ABERCROMBIE & FITCH CO /DE/ 10-K

Item 8. Financial Statements and Supplementary Data Abercrombie & Fitch Co. Consolidated Statements of Operations and Comprehensive Income (Loss) (Thousands, except per share amounts) Fiscal 2023 Fiscal 2022 Fiscal 2021 Net sales $ 4,280,677 $ 3,697,751 $ 3,712,768 Cost of sales, exclusive of depreciation and amortization 1,587,265 1,593,213 1,400,773 Gross profit 2,693,412 2,104,538 2,311,995 Stores and distribution expense 1,571,737 1,496,962 1,440,423 Marketing, general and administrative expense 642,877 517,602 536,815 Other operating income, net ( 5,873 ) ( 2,674 ) ( 8,327 ) Operating income 484,671 92,648 343,084 Interest expense 30,352 30,236 37,958 Interest income ( 29,980 ) ( 4,604 ) ( 3,848 ) Income before income taxes 484,299 67,016 308,974 Income tax expense 148,886 56,631 38,908 Net income 335,413 10,385 270,066 Less: Net income attributable to noncontrolling interests 7,290 7,569 7,056 Net income attributable to A&F $ 328,123 $ 2,816 $ 263,010 Net income per share attributable to A&F Basic $ 6.53 $ 0.06 $ 4.41 Diluted $ 6.22 $ 0.05 $ 4.20 Weighted-average shares outstanding Basic 50,250 50,307 59,597 Diluted 52,726 52,327 62,636 Other comprehensive income (loss) Foreign currency translation, net of tax $ ( 3,879 ) $ ( 11,964 ) $ ( 22,917 ) Derivative financial instruments, net of tax 5,438 ( 10,857 ) 10,518 Other comprehensive income (loss) 1,559 ( 22,821 ) ( 12,399 ) Comprehensive income (loss) 336,972 ( 12,436 ) 257,667 Less: Comprehensive income attributable to noncontrolling interests 7,290 7,569 7,056 Comprehensive income (loss) attributable to A&F $ 329,682 $ ( 20,005 ) $ 250,611 The accompanying Notes are an integral part of these Consolidated Financial Statements. Abercrombie & Fitch Co. 45 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. Consolidated Balance Sheets (Thousands, except par value amounts) February 3, 2024 January 28, 2023 Assets Current assets: Cash and equivalents $ 900,884 $ 517,602 Receivables 78,346 104,506 Inventories 469,466 505,621 Other current assets 88,569 100,289 Total current assets 1,537,265 1,228,018 Property and equipment, net 538,033 551,585 Operating lease right-of-use assets 678,256 723,550 Other assets 220,679 209,947 Total assets $ 2,974,233 $ 2,713,100 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 296,976 $ 258,895 Accrued expenses 436,655 413,303 Short-term portion of operating lease liabilities 179,625 213,979 Income taxes payable 53,564 16,023 Total current liabilities 966,820 902,200 Long-term liabilities: Long-term portion of operating lease liabilities 646,624 713,361 Long-term portion of borrowings, net 222,119 296,852 Other liabilities 88,683 94,118 Total long-term liabilities 957,426 1,104,331 Stockholders’ equity Class A Common Stock - $ 0.01 par value: 150,000 shares authorized and 103,300 shares issued for all periods presented 1,033 1,033 Paid-in capital 421,609 416,255 Retained earnings 2,643,629 2,368,815 Accumulated other comprehensive loss, net of tax (“AOCL”) ( 135,968 ) ( 137,527 ) Treasury stock, at average cost: 52,800 and 54,298 shares at February 3, 2024 and January 28, 2023, respectively ( 1,895,143 ) ( 1,953,735 ) Total A&F stockholders’ equity 1,035,160 694,841 Noncontrolling interests 14,827 11,728 Total stockholders’ equity 1,049,987 706,569 Total liabilities and stockholders’ equity $ 2,974,233 $ 2,713,100 The accompanying Notes are an integral part of these Consolidated Financial Statements. Abercrombie & Fitch Co. 46 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. Consolidated Statements of Stockholders’ Equity (Thousands, except per share amounts) Common Stock Paid-in capital Non-controlling interests Retained earnings AOCL Treasury stock Total stockholders’ equity Shares outstanding Par value Shares At average cost Balance, January 30, 2021 62,399 $ 1,033 $ 401,283 $ 12,684 $ 2,149,470 $ ( 102,307 ) 40,901 $ ( 1,512,851 ) $ 949,312 Net income — — — 7,056 263,010 — — — 270,066 Purchase of common stock ( 10,200 ) — — — — — 10,200 ( 377,290 ) ( 377,290 ) Share-based compensation issuances and exercises 786 — ( 17,397 ) — ( 26,324 ) — ( 786 ) 30,558 ( 13,163 ) Share-based compensation expense — — 29,304 — — — — — 29,304 Derivative financial instruments, net of tax — — — — — 10,518 — — 10,518 Foreign currency translation adjustments, net of tax — — — — — ( 22,917 ) — — ( 22,917 ) Distributions to noncontrolling interests, net — — — ( 8,506 ) — — — — ( 8,506 ) Balance, January 29, 2022 52,985 $ 1,033 $ 413,190 $ 11,234 $ 2,386,156 $ ( 114,706 ) 50,315 $ ( 1,859,583 ) $ 837,324 Net income — — — 7,569 2,816 — — — 10,385 Purchase of common stock ( 4,770 ) — — — — — 4,770 ( 125,775 ) ( 125,775 ) Share-based compensation issuances and exercises 787 — ( 25,930 ) — ( 20,157 ) — ( 787 ) 31,623 ( 14,464 ) Share-based compensation expense — — 28,995 — — — — — 28,995 Derivative financial instruments, net of tax — — — — — ( 10,857 ) — — ( 10,857 ) Foreign currency translation adjustments, net of tax — — — — — ( 11,964 ) — — ( 11,964 ) Distributions to noncontrolling interests, net — — — ( 7,075 ) — — — — ( 7,075 ) Balance, January 28, 2023 49,002 $ 1,033 $ 416,255 $ 11,728 $ 2,368,815 $ ( 137,527 ) 54,298 $ ( 1,953,735 ) $ 706,569 Net income — — — 7,290 328,123 — — — 335,413 Purchase of common stock — — — — — — — — — Share-based compensation issuances and exercises 1,498 — ( 34,768 ) — ( 53,309 ) — ( 1,498 ) 58,592 ( 29,485 ) Share-based compensation expense — — 40,122 — — — — — 40,122 Derivative financial instruments, net of tax — — — — — 5,438 — — 5,438 Foreign currency translation adjustments, net of tax — — — — — ( 3,879 ) — — ( 3,879 ) Distributions to noncontrolling interests, net — — — ( 4,191 ) — — — — ( 4,191 ) Balance, February 3, 2024 50,500 $ 1,033 $ 421,609 $ 14,827 $ 2,643,629 $ ( 135,968 ) 52,800 $ ( 1,895,143 ) $ 1,049,987 The accompanying Notes are an integral part of these Consolidated Financial Statements. Abercrombie & Fitch Co. 47 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. Consolidated Statements of Cash Flows (Thousands) Fiscal 2023 Fiscal 2022 Fiscal 2021 Operating activities Net income $ 335,413 $ 10,385 $ 270,066 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization 141,104 132,243 144,035 Asset impairment 8,289 14,031 12,100 Loss on disposal 6,408 552 5,020 (Benefit) provision for deferred income taxes ( 4,743 ) 11,500 ( 31,922 ) Share-based compensation 40,122 28,995 29,304 Loss (gain) on extinguishment of debt 1,975 ( 52 ) 5,347 Changes in assets and liabilities Inventories 35,043 18,505 ( 123,221 ) Accounts payable and accrued expenses 82,925 ( 115,152 ) 77,910 Operating lease right-of use assets and liabilities ( 55,646 ) ( 18,495 ) ( 93,827 ) Income taxes 35,806 ( 7,390 ) ( 3,086 ) Other assets 33,623 ( 86,923 ) 396 Other liabilities ( 6,897 ) 9,458 ( 14,340 ) Net cash provided by (used for) operating activities 653,422 ( 2,343 ) 277,782 Investing activities Purchases of property and equipment ( 157,797 ) ( 164,566 ) ( 96,979 ) Proceeds from the sale of property and equipment 615 11,891 — Withdrawal of funds from Rabbi Trust assets — 12,000 — Net cash used for investing activities ( 157,182 ) ( 140,675 ) ( 96,979 ) Financing activities Purchase of senior secured notes ( 77,972 ) ( 7,862 ) ( 46,969 ) Payment of debt issuance costs and fees ( 180 ) ( 181 ) ( 2,016 ) Purchases of common stock — ( 125,775 ) ( 377,290 ) Other financing activities ( 33,049 ) ( 21,511 ) ( 20,623 ) Net cash used for financing activities ( 111,201 ) ( 155,329 ) ( 446,898 ) Effect of foreign currency exchange rates on cash ( 2,923 ) ( 8,452 ) ( 23,694 ) Net increase (decrease) in cash and equivalents, and restricted cash and equivalents 382,116 ( 306,799 ) ( 289,789 ) Cash and equivalents, and restricted cash and equivalents, beginning of period 527,569 834,368 1,124,157 Cash and equivalents, and restricted cash and equivalents, end of period $ 909,685 $ 527,569 $ 834,368 Supplemental information related to non-cash activities Purchases of property and equipment not yet paid at end of period $ 35,568 $ 57,313 $ 29,932 Operating lease right-of-use assets additions, net of terminations, impairments and other reductions $ 155,184 $ 269,430 $ 29,241 Supplemental information related to cash activities Cash paid for interest $ 24,891 $ 26,687 $ 28,413 Cash paid for income taxes $ 120,448 $ 53,011 $ 74,709 Cash received from income tax refunds $ 1,843 $ 3,701 $ 2,292 Cash paid for amounts included in measurement of operating lease liabilities $ 296,834 $ 263,269 $ 364,842 The accompanying Notes are an integral part of these Consolidated Financial Statements. Abercrombie & Fitch Co. 48 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. Index for Notes to Consolidated Financial Statements Page No. Note 1. NATURE OF BUSINESS 50 Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 50 Note 3. REVENUE RECOGNITION 60 Note 4. FAIR VALUE 60 Note 5. INVENTORIES 62 Note 6. PROPERTY AND EQUIPMENT, NET 62 Note 7. LEASES 63 Note 8. ASSET IMPAIRMENT 64 Note 9. RABBI TRUST ASSETS 64 Note 10. ACCRUED EXPENSES 65 Note 11. INCOME TAXES 65 Note 12. BORROWINGS 68 Note 13. SHARE-BASED COMPENSATION 69 Note 14. DERIVATIVE INSTRUMENTS 72 Note 15. ACCUMULATED OTHER COMPREHENSIVE LOSS 74 Note 16. SAVINGS AND RETIREMENT PLANS 75 Note 17. SEGMENT REPORTING 75 Note 18. CONTINGENCIES 77 Abercrombie & Fitch Co. 49 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. Notes to Consolidated Financial Statements 1. NATURE OF BUSINESS 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 better drive brand growth, the Company reorganized its structure and now manages its business on a geographic basis, consisting of three reportable segments: Americas; 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. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying Consolidated Financial Statements include historical financial statements of, and transactions applicable to, the Company and reflect its financial position, results of operations and cash flows. The Company has interests in an Emirati business venture and in a Kuwaiti business venture with Majid al Futtaim Fashion L.L.C. (“MAF”) and a “U.S.” business venture with Dixar L.L.C. (“Dixar”), each of which meets the definition of a variable interest entity (“VIE”). The purpose of the business ventures with MAF is to operate stores in the United Arab Emirates and Kuwait and the purpose of the business venture with Dixar is to hold certain intellectual property assets related to the Social Tourist product. The Company is deemed to be the primary beneficiary of these VIEs; therefore, the Company has consolidated the operating results, assets and liabilities of these VIEs, with the noncontrolling interests’ (“NCI”) portions of net income presented as net income attributable to NCI on the Consolidated Statements of Operations and Comprehensive Income (Loss) and the NCI portion of stockholders equity presented as NCI on the Consolidated Balance Sheets. Fiscal Year 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. Fiscal years are designated in the Consolidated Financial Statements and notes by the calendar year in which the fiscal year commences. All references herein to the Company’s fiscal years are as follows: Fiscal year Year ended/ ending Number of weeks Fiscal 2020 January 30, 2021 52 Fiscal 2021 January 29, 2022 52 Fiscal 2022 January 28, 2023 52 Fiscal 2023 February 3, 2024 53 Fiscal 2024 February 1, 2025 52 Use of Estimates The preparation of financial statements, in conformity with U.S. generally accepted accounting principles (“GAAP”), requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. Due to the inherent uncertainty involved with estimates, actual results may differ. Additionally, these estimates and assumptions may change as a result of the impact of global economic conditions such as the uncertainty regarding a slowing economy, rising interest rates, continued inflation, fluctuation in foreign exchange rates, the ongoing conflicts between Russia and Ukraine and Israel and Hamas which could result in material impacts to the Company’s consolidated financial statements in future reporting periods. Abercrombie & Fitch Co. 50 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. Reclassifications The Company reclassified asset impairment charges into stores and distribution expense on the Consolidated Statements of Operations and Comprehensive Income (Loss). In addition, the Company expanded the presentation of interest expense, net to present interest expense and interest income on the Consolidated Statements of Operations and Comprehensive Income (Loss). There were no changes to operating income (loss) or net income (loss). Prior period amounts have been reclassified to conform to current year’s presentation. Cash and Equivalents A summary of cash and equivalents on the Consolidated Balance Sheets follows: (in thousands) February 3, 2024 January 28, 2023 Cash (1) $ 524,735 $ 467,238 Cash equivalents: (2) Time deposits 26,975 — Money market funds 349,174 50,364 Cash and equivalents $ 900,884 $ 517,602 (1) Primarily consists of amounts on deposit with financial institutions. (2) Investments with original maturities of less than three months. Consolidated Statements of Cash Flows Reconciliation The following table provides a reconciliation of cash and equivalents and restricted cash and equivalents to the amounts shown on the Consolidated Statements of Cash Flows: (in thousands) Location February 3, 2024 January 28, 2023 January 29, 2022 Cash and equivalents Cash and equivalents $ 900,884 $ 517,602 $ 823,139 Long-term restricted cash and equivalents (1) Other assets 8,801 9,967 11,229 Cash and equivalents and restricted cash and equivalents $ 909,685 $ 527,569 $ 834,368 (1) Restricted cash and equivalents primarily consists of amounts on deposit with banks that are used as collateral for customary non-debt banking commitments and deposits into trust accounts to conform to standard insurance security requirements. Receivables Receivables on the Consolidated Balance Sheets primarily include credit card receivables, lessor construction allowance and lease incentive receivables, value added tax (“VAT”) receivables and trade receivables or refunds. As part of the normal course of business, the Company