What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-31 compared with 2024-04-01 · 203 added, 157 removed, 345 unchanged (51% of the section changed)

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The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) generally discusses our results of operations for Fiscal 2024 and Fiscal 2023 and provides comparisons between such fiscal years.

For discussion and comparison of Fiscal 2022 and Fiscal 2021, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for Fiscal 2022, filed with the SEC on March 27, 2023.

For discussion and comparison of Fiscal 2023 and Fiscal 2022, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for Fiscal 2023, filed with the SEC on April 1, 2024.

This MD&A should be read together with the Company’s audited Consolidated Financial Statements and notes thereto included in this Annual Report on Form 10-K in “ ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA , ” to which all references to Notes in MD&A are made.

In prior periods, the Company included stores and distribution expense and marketing, general and administrative expense as individual expense categories on the Consolidated Statements of Operations and Comprehensive Income (Loss).

Stores & distribution expense was recaptioned as selling expense, while marketing, general and administrative expense was recaptioned as general and administrative expense.

In conjunction with these changes, all marketing expenses, including amounts previously presented in marketing, general and administrative expense, were moved into selling expense, while certain management and IT costs were moved out of stores and distribution expense and into general and administrative expense.

The net changes associated with these reclassifications results in selling expense that is $38.3 million and $35.0 million lower than the stores and distribution expense that was previously presented for Fiscal 2023 and Fiscal 2022, respectively, and in general and administrative expense that is $38.3 million and $35.0 million higher than the marketing, general, and administrative expense that was previously presented for Fiscal 2023 and Fiscal 2022, respectively.

Prior period amounts have been reclassified to conform to the current fiscal year’s presentation.

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

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

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

The Company manages its business on a geographic basis, consisting of three reportable segments:

Europe, the Middle East and Africa (“EMEA”);

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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.

The Company’s brand families includes Abercrombie brands and Hollister brands.

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

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

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

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 was the case in Fiscal 2023.

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

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Fiscal 2022 January 28, 2023 52

Fiscal 2023 February 3, 2024 53

Fiscal 2024 February 1, 2025 52

Fiscal 2025 January 31, 2026 52

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

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

• Changes in net sales and comparable sales;

• Gross profit and gross profit rate;

• Net sales and comparable sales by region and brand;

• Cost of sales, exclusive of depreciation and amortization, as a percentage of net sales;

• Stores and distribution expense as a percentage of net sales;

• Marketing, general and administrative expense as a percentage of net sales;

• Operating income and operating income as a percentage of net sales (“operating margin”);

• Gross profit and gross profit rate;

• Selling expense as a percentage of net sales;

• General and administrative expense as a percentage of net sales;

• Operating income, including by region, and operating income as a percentage of net sales (“operating margin”);

• Earnings before interest, taxes, depreciation and amortization (“EBITDA”)

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

• Net income per diluted share attributable to A&F;

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

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

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

• Digital and omnichannel metrics;

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

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

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

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

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Focus Areas for Fiscal 2025

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

The Company introduced the Always Forward Plan in June of Fiscal 2022.

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

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• Operate with financial discipline

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

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

While the Company has significantly outperformed certain financial targets set forth in the Always Forward Plan, the growth principles continue to serve as a framework for the Company achieving sustainable and profitable growth and profitability.

The Company’s strategic priorities continue to evolve based on changing consumer demands and new strategic opportunities, and management reviews and prioritizes investments and strategic focus areas to address such demands and opportunities.

Execute focused growth plans by:

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

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

• driving sales growth across regions and brand families primarily through marketing and store investments in our owned and operating channels, while pursuing new geographies and markets via franchise, wholesale and licensing partnerships;

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

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

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Operate with financial discipline by:

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

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

• using our agile inventory model and pricing strategies to position the Company to support customer demand throughout the year;

• maintaining our durable balance sheet and consistent free cash flow profile, underpinned by our disciplined investment philosophy while balancing against macro environment impacts and efficiency efforts.

Current Macroeconomic Conditions

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

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

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

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

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

Macroeconomic conditions, such as a volatile interest rate environment, ongoing inflation, the geopolitical landscape, and foreign exchange rate fluctuations, continue to impact the global economy.

In addition, recent changes in legislation and regulations, including enacted and proposed tariffs and other trade policies, have introduced additional uncertainty in the global economy.

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

In addition, freight costs have remained heightened since the start of the second quarter of Fiscal 2024, which we expect to continue through the first half of Fiscal 2025.

