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

(3) Hollister brands includes Hollister and Gilly Hicks.

Cost of Sales, Exclusive of Depreciation and Amortization

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Cost of sales, exclusive of depreciation and amortization $ 1,587,265 37.1% $ 1,593,213 43.1% (600)

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.

For Fiscal 2023, cost of sales, exclusive of depreciation and amortization, as a percentage of net sales decreased approximately 600 basis points as compared to Fiscal 2022.

The decrease was primarily attributable to approximately 340 basis points of higher average unit retail and approximately 300 basis points from the combination of lower freight costs and higher raw materials compared to Fiscal 2022.

These benefits were partially offset by approximately 30 basis points from the adverse impact of exchange rates.

Gross Profit, Exclusive of Depreciation and Amortization

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Stores and distribution expense $ 1,571,737 36.7% $ 1,496,962 40.5% (380)

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.

For Fiscal 2023, stores and distribution expense, as a percentage of net sales, decreased 380 basis points as compared to Fiscal 2022.

The decrease was primarily driven by expense leverage as a result of net sales growth, slightly offset by an increase of $18 million in store occupancy expense compared to Fiscal 2022.

Marketing, General and Administrative Expense

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Marketing, general and administrative expense $ 642,877 15.0% $ 517,602 14.0% 100

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

Excluded items:

Asset impairment charges (1)

(14,031) (0.4)% (12,100) (0.3)% (10)

Adjusted non-GAAP asset impairment, exclusive of flagship store exit charges

$ — 0.0% $ — 0.0% —

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

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

For Fiscal 2023, marketing, general and administrative expense, as a percentage of net sales increased 100 basis points as compared to Fiscal 2022, primarily due to an increase in incentive compensation, marketing, the 53rd reporting week and digital and technology expenses.

Other Operating Income, Net

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Other operating income, net $ 5,873 0.1% $ 2,674 0.1% —

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.

For Fiscal 2023, other operating income, net, increased as compared to Fiscal 2022, primarily due to $0.9 million foreign currency gain recognized in Fiscal 2023.

Operating Income

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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 $ 372 —% $ 25,632 0.7% (70)

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.

For Fiscal 2023, interest expense, net, decreased 70 basis points as compared to Fiscal 2022.

The net decrease can be attributable to higher interest income due to the increase in balance and rates received on deposits and money market accounts as compared to Fiscal 2022.

Abercrombie & Fitch Co.

2023 Form 10-K

Income Tax Expense

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

The increase in income tax expense compared to Fiscal 2022 can be attributed to higher domestic income resulting from higher sales volume and higher AURs.

During Fiscal 2023, the Company did not recognize income tax benefits on $103.0 million of pre-tax losses, primarily in Switzerland, resulting in adverse tax impacts of $15.6 million.

The primary driver relates to expense deleverage within the APAC and EMEA regions, although to a lesser extent than in the prior year.

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.

The Company did not recognize income tax benefits on $25.3 million of pre-tax losses generated in Fiscal 2021, primarily in Switzerland, resulting in adverse tax impacts of $4.6 million

Refer to Note 11, “ INCOME TAXES ,” for further discussion on factors that impacted the effective tax rate in Fiscal 2023 and Fiscal 2022.

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

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

Net Income Per Diluted Share Attributable to A&F

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LIQUIDITY AND CAPITAL RESOURCES

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.

The Company’s capital allocation strategy and priorities are reviewed by the 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 twelve 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.

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

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The Company’s business has two principal selling seasons:

Spring and Fall.

The Company experiences its greatest sales activity during Fall, due to back-to-school and holiday sales periods.

the spring season, which includes the first and second fiscal quarters (“Spring”) and the fall season, which includes the third and fourth fiscal quarters (“Fall”).

The Company generally experiences its greatest sales activity during the Fall season, due to the back-to-school and holiday sales periods.

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 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.

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

In addition, the Company continuously evaluates 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 may include, but are not limited to, purchasing outstanding Senior Secured Notes or share repurchases.

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

BUSINESS - STRATEGY AND KEY BUSINESS PRIORITIES .” Examples of potential investment opportunities include, but are not limited to, new store experiences, and investments in the Company’s digital revolution initiatives.

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

For Fiscal 2023, the Company used $157.8 million towards capital expenditures, down from $164.6 million of capital expenditures in Fiscal 2022.

Total capital expenditures for Fiscal 2024 are expected to be approximately $170 million.

Share Repurchases and Dividends

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.

In November 2021, A&F’s Board of Directors approved a $500 million share repurchase authorization.

During Fiscal 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.

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

Shares may be repurchased in the open market, including pursuant to trading plans established in accordance with Rule 10b5-1 of the 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 ” 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.

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 purchase under the Company’s publicly announced share 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 COVID-19.

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

Any dividends are declared at the discretion of 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.

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

A&F’s Board of Directors reviews and establishes a dividend amount, if 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.

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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.

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.

As of February 3, 2024, the Company had $223.2 million of gross indebtedness outstanding under the Senior Secured Notes.

During Fiscal 2023, A&F Management purchased $76.5 million of outstanding Senior Secured Notes and incurred a $2.0 million loss on extinguishment of debt, recognized in interest expense, net on the Consolidated Statements of Operations and Comprehensive Income (Loss) .