has approximately three to four days of proceeds from sales transactions outstanding with its third-party credit card vendors at any point. The Company classifies these outstanding balances as credit card receivables. Lessor construction allowances are recorded for certain store lease agreements for improvements completed by the Company. VAT receivables are payments the Company has made on purchases of goods that will be recovered as those goods are sold. Trade receivables are amounts billed by the Company to wholesale, franchise and licensing partners in the ordinary course of business. Income tax receivables represent refunds of certain tax payments along with net operating loss and credit carryback claims for which the Company expects to receive refunds within the next 12 months. Inventories Inventories on the Consolidated Balance Sheets are valued at the lower of cost and net realizable value on a weighted-average cost basis. The Company reduces the carrying value of inventory through a lower of cost and net realizable value adjustment, the impact of which is reflected in cost of sales, exclusive of depreciation and amortization, on the Consolidated Statements of Operations and Comprehensive Income (Loss). The lower of cost and net realizable value adjustment is based on the Company’s consideration of multiple factors and assumptions including demand forecasts, current sales volumes, expected sell-off activity, composition and aging of inventory, historical recoverability experience and risk of obsolescence from changes in economic conditions or customer preferences. Additionally, as part of inventory valuation, inventory shrinkage estimates based on historical trends from actual physical inventories are made each quarter that reduce the inventory value for lost or stolen items. The Company performs physical inventories on a periodic basis and adjusts the gross inventory balance and shrink estimate accordingly. Refer to Note 5, “ INVENTORIES .” The Company’s global sourcing of merchandise is generally negotiated, contracted, and settled in U.S. Dollars. Abercrombie & Fitch Co. 51 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. Other Current Assets Other current assets on the Consolidated Balance Sheets consist of: prepaid expenses including those related to rent, information technology maintenance and taxes; current store supplies; derivative contracts and other. Property and Equipment, Net Depreciation of property and equipment is computed for financial reporting purposes on a straight-line basis using the following service lives: Category of property and equipment Service lives Information technology 3 - 7 years Furniture, fixtures and equipment 3 - 15 years Leasehold improvements 3 - 15 years Other property and equipment 3 - 20 years Buildings 30 years Leasehold improvements are amortized over either their respective lease terms or their service lives, whichever is shorter. The cost of assets sold or retired and the related accumulated depreciation are removed from the accounts with any resulting gain or loss included in net income on the Consolidated Statements of Operations and Comprehensive Income (Loss) . Maintenance and repairs are charged to expense as incurred. Major remodels and improvements that extend the service lives of the related assets are capitalized. The Company capitalizes certain direct costs associated with the development and purchase of internal-use software within property and equipment and other assets. Capitalized costs are amortized on a straight-line basis over the estimated useful lives of the software, generally not exceeding seven years. Refer to Note 6, “ PROPERTY AND EQUIPMENT, NET .” Leases The Company determines if an arrangement is an operating lease at inception. For new operating leases, the Company recognizes an asset for the right to use a leased asset and a liability based on the present value of remaining lease payments over the lease term on the lease commencement date. The commencement date for new leases is when the lessor makes the leased asset available for use by the Company, typically the possession date. As the rates implicit in the Company’s leases are not readily determinable, the Company uses its incremental borrowing rate, based on the local economic environment and the duration of the lease term, for the initial measurement of the operating lease right-of-use asset and liability. The measurement of operating lease right-of-use assets and liabilities includes amounts related to: • Lease payments made prior to the lease commencement date; • Incentives from landlords received by the Company for signing a lease, including construction allowances or deferred lease credits paid to the Company by landlords towards construction and tenant improvement costs, which are presented as a reduction to the right-of-use asset recorded; • Fixed payments related to operating lease components, such as rent escalation payments scheduled at the lease commencement date; • Fixed payments related to nonlease components, such as taxes, insurance, and maintenance costs; and • Unamortized initial direct costs incurred in conjunction with securing a lease, including key money, which are amounts paid directly to a landlord in exchange for securing the lease, and leasehold acquisition costs, which are amounts paid to parties other than the landlord, such as an existing tenant, to secure the desired lease. The measurement of operating lease right-of-use assets and liabilities excludes amounts related to: • Costs expected to be incurred to return a leased asset to its original condition, also referred to as asset retirement obligations, which are classified within other liabilities on the Consolidated Balance Sheets; • Variable payments related to operating lease components, such as contingent rent payments made by the Company based on performance, the expense of which is recognized in the period incurred on the Consolidated Statements of Operations and Comprehensive Income (Loss); • Variable payments related to nonlease components, such as taxes, insurance, and maintenance costs, the expense of which is recognized in the period incurred in the Consolidated Statements of Operations and Comprehensive Income (Loss); and • Leases not related to Company-operated retail stores with an initial term of 12 months or less, the expense of which is recognized in the period incurred in the Consolidated Statements of Operations and Comprehensive Income (Loss). Abercrombie & Fitch Co. 52 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. Certain of the Company’s operating leases include options to extend the lease or to terminate the lease. The Company assesses these operating leases and, depending on the facts and circumstances, may or may not include these options in the measurement of the Company’s operating lease right-of-use assets and liabilities. Generally, the Company’s options to extend its operating leases are at the Company’s sole discretion and at the time of lease commencement are not reasonably certain of being exercised. There may be instances in which a lease is being renewed on a month-to-month basis and, in these instances, the Company will recognize lease expense in the period incurred in the Consolidated Statements of Operations and Comprehensive Income (Loss) until a new agreement has been executed. Upon the signing of the renewal agreement, the Company recognizes an asset for the right to use the leased asset and a liability based on the present value of remaining lease payments over the lease term. Amortization and interest expense related to operating lease right-of-use assets and liabilities are generally calculated on a straight-line basis over the lease term. Amortization and interest expense related to previously impaired operating lease right-of-use assets are calculated on a front-loaded pattern. Depending on the nature of the operating lease, amortization and interest expense are primarily recorded within stores and distribution expense, marketing, or general and administrative expense, on the Consolidated Statements of Operations and Comprehensive Income (Loss). The Company’s operating lease agreements do not contain any material residual value guarantees or material restrictive covenants. In addition, the Company does not have any sublease arrangements with any related party. Refer to Note 7, “ LEASES .” Long-lived Asset Impairment For the purposes of asset impairment, the Company’s long-lived assets, primarily operating lease right-of-use assets, leasehold improvements, furniture, fixtures and equipment, are grouped with other assets and liabilities at the store level, which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. On at least a quarterly basis, management reviews the Company’s asset groups for indicators of impairment, which include, but are not limited to, material declines in operational performance, a history of losses, an expectation of future losses, adverse market conditions, store closure or relocation decisions, and any other events or changes in circumstances that would indicate the carrying amount of an asset group might not be recoverable. If an asset group displays an indicator of impairment, it is tested for recoverability by comparing the sum of the estimated future undiscounted cash flows attributable to the asset group to the carrying amount of the asset group. This recoverability test requires management to make assumptions and judgments related, but not limited, to management’s expectations for future cash flows from operating the store. The key assumption used in developing these projected cash flows used in the recoverability test is estimated sales growth rate. If the sum of the estimated future undiscounted cash flows attributable to an asset group is less than its carrying amount, and it is determined that the carrying amount of the asset group is not recoverable, management determines if there is an impairment loss by comparing the carrying amount of the asset group to its fair value. Fair value of an asset group is based on the highest and best use of the asset group, often using a discounted cash flow model that utilizes Level 3 fair value inputs. The key assumptions used in the Company’s fair value analyses are estimated sales growth rate and comparable market rents. An impairment loss is recognized based on the excess of the carrying amount of the asset group over its fair value. Refer to Note 8, “ ASSET IMPAIRMENT .” Other Assets Other assets on the Consolidated Balance Sheets consist primarily of the Company’s trust-owned life insurance policies held in the irrevocable rabbi trust (the “Rabbi Trust”), deferred tax assets, long-term deposits, intellectual property, long-term restricted cash and equivalents, long-term supplies, certain costs incurred to develop internal-use computer software during the application development stage and various other assets. Rabbi Trust Assets The Rabbi Trust includes amounts, restricted in their use, to meet funding obligations to participants in the Abercrombie & Fitch Co. Nonqualified Savings and Supplemental Retirement Plan I, the Abercrombie & Fitch Co. Nonqualified Savings and Supplemental Retirement Plan II and the Supplemental Executive Retirement Plan. The Rabbi Trust assets primarily consist of trust-owned life insurance policies which are recorded at cash surrender value and are included in other assets on the Consolidated Balance Sheets. The change in cash surrender value of the life insurance policies in the Rabbi Trust is recorded in interest expense, net on the Consolidated Statements of Operations and Comprehensive Income (Loss). Refer to Note 9, “ RABBI TRUST ASSETS .” Abercrombie & Fitch Co. 53 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. Intellectual Property Intellectual property primarily includes trademark assets associated with the Company’s international operations, consisting of finite-lived and indefinite-lived intangible assets. The Company’s finite-lived intangible assets are amortized over a useful life of 10 to 20 years. Supply Chain Finance Program Under the supply chain finance (“SCF”) program, which is administered by a third party, the Company’s vendors, at their sole discretion, are given the opportunity to sell receivables from the Company to a participating financial institution at a discount that leverages the Company’s credit profile. The commercial terms negotiated by the Company with its vendors are consistent, irrespective of whether a vendor participates in the SCF program. A participating vendor has the option to be paid by the financial institution earlier than the original invoice due date. The Company’s responsibility is limited to making payment on the terms originally negotiated by the Company with each vendor, regardless of whether the vendor sells its receivable to a financial institution. If a vendor chooses to participate in the SCF program, the Company pays the financial institution the stated amount of confirmed merchandise invoices on the stated maturity date, which is typically 75 days from the invoice date. The agreement with the financial institution does not require the Company to provide assets pledged as security or other forms of guarantees for the SCF program. As of February 3, 2024 and January 28, 2023, $ 72.4 million and $ 68.4 million of SCF program liabilities were recorded in accounts payable in the Consolidated Balance Sheets, respectively, and reflected as a cash flow from operating activities in the Consolidated Statements of Cash Flows when settled Income Taxes Income taxes are calculated using the asset and liability method. Deferred tax assets and liabilities are recognized based on the difference between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using current enacted tax rates in effect for the years in which those temporary differences are expected to reverse. Inherent in the determination of the Company’s income tax liability and related deferred income tax balances are certain judgments and interpretations of enacted tax law and published guidance with respect to applicability to the Company’s operations. The Company is subject to audit by taxing authorities, usually several years after tax returns have been filed, and the taxing authorities may have differing interpretations of tax laws. Valuation allowances are established to reduce deferred tax assets to the amount expected to be realized when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company records tax expense or benefit that does not relate to ordinary income in the current fiscal year discretely in the period in which it occurs. Examples of such types of discrete items include, but are not limited to: changes in estimates of the outcome of tax matters related to prior years, assessments of valuation allowances, return-to-provision adjustments, tax-exempt income, the settlement of tax audits and changes in tax legislation and/or regulations. Tax benefits from uncertain tax positions are recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. The amount recognized is measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement. The Company’s effective tax rate includes the impact of reserve provisions and changes to reserves on uncertain tax positions that are not more likely than not to be sustained upon examination as well as related interest and penalties. A number of years may elapse before a particular matter, for which the Company has established a reserve, is audited and finally resolved. The number of years with open tax audits varies depending on the tax jurisdiction. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, the Company believes that its reserves reflect the probable outcome of known tax contingencies. Unfavorable settlement of any particular issue may require use of the Company’s cash. Favorable resolution would be recognized as a reduction to the Company’s effective tax rate in the period of resolution. The Company recognizes accrued interest and penalties related to uncertain tax positions as a component of income tax expense on the Consolidated Statements of Operations and Comprehensive Income (Loss). Refer to Note 11, “ INCOME TAXES .” Abercrombie & Fitch Co. 54 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. Foreign Currency Translation and Transactions The functional currencies of the Company’s foreign subsidiaries are generally the currencies of the environments in which each subsidiary primarily generates and expends cash, which is often the local currency of the country in which each subsidiary operates. The financial statements of the Company’s foreign subsidiaries with functional currencies other than the U.S. Dollar are translated into U.S. Dollars (the Company’s reporting currency) as follows: assets and liabilities are translated at the exchange rate prevailing at the balance sheet date, equity accounts are translated at historical exchange rates, and revenues and expenses are translated at the monthly average exchange rate for the period. Foreign currency transactions, which are transactions denominated in a currency other than the entity’s functional currency, are initially measured in the functional currency of the recording entity using the exchange rate in effect at that date. Subsequently, assets and liabilities associated with foreign currency transactions are remeasured into the entity’s functional currency using historical exchange rates when remeasuring nonmonetary assets and liabilities and current exchange rates when remeasuring monetary assets and liabilities. Gains and losses resulting from the remeasurement of monetary assets and liabilities are included in other operating income, net; whereas, translation adjustments and gains and losses associated with measuring inter-company loans of a long-term investment nature are reported as an element of other comprehensive income (loss). Derivative Instruments The Company is exposed to risks associated with changes in foreign currency exchange rates and uses derivative instruments, primarily forward contracts, to manage the financial impacts of these exposures. The Company does not use forward contracts to engage in currency speculation and does not enter into derivative financial instruments for trading purposes. In order to qualify for hedge accounting treatment, a derivative instrument must be considered highly effective at offsetting changes in either the hedged item’s cash flows or fair value. Additionally, the hedge relationship must be documented to include the risk management objective and strategy, the hedging instrument, the hedged item, the risk exposure, and how hedge effectiveness will be assessed prospectively and retrospectively. The extent to which a hedging instrument has been, and is expected to continue to be, effective at offsetting changes in fair value or cash flows is assessed and documented at least quarterly. If the underlying hedged item is no longer probable of occurring, hedge accounting is discontinued. For derivative instruments that either do not qualify for hedge accounting or are not designated as hedges, all changes in the fair value of the derivative instrument are recognized in earnings. For qualifying cash flow hedges, the change in the fair value of the derivative instrument is recorded as a component of other comprehensive income (loss) (“OCI”) and recognized in earnings when the hedged cash flows affect earnings. If the cash flow hedge relationship is terminated, the derivative instrument gains or losses that are deferred in OCI will be recognized in earnings when the hedged cash flows occur. However, for cash flow hedges that are terminated because the forecasted transaction is not expected to occur in the original specified time period, or a two-month period thereafter, the derivative instrument gains or losses are immediately recognized in earnings. The Company uses derivative instruments, primarily forward contracts designated as cash flow hedges, to hedge the foreign currency exchange rate exposure associated with forecasted foreign-currency-denominated intercompany inventory transactions with foreign subsidiaries before inventory is sold to third parties. Fluctuations in exchange rates will either increase or decrease the Company’s intercompany equivalent cash flows and affect the Company’s U.S. Dollar earnings. Gains or losses on the foreign currency exchange forward contracts that are used to hedge these exposures are expected to partially offset this variability. Foreign currency exchange forward contracts represent agreements to exchange the currency of one country for the currency of another country at an agreed upon settlement date. These forward contracts typically have a maximum term of twelve months. The conversion of the inventory to cost of sales, exclusive of depreciation and amortization, will result in the reclassification of related derivative gains and losses that are reported in AOCL on the Consolidated Balance Sheets into earnings. The Company also uses foreign currency exchange forward contracts to hedge certain foreign-currency-denominated net monetary assets and liabilities, such as cash balances, receivables and payables. Fluctuations in foreign currency exchange rates result in transaction gains and losses being recorded in earnings as monetary assets and liabilities are remeasured at the spot exchange rate at the Company’s fiscal month-end or upon settlement. The Company has chosen not to apply hedge accounting to these foreign currency exchange forward contracts because there are no differences in the timing of gain or loss recognition on the hedging instruments and the hedged items. The Company presents its derivative assets and derivative liabilities at their gross fair values within other current assets and accrued liabilities, respectively, on the Consolidated Balance Sheets. However, the Company’s derivative instruments allow net settlements under certain conditions. Abercrombie & Fitch Co. 55 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. Refer to Note 14, “ DERIVATIVE INSTRUMENTS . ” Stockholders’ Equity A summary of the Company’s Class A Common Stock, $ 0.01 par value, and Class B Common Stock, $ 0.01 par value, follows: (in thousands) February 3, 2024 January 28, 2023 Class A Common Stock Shares authorized 150,000 150,000 Shares issued 103,300 103,300 Shares outstanding 50,500 49,002 Class B Common Stock (1) Shares authorized 106,400 106,400 (1) No shares were issued or outstanding as of each of February 3, 2024 and January 28, 2023 . Holders of Class A Common Stock generally have identical rights to holders of Class B Common Stock, except holders of Class A Common Stock are entitled to one vote per share while holders of Class B Common Stock are entitled to three votes per share on all matters submitted to a vote of stockholders. Revenue Recognition The Company recognizes revenue from product sales when control of the good is transferred to the customer, generally upon pick up at, or shipment from, a Company location. The Company provides shipping and handling services to customers in certain transactions under its digital operations. Revenue associated with the related shipping and handling obligations is deferred until the obligation is fulfilled, typically upon the customer’s receipt of the merchandise. The related shipping and handling costs are classified in stores and distribution expense on the Consolidated Statements of Operations and Comprehensive Income (Loss). Revenue is recorded net of estimated returns, associate discounts, promotions and other similar customer incentives. The Company estimates reserves for sales returns based on historical experience among other factors. The sales return reserve is classified in accrued expenses with a corresponding asset related to the projected returned merchandise recorded in inventory on the Consolidated Balance Sheets. The Company accounts for gift cards sold to customers by recognizing an unearned revenue liability at the time of sale, which is recognized as net sales when redeemed by the customer or when the Company has determined the likelihood of redemption to be remote, referred to as gift card breakage. Gift card breakage is recognized proportionally with gift card redemptions in net sales. Gift cards sold to customers do not expire or lose value over periods of inactivity and the Company is not required by law to escheat the value of unredeemed gift cards to the jurisdictions in which it operates. The Company also maintains loyalty programs, which primarily provide customers with the opportunity to earn points toward future merchandise discount rewards with qualifying purchases. The Company accounts for expected future reward redemptions by recognizing an unearned revenue liability as customers accumulate points, which remains until revenue is recognized at the earlier of redemption or expiration. Unearned revenue liabilities related to the Company’s gift card program and loyalty programs are classified in accrued expenses on the Consolidated Balance Sheets and are typically recognized as revenue within a 12-month period. For additional details on the Company’s unearned revenue liabilities related to the Company’s gift card and loyalty programs, refer to Note 3, “ REVENUE RECOGNITION .” The Company also recognizes revenue under wholesale arrangements when control passes to the wholesale partner, which is generally upon shipment. Revenue from the Company’s franchise and license arrangements, primarily royalties earned upon the sale of merchandise, is generally recognized at the time merchandise is sold to the franchisees’ retail customers or to the licensees’ wholesale customers. The Company does not include tax amounts collected from customers on behalf of third parties, including sales and indirect taxes, in net sales. All revenues are recognized in net sales in the Consolidated Statements of Operations and Comprehensive Income (Loss). For a discussion of the disaggregation of revenue, refer to Note 17, “ SEGMENT REPORTING . ” Abercrombie & Fitch Co. 56 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. Cost of Sales, Exclusive of Depreciation and Amortization Cost of sales, exclusive of depreciation and amortization on the Consolidated Statements of Operations and Comprehensive Income (Loss), primarily consists of cost incurred to ready inventory for sale, including product costs, freight, and import costs, as well as provisions for reserves for shrink and lower of cost and net realizable value. Gains and losses associated with the effective portion of designated foreign currency exchange forward contracts related to the hedging of intercompany inventory transactions are also recognized in cost of sales, exclusive of depreciation and amortization, on the Consolidated Statements of Operations and Comprehensive Income (Loss). The Company’s cost of sales, exclusive of depreciation and amortization, and consequently gross profit, may not be comparable to those of other retailers, as inclusion of certain costs vary across the industry. Some retailers include all costs related to buying, design and distribution operations in cost of sales, while others may include either all or a portion of these costs in selling, general and administrative expenses. Stores and Distribution Expense Stores and distribution expense on the Consolidated Statements of Operations and Comprehensive Income (Loss) primarily consists of: store payroll; store management; operating lease costs; utilities and other landlord expenses; depreciation and amortization, except for those amounts included in marketing, general and administrative expense; repairs and maintenance and other store support functions; marketing and other costs related to the Company’s digital operations; shipping and handling costs; and distribution center (“DC”) expense. A summary of shipping and handling costs, which includes costs incurred to store, move and prepare product for shipment and costs incurred to physically move product to our customers across channels, follows: (in thousands) Fiscal 2023 Fiscal 2022 Fiscal 2021 Shipping and handling costs $ 362,545 $ 356,280 $ 306,220 Marketing, General and Administrative Expense Marketing, general and administrative expense on the Consolidated Statements of Operations and Comprehensive Income (Loss) primarily consists of: home office compensation and marketing, except for those departments included in stores and distribution expense; information technology; outside services, such as legal and consulting; depreciation, primarily