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

Global Events and Supply Chain Disruptions

As a global multi-brand omnichannel specialty retailer, with operations in North America, Europe, the Middle East, and Asia, among other regions, management is mindful of macroeconomic risks, global challenges and the changing global geopolitical environment, including the ongoing armed conflicts between Russia and Ukraine or Israel and Hamas, and conflict in the surrounding areas, which could adversely impact certain areas of the business.

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

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

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

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

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

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

The global supply chain also continues to be negatively impacted by various factors, including disruptions in major maritime routes, port congestion, higher operational costs, and increased competition for supply chain availability due to uncertainty regarding tariffs and trade policy.

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

Further mitigating actions may be needed, particularly if there is prolonged port congestion or transportation delays, and could result in higher freight costs in the near-term and beyond.

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

Although management also develops and updates contingency plans to assist in mitigating potential impacts, it is possible that the Company’s preparations for such events are not adequate to mitigate their impact, and that these events could further adversely affect its business and results of operations.

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2024 Form 10-K

Global Store Network Optimization

Global Store Network Modernization and Growth

The Company has a goal of finding the right size, right location and right economics for omni-enabled stores that cater to local customers.

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

Fifty-Three Weeks Ended February 3, 2024

Fifty-Two Weeks Ended February 1, 2025

Total Company

Abercrombie (4)

Hollister (5)

Abercrombie (4)

Hollister (5)

Abercrombie (4)

Hollister (5)

Abercrombie (4)

Hollister (5)

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

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

New 25 15 5 1 10 9 40 25 65

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Gross square footage (in thousands) :

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

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

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

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

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

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

(5) Hollister brands includes Hollister and Gilly Hicks.

February 1, 2025 1,305 2,478 214 769 174 154 1,693 3,401 5,094

(1) The Americas segment includes North America and South America.

(2) The EMEA segment includes Europe, the Middle East and Africa.

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

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

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Although the U.S.

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

withdrew the U.S.

from the OECD’s global tax agreement in January 2025, other countries where the Company does business, including the U.K.

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

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

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

The implementation of Pillar Two Rules in each jurisdiction in which the Company operates did not have a material impact on the Company’s effective tax rate for Fiscal 2024, and the Company does not project a material impact on the effective tax rate for Fiscal 2025.

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

Abercrombie & Fitch Co.

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GAAP Non-GAAP (1)

(in thousands, except change in net sales, gross profit rate, operating income margin and per share amounts) Fiscal 2023 Fiscal 2022 Fiscal 2023 Fiscal 2022

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

Fiscal 2024 Fiscal 2023 Fiscal 2024 Fiscal 2023

Net sales $ 4,948,587 $ 4,280,677

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Comparable sales (2)

Gross profit rate (3)

62.9 % 56.9 %

Operating income $ 740,820 $ 484,671 $ 489,107

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

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

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

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

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

Certain components of the Company’s Consolidated Balance Sheets as of February 1, 2025 and February 3, 2024 and Consolidated Statements of Cash Flows for Fiscal 2024 and Fiscal 2023 were as follows:

(in thousands)

Balance Sheets data February 3, 2024 January 28, 2023

Balance Sheets data February 1, 2025 February 3, 2024

Cash and equivalents $ 772,727 $ 900,884

Marketable securities

Gross borrowings outstanding, carrying amount — 223,214

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Statements of Cash Flows data Fiscal 2024 Fiscal 2023

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

Net cash provided by operating activities $ 710,376 $ 653,422

Net cash used for investing activities (297,703) (157,182)

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

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

Net sales by segment are presented by attributing revenues to a physical store location or geographical region that fulfills the order.

The Company’s net sales by reportable segment for Fiscal 2024 and Fiscal 2023 were as follows:

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

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

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

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

For Fiscal 2024, net sales increased 16%, as compared to Fiscal 2023.

The increase was primarily attributable to a high-single-digit increase in AUR from lower promotional activity and category mix into higher ticket items.

High-single-digit growth in unit volume also contributed to the increase in net sales, following increases in traffic and transactions in Company-owned and operated channels.

Additionally, there was a headwind of approximately $50 million due to the timing of sales volume based on the impact of the calendar shift in Fiscal 2024 as a result of the 53rd selling week in Fiscal 2023.

The year-over-year increase in net sales reflects positive comparable sales of 17%, as compared to Fiscal 2023.