In addition, the Amended and Restated Credit Agreement, as amended by the First Amendment, provides 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 the remaining borrowing capacity under the ABL Facility as of January 28, 2023 follow:

(in thousands) January 28, 2023

The Company did not have any borrowings outstanding under the ABL Facility as of February 3, 2024 or as of January 28, 2023.

Details regarding the remaining borrowing capacity under the ABL Facility as of February 3, 2024 follow:

(in thousands) February 3, 2024

Loan cap $ 332,891

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

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.

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

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

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

As of January 28, 2023, $226.5 million of the Company’s $517.6 million of cash and equivalents were held by foreign affiliates.

As of February 3, 2024, $247.3 million of the Company’s $900.9 million of cash and equivalents were held by foreign affiliates.

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 $ 527,569 $ 834,368

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

Net cash provided by (used for) operating activities 653,422 (2,343)

Net cash used for investing activities (157,182) (140,675)

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Effects of foreign currency exchange rate changes on cash (2,923) (8,452)

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

Net increase (decrease) in cash and equivalents, and restricted cash and equivalents $ 382,116 $ (306,799)

Cash and equivalents, and restricted cash and equivalents, end of period $ 909,685 $ 527,569

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.

Operating activities - For Fiscal 2023 net cash provided by operating activities included increased cash receipts as a result of the 16% year-over-year increase in net sales partially offset by increased payments to vendors, including additional rent payments made during the period due to fiscal calendar shifting relative to monthly rent due dates.

Abercrombie & Fitch Co.

2023 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.

Investing activities - For Fiscal 2023, net cash used for investing activities was primarily attributable to capital expenditures of $157.8 million as compared to net cash used for investing activities of $164.6 million in Fiscal 2022, primarily attributable to capital expenditures, 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.

Financing activities - For Fiscal 2023, net cash used for financing activities primarily consisted of the purchase of $76.5 million of outstanding Senior Secured Notes for $78.0 million as well as amounts related to shares of Common Stock withheld (repurchased) to cover tax withholdings upon vesting of share-based compensation awards.

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.

Contractual Obligations

As of January 28, 2023, the Company’s contractual obligations were as follows:

As of February 3, 2024, the Company’s contractual obligations were as follows:

Payments due by period

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Total $ 1,601,155 $ 520,734 $ 672,633 $ 271,561 $ 136,227

(1) Operating lease obligations consist of the Company’s future undiscounted operating lease payments, including future fixed lease payments associated with closed flagship stores.

(1) Operating lease obligations consist of the Company’s future undiscounted operating lease payments.

Operating lease obligations do not include variable payments related to both lease and nonlease components, such as contingent rent payments made by the Company based on performance, and payments related to taxes, insurance, and maintenance costs.

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Refer to Note 7, “ LEASES ,” Note 11, “ INCOME TAXES ,” Note 12, “ BORROWINGS ,” and Note 16, “ SAVINGS AND RETIREMENT PLANS ,” for further discussion.

Due to uncertainty as to the amounts and timing of future payments, tax related to uncertain tax positions, including accrued interest and penalties, of $2.5 million as of January 28, 2023 is excluded from the contractual obligations table.

Due to uncertainty as to the amounts and timing of future payments, tax related to uncertain tax positions, including accrued interest and penalties, of $3.0 million as of February 3, 2024, is excluded from the contractual obligations table.

Deferred taxes are also excluded in the contractual obligations table.

For further discussion, refer to Note 11, “ INCOME TAXES .”

As of January 28, 2023, the Company had recorded $3.8 million and $41.3 million of obligations related to its deferred compensation and supplemental retirement plans in accrued expenses and other liabilities on the Consolidated Balance Sheet, respectively.

As of February 3, 2024, the Company had recorded $4.7 million and $39.6 million of obligations related to its deferred compensation and supplemental retirement plans in accrued expenses and other liabilities on the Consolidated Balance Sheet, respectively.

Amounts payable with known payment dates of $16.4 million have been classified in the contractual obligations table based on those scheduled payment dates.

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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.

The Company does not expect material changes to the underlying assumptions used to measure the LCNRV estimate as of February 3, 2024.

However, actual results could vary from estimates and could significantly impact the ending inventory valuation at cost, as well as gross profit.

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

Store assets that were tested for impairment as of January 28, 2023 and not impaired, had long-lived assets with a net book value of $69.2 million, which included $54.5 million of operating lease right-of-use assets as of January 28, 2023.

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.

Store assets that were tested for impairment as of February 3, 2024 and not impaired, had long-lived assets with a net book value of $11.8 million, which included $7.0 million of operating lease right-of-use assets as of February 3, 2024.

Store assets that were previously impaired as of February 3, 2024, had a remaining net book value of $63.5 million, which included $53.8 million of operating lease right-of-use assets, as of February 3, 2024.

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.

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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.

Management uses comparable sales to understand the drivers of year-over-year changes in net sales and 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, comparable sales for periods prior to Fiscal 2023 included in this Annual Report on Form 10-K are not disclosed.

Excluded Items

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Asset impairment Certain asset impairment charges

Operating income (loss) Certain asset impairment charges

Operating income Certain asset impairment charges

Income tax expense (2)

Tax effect of pre-tax excluded items

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

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

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

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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