related to IT and other home office assets; amortization related to trademark assets; costs to design and develop the Company’s merchandise; relocation; recruiting; and travel expenses. Other Operating Income, Net Other operating income, net on the Consolidated Statements of Operations and Comprehensive Income (Loss) primarily consists of gains and losses resulting from foreign-currency-denominated transactions. A summary of foreign-currency-denominated transaction gains (losses), including those related to derivative instruments, follows: (in thousands) Fiscal 2023 Fiscal 2022 Fiscal 2021 Foreign-currency-denominated transaction gains (losses) $ 1,936 $ ( 1,626 ) $ 4,232 Interest Expense and Interest Income Interest expense primarily consists of interest expense on the Company’s long-term borrowings outstanding. Interest income primarily consists of interest income earned on the Company’s investments and cash holdings and realized gains from the Rabbi Trust assets. Abercrombie & Fitch Co. 57 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. Advertising Costs Advertising costs consist primarily of paid media advertising, direct digital advertising, including e-mail distribution, digital content and in-store photography and signage. Advertising costs related specifically to digital operations are expensed as incurred and the production of in-store photography and signage is expensed when the marketing campaign commences as components of stores and distribution expense. All other advertising costs are expensed as incurred as components of marketing, general and administrative expense. A summary of advertising costs follows: (in thousands) Fiscal 2023 Fiscal 2022 Fiscal 2021 Advertising costs $ 217,276 $ 189,347 $ 204,575 Share-based Compensation The Company issues shares of Class A Common Stock, $ 0.01 par value (the “Common Stock”) from treasury stock upon exercise of stock appreciation rights and vesting of restricted stock units, including those converted from performance share awards. As of February 3, 2024, the Company had sufficient treasury stock available to settle restricted stock units and stock appreciation rights outstanding. Settlement of stock awards in Common Stock also requires that the Company have sufficient shares available in stockholder-approved plans at the applicable time. In the event there are not sufficient shares of Common Stock available to be issued under the Abercrombie & Fitch Co. 2016 Long-Term Incentive Plan for Directors (as amended effective May 20, 2020, the “2016 Directors LTIP”) and the Abercrombie & Fitch Co. 2016 Long-Term Incentive Plan for Associates (as amended effective June 8, 2023, the “2016 Associates LTIP”), or under a successor or replacement plan at each reporting date as of which share-based compensation awards remain outstanding, the Company may be required to designate some portion of the outstanding awards to be settled in cash, which would result in liability classification of such awards. The fair value of liability-classified awards would be re-measured each reporting date until such awards no longer remain outstanding or until sufficient shares of Common Stock become available to be issued under the existing plans or under a successor or replacement plan. As long as the awards are required to be classified as a liability, the change in fair value would be recognized in current period expense based on the requisite service period rendered. Fair value of both service-based and performance-based restricted stock units is calculated using the market price of the underlying Common Stock on the date of grant reduced for anticipated dividend payments on unvested shares. In determining fair value, the Company does not take into account performance-based vesting requirements. Performance-based vesting requirements are taken into account in determining the number of awards expected to vest. For market-based restricted stock units, fair value is calculated using a Monte Carlo simulation with the number of shares that ultimately vest dependent on the Company’s total stockholder return measured against the total stockholder return of a select group of peer companies over a three-year period. For awards with performance-based or market-based vesting requirements, the number of shares that ultimately vest can vary from 0% to 200% of target depending on the level of achievement of performance criteria. The Company estimates the fair value of stock appreciation rights using the Black-Scholes option-pricing model, which requires the Company to estimate the expected term of the stock appreciation rights and expected future stock price volatility over the expected term. Estimates of expected terms, which represent the expected periods of time the Company believes stock appreciation rights will be outstanding, are based on historical experience. Estimates of expected future stock price volatility are based on the volatility of the Common Stock price for the most recent historical period equal to the expected term of the stock appreciation rights, as appropriate. The Company calculates the volatility as the annualized standard deviation of the differences in the natural logarithms of the weekly closing price of the Common Stock, adjusted for stock splits and dividends. Service-based restricted stock units are expensed on a straight-line basis over the award’s requisite service period. Performance-based restricted stock units subject to graded vesting are expensed on an accelerated attribution basis. Performance share award expense is primarily recognized in the performance period of the award’s requisite service period. Market-based restricted stock units without graded vesting features are expensed on a straight-line basis over the award’s requisite service period. Compensation expense for stock appreciation rights is recognized on a straight-line basis over the award’s requisite service period. The Company adjusts share-based compensation expense on a quarterly basis for actual forfeitures. For awards that are expected to result in a tax deduction, a deferred tax asset is recorded in the period in which share-based compensation expense is recognized. A current tax deduction arises upon the issuance of restricted stock units and performance share awards or the exercise of stock options and stock appreciation rights and is principally measured at the award’s intrinsic value. If the tax deduction differs from the recorded deferred tax asset, the excess tax benefit or deficit associated with the tax deduction is recognized within income tax expense. Refer to Note 13, “ SHARE-BASED COMPENSATION .” Abercrombie & Fitch Co. 58 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. Net Income per Share Attributable to A&F Net income per basic and diluted share attributable to A&F is computed based on the weighted-average number of outstanding shares of Common Stock. Additional information pertaining to net income per share attributable to A&F follows: (in thousands) Fiscal 2023 Fiscal 2022 Fiscal 2021 Shares of Common Stock issued 103,300 103,300 103,300 Weighted-average treasury shares ( 53,050 ) ( 52,993 ) ( 43,703 ) Weighted-average — basic shares 50,250 50,307 59,597 Dilutive effect of share-based compensation awards 2,476 2,020 3,039 Weighted-average — diluted shares 52,726 52,327 62,636 Anti-dilutive shares (1) 541 2,233 1,002 (1) Reflects the total number of shares related to outstanding share-based compensation awards that have been excluded from the computation of net income (loss) per diluted share because the impact would have been anti-dilutive. Unvested contingently issuable shares related to restricted stock units with performance-based and market-based vesting conditions can achieve up to 200% of their target vesting amount and are reflected at the maximum vesting amount less any dilutive portion. Recent Accounting Pronouncements The Company reviews recent accounting pronouncements on a quarterly basis and has excluded discussion of those not applicable to the Company and those not expected to have a material impact on the Company’s consolidated financial statements. The following table provides a brief description of certain recent accounting pronouncements that the Company has adopted or that could affect the Company’s financial statements. Accounting Standards Update (ASU) Description Date of adoption Effect on the financial statements or other significant matters Standards adopted ASU 2022-04, Liabilities — Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations The update relates to disclosure requirements for buyers in supplier finance programs. The amendments in the update require that a buyer disclose qualitative and quantitative information about their supplier finance programs. Interim and annual requirements include disclosure of outstanding amounts under the obligations as of the end of the reporting period, and annual requirements include a roll-forward of those obligations for the annual reporting period, as well as a description of payment and other key terms of the programs. This update is effective for annual periods beginning after December 15, 2022, and interim periods within those fiscal years, except for the requirement to disclose roll-forward information, which is effective for fiscal years beginning after December 15, 2023. January 29, 2023 The Company adopted the changes to the standard under the retrospective method in the first quarter of Fiscal 2023, except for roll-forward information, which is effective for fiscal years beginning after December 15, 2023. Other than the new disclosure requirements, the adoption of this guidance did not have a significant impact on the Company's consolidated financial statements. Standards not yet adopted ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures The update modifies the disclosure/presentation requirements of reportable segments. The amendments in the update require the disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit and loss. The amendments also require disclosure of all other segment items by reportable segment and a description of its composition. Additionally, the amendments require disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources.This update is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. Other than the new disclosure requirements, the adoption of this guidance will not have a significant impact on the Company's consolidated financial statements. ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures The standard requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. For public business entities (PBEs), the requirement will be effective for annual periods beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. Other than the new disclosure requirements, the adoption of this guidance will not have a significant impact on the Company's consolidated financial statements. Abercrombie & Fitch Co. 59 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. 3. REVENUE RECOGNITION Disaggregation of revenue All revenues are recognized in net sales in the Consolidated Statements of Operations and Comprehensive Income (Loss) . For information regarding the disaggregation of revenue, refer to Note 17, “ SEGMENT REPORTING . ” Contract liabilities The following table details certain contract liabilities representing unearned revenue as of February 3, 2024, January 28, 2023 and January 29, 2022: (in thousands) February 3, 2024 January 28, 2023 January 29, 2022 Gift card liability (1) $ 41,144 $ 39,235 $ 36,984 Loyalty programs liability 27,937 25,640 22,757 (1) Includes $ 20.0 million and $ 16.4 million of revenue recognized during Fiscal 2023 and Fiscal 2022, respectively, that was included in the gift card liability at the beginning of January 28, 2023 and January 29, 2022, respectively. The following table details recognized revenue associated with the Company’s gift card program and loyalty programs for Fiscal 2023, Fiscal 2022, and Fiscal 2021: (in thousands) Fiscal 2023 Fiscal 2022 Fiscal 2021 Revenue associated with gift card redemptions and gift card breakage $ 112,749 $ 98,488 $ 80,088 Revenue associated with reward redemptions and breakage related to the Company’s loyalty programs 56,406 48,624 45,417 Refer to Note 2, “ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Revenue recognition ,” for discussion regarding significant accounting policies related to the Company’s revenue recognition. 4. FAIR VALUE Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The inputs used to measure fair value are prioritized based on a three-level hierarchy. The three levels of inputs to measure fair value are as follows: • Level 1—inputs are unadjusted quoted prices for identical assets or liabilities that are available in active markets that the Company can access at the measurement date. • Level 2—inputs are other than quoted market prices included within Level 1 that are observable for assets or liabilities, directly or indirectly. • Level 3—inputs to the valuation methodology are unobservable. The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy. Abercrombie & Fitch Co. 60 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. T he three levels of the hierarchy and the distribution of the Company’s assets and liabilities that are measured at fair value on a recurring basis, were as follows: Assets and Liabilities at Fair Value as of February 3, 2024 (in thousands) Level 1 Level 2 Level 3 Total Assets: Cash equivalents (1) $ 349,174 $ 26,975 $ — $ 376,149 Derivative instruments (2) — 1,092 — 1,092 Rabbi Trust assets (3) 1,164 52,521 — 53,685 Restricted cash equivalents (1) 4,282 1,420 — 5,702 Total assets $ 354,620 $ 82,008 $ — $ 436,628 Liabilities: Derivative instruments (2) $ — $ 539 $ — $ 539 Total liabilities $ — $ 539 $ — $ 539 Assets and Liabilities at Fair Value as of January 28, 2023 (in thousands) Level 1 Level 2 Level 3 Total Assets: Cash equivalents (1) $ 50,364 $ — $ — $ 50,364 Derivative instruments (2) — 32 — 32 Rabbi Trust assets (3) 1 51,681 — 51,682 Restricted cash equivalents (1) 1,690 5,174 — 6,864 Total assets $ 52,055 $ 56,887 $ — $ 108,942 Liabilities: Derivative instruments (2) $ — $ 4,986 $ — $ 4,986 Total liabilities $ — $ 4,986 $ — $ 4,986 (1) Level 1 assets consisted of investments in money market funds and U.S. treasury bills. Level 2 assets consisted of time deposits. (2) Level 2 assets and liabilities consisted primarily of foreign currency exchange forward contracts. (3) Level 1 assets consisted of investments in money market funds. Level 2 assets consisted of trust-owned life insurance policies. The Company’s Level 2 assets and liabilities consisted of: • Trust-owned life insurance policies, which were valued using the cash surrender value of the life insurance policies; • Time deposits, which were valued at cost, approximating fair value, due to the short-term nature of these investments; and • Derivative instruments, primarily foreign currency exchange forward contracts, which were valued using quoted market prices of the same or similar instruments, adjusted for counterparty risk. Fair Value of Long-term Borrowings The Company’s borrowings under the Senior Secured Notes are carried at historical cost in the Consolidated Balance Sheets. The carrying amount and fair value of the Company’s long-term gross borrowings were as follows: (in thousands) February 3, 2024 January 28, 2023 Gross borrowings outstanding, carrying amount $ 223,214 $ 299,730 Gross borrowings outstanding, fair value 226,004 304,975 Abercrombie & Fitch Co. 61 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. 5. INVENTORIES Inventories consisted of: (in thousands) February 3, 2024 January 28, 2023 Inventories at original cost $ 500,020 $ 541,299 Less: Lower of cost and net realizable value adjustment ( 30,554 ) ( 35,678 ) Inventories (1) $ 469,466 $ 505,621 (1) Included $ 103.5 million and $ 93.7 million of inventory in transit, merchandise owned by the Company that has not yet been received at a Company DC, as of February 3, 2024 and January 28, 2023, respectively. A summary of the Company’s vendors based on location and the percentage of cost of merchandise receipts during Fiscal 2023, Fiscal 2022 and Fiscal 2021 follows: % of Total Company Merchandise Receipts (1) Location Fiscal 2023 Fiscal 2022 Fiscal 2021 Vietnam 34 % 33 % 36 % Cambodia 19 17 16 India 12 9 6 China (2) 9 13 14 Other (3) 26 28 28 Total 100 % 100 % 100 % (1) Calculated as the cost of merchandise receipts from all vendors within a country during the respective fiscal year divided by cost of total merchandise receipts during the respective fiscal year . (2) Only a portion of the Company’s total merchandise sourced from China is subject to the additional U.S. tariffs on imported consumer goods that were effective beginning in Fiscal 2019. The Company estimates approximately 7 %, 9 % and 9 % of total merchandise receipts were directly imported to the United States from China in Fiscal 2023, Fiscal 2022 and Fiscal 2021, respectively. (3) No country included within this category sourced more than 10% of total merchandise receipts during any fiscal year presented above . Refer to Note 2, “ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Inventories ,” for discussion regarding significant accounting policies related to the Company’s inventories. 6. PROPERTY AND EQUIPMENT, NET Property and equipment, net consisted of: (in thousands) February 3, 2024 January 28, 2023 Land $ 28,599 $ 28,599 Buildings 238,185 232,996 Furniture, fixtures and equipment 632,056 611,277 Information technology 718,693 685,539 Leasehold improvements 846,097 888,464 Construction in progress 44,359 68,984 Other 1,195 2,003 Total 2,509,184 2,517,862 Less: Accumulated depreciation ( 1,971,151 ) ( 1,966,277 ) Property and equipment, net $ 538,033 $ 551,585 Depreciation expense for Fiscal 2023, Fiscal 2022 and Fiscal 2021 was $ 138.5 million, $ 129.7 million and $ 141.4 million, respectively. Refer to Note 8, “ ASSET IMPAIRMENT ,” for details related to property and equipment impairment charges incurred during Fiscal 2023, Fiscal 2022 and Fiscal 2021. Refer to Note 2, “ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Property and equipment, net ,” for discussion regarding significant accounting policies related to the Company’s property and equipment, net. Abercrombie & Fitch Co. 62 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. 7. LEASES The Company is a party to leases related to its Company-operated retail stores as well as for certain of its DCs, office space, information technology and equipment. The following table provides a summary of the Company’s operating lease costs for Fiscal 2023, Fiscal 2022 and Fiscal 2021: (in thousands) Fiscal 2023 Fiscal 2022 Fiscal 2021 Single lease cost (1) $ 248,567 $ 246,824 $ 272,246 Variable lease cost (2) 168,881 150,909 110,889 Operating lease right-of-use asset impairment (3) 1,440 6,248 9,509 Sublease income ( 3,949 ) ( 3,826 ) ( 4,292 ) Total operating lease cost $ 414,939 $ 400,155 $ 388,352 (1) Includes amortization and interest expense associated with operating lease right-of-use assets and the impact from remeasurement of operating lease liabilities. (2) Includes 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. (3) Refer to Note 8, “ ASSET IMPAIRMENT ,” for details related to operating lease right-of-use asset impairment charges. The following table provides the weighted-average remaining lease term of the Company’s operating leases and the weighted-average discount rate used to calculate the Company’s operating lease liabilities as of February 3, 2024 and January 28, 2023: February 3, 2024 January 28, 2023 Weighted-average remaining lease term (years) 4.7 5.3 Weighted-average discount rate 6.7 % 6.3 % The following table provides a maturity analysis of the Company’s operating lease liabilities, based on undiscounted cash flows, as of February 3, 2024: (in thousands) February 3, 2024 Fiscal 2024 $ 228,719 Fiscal 2025 220,039 Fiscal 2026 176,206 Fiscal 2027 140,281 Fiscal 2028 106,719 Fiscal 2029 and thereafter 96,761 Total undiscounted operating lease payments 968,725 Less: Imputed interest ( 142,475 ) Present value of operating lease liabilities $ 826,249 During Fiscal 2020, the Company entered into a sublease agreement with a third party for the remaining lease term of one of its European Abercrombie & Fitch flagship store locations upon its closure. As of February 3, 2024, future minimum tenant operating lease payments remaining under this sublease were $ 15.5 million with a remaining sublease term of 3.8 years. The Company had minimum commitments related to operating lease contracts that have not yet commenced, primarily for its Company-operated retail stores, of approximately $ 29.1 million as of February 3, 2024. Abercrombie & Fitch Co. 63 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. 8. ASSET IMPAIRMENT The following table provides additional details related to long-lived asset impairment charges: (in thousands) Fiscal 2023 Fiscal 2022 Fiscal 2021 Operating lease right-of-use asset impairment $ 1,441 $ 6,248 $ 9,509 Property and equipment asset impairment (1) 6,848 7,783 2,591 Total asset impairment (2) $ 8,289 $ 14,031 $ 12,100 (1) Amounts for Fiscal 2022 include store asset impairment of $ 4.8 million and other asset impairment of $ 3.0 million. Amounts for Fiscal 2023 and Fiscal 2021 only include store asset impairment. (2) Included in Stores and distribution expense on the Consolidated Statements of Operations and Comprehensive Income (Loss). Asset impairment charges for Fiscal 2023 were related to certain of the Company’s assets including stores across brands, primarily in the Americas and EMEA segments. The impairment charges for Fiscal 2023 reduced the then carrying amount of the impaired stores’ assets to their fair value of approximately $ 28.1 million, including $ 23.7 million related to operating lease right-of-use assets. Asset impairment charges for Fiscal 2022 were related to certain of the Company’s stores across brands, segments and store formats and other assets. The impairment charges for Fiscal 2022 reduced the then carrying amount of the impaired stores’ assets to their fair value of approximately $ 39.7 million, including $ 37.0 million related to operating lease right-of-use assets. Asset impairment charges for Fiscal 2021 were principally the result of the impact of COVID-19 and were related to certain of the Company’s stores across brands, segments and store formats. The impairment charges for Fiscal 2021 reduced the then carrying amount of the impaired stores’ assets to their fair value of approximately $ 18.1 million, including $ 15.6 million related to operating lease right-of-use assets. Refer to Note 2, “ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Long-lived Asset Impairment ,” for discussion regarding significant accounting policies related to impairment of the Company’s long-lived assets. 9. RABBI TRUST ASSETS Investments of Rabbi Trust assets consisted of the following as of February 3, 2024 and January 28, 2023: (in thousands) February 3, 2024 January 28, 2023 Trust-owned life insurance policies (at cash surrender value) $ 52,521 $ 51,681 Money market funds 1,164 1 Rabbi Trust assets $ 53,685 $ 51,682 Realized gains resulting from the change in cash surrender value and benefits paid pursuant to the trust-owned life insurance policies of the Rabbi Trust assets for Fiscal 2023, Fiscal 2022 and Fiscal 2021 were as follows: (in thousands) Fiscal 2023 Fiscal 2022 Fiscal 2021 Realized gains related to Rabbi Trust assets $ 1,978 $ 1,409 $ 1,483 Refer to Note 2, “ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Rabbi Trust Assets ,” for further discussion related to the Company’s Rabbi Trust assets. Abercrombie & Fitch Co. 64 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. 10. ACCRUED EXPENSES Accrued expenses consisted of: (in thousands) February 3, 2024 January 28, 2023 Accrued payroll and related costs (1) $ 100,825 $ 70,815 Accrued costs related to the Company’s DCs and digital operations 33,220 38,729 Other (2) 302,610 303,759 Accrued expenses $ 436,655 $ 413,303 (1) Accrued payroll and related costs include salaries, incentive compensation, benefits, withholdings and other payroll-related costs. (2) Other primarily includes the Company’s gift card and loyalty programs liabilities, accrued taxes, accrued rent and expenses incurred but not yet paid primarily related to outside services associated with store and home office operations and construction in progress. Refer to Note 3, “ REVENUE RECOGNITION .” 11. INCOME TAXES Impact of valuation allowances and other tax benefits during Fiscal 2023 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. As of February 3, 2024, the Company had foreign net deferred tax assets of approximately $ 36.7 million, including $ 7.6 million, $ 7.5 million, and $ 12.6 million in China, Japan, and the United Kingdom, respectively. While the Company believes that these net deferred tax assets are more-likely-than-not to be realized, it is not a certainty, as the Company continues to evaluate and respond to emerging situations. Should circumstances change, the net deferred tax assets may become subject to additional valuation allowances in the future. Additional valuation allowances would result in additional tax expense. Impact of valuation allowances and other tax benefits during Fiscal 2022 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. As of January 28, 2023, the Company had foreign net deferred tax assets of approximately $ 43.8 million, including $ 8.0 million, $ 9.1 million, and $ 15.6 million in China, Japan, and the United Kingdom, respectively. Impact of valuation allowances and other tax charges during Fiscal 2021 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 United Kingdom. The Company did not recognize income tax benefits on $ 25.3 million of pre-tax losses generated in Fiscal 2022, primarily in Switzerland, resulting in adverse tax impacts of $ 4.6 million. As of January 29, 2022, the Company had foreign net deferred tax assets of approximately $ 54.6 million, including $ 9.7 million, $ 12.2 million, and $ 20.1 million in China, Japan, and the United Kingdom, respectively. Components of Income Taxes Income before income taxes consisted of: (in thousands) Fiscal 2023 Fiscal 2022 Fiscal 2021 Domestic (1) $ 526,967 $ 152,608 $ 283,793 Foreign ( 42,668 ) ( 85,592 ) 25,181 Income before income taxes $ 484,299 $ 67,016 $ 308,974 (1) Includes intercompany charges to foreign affiliates for management fees, cost-sharing, royalties and interest and excludes a portion of foreign income that is currently includable on the U.S. federal income tax return. Abercrombie & Fitch Co. 65 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. Income tax expense consisted of: (in thousands) Fiscal 2023 Fiscal 2022 Fiscal 2021 Current: Federal $ 113,765 $ 25,577 $ 51,321 State 32,299 10,371 14,061 Foreign 7,565 9,183 5,448 Total current $ 153,629 $ 45,131 $ 70,830 Deferred: Federal $ ( 9,160 ) $ 4,586 $ ( 15,401 ) State ( 1,196 ) 122 ( 8,995 ) Foreign 5,613 6,792 ( 7,526 ) Total deferred ( 4,743 ) 11,500 ( 31,922 ) Income tax expense $ 148,886 $ 56,631 $ 38,908 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. Reconciliation between the statutory federal income tax rate and the effective tax rate is as follows: Fiscal 2023 Fiscal 2022 Fiscal 2021 U.S. Federal income tax rate 21.0 % 21.0 % 21.0 % State income tax, net of U.S. federal income tax effect 4.9 12.4 4.4 Net change in valuation allowances 3.4 30.7 ( 19.7 ) Foreign taxation of non-U.S. operations (1) 1.4 16.2 3.5 Internal Revenue Code Section 162(m) 1.4 4.6 1.6 Additional U.S. taxation of non-U.S.operations 0.1 1.3 0.6 Audit and other adjustments to prior years' accruals, net ( 0.2 ) 5.9 4.7 Net income attributable to noncontrolling interests ( 0.3 ) ( 2.4 ) ( 0.5 ) Credit for increasing research activities ( 0.5 ) ( 2.5 ) ( 0.6 ) Tax benefit recognized on share-based compensation expense (2) ( 0.5 ) ( 2.6 ) ( 1.3 ) Other items, net — ( 0.1 ) 0.1 Other statutory tax rate and law changes — — ( 1.2 ) Total 30.7 % 84.5 % 12.6 % (1) U.S. branch operations in Puerto Rico were subject to tax at the full U.S. tax rates. As a result, income from these operations do not create reconciling items. (2) Refer to Note 13, “ SHARE-BASED COMPENSATION ,” for details on discrete income tax benefits and charges related to share-based compensation awards during Fiscal 2023, Fiscal 2022, and Fiscal 2021. For certain years, the impact of various tax items on the Company's effective tax rate were amplified on a percentage basis at lower levels of consolidated pre-tax income (loss) in absolute dollars. The effective tax rate remains dependent on jurisdictional mix. The taxation of non-U.S. operations line items in the table above excludes items related to the Company's non-U.S. operations reported separately in the appropriate corresponding line items. For Fiscal 2023, Fiscal 2022, and Fiscal 2021, the impact of taxation of non-U.S. operations on the Company's effective income tax rate was related to the Company's jurisdictional mix driven primarily by the Company’s operations within Switzerland. Components of Deferred Income Tax Assets and Deferred Income Tax Liabilities The effect of temporary differences which gives rise to deferred income tax assets (liabilities) were as follows: Abercrombie & Fitch Co. 66 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. (in thousands) February 3, 2024 January 28, 2023 Deferred income tax assets: Operating lease liabilities $ 211,863 $ 237,699 Intangibles, foreign step-up in basis 62,464 61,030 Net operating losses (NOL), tax credit and other carryforwards 84,872 68,874 Accrued expenses and reserves 35,866 27,435 Deferred compensation 15,717 16,023 Inventory 5,518 5,475 Rent 1,874 1,502 Other 1,683 946 Valuation allowances ( 146,973 ) ( 130,622 ) Total deferred income tax assets $ 272,884 $ 288,362 Deferred income tax liabilities: Operating lease right-of-use assets $ ( 192,020 ) $ ( 205,827 ) Property and equipment and intangibles ( 7,472 ) ( 14,273 ) Prepaid expenses ( 1,832 ) ( 1,634 ) Store supplies ( 2,100 ) ( 1,933 ) Undistributed profits of non-U.S. subsidiaries ( 1,271 ) ( 1,111 ) U.S. offset to foreign deferred tax assets, excluding intangibles, foreign step-up in basis (1) ( 187 ) ( 175 ) Other ( 781 ) ( 428 ) Total deferred income tax liabilities $ ( 205,663 ) $ ( 225,381 ) Net deferred income tax assets (1) $ 67,221 $ 62,981 (1) This table does not reflect deferred taxes classified within AOCL. As of February 3, 2024 and January 28, 2023, AOCL included deferred tax liabilities of $0.1 million and deferred tax assets of $0.9 million, respectively. As of February 3, 2024, the Company had deferred tax assets related to foreign and state NOL and credit carryforwards of $ 84.5 million and $ 0.2 million, respectively, that could be utilized to reduce future years’ tax liabilities. If not utilized, a portion of the foreign NOL carryforwards will begin to expire in Fiscal 2025 and a portion of state NOL carryforwards will begin to expire in Fiscal 2026. Some foreign NOLs have an indefinite carryforward period. As of February 3, 2024, the Company did not have any deferred tax assets related to federal NOL and credit carryforwards that could be utilized to reduce future years’ tax liabilities. The valuation allowances for Fiscal 2023 and 2022 were $ 147.0 million and $ 130.6 million, respectively. The valuation allowances as of Fiscal 2023 have been established against deferred tax assets, primarily in Switzerland. All valuation allowances have been reflected through the Consolidated Statements of Operations and Comprehensive Income (Loss). The valuation allowances will remain until there is sufficient positive evidence to release them, such positive evidence would include having positive income within the jurisdiction. In such case, the Company will record an adjustment in the period in which a determination is made. The Company continues to review the need for valuation allowances on a quarterly basis. Share-based Compensation Refer to Note 13, “ SHARE-BASED COMPENSATION ,” for details on income tax benefits and charges related to share-based compensation awards during Fiscal 2023, Fiscal 2022 and Fiscal 2021. Other The amount of uncertain tax positions as of February 3, 2024, January 28, 2023 and January 29, 2022, which would impact the Company’s effective tax rate if recognized and a reconciliation of the beginning and ending amounts of uncertain tax positions, excluding accrued interest and penalties, are as follows: (in thousands) Fiscal 2023 Fiscal 2022 Fiscal 2021 Uncertain tax positions, beginning of the year $ 2,293 $ 1,114 $ 995 Gross addition for tax positions of the current year 572 339 490 Gross addition (reduction) for tax positions of prior years 75 907 ( 136 ) Reductions of tax positions of prior years for: Lapses of applicable statutes of limitations ( 70 ) ( 66 ) ( 81 ) Settlements during the period ( 119 ) ( 1 ) ( 154 ) Uncertain tax positions, end of year $ 2,751 $ 2,293 $ 1,114 Abercrombie & Fitch Co. 67 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. The IRS is currently conducting an examination of the Company’s U.S. federal income tax returns for Fiscal 2023 and 2022 as part of the IRS’ Compliance Assurance Process program. The IRS examinations for Fiscal 2021 and prior years have been completed. State and foreign returns are generally subject to examination for a period of three to five years after the filing of the respective return. The Company typically has various state and foreign income tax returns in the process of examination, administrative appeals or litigation. The outcome of the examinations is not expected to have a material impact on the Company’s financial statements. The Company believes that some of these audits and negotiations will conclude within the next 12 months and that it is reasonably possible the amount of uncertain income tax positions, including interest, may change by an immaterial amount due to settlement of audits and expiration of statues of limitations. The Company does not expect material adjustments to the total amount of uncertain tax positions within the next 12 months, but the outcome of tax matters is uncertain and unforeseen results can occur. Refer to Note 2, “ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Income Taxes ,” for discussion regarding significant accounting policies related to the Company’s income taxes. 12. BORROWINGS Details on the Company’s long-term borrowings, net, as of February 3, 2024 and January 28, 2023 are as follows: (in thousands) February 3, 2024 January 28, 2023 Long-term portion of borrowings, gross at carrying amount $ 223,214 $ 299,730 Unamortized fees ( 1,095 ) ( 2,878 ) Long-term portion of borrowings, net $ 222,119 $ 296,852 Senior Secured Notes On July 2, 2020, Abercrombie & Fitch Management Co. (“A&F Management”), a wholly-owned indirect subsidiary of A&F, completed the private offering of $ 350 million aggregate principal amount of senior secured notes (the “Senior Secured Notes”), at an offering price of 100% of the principal amount thereof. The Senior Secured Notes will mature on July 15, 2025, and bear interest at a rate of 8.75 % per annum, with semi-annual interest payments, which began in January 2021. The Senior Secured Notes were issued pursuant to an indenture, dated as of July 2, 2020, by and among A&F Management, A&F and certain of A&F’s wholly-owned subsidiaries, as guarantors, and U.S. Bank National Association (now known as U.S. Bank Trust National Association), as trustee, and as collateral agent. During Fiscal 2023, 2022, and 2021, A&F Management purchased $ 76.5 million, $ 8.0 million and $ 42.3 million, respectively, of outstanding Senior Secured Notes and incurred a $ 2.0 million loss, $ 0.1 million gain and $ 5.3 million loss, respectively, on extinguishment of debt, recognized in interest expense, net on the Consolidated Statements of Operations and Comprehensive Income (Loss). The Company used the net proceeds from the offering of the Senior Secured Notes to repay outstanding borrowings and accrued interest of $ 223.6 million and $ 110.8 million under its prior term loan facility and the ABL Facility (defined below), respectively, with the remaining net proceeds used towards fees and expenses in connection with such repayments and the offering of the Senior Secured Notes. The Company recorded deferred financing fees associated with the issuance of the Senior Secured Notes, which are being amortized to interest expense over the contractual term of the Senior Secured Notes. ABL Facility On April 29, 2021, A&F Management, in A&F Management’s capacity as the lead borrower, and the other borrowers and guarantors party thereto, amended and restated in its entirety the Credit Agreement, dated as of August 7, 2014, as amended on September 10, 2015, and on October 19, 2017 (as amended and restated, the “Amended and Restated Credit Agreement”), among A&F Management, the other borrowers and guarantors party thereto, the lenders party thereto, Wells Fargo Bank, National Association, as administrative agent for the lenders, and the other parties thereto. The Amended and Restated Credit Agreement continues to provide for a senior secured revolving credit facility of up to $ 400.0 million (the “ABL Facility”), and (i) extended the maturity date of the ABL Facility to April 29, 2026 ; and (ii) modified the required fee on undrawn commitments under the ABL Facility from 0.25 % per annum to either 0.25 % or 0.375 % per annum (with the ultimate amount dependent on the conditions detailed in the Amended and Restated Credit Agreement). On March 15, 2023, the Company entered into the First Amendment to the Amended and Restated Credit Agreement to Abercrombie & Fitch Co. 68 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. 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 reflect other conforming changes. The Company did not have any borrowings outstanding under the ABL Facility as of February 3, 2024 or as of January 28, 2023. The ABL Facility is subject to a borrowing base, consisting primarily of U.S. inventory, with a letter of credit sub-limit of $50 million and an accordion feature allowing A&F to increase the revolving commitment by up to $100 million subject to specified conditions. The ABL Facility is available for working capital, capital expenditures and other general corporate purposes. As of February 3, 2024, the Company had availability under the ABL Facility of $ 332.5 million, net of $ 0.4 million in outstanding stand-by letters of credit. As the Company must maintain excess availability equal to the greater of 10% of the loan cap or $30 million under the ABL Facility, borrowing capacity available to the Company under the ABL Facility was $ 299.2 million as of February 3, 2024. Obligations under the ABL Facility are unconditionally guaranteed by A&F and certain of A&F’s subsidiaries. The ABL Facility is secured by a first-priority security interest in certain working capital of the borrowers and guarantors consisting of inventory, accounts receivable and certain other assets. The ABL Facility is also secured by a second-priority security interest in certain property and assets of the borrowers and guarantors, including certain fixed assets, intellectual property, stock of subsidiaries and certain after-acquired material real property. At the Company’s option, borrowings under the ABL Facility will bear interest at either (a) an adjusted LIBO rate plus a margin of 1.25 % to 1.50 % per annum, or (b) an alternate base rate plus a margin of 0.25 % to 0.50 % per annum. As of February 3, 2024, the applicable margins with respect to LIBO rate loans and base rate loans, including swing line loans, under the ABL Facility were 1.25 % and 0.25 % per annum, respectively, and are subject to adjustment each fiscal quarter based on average historical availability during the preceding quarter. Following the March 15, 2023 amendment, borrowings under the ABL will bear interest using the current market SOFR rate. Customary agency fees and letter of credit fees are also payable in respect of the ABL Facility. Representations, Warranties and Covenants The agreements related to the Senior Secured Notes and the ABL Facility contain various representations, warranties and restrictive covenants that, among other things and subject to specified exceptions, restrict the ability of the Company and its subsidiaries to: grant or incur liens; incur, assume or guarantee additional indebtedness; sell or otherwise dispose of assets, including capital stock of subsidiaries; make investments in certain subsidiaries; pay dividends, make distributions or redeem or repurchase capital stock; change the nature of their business; and consolidate or merge with or into, or sell substantially all of the assets of the Company or A&F Management to, another entity. The Senior Secured Notes are guaranteed on a senior secured basis, jointly and severally, by A&F and each of the existing and future wholly-owned domestic restricted subsidiaries of A&F that guarantee or will guarantee A&F Management’s ABL Facility or certain future capital markets indebtedness. The Company was in compliance with all debt covenants under the agreements related to the Senior Secured Notes and the ABL Facility as of February 3, 2024. 13. SHARE-BASED COMPENSATION Plans As of February 3, 2024, the Company had two primary share-based compensation plans: (i) the 2016 Directors LTIP, with 900,000 shares of Common Stock authorized for issuance, under which the Company is authorized to grant restricted stock, restricted stock units, stock appreciation rights, stock options and deferred stock awards to non-associate members of the Board of Directors; and (ii) the 2016 Associates LTIP, with 10,965,000 shares of Common Stock authorized for issuance, under which the Company is authorized to grant restricted stock, restricted stock units, performance share awards, stock appreciation rights and stock options to associates of the Company. The Company also has outstanding shares from two other share-based compensation plans under which the Company granted restricted stock units, performance share awards, stock appreciation rights and stock options to associates of the Company and restricted stock units, stock options and deferred stock awards to non-associate members of the Board of Directors in prior years. No new shares may be granted under these previously-authorized plans and any outstanding awards continue in effect in accordance with their respective terms. Abercrombie & Fitch Co. 69 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. The 2016 Directors LTIP, a stockholder-approved plan, permits the Company to annually grant awards to non-associate directors, subject to the following limits: • For non-associate directors: awards with an aggregate fair market value on the date of the grant of no more than $ 300,000 ; • For the non-associate director occupying the role of Non-Executive Chairperson of the Board (if any): additional awards with an aggregate fair market value on the date of grant of no more than $ 500,000 ; and • For the non-associate director occupying the role of Executive Chairperson of the Board (if any): additional awards with an aggregate fair market value on the date of grant of no more than $ 2,500,000 . Under the 2016 Directors LTIP, restricted stock units are subject to a minimum vesting period ending no sooner than the earlier of (i) the first anniversary of the grant date or (ii) the date of the next regularly scheduled annual meeting of stockholders held after the grant date. Any stock appreciation rights or stock options granted under this plan have the same minimum vesting period requirements as restricted stock units and, in addition, must have a term that does not exceed a period of ten years from the grant date, subject to forfeiture under the terms of the 2016 Directors LTIP. The 2016 Associates LTIP, a stockholder-approved plan, permits the Company to annually grant one or more types of awards covering up to an aggregate for all awards of 1.0 million underlying shares of the Common Stock to any associate of the Company. Under the 2016 Associates LTIP, for restricted stock units that have performance-based vesting, performance must be measured over a period of at least one year and for restricted stock units that do not have performance-based vesting, vesting in full may not occur more quickly than in pro-rata installments over a period of three years from the date of the grant, with the first installment vesting no sooner than the first anniversary of the date of the grant. In addition, any stock options or stock appreciation rights granted under this plan must have a minimum vesting period of one year and a term that does not exceed a period of ten years from the grant date, subject to forfeiture under the terms of the 2016 Associates LTIP. Each of the 2016 Directors LTIP and the 2016 Associates LTIP provides for accelerated vesting of awards if there is a change of control and certain other conditions specified in each plan are met. Financial Statement Impact The following table details share-based compensation expense and the related income tax benefit for Fiscal 2023, Fiscal 2022 and Fiscal 2021: (in thousands) Fiscal 2023 Fiscal 2022 Fiscal 2021 Share-based compensation expense $ 40,122 $ 28,995 $ 29,304 Income tax benefit associated with share-based compensation expense recognized during the period 4,350 3,515 3,338 The following table details discrete income tax benefits and charges related to share-based compensation awards during Fiscal 2023, Fiscal 2022 and Fiscal 2021: (in thousands) Fiscal 2023 Fiscal 2022 Fiscal 2021 Income tax discrete benefits realized for tax deductions related to the issuance of shares during the period $ 2,709 $ 1,956 $ 4,198 Income tax discrete charges realized upon cancellation of stock appreciation rights during the period ( 101 ) ( 226 ) ( 204 ) Total income tax discrete benefits related to share-based compensation awards $ 2,608 $ 1,730 $ 3,994 The following table details the amount of employee tax withheld by the Company upon the issuance of shares associated with restricted stock units vesting and the exercise of stock appreciation rights for the Fiscal 2023, Fiscal 2022 and Fiscal 2021: (in thousands) Fiscal 2023 Fiscal 2022 Fiscal 2021 Employee tax withheld upon issuance of shares (1) $ 29,485 $ 14,464 $ 13,163 (1) Classified within other financing activities on the Consolidated Statements of Cash Flows. Abercrombie & Fitch Co. 70 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. Restricted Stock Units The following table summarizes activity for restricted stock units for Fiscal 2023: Service-based Restricted Stock Units Performance-based Restricted Stock Units Market-based Restricted Stock Units Number of Underlying Shares Weighted- Average Grant Date Fair Value Number of Underlying Shares (1) Weighted- Average Grant Date Fair Value Number of Underlying Shares (1) Weighted- Average Grant Date Fair Value Unvested at January 28, 2023 2,461,395 $ 21.30 336,549 $ 31.08 662,137 $ 23.68 Granted 901,293 29.11 222,144 28.36 111,077 41.20 Change due to performance criteria achievement — — — — 493,854 16.24 Vested ( 1,315,618 ) 17.73 — — ( 987,708 ) 16.24 Forfeited ( 160,985 ) 26.50 ( 37,481 ) 29.52 ( 18,741 ) 42.55 Unvested at February 3, 2024 (1) 1,886,085 $ 27.12 521,212 $ 30.03 260,619 $ 43.90 (1) Unvested shares related to restricted stock units with performance-based and market-based vesting conditions are reflected at 100 % of their target vesting amount in the table above. Unvested shares related to restricted stock units with performance-based and market-based vesting conditions can be achieved at up to 200% of their target vesting amount. The following table details unrecognized compensation cost and the remaining weighted-average period over which these costs are expected to be recognized for restricted stock units as of February 3, 2024: (in thousands) Service-based Restricted Stock Units Performance-based Restricted Stock Units Market-based Restricted Stock Units Unrecognized compensation cost $ 32,783 $ 10,056 $ 4,107 Remaining weighted-average period cost is expected to be recognized (years) 1.0 1.2 1.2 Additional information pertaining to restricted stock units for Fiscal 2023, Fiscal 2022 and Fiscal 2021 follows: (in thousands) Fiscal 2023 Fiscal 2022 Fiscal 2021 Service-based restricted stock units: Total grant date fair value of awards granted $ 26,237 $ 28,878 $ 23,959 Total grant date fair value of awards vested 23,326 16,794 13,360 Total intrinsic value of awards vested 44,110 28,037 36,507 Performance-based restricted stock units: Total grant date fair value of awards granted 6,300 5,600 5,059 Total grant date fair value of awards vested — 4,482 — Market-based restricted stock units: Total grant date fair value of awards granted 4,576 3,852 3,966 Total grant date fair value of awards vested 16,040 4,105 3,390 Total intrinsic value of awards vested 24,890 3,768 3,335 The weighted-average assumptions used for market-based restricted stock units in the Monte Carlo simulation during Fiscal 2023, Fiscal 2022 and Fiscal 2021 were as follows: Abercrombie & Fitch Co. 71 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. Fiscal 2023 Fiscal 2022 Fiscal 2021 Grant date market price $ 28.36 $ 30.24 $ 31.78 Fair value 41.20 41.60 49.81 Assumptions: Price volatility 63 % 66 % 66 % Expected term (years) 2.9 2.8 2.9 Risk-free interest rate 4.6 % 2.5 % 0.3 % Dividend yield — — — Average volatility of peer companies 66.0 % 72.3 % 72.0 % Average correlation coefficient of peer companies 0.5295 0.515 0.4694 Stock Appreciation Rights The following table summarizes stock appreciation rights activity for Fiscal 2023: Number of Underlying Shares Weighted-Average Exercise Price Aggregate Intrinsic Value Weighted-Average Remaining Contractual Life (years) Outstanding at January 28, 2023 190,589 $ 29.43 Granted — — Exercised ( 141,289 ) 26.73 Forfeited or expired ( 23,700 ) 45.69 Outstanding at February 3, 2024 25,600 $ 29.29 $ 2,053 0.7 Stock appreciation rights exercisable at February 3, 2024 25,600 $ 29.29 $ 2,053 0.7 The following table provides additional information pertaining to grant date fair value of awards exercised during Fiscal 2023, Fiscal 2022 and Fiscal 2021: (in thousands) Fiscal 2023 Fiscal 2022 Fiscal 2021 Total grant date fair value of awards exercised $ 1,409 $ — $ 1,069 No stock appreciation rights were exercised during Fiscal 2022. Refer to Note 2, “ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Share-Based Compensation ,” for discussion regarding significant accounting policies related to share-based compensation. 14. DERIVATIVE INSTRUMENTS As of February 3, 2024, the Company had outstanding the following foreign currency exchange forward contracts that were entered into to hedge either a portion, or all, of forecasted foreign-currency-denominated intercompany inventory transactions, the resulting settlement of the foreign-currency-denominated intercompany accounts receivable, or both: (in thousands) Notional Amount (1) Euro $ 45,315 British pound 37,253 Canadian dollar 14,239 (1) Amounts reported are the U.S. Dollar notional amounts outstanding as of February 3, 2024. As of February 3, 2024, foreign currency exchange forward contracts that were entered into to hedge foreign-currency-denominated net monetary assets and liabilities were as follows: (in thousands) Notional Amount (1) United Arab Emirates dirham $ 5,719 (1) Amounts reported are the U.S. Dollar notional amounts outstanding as of February 3, 2024. Abercrombie & Fitch Co. 72 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. The fair value of derivative instruments is determined using quoted market prices of the same or similar instruments, adjusted for counterparty risk. The location and amounts of derivative fair values of foreign currency exchange forward contracts on the Consolidated Balance Sheets as of February 3, 2024, and January 28, 2023 were as follows: (in thousands) Location February 3, 2024 January 28, 2023 Location February 3, 2024 January 28, 2023 Derivatives designated as cash flow hedging instruments Other current assets $ 1,090 $ 32 Accrued expenses $ 539 $ 4,986 Derivatives not designated as hedging instruments Other current assets 2 — Accrued expenses — — Total $ 1,092 $ 32 $ 539 $ 4,986 Refer to Note 4, “ FAIR VALUE , ” for further discussion of the determination of the fair value of derivative instruments. Additional information pertaining to derivative gains or losses from foreign currency exchange forward contracts designated as cash flow hedging instruments for Fiscal 2023, Fiscal 2022 and Fiscal 2021 follows: (in thousands) Fiscal 2023 Fiscal 2022 Fiscal 2021 Gain recognized in AOCL (1) $ 3,618 $ 2,844 $ 11,987 (Loss) gain reclassified from AOCL into cost of sales, exclusive of depreciation and amortization (2) ( 1,846 ) 13,781 1,263 (1) Amount represents the change in fair value of derivative instruments. (2) Amount represents gain reclassified from AOCL to cost of sales, exclusive of depreciation and amortization, on the Consolidated Statements of Operations and Comprehensive Income (Loss) when the hedged item affected earnings, which was when merchandise was converted to cost of sales, exclusive of depreciation and amortization. Substantially all of the unrealized gains or losses related to foreign currency exchange forward contracts designated as cash flow hedging instruments as of February 3, 2024 will be recognized within the Consolidated Statements of Operations and Comprehensive Income (Loss) over the next 12 months. Additional information pertaining to derivative gains or losses from foreign currency exchange forward contracts not designated as hedging instruments for Fiscal 2023, Fiscal 2022 and Fiscal 2021 follows: (in thousands) Fiscal 2023 Fiscal 2022 Fiscal 2021 (Loss) gain recognized in other operating income, net $ ( 1,206 ) $ 1,226 $ 1,205 Refer to Note 2, “ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Derivative Instruments ,” for discussion regarding significant accounting policies related to the Company’s derivative instruments. Abercrombie & Fitch Co. 73 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. 15. ACCUMULATED OTHER COMPREHENSIVE LOSS For Fiscal 2023, the activity in AOCL was as follows: Fiscal 2023 (in thousands) Foreign Currency Translation Adjustment Unrealized Gain (Loss) on Derivative Financial Instruments Total Beginning balance at January 28, 2023 $ ( 132,653 ) $ ( 4,874 ) $ ( 137,527 ) Other comprehensive (loss) income before reclassifications ( 3,879 ) 3,618 ( 261 ) Reclassified loss from AOCL (1) — 1,846 1,846 Tax effect — ( 26 ) ( 26 ) Other comprehensive (loss) income after reclassifications ( 3,879 ) 5,438 1,559 Ending balance at February 3, 2024 $ ( 136,532 ) $ 564 $ ( 135,968 ) (1) Amount represents loss reclassified from AOCL to cost of sales, exclusive of depreciation and amortization, on the Consolidated Statements of Operations and Comprehensive Income (Loss). For Fiscal 2022, the activity in AOCL was as follows: Fiscal 2022 (in thousands) Foreign Currency Translation Adjustment Unrealized Gain (Loss) on Derivative Financial Instruments Total Beginning balance at January 29, 2022 $ ( 120,689 ) $ 5,983 $ ( 114,706 ) Other comprehensive (loss) income before reclassifications ( 11,964 ) 2,844 ( 9,120 ) Reclassified gain from AOCL (1) — ( 13,781 ) ( 13,781 ) Tax effect — 80 80 Other comprehensive loss after reclassifications ( 11,964 ) ( 10,857 ) ( 22,821 ) Ending balance at January 28, 2023 $ ( 132,653 ) $ ( 4,874 ) $ ( 137,527 ) (1) Amount represents gain reclassified from AOCL to cost of sales, exclusive of depreciation and amortization, on the Consolidated Statements of Operations and Comprehensive Income (Loss). For Fiscal 2021, the activity in AOCL was as follows: Fiscal 2021 (in thousands) Foreign Currency Translation Adjustment Unrealized Gain (Loss) on Derivative Financial Instruments Total Beginning balance at January 30, 2021 $ ( 97,772 ) $ ( 4,535 ) $ ( 102,307 ) Other comprehensive (loss) income before reclassifications ( 22,917 ) 11,987 ( 10,930 ) Reclassified gain from AOCL (1) — ( 1,263 ) ( 1,263 ) Tax effect — ( 206 ) ( 206 ) Other comprehensive (loss) income after reclassifications ( 22,917 ) 10,518 ( 12,399 ) Ending balance at January 29, 2022 $ ( 120,689 ) $ 5,983 $ ( 114,706 ) (1) Amount represents gain reclassified from AOCL to cost of sales, exclusive of depreciation and amortization, on the Consolidated Statements of Operations and Comprehensive Income (Loss). Abercrombie & Fitch Co. 74 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. 16. SAVINGS AND RETIREMENT PLANS The Company maintains the Abercrombie & Fitch Co. Savings and Retirement Plan, a qualified plan. All U.S. associates are eligible to participate in this plan if they are at least 21 years of age. In addition, the Company maintains the Abercrombie & Fitch Nonqualified Savings and Supplemental Retirement Plan, comprised of two sub-plans (Plan I and Plan II). Plan I contains contributions made through December 31, 2004, while Plan II contains contributions made on and after January 1, 2005. Participation in these plans is based on service and compensation. The Company’s contributions to these plans are based on a percentage of associates’ eligible annual compensation. The cost of the Company’s contributions to these plans was $ 16.9 million, $ 14.7 million and $ 15.4 million for Fiscal 2023, Fiscal 2022 and Fiscal 2021, respectively. In addition, the Company maintains the Supplemental Executive Retirement Plan which provides retirement income to its former Chief Executive Officer for life, based on averaged compensation before retirement, including base salary and cash incentive compensation. As of February 3, 2024 and January 28, 2023, the Company has recorded $ 6.7 million and $ 7.2 million, respectively, in other liabilities on the Consolidated Balance Sheets related to future Supplemental Executive Retirement Plan distributions. 17. SEGMENT REPORTING The Company’s reportable segments are based on the financial information the chief operating decision maker (“CODM”) uses to allocate resources and assess performance of its business. During the second quarter of Fiscal 2023, to leverage the knowledge and experience of our regional teams to better drive brand growth, the Company reorganized its structure and now manages its business on a geographic basis, consisting of three reportable segments: Americas; 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). The Americas reportable segment includes the results of operations in North America and South America. The EMEA reportable segment includes the results of operations in Europe, the Middle East and Africa. The APAC reportable segment includes the results of operations in the Asia-Pacific region, including Asia and Oceania. Intersegment sales and transfers are recorded at cost and are treated as a transfer of inventory. All intercompany revenues are eliminated in consolidation and are not reviewed when evaluating segment performance. All prior periods presented are recast to conform to the new segment presentation. The group comprised of the Company’s (i) Chief Executive Officer and (ii) Chief Financial Officer and Chief Operating Officer functions as the Company’s CODM. The Company’s CODM manages business operations and evaluates the performance of each segment based on the net sales and operating income (loss) of the segment. Net sales by segment are presented by attributing revenues on the basis of the segment that fulfills the order. Operating income (loss) for each segment includes net sales to third parties, related cost of sales and operating expenses directly attributed to the segment. Corporate/other expenses include expenses incurred that are not directly attributed to a reportable segment and primarily relate to corporate or global functions such as design, sourcing, brand management, corporate strategy, information technology, finance, treasury, legal, human resources, and other corporate support services, as well as certain globally managed components of the planning, merchandising, and marketing functions. The Company reports inventories by segment as that information is used by the CODM in determining allocation of resources to the segments. The Company does not report its other assets by segment as that information is not used by the CODM in assessing segment performance or allocating resources. The following tables provide the Company’s segment information as of February 3, 2024 and January 28, 2023, and for Fiscal 2023, Fiscal 2022 and Fiscal 2021. (in thousands) Fiscal 2023 Fiscal 2022 Fiscal 2021 Net sales Americas (1) $ 3,455,674 $ 2,920,157 $ 2,803,791 EMEA 687,095 658,794 747,356 APAC 137,908 118,800 161,621 Total $ 4,280,677 $ 3,697,751 $ 3,712,768 (1) Includes the U.S., Canada, and Latin America. Net sales in the U.S. were $ 3.3 billion, $ 2.8 billion, and $ 2.7 billion in Fiscal 2023, Fiscal 2022, and Fiscal 2021, respectively. Abercrombie & Fitch Co. 75 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. (in thousands) Fiscal 2023 Fiscal 2022 Fiscal 2021 Depreciation and amortization Americas $ 73,779 $ 75,231 $ 79,189 EMEA 26,782 21,497 23,276 APAC 5,921 8,123 10,892 Segment total $ 106,482 $ 104,851 $ 113,357 Depreciation and amortization not attributed to Segments 34,622 27,392 30,678 Total depreciation and amortization $ 141,104 $ 132,243 $ 144,035 Capital expenditures Americas $ 78,062 $ 102,030 $ 40,774 EMEA 26,019 32,206 20,727 APAC 4,331 1,249 6,210 Segment total $ 108,412 $ 135,485 $ 67,711 Capital expenditures not attributed to Segments 49,385 29,081 29,268 Total capital expenditures $ 157,797 $ 164,566 $ 96,979 Operating Income Americas $ 940,292 $ 483,445 $ 637,308 EMEA 81,216 45,185 118,235 APAC ( 10,558 ) ( 29,107 ) ( 20,240 ) Segment total $ 1,010,950 $ 499,523 $ 735,303 Operating (loss) income not attributed to Segments: Stores and distribution expense ( 12,066 ) ( 9,051 ) ( 5,880 ) Marketing, general and administrative expense ( 520,082 ) ( 400,508 ) ( 403,622 ) Other operating (loss) income, net 5,869 2,684 17,283 Total operating income $ 484,671 $ 92,648 $ 343,084 (in thousands) February 03, 2024 January 28, 2023 Assets Inventories Americas $ 372,371 $ 404,040 EMEA 77,125 80,447 APAC 19,970 21,134 Total inventories $ 469,466 $ 505,621 Assets not attributed to Segments 2,504,767 2,207,479 Total assets $ 2,974,233 $ 2,713,100 The Company’s long-lived assets and intellectual property, which primarily relates to trademark assets associated with the Company’s global operations, by geographic area as of February 3, 2024 and January 28, 2023 were as follows: (in thousands) February 3, 2024 January 28, 2023 Americas (1) (2) $ 897,315 $ 929,381 EMEA (3) 288,967 317,712 APAC 50,324 49,771 Total $ 1,236,606 $ 1,296,864 (1) Includes the U.S., Canada, and Latin America. Long-lived assets and intellectual property located in the U.S. were $ 880 million and $ 911 million as of February 3, 2024 and January 28, 2023, respectively. (2) Includes intellectual property of $ 2.9 million and $ 3.4 million at February 3, 2024 and January 28, 2023, respectively. (3) Includes intellectual property of $ 17.4 million and $ 18.3 million at February 3, 2024 and January 28, 2023, respectively. Abercrombie & Fitch Co. 76 2023 Form 10-K Table of Contents Abercrombie & Fitch Co. Brand Information The following table provides additional disaggregated revenue information, which is categorized by brand, for Fiscal 2023, Fiscal 2022 and Fiscal 2021 were as follows: (in thousands) Fiscal 2023 Fiscal 2022 Fiscal 2021 Abercrombie (1) $ 2,201,686 $ 1,734,866 $ 1,564,789 Hollister (2) 2,078,991 1,962,885 2,147,979 Total $ 4,280,677 $ 3,697,751 $ 3,712,768 (1) Abercrombie brands includes Abercrombie & Fitch and abercrombie kids. (2) Hollister brands includes Hollister and Gilly Hicks 18. CONTINGENCIES The Company and its affiliates are defendants in lawsuits and other adversary proceedings that may range from individual actions involving a single plaintiff to class action lawsuits. The Company’s legal costs incurred in connection with the resolution of claims and lawsuits are generally expensed as incurred, and the Company establishes estimated liabilities for the outcome of litigation where losses are deemed probable and the amount of loss, or range of loss, is reasonably estimable. The Company also determines estimates of reasonably possible losses or ranges of reasonably possible losses in excess of related accrued liabilities, if any, when it has determined that a loss is reasonably possible and it is able to determine such estimates. Based on currently available information, the Company cannot estimate a range of reasonably possible losses in excess of the accrued charges for legal contingencies. In addition, the Company has not established accruals for certain claims and legal proceedings pending against the Company where it is not possible to reasonably estimate the outcome or potential liability, and the Company cannot estimate a range of reasonably possible losses for these legal matters. Actual liabilities may differ from the amounts recorded, due to uncertainties regarding final settlement agreement negotiations, court approvals and the terms of any approval by the courts, and there can be no assurance that final resolution of legal matters will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows. The Company’s assessment of the current exposure could change in the event of the discovery of additional facts. Abercrombie & Fitch Co. 77 2023 Form 10-K Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Abercrombie & Fitch Co. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Abercrombie & Fitch Co. and its subsidiaries (the “Company”) as of February 3, 2024 and January 28, 2023, and the related consolidated statements of operations and comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended February 3, 2024, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of February 3, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of February 3, 2024 and January 28, 2023, and the results of its operations and its cash flows for each of the three years in the period ended February 3, 2024 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 3, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Abercrombie & Fitch Co. 78 2023 Form 10-K Table of Contents Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Impairment of Long-Lived Assets – Stores As described in Notes 2, 6 and 8 to the consolidated financial statements, the Company’s consolidated property and equipment, net balance was $538.0 million and consolidated operating lease right-of-use assets balance was $678.3 million as of February 3, 2024. During the year ended February 3, 2024, the Company recognized long-lived asset store impairment charges of $8.3 million. The Company’s long-lived assets, primarily operating lease right-of-use assets, leasehold improvements, furniture, fixtures and equipment, are grouped with other assets and liabilities at the store level, which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. On at least a quarterly basis, management reviews the Company’s asset groups for indicators of impairment, which include, but are not limited to, material declines in operational performance, a history of losses, an expectation of future losses, adverse market conditions, store closure or relocation decisions, and any other events or changes in circumstances that would indicate the carrying amount of an asset group might not be recoverable. If an asset group displays an indicator of impairment, it is tested for recoverability by comparing the sum of the estimated future undiscounted cash flows attributable to the asset group to the carrying amount of the asset group. This recoverability test requires management to make assumptions and judgments related, but not limited, to management’s expectations for future cash flows from operating the store. The key assumption used in developing these projected cash flows used in the recoverability test is estimated sales growth rate. If the sum of the estimated future undiscounted cash flows attributable to an asset group is less than its carrying amount, and it is determined that the carrying amount of the asset group is not recoverable, management determines if there is an impairment loss by comparing the carrying amount of the asset group to its fair value. Fair value of an asset group is based on the highest and best use of the asset group, often using a discounted cash flow model that utilizes Level 3 fair value inputs. The key assumptions used in the Company’s fair value analysis are estimated sales growth rate and comparable market rents. An impairment loss is recognized based on the excess of the carrying amount of the asset group over its fair value. The principal considerations for our determination that performing procedures relating to the impairment of long-lived assets - stores is a critical audit matter are (i) the significant judgment by management when developing the future undiscounted cash flows attributable to an asset group when testing for recoverability and when determining the fair value of the asset groups to measure for impairment; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to estimated sales growth rate when developing the future undiscounted cash flows, and comparable market rents when estimating the fair value; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s long-lived assets - stores recoverability test and determination of the fair value of the asset groups. These procedures also included, among others (i) testing management’s process for developing the future undiscounted cash flows attributable to an asset group when testing for recoverability and when determining the fair value of the asset groups to measure for impairment; (ii) evaluating the appropriateness of the models used by management in determining the fair value of the asset groups; (iii) testing the completeness and accuracy of underlying data used in the models; and (iv) evaluating the reasonableness of the significant assumptions related to estimated sales growth rate when developing the future undiscounted cash flows and comparable market rents when estimating the fair value. Evaluating management’s assumptions related to estimated sales growth rate and comparable market rents involved evaluating whether the assumptions used by management were reasonable considering the current and past performance of the asset groups, the consistency with evidence obtained in other areas of the audit as it relates to estimated sales growth rate, and consistency with external market data as it relates to estimated sales growth rate and comparable market rents. Professionals with specialized skill and knowledge were used to assist in evaluating of the reasonableness of the comparable market rents significant assumption. /s/ PricewaterhouseCoopers LLP Columbus, Ohio April 1, 2024 We have served as the Company’s auditor since 1996. Abercrombie & Fitch Co. 79 2023 Form 10-K Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.