• Net sales growth in the Americas region of 17% on both a reported and comparable sales basis.

The increase was attributable to a higher AUR from lower promotional activity and category mix into higher ticket items and direct channel unit volume growth from increased traffic and transactions in company owned and operated stores and digital channels.

• Net sales growth in the EMEA region of 12% and 16% on a reported and comparable sales basis, respectively.

The increase was attributable to a higher AUR from lower promotional activity and category mix into higher ticket items and unit volume growth from increased traffic and transactions in company owned and operated stores and digital channels.

Comparable sales growth percentage is higher than net sales growth percentage, as comparable sales exclude the net impact of store closures during the period and the effects of foreign currency, both of which had negative impacts on net sales growth.

• Net sales growth in the APAC region of 9% and 19% on a reported and comparable sales basis, respectively.

The Company’s net sales by brand for Fiscal 2024 and Fiscal 2023 were as follows:

(in thousands) Fiscal 2024 Fiscal 2023 $ Change % Change Comparable Sales (1)

Abercrombie (2)

$ 2,556,434 $ 2,201,686 $ 354,748 16 % 15 %

Hollister (3)

2,392,153 2,078,991 313,162 15 19

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

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

(3) Hollister brands includes Hollister and Gilly Hicks.

Cost of Sales, Exclusive of Depreciation and Amortization

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For Fiscal 2024, cost of sales, exclusive of depreciation and amortization, as a percentage of net sales decreased approximately 130 basis points as compared to Fiscal 2023.

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

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

Gross Profit, Exclusive of Depreciation and Amortization

Fiscal 2023 Fiscal 2022

% of Net Sales % of Net Sales BPS Change

Gross profit, exclusive of depreciation and amortization $ 2,693,412 62.9% $ 2,104,538 56.9% 600

The percentage decrease was primarily attributable to cost of sales leverage from a higher AUR on reduced promotions, as well as a benefit in product costs, as certain raw material prices have declined.

These benefits were partially offset by higher freight costs compared to Fiscal 2023.

Abercrombie & Fitch Co.

2024 Form 10-K

Stores and Distribution Expense

Selling Expense

Fiscal 2024 Fiscal 2023

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

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

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

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

Marketing, General and Administrative Expense

Selling expense

$ 1,689,988 34.2 % $ 1,533,438 35.8 % (160)

For Fiscal 2024, selling expense increased by $157 million compared to Fiscal 2023.

Selling expense as a percentage of net sales, decreased 160 basis points as compared to Fiscal 2023.

The decrease as a percent of net sales was primarily driven by expense leverage from higher net sales, including 190 basis points in stores expense, primarily relating to store occupancy and store employee compensation costs, and 10 basis points in distribution center and order fulfillment costs.

The decrease as a percent of net sales was partially offset by an increase of 40 basis points in marketing expense, primarily due to media campaigns and content, as compared to Fiscal 2023.

General and Administrative Expense

Fiscal 2024 Fiscal 2023

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

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

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

General and administrative expense

$ 750,485 15.2 % $ 681,176 15.9 % (70)

For Fiscal 2024, general and administrative expense increased by $69 million compared to Fiscal 2023.

General and administrative expense, as a percentage of net sales decreased 70 basis points as compared to Fiscal 2023.

The decrease in expense rate was primarily driven by expense leverage from higher net sales, including 100 basis points in employee compensation costs, partially offset by 40 basis points in information technology expense.

Other Operating Income, Net

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Other operating income, net $ 6,632 0.1% $ 5,873 0.1% —

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

For Fiscal 2024, other operating income, net, increased as compared to Fiscal 2023, primarily due to $0.7 million foreign currency gains recognized in Fiscal 2024.

Operating Income

Fiscal 2024 Fiscal 2023

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

(in thousands) % of Net Sales (1)

% of Net Sales (1)

Americas $ 1,210,493 24.5 % $ 940,292 22.0 % 250

EMEA 109,821 2.2 81,216 1.9 30

APAC (12,011) (0.2) (10,558) (0.2) —

Operating loss not attributed to segments (567,483) (11.5) (526,279) (12.3) 80

Operating income $ 740,820 15.0 $ 484,671 11.3 370

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Adjusted non-GAAP operating income $ 740,820 15.0 $ 489,107 11.4 360

(1) Segment operating income as a percentage of net sales is calculated by attributing the segment’s operating income with the respective net sales in the segment.

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

Interest Expense, Net

Abercrombie & Fitch Co.

2024 Form 10-K

For Fiscal 2024, operating income increased by $256 million or 370 basis points, as a percentage of net sales, as compared to Fiscal 2023.

• Operating income for the Americas increased $270 million or 250 basis points as a percentage of region net sales as compared to Fiscal 2023.

The increase as a percent of sales primarily relates to positive comparable sales of 17%, relating to higher unit volume, increased AUR on reduced promotions, and expense leverage relating to employee compensation costs and store occupancy expenses.

• Operating income for EMEA increased $29 million or 30 basis points as a percentage of region net sales as compared to Fiscal 2023.

The increase as a percent of sales primarily relates to positive comparable sales of 16%, relating to higher unit volume, increased AUR on reduced promotions, and expense leverage relating to employee compensation costs and store occupancy expenses.

• Operating (loss) for APAC increased $(1) million or 0 basis points as a percentage of region net sales as compared to Fiscal 2023.

The loss was impacted by marketing, occupancy, and general and administrative investments, which more than offset the expense leverage from comparable sales growth of 19%.

Interest (Income) Expense, Net

Fiscal 2024 Fiscal 2023

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Interest income (39,934) (0.8) (29,980) (0.7) (10)

Interest expense, net $ 372 —% $ 25,632 0.7% (70)

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

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

Abercrombie & Fitch Co.

2023 Form 10-K

Interest (income) expense, net $ (27,857) (0.6) $ 372 — (60)

For Fiscal 2024, interest (income) expense, net, increased 60 basis points as compared to Fiscal 2023.

The net increase was a result of lower interest expense in Fiscal 2024 compared to Fiscal 2023 as result of the repurchases of Senior Secured Notes in late Fiscal 2023 and Fiscal 2024 and redemption of the remaining outstanding balance on July 15, 2024.

Additionally, interest income increased due to the increase in balance and rates received on time deposits and money market accounts as compared to Fiscal 2023.

Income Tax Expense

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The increase in income tax expense compared to Fiscal 2023 can be attributed to higher domestic income resulting from higher sales volume and higher AURs.

The decrease in effective tax rate compared to Fiscal 2023 can be attributed to higher domestic income, a higher tax benefit recognized on vesting of share based compensation awards, and continued business improvement in the EMEA and APAC segments.

During Fiscal 2024, the Company did not recognize income tax benefits on $53.8 million of pre-tax losses, primarily in Switzerland, resulting in adverse tax impacts of $8.2 million.

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

The primary driver relates to expense deleverage within the APAC and EMEA regions.

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

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

The primary driver relates to expense deleverage within the APAC and EMEA regions, although to a lesser extent than in Fiscal 2022.

Refer to Note 11, “ INCOME TAXES ,” for further discussion on factors that impacted the effective tax rate in Fiscal 2024 and Fiscal 2023.

Abercrombie & Fitch Co.

2024 Form 10-K

Net Income Attributable to A&F

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

EBITDA and Adjusted EBITDA

Fiscal 2024 Fiscal 2023

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

Net income $ 574,016 11.6 % 335,413 7.8 %

Income tax expense 194,661 3.9 148,886 3.5

Interest (income) expense, net (27,857) (0.6) 372 —

Depreciation and amortization 153,773 3.2 141,104 3.3

$ 894,593 18.1 625,775 14.6

Adjustments to EBITDA

Asset impairment (1)

— — 4,436 0.1

Adjusted EBITDA (1)

$ 894,593 18.1 $ 630,211 14.7

(1) EBITDA and Adjusted EBITDA are supplemental financial measures that are not defined or prepared in accordance with GAAP.

EBITDA is defined as net income before interest, income taxes and depreciation and amortization.

Adjusted EBITDA is EBITDA adjusted for asset impairment.

Abercrombie & Fitch Co.

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LIQUIDITY AND CAPITAL RESOURCES

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

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

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

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

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

The Company monitors financing market conditions and may in the future determine whether and when to repurchase shares of its Common Stock.

For a discussion of the Company’s share repurchase activity, please see below under “Share Repurchases.”

Primary Sources and Uses of Cash

The Company’s business has two principal selling seasons:

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

Spring and Fall.

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

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

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

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

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

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

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

Such opportunities may include, but are not limited to, purchasing outstanding Senior Secured Notes or share repurchases.

The Company evaluates opportunities for investments in the business that are in line with initiatives that position the business for sustainable long-term growth that align with its strategic pillars as described within “ ITEM 1.

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

In addition, management continuously evaluates potential opportunities to strategically deploy excess cash and/or deleverage the balance sheet, in consideration on various factors, such as market and business conditions, and the Company’s ability to accelerate investments in the business.

Such opportunities may include, but are not limited to, share repurchases.

When evaluating opportunities for investments in the business, management considers alignment with initiatives that position the business for sustainable long-term growth that align with its strategic pillars as described within “ ITEM 1.

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

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

For Fiscal 2024, the Company used $182.9 million towards capital expenditures, up from $157.8 million of capital expenditures in Fiscal 2023.

Total capital expenditures for Fiscal 2025 are expected to be approximately $200 million.

Share Repurchases and Dividends

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

During Fiscal 2023, the Company did not repurchase any shares of its common stock pursuant to this share repurchase authorization.

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

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

Shares may be repurchased in the open market, including pursuant to trading plans established in accordance with Rule 10b5-1 of the Exchange Act through privately negotiated transactions or other transactions or by a combination of such methods.

Share Repurchases

In November 2021, A&F’s Board of Directors approved a $500 million share repurchase authorization (the “2021 Authorization”).

During Fiscal 2024, the Company repurchased $230 million, or 1.6 million shares, of its Common Stock pursuant to the 2021 Authorization.

On March 5, 2025, the Company announced that A&F’s Board of Directors approved a new $1.3 billion share repurchase authorization program (the “2025 Authorization”).

The 2025 Authorization has no expiration date.

In addition, the 2025 Authorization replaced the 2021 Authorization, and shares may no longer be repurchased pursuant to the 2021 Authorization.

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

Shares may be repurchased in the open market or in private transactions in such manner as be deemed advisable from time to time (including, without limitation, pursuant to accelerated share repurchase programs, one or more trading plans established in accordance with Rule 10b5-1 of the Exchange Act, or any other method deemed advisable) and may be discontinued at any time.

Refer to “ ITEM 5.

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

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

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

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

A&F’s Board of Directors reviews and establishes a dividend amount, if at all, based on A&F’s financial condition, results of operations, capital requirements, current and projected cash flows, business prospects and other factors, including any restrictions under the Company’s agreements related to the Senior Secured Notes and the ABL Facility.

There can be no assurance that the Company will declare and pay dividends in the future or, if dividends are paid, that they will be in amounts similar to past dividends.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES ” of this Annual Report on Form 10-K for additional information regarding the Company’s publicly announced share repurchase authorization programs.

Abercrombie & Fitch Co.

2024 Form 10-K

Credit Facility and Senior Secured Notes

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

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

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

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

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

Senior Secured Notes

On July 15, 2024 (the “Redemption Date”), Abercrombie & Fitch Management Co (“A&F Management”) redeemed all of its outstanding 8.75% Senior Secured Notes due in 2025 (the “Senior Secured Notes”), which had an aggregate principal amount of $214 million, pursuant to the terms of the indenture governing the Senior Secured Notes, at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest to, but excluding, the Redemption Date.

As of the Redemption Date, the Senior Secured Notes were no longer deemed outstanding and interest on the Senior Secured Notes ceased to accrue.

Credit Facility

On August 2, 2024, A&F, as parent and a guarantor, A&F Management, as lead borrower, and certain of A&F’s direct and indirect wholly-owned subsidiaries, as additional borrowers and guarantors, entered into the Second Amendment to the Amended and Restated Credit Agreement (the “Second Amendment”), together with the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent for the lenders.

The Second Amendment amended the Amended and Restated Credit Agreement, dated as of April 29, 2021 (the “ABL Credit Agreement”), to, among other things (as described in greater detail below), provide for a $500 million senior secured asset-based revolving credit facility (the “ABL Facility”).

The Company incurred customary fees and expenses in connection with the entry into the Second Amendment.

The Second Amendment amended the ABL Credit Agreement to, among other things:

• increase the aggregate commitments thereunder from $400 million to $500 million;

• establish a $100 million sub-facility for the benefit of Abfico Netherlands Distribution B.V.

(“Abfico”) and AFH Stores UK Limited (“AFH UK”) that is (i) secured by a first priority security interest in all assets (subject to specified exclusions) of each of Abfico and AFH UK, (ii) guaranteed by A&F and certain of its domestic direct and indirect wholly-owned subsidiaries, and (iii) subject to a borrowing base as described therein;

• extend the maturity date from April 29, 2026 to August 2, 2029;

• increase the letter of credit sub-limit from $50 million to $62.5 million;

• decrease the swing line availability from $50 million to $30 million;

• decrease the unused line fee from a variable rate of 25 basis points to 37.5 basis points to a flat rate of 25 basis points;

• increase pricing of the interest rate margin applicable to borrowings as follows:

• from 1.25% to 1.50% when average availability is greater than or equal to 50% of the Loan Cap (as defined in the Second Amendment);

• from 1.50% to 1.75% when average availability is less than 50% of the Loan Cap.

The Company did not have any borrowings outstanding under the ABL Facility as of February 1, 2025 or as of February 3, 2024.

Details regarding the remaining borrowing capacity under the ABL Facility as of February 1, 2025 follow:

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Borrowing capacity available $ 449,577

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

(1) Under the ABL Facility, the Company must maintain excess availability equal to the greater of 10% of the Loan Cap or $36 million.

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

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Refer to Note 11, “ INCOME TAXES ,” for additional details regarding the impact certain events related to the Company’s income taxes had on the Company’s Consolidated Financial Statements.

Abercrombie & Fitch Co.

2024 Form 10-K

Analysis of Cash Flows

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

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

Net cash provided by operating activities 710,376 653,422

Net cash used for investing activities (297,703) (157,182)

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Effects of foreign currency exchange rate changes on cash (7,086) (2,923)

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

Net (decrease) increase in cash and equivalents, and restricted cash and equivalents $ (129,290) $ 382,116

Cash and equivalents, and restricted cash and equivalents, end of period $ 780,395 $ 909,685

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

Abercrombie & Fitch Co.

2023 Form 10-K

Investing activities - For Fiscal 2023, net cash used for investing activities was primarily attributable to capital expenditures of $157.8 million as compared to net cash used for investing activities of $164.6 million in Fiscal 2022, primarily attributable to capital expenditures, partially offset by the proceeds from the withdrawal of $12.0 million of excess funds from Rabbi Trust assets and the sale of property and equipment of $11.9 million.

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

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

Operating activities - For Fiscal 2024, net cash provided by operating activities included increased cash receipts as a result of the 16% year-over-year increase in net sales as compared to net cash provided by operating activities in Fiscal 2023.

Investing activities - For Fiscal 2024, net cash used for investing activities was primarily attributable to capital expenditures of $182.9 million, as well as the purchase of $140 million in marketable securities and maturity of $25 million in marketable securities as compared to net cash used for investing activities of $157.8 million in Fiscal 2023, primarily attributable to capital expenditures.

Financing activities - For Fiscal 2024, net cash used for financing activities primarily consisted of the repurchase of approximately 1.6 million shares of Common Stock in the open market with a market value of approximately $229.8 million, the repurchase of $9.3 million in the open market and the complete redemption of $214 million of outstanding Senior Secured Notes, and $70.2 million related to shares of Common Stock withheld (repurchased) to cover tax withholdings upon vesting of share-based compensation awards.

For Fiscal 2023, net cash used for financing activities primarily consisted of the purchase of $76.5 million of outstanding Senior Secured Notes for $78.0 million, as well as $29.5 million related to shares of Common Stock withheld (repurchased) to cover tax withholdings upon vesting of share-based compensation awards.

Contractual Obligations

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356,880 274,825 73,433 7,461 1,161

Long-term debt obligations (3)

223,214 — 223,214 — —

Other obligations (3)

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

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

Refer to Note 12, “ BORROWINGS ,” for further discussion.

(4) Other obligations consists of:

interest payments related to the Senior Secured Notes assuming normally scheduled principal payments;

(3) Other obligations consist of:

estimated asset retirement obligations;

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

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

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

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

Refer to Note 8, “ LEASES ,” and Note 16, “ SAVINGS AND RETIREMENT PLANS ,” for further discussion.

Due to uncertainty as to the amounts and timing of future payments, tax related to uncertain tax positions, including accrued interest and penalties, of $4.9 million as of February 1, 2025, is excluded from the contractual obligations table.

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Amounts payable with known payment dates of $15.7 million have been classified in the contractual obligations table based on those scheduled payment dates.

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

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

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

RECENT ACCOUNTING PRONOUNCEMENTS

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

However, it is not reasonably practicable to estimate the timing and amounts for the remainder of these obligations;

therefore, those amounts have been excluded in the contractual obligations table.

Abercrombie & Fitch Co.

2024 Form 10-K

RECENT ACCOUNTING PRONOUNCEMENTS

CRITICAL ACCOUNTING ESTIMATES

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

An increase or decrease in the LCNRV adjustment of 10% would have affected pre-tax loss by approximately $3.1 million for Fiscal 2023.

An increase or decrease in the LCNRV adjustment of 10% would have affected pre-tax income by approximately $2.9 million for Fiscal 2024.

The provision for income taxes is determined using the asset and liability approach.

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However, changes in these judgments, assumptions or interpretations may occur, and should those changes be significant, they could have a material impact on the Company’s income tax provision.

As of the end of Fiscal 2023 , the Company had recorded valuation allowances of $147.0 million

As of the end of Fiscal 2024 , the Company had recorded valuation allowances of $151.8 million, of which $147.9 million relates to Switzerland.

Long-lived Assets

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Fair value of the Company’s store-related assets is determined at the individual store level based on the highest and best use of the asset group.

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

The key assumptions used in the Company’s fair value analysis is comparable market rents.

Store assets that were tested for impairment as of February 1, 2025 and not impaired, had long-lived assets with a net book value of $8.8 million, which included $8.1 million of operating lease right-of-use assets as of February 1, 2025.

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Comparable sales

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

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

Comparable sales exclude revenue other than store and digital sales.

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

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

Excluded Items

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Management also uses financial information on a constant currency basis to award employee performance-based compensation.

The effect from foreign currency exchange rates, calculated on a constant currency basis, is determined by applying the current period’s foreign currency exchange rates to the prior year’s results and is net of the year-over-year impact from hedging.

The effect from foreign currency exchange rates, calculated on a constant currency basis, is determined by applying the current period’s foreign currency exchange rates to the prior fiscal year’s results and is net of the year-over-year impact from hedging.

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

A reconciliation of financial metrics on a constant currency basis to GAAP for Fiscal 2024 and Fiscal 2023 is as follows:

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

(in thousands, except change in net sales, operating margin and per share data)

Net sales Fiscal 2024 Fiscal 2023 % Change

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Net sales on a constant currency basis $ 4,948,587 $ 4,276,908 16%

Gross profit Fiscal 2023 Fiscal 2022 BPS Change (1)

GAAP $ 2,693,412 $ 2,104,538 600

Impact from changes in foreign currency exchange rates — (8,969) 30

Gross profit on a constant currency basis $ 2,693,412 $ 2,095,569 630

Operating income Fiscal 2024 Fiscal 2023 BPS Change (1)

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Excluded items (2)

(4,436) (14,031) (30)

Adjusted non-GAAP $ 740,820 $ 489,107 360

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Excluded items, net of tax (2)

(0.06) (0.20) (0.14)

Adjusted non-GAAP $ 10.69 $ 6.28 $4.41

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

EBITDA and Adjusted EBITDA

The Company provides EBITDA and Adjusted EBITDA as supplemental measures used by the Company's executive management to assess the Company's performance.

We also believe that these supplemental performance measures are meaningful information for investors and other interested parties to use in computing the Company's core financial performance over multiple periods and with other companies by excluding the impact of differences in tax jurisdictions, debt service levels and capital investment.

Reconciliations of non-GAAP EBITDA and Adjusted EBITDA to financial measures calculated and presented in accordance with GAAP for Fiscal 2024 and Fiscal 2023 were as follows:

Fiscal 2024 Fiscal 2023

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

Net income $ 574,016 11.6 % $ 335,413 7.8 %

Income tax expense 194,661 3.9 148,886 3.5

Interest (income) expense, net (27,857) (0.6) 372 —

Depreciation and amortization 153,773 3.2 141,104 3.3

$ 894,593 18.1 $ 625,775 14.6

Adjustments to EBITDA

Asset impairment (1)

— — 4,436 0.1

Adjusted EBITDA (1)

$ 894,593 18.1 $ 630,211 14.7

(1) EBITDA and Adjusted EBITDA are supplemental financial measures that are not defined or prepared in accordance with GAAP.

EBITDA is defined as net income before interest, income taxes and depreciation and amortization.

Adjusted EBITDA is EBITDA adjusted for asset impairment.

Abercrombie & Fitch Co.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis