ABERCROMBIE & FITCH CO /DE/
10-Qs and 10-Ks
PROXIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended
November 2, 2024
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the transition period from to
Commission File Number
001-12107
(Exact name of Registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
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Registrant’s telephone number, including area code:
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| (Former name, former address and former fiscal year, if changed since last report) | ||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
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Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x
Yes
¨
No
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
x
Yes
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No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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x | Accelerated filer |
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Smaller reporting company |
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If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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Yes
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No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class A Common Stock |
Shares outstanding as of December 4, 2024
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| $0.01 Par Value |
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Table of Contents
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
| Abercrombie & Fitch Co. |
2
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2024 3Q Form 10-Q
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Abercrombie & Fitch Co.
Condensed Consolidated Statements of Operations and Comprehensive Income
(Thousands, except per share amounts)
(Unaudited)
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| November 2, 2024 | October 28, 2023 | November 2, 2024 | October 28, 2023 | ||||||||||||||||||||
| Net sales | $ |
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$ |
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$ |
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$ |
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| Cost of sales, exclusive of depreciation and amortization |
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| Gross profit |
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| Stores and distribution expense |
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| Marketing, general and administrative expense |
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| Other operating (income) loss, net |
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(
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| Operating income |
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| Interest expense |
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| Interest income |
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(
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(
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| Interest (income) expense, net |
(
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(
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| Income before income taxes |
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| Income tax expense |
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| Net income |
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| Less: Net income attributable to noncontrolling interests |
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| Net income attributable to A&F | $ |
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$ |
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$ |
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$ |
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| Net income per share attributable to A&F | |||||||||||||||||||||||
| Basic | $ |
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$ |
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$ |
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$ |
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| Diluted | $ |
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$ |
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$ |
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$ |
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| Weighted-average shares outstanding | |||||||||||||||||||||||
| Basic |
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| Diluted |
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| Other comprehensive income | |||||||||||||||||||||||
| Foreign currency translation adjustments, net of tax | $ |
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$ |
(
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$ |
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$ |
(
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| Derivative financial instruments, net of tax |
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| Other comprehensive income |
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| Comprehensive income |
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| Less: Comprehensive income attributable to noncontrolling interests |
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| Comprehensive income attributable to A&F | $ |
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$ |
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$ |
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$ |
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The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
| Abercrombie & Fitch Co. |
3
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2024 3Q Form 10-Q
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Abercrombie & Fitch Co.
Condensed Consolidated Balance Sheets
(Thousands, except par value amounts)
(Unaudited)
| November 2, 2024 | February 3, 2024 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and equivalents | $ |
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$ |
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Marketable securities
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| Receivables |
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| Inventories |
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| Other current assets |
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| Total current assets |
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| Property and equipment, net |
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| Operating lease right-of-use assets |
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| Other assets |
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| Total assets | $ |
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$ |
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| Liabilities and stockholders’ equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ |
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$ |
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| Accrued expenses |
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| Short-term portion of operating lease liabilities |
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| Income taxes payable |
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| Total current liabilities |
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| Long-term liabilities: | |||||||||||
| Long-term portion of operating lease liabilities |
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| Long-term borrowings, net |
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| Other liabilities |
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| Total long-term liabilities |
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| Stockholders’ equity | |||||||||||
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Class A Common Stock: $
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| Paid-in capital |
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| Retained earnings |
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| Accumulated other comprehensive loss, net of tax (“AOCL”) |
(
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(
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Treasury stock, at average cost:
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(
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(
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| Total Abercrombie & Fitch Co. stockholders’ equity |
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| Noncontrolling interests |
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| Total stockholders’ equity |
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| Total liabilities and stockholders’ equity | $ |
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$ |
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The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
| Abercrombie & Fitch Co. |
4
|
2024 3Q Form 10-Q
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Abercrombie & Fitch Co.
Condensed Consolidated Statements of Stockholders’ Equity
(Thousands, except per share amounts)
(Unaudited)
| Thirteen Weeks Ended November 2, 2024 | |||||||||||||||||||||||||||||
| Common Stock |
Paid-in
capital |
Non-controlling interests |
Retained
earnings |
AOCL | Treasury stock |
Total
stockholders’ equity |
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Shares
outstanding |
Par
value |
Shares |
At average
cost |
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| Balance, August 3, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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| Net income | — | — | — |
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— | — | — |
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Purchase of Common Stock
(1)
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(
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— | — | — | — | — |
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(
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(
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| Share-based compensation issuances and exercises |
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— |
(
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— |
(
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— |
(
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(
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(
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| Share-based compensation expense | — | — |
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— | — | — | — | — |
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| Derivative financial instruments, net of tax | — | — | — | — | — |
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— | — |
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| Foreign currency translation adjustments, net of tax | — | — | — | — | — |
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— | — |
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Distribution to noncontrolling interests, net
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— | — | — |
(
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— | — | — | — |
(
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| Ending balance at November 2, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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| Thirteen Weeks Ended October 28, 2023 | |||||||||||||||||||||||||||||
| Common Stock |
Paid-in
capital |
Non-controlling interests |
Retained
earnings |
AOCL | Treasury stock |
Total
stockholders’ equity |
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Shares
outstanding |
Par
value |
Shares |
At average
cost |
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| Balance, July 29, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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| Net income | — | — | — |
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— | — | — |
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| Share-based compensation issuances and exercises |
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— |
(
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— |
(
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— |
(
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(
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| Share-based compensation expense | — | — |
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— | — | — | — | — |
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| Derivative financial instruments, net of tax | — | — | — | — | — |
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— | — |
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| Foreign currency translation adjustments, net of tax | — | — | — | — | — |
(
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— | — |
(
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Distribution to noncontrolling interests, net
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— | — | — |
(
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— | — | — | — |
(
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| Ending balance at October 28, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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(1)
Includes excise tax on share repurchases
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| Abercrombie & Fitch Co. |
5
|
2024 3Q Form 10-Q
|
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Abercrombie & Fitch Co.
Condensed Consolidated Statements of Stockholders’ Equity
(Thousands, except per share amounts)
(Unaudited)
| Thirty-Nine Weeks Ended November 2, 2024 | |||||||||||||||||||||||||||||
| Common Stock |
Paid-in
capital |
Non-controlling interests |
Retained
earnings |
AOCL | Treasury stock |
Total
stockholders’ equity |
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|
Shares
outstanding |
Par
value |
Shares |
At average
cost |
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| Balance, February 3, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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| Net income | — | — | — |
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— | — | — |
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Purchase of Common Stock
(1)
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(
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— | — | — | — | — |
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(
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(
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| Share-based compensation issuances and exercises |
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— |
(
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— |
(
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— |
(
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(
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(
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| Share-based compensation expense | — | — |
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— | — | — | — | — |
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| Derivative financial instruments, net of tax | — | — | — | — | — |
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— | — |
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| Foreign currency translation adjustments, net of tax | — | — | — | — | — |
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— | — |
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Distribution to noncontrolling interests, net
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— | — | — |
(
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— | — | — | — |
(
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| Ending balance at November 2, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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| Thirty-Nine Weeks Ended October 28, 2023 | |||||||||||||||||||||||||||||
| Common Stock |
Paid-in
capital |
Non-controlling interests |
Retained
earnings |
AOCL | Treasury stock |
Total
stockholders’ equity |
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|
Shares
outstanding |
Par
value |
Shares |
At average
cost |
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| Balance, January 28, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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| Net income | — | — | — |
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— | — | — |
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| Share-based compensation issuances and exercises |
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— |
(
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— |
(
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— |
(
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(
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| Share-based compensation expense | — | — |
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— | — | — | — | — |
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| Derivative financial instruments, net of tax | — | — | — | — | — |
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— | — |
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| Foreign currency translation adjustments, net of tax | — | — | — | — | — |
(
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— | — |
(
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Distribution to noncontrolling interests, net
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— | — | — |
(
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— | — | — | — |
(
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| Ending balance at October 28, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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(1)
Includes excise tax on share repurchases
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The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
| Abercrombie & Fitch Co. |
6
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2024 3Q Form 10-Q
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Abercrombie & Fitch Co.
Condensed Consolidated Statements of Cash Flows
(Thousands)
(Unaudited)
| Thirty-Nine Weeks Ended | |||||||||||
| November 2, 2024 | October 28, 2023 | ||||||||||
| Operating activities | |||||||||||
| Net income | $ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities:
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| Depreciation and amortization |
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| Asset impairment |
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| Loss on disposal |
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| Benefit from deferred income taxes |
(
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(
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| Share-based compensation |
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| Loss on extinguishment of debt |
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| Changes in assets and liabilities: | |||||||||||
| Inventories |
(
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(
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| Accounts payable and accrued expenses |
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| Operating lease right-of-use assets and liabilities |
(
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(
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| Income taxes |
(
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| Other assets |
(
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| Other liabilities |
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(
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| Net cash provided by operating activities |
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| Investing activities | |||||||||||
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Purchases of marketable securities
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(
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| Purchases of property and equipment |
(
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(
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| Proceeds from the sale of property and equipment |
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| Net cash used for investing activities |
(
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(
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| Financing activities | |||||||||||
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Repayment/redemption of senior secured notes
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(
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(
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| Payment of debt modification costs and fees |
(
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(
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| Purchases of Common Stock |
(
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Acquisition of Common Stock for tax withholding obligations
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(
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(
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| Other financing activities |
(
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(
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| Net cash used for financing activities |
(
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(
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| Effect of foreign currency exchange rates on cash |
(
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(
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| Net (decrease) increase in cash and equivalents, and restricted cash and equivalents |
(
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| Cash and equivalents, and restricted cash and equivalents, beginning of period |
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| Cash and equivalents, and restricted cash and equivalents, end of period | $ |
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$ |
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| Supplemental information related to non-cash activities | |||||||||||
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Purchases of property and equipment accrued in accounts payable
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$ |
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$ |
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Excise tax liability accrued on share repurchases
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| Operating lease right-of-use assets additions, net of terminations, impairments and other reductions |
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| Supplemental information related to cash activities | |||||||||||
| Cash paid for interest |
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| Cash paid for income taxes |
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| Cash received from income tax refunds |
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| Cash paid for amounts included in measurement of operating lease liabilities, net of abatements |
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The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
| Abercrombie & Fitch Co. |
7
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2024 3Q Form 10-Q
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Abercrombie & Fitch Co.
Index for Notes to Condensed Consolidated Financial Statements (Unaudited)
| Page No. | ||||||||
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Note 1.
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Note 2.
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Note 3.
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Note 4.
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Note 5.
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Note 6.
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Note 7.
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Note 8.
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Note 9.
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Note 10.
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Note 11.
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Note 12.
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Note 13.
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Note 14.
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| Abercrombie & Fitch Co. |
8
|
2024 3Q Form 10-Q
|
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Abercrombie & Fitch Co.
Notes to Condensed Consolidated Financial Statements (Unaudited)
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.
The Company 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.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The accompanying Condensed 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 Emirati and Kuwaiti business ventures with Majid al Futtaim Lifestyle L.L.C. (“MAF”) and in a United States of America (the “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 the intellectual property related to the Social Tourist brand. 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 Condensed Consolidated Statements of Operations and Comprehensive Income
and the NCI portion of stockholders’ equity presented as NCI on the Condensed 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. Fiscal years are designated in the Condensed Consolidated Financial Statements and notes, as well as the remainder of this Quarterly Report on Form 10-Q, 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 2023 | February 3, 2024 | 53 | ||||||||||||
| Fiscal 2024 | February 1, 2025 | 52 | ||||||||||||
| Fiscal 2025 | January 31, 2026 | 52 | ||||||||||||
Interim financial statements
The Condensed Consolidated Financial Statements as of November 2, 2024, and for the thirteen and thirty-nine week periods ended November 2, 2024 and October 28, 2023, are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim consolidated financial statements. Accordingly, the Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto contained in A&F’s Annual Report on Form 10-K for Fiscal 2023 filed with the SEC on April 1, 2024 (the “Fiscal 2023 Form 10-K”). The February 3, 2024 consolidated balance sheet data, included herein, were derived from audited consolidated financial statements, but do not include all disclosures required by accounting principles generally accepted in the U.S. (“GAAP”).
In the opinion of management, the accompanying Condensed Consolidated Financial Statements reflect all adjustments (which are of a normal recurring nature) necessary to state fairly, in all material respects, the financial position, results of operations and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for Fiscal 2024.
| Abercrombie & Fitch Co. |
9
|
2024 3Q Form 10-Q
|
||||||
Use of estimates
The preparation of financial statements, in conformity with 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, and geopolitical concerns, all of which could result in material impacts to the Company’s consolidated financial statements in future reporting periods.
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. The following table provides a brief description of certain accounting pronouncements the Company has not yet adopted and that could affect the Company’s financial statements.
| Accounting Standards Update (ASU) | Description | Effect on the financial statements or other significant matters | ||||||||||||
|
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 update requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The update 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.
|
||||||||||||
|
ASU 2024-03 - Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses
|
The update requires a disaggregated disclosure of income statement expenses. The amendments in this update require disclosure, in the notes to financial statements, of specified information about certain costs and expenses. The update is effective for fiscal years beginning after December 15, 2026 and interim period periods for fiscal years beginning after December 15, 2027. 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.
|
||||||||||||
Condensed 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 Condensed Consolidated Statements of Cash Flows:
| (in thousands) | Location | November 2, 2024 | February 3, 2024 | October 28, 2023 | January 28, 2023 | ||||||||||||||||||||||||
| Cash and equivalents | Cash and equivalents | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||
|
Restricted cash and equivalents
|
Other assets |
|
|
|
|
||||||||||||||||||||||||
| Cash and equivalents and restricted cash and equivalents | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||
| Abercrombie & Fitch Co. |
10
|
2024 3Q Form 10-Q
|
||||||
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 November 2, 2024 and February 3, 2024, $
109.3
million and $
72.4
million of SCF program liabilities were recorded in
in the Condensed Consolidated Balance Sheets, respectively, and reflected as a cash flow from operating activities in the Condensed Consolidated Statements of Cash Flows when settled.
The following table provides activity in the SCF program for the thirty-nine weeks ended November 2, 2024:
| Thirty-Nine Weeks Ended | ||||||||
| (in thousands) | November 2, 2024 | |||||||
| Confirmed obligations outstanding at the beginning of the period | $ |
|
||||||
| Invoices confirmed during the period |
|
|||||||
| Confirmed invoices paid during the period |
(
|
|||||||
| Confirmed obligations outstanding at the end of the period | $ |
|
||||||
3.
REVENUE RECOGNITION
Disaggregation of revenue
All revenues are recognized in net sales in the Condensed Consolidated Statements of Operations and Comprehensive Income. For information regarding the disaggregation of revenue, refer to Note 14, “
SEGMENT REPORTING
.
”
Contract liabilities
The following table details certain contract liabilities representing unearned revenue as of November 2, 2024, February 3, 2024, October 28, 2023 and January 28, 2023:
| (in thousands) | November 2, 2024 | February 3, 2024 | October 28, 2023 | January 28, 2023 | |||||||||||||||||||
|
Gift card liability
(1)
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Loyalty programs liability |
|
|
|
|
|||||||||||||||||||
(1)
Includes $
17.7
million and $
15.5
million of revenue recognized during the thirty-nine weeks ended November 2, 2024 and October 28, 2023, respectively, that was included in the gift card liability at the beginning of February 3, 2024 and January 28, 2023, respectively.
The following table details recognized revenue associated with the Company’s gift card program and loyalty programs for the thirteen and thirty-nine weeks ended November 2, 2024 and October 28, 2023:
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| (in thousands) | November 2, 2024 | October 28, 2023 | November 2, 2024 | October 28, 2023 | |||||||||||||||||||
| Revenue associated with gift card redemptions and gift card breakage | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Revenue associated with reward redemptions and breakage related to the Company’s loyalty programs |
|
|
|
|
|||||||||||||||||||
| Abercrombie & Fitch Co. |
11
|
2024 3Q Form 10-Q
|
||||||
4.
NET INCOME PER SHARE
Net income per basic and diluted share attributable to A&F is computed based on the weighted-average number of outstanding shares of A&F’s Class A Common Stock, $0.01 par value (“Common Stock”). The following table provides
additional information pertaining to net income per share attributable to A&F for the thirteen and thirty-nine weeks ended November 2, 2024 and October 28, 2023:
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| (in thousands) | November 2, 2024 | October 28, 2023 | November 2, 2024 | October 28, 2023 | |||||||||||||||||||
| Shares of Common Stock issued |
|
|
|
|
|||||||||||||||||||
| Weighted-average treasury shares |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Weighted-average — basic shares |
|
|
|
|
|||||||||||||||||||
| Dilutive effect of share-based compensation awards |
|
|
|
|
|||||||||||||||||||
| Weighted-average — diluted shares |
|
|
|
|
|||||||||||||||||||
|
Anti-dilutive shares
(1)
|
|
|
|
|
|||||||||||||||||||
(1)
Reflects the total number of shares related to outstanding share-based compensation awards that have been excluded from the computation of net income per diluted share because the impact would have been anti-dilutive. Unvested shares related to restricted stock units with performance-based and market-based vesting conditions can achieved from zero up to 200% of their target vesting amount and are reflected at the maximum vesting amount less any dilutive portion.
5.
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.
The following table provides the three levels of the hierarchy and the distribution of the Company’s assets measured at fair value on a recurring basis, as of November 2, 2024 and February 3, 2024:
|
Assets and Liabilities at Fair Value as of November 2, 2024
|
|||||||||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
| Assets: | |||||||||||||||||||||||
|
Cash equivalents
(1)
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Marketable securities
(2)
|
|
|
|
|
|||||||||||||||||||
|
Derivative instruments
(3)
|
|
|
|
|
|||||||||||||||||||
|
Rabbi Trust assets
(4)
|
|
|
|
|
|||||||||||||||||||
|
Restricted cash equivalents
(1)
|
|
|
|
|
|||||||||||||||||||
| Total assets | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Liabilities: | |||||||||||||||||||||||
|
Derivative instruments
(3)
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Total liabilities | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Assets and Liabilities at Fair Value as of February 3, 2024
|
|||||||||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
| Assets: | |||||||||||||||||||||||
|
Cash equivalents
(1)
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Derivative instruments
(3)
|
|
|
|
|
|||||||||||||||||||
|
Rabbi Trust assets
(4)
|
|
|
|
|
|||||||||||||||||||
|
Restricted cash equivalents
(1)
|
|
|
|
|
|||||||||||||||||||
| Total assets | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Liabilities: | |||||||||||||||||||||||
|
Derivative instruments
(3)
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Total liabilities | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Abercrombie & Fitch Co. |
12
|
2024 3Q Form 10-Q
|
||||||
(
2)
Level 2 assets consisted of time deposits with original maturities greater than three months, but less than one year.
(3)
Level 2 assets and liabilities consisted primarily of foreign currency exchange forward contracts.
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 with original maturities of three months or less, which were recorded at cost, approximating fair value, due to the short-term nature of these investments;
•
Time deposits with original maturities greater than three months, which were recorded at fair value, which approximates their carrying value, and are primarily based upon quoted vendor or broker priced securities in active markets; 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 were carried at historical cost in the accompanying Condensed Consolidated Balance Sheet as of February 3, 2024. On July 15, 2024 (the “Redemption Date”), Abercrombie & Fitch Management Co. (“A&F Management”) redeemed all of its outstanding senior secured notes at par value, which had a fixed
8.75
% interest rate and were scheduled to mature on
July 15, 2025
(the “Senior Secured Notes”). As of the Redemption Date, the Senior Secured Notes were no longer deemed outstanding.
6.
PROPERTY AND EQUIPMENT, NET
The following table provides
property and equipment, net as of November 2, 2024 and February 3, 2024:
| (in thousands) | November 2, 2024 | February 3, 2024 | |||||||||
| Property and equipment, at cost | $ |
|
$ |
|
|||||||
| Less: Accumulated depreciation and amortization |
(
|
(
|
|||||||||
| Property and equipment, net | $ |
|
$ |
|
|||||||
7.
LEASES
The Company is a party to leases related to its Company-operated retail stores as well as for certain of its distribution centers, office space, information technology and equipment.
The following table provides a summary of the Company’s operating lease costs for the thirteen and thirty-nine weeks ended November 2, 2024 and October 28, 2023:
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| (in thousands) | November 2, 2024 | October 28, 2023 | November 2, 2024 | October 28, 2023 | |||||||||||||||||||
|
Single lease cost
(1)
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Variable lease cost
(2)
|
|
|
|
|
|||||||||||||||||||
|
Operating lease right-of-use asset impairment
(3)
|
|
|
|
|
|||||||||||||||||||
|
Sublease income
|
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Total operating lease cost | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(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 Company had minimum commitments related to operating lease contracts that have not yet commenced, primarily for certain Company-operated retail stores, of approximately $
66.5
million as of November 2, 2024.
| Abercrombie & Fitch Co. |
13
|
2024 3Q Form 10-Q
|
||||||
8.
ASSET IMPAIRMENT
The following table provides
asset impairment charges for the thirteen and thirty-nine weeks ended November 2, 2024 and October 28, 2023:
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| (in thousands) | November 2, 2024 | October 28, 2023 | November 2, 2024 | October 28, 2023 | |||||||||||||||||||
| Operating lease right-of-use asset impairment | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Property and equipment asset impairment |
|
|
|
|
|||||||||||||||||||
| Total asset impairment | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
9.
INCOME TAXES
The quarterly provision for income taxes is based on the current estimate of the annual effective income tax rate and the tax effect of discrete items occurring during the quarter. The Company’s quarterly provision and the estimate of the annual effective tax rate are subject to significant variation due to several factors. These factors include variability in the pre-tax jurisdictional mix of earnings, changes in how the Company does business including entering into new businesses or geographies, changes in foreign currency exchange rates, changes in laws, regulations, interpretations and administrative practices, relative changes in expenses or losses for which tax benefits are not recognized and the impact of discrete items. In addition, jurisdictions where the Company anticipates an ordinary loss for the fiscal year for which the Company does not anticipate future tax benefits are excluded from the overall computation of estimated annual effective tax rate and no tax benefits are recognized in the period related to losses in such jurisdictions. The impact of these items on the effective tax rate will be greater at lower levels of pre-tax earnings.
Impact of valuation allowances
During the thirteen and thirty-nine weeks ended November 2, 2024, the Company did not recognize income tax benefits on $
7.7
million and $
22.3
million respectively, of pretax losses, primarily in Switzerland, resulting in adverse tax impacts of $
1.2
million and $
3.4
million, respectively.
As of November 2, 2024, the Company had foreign net deferred tax assets of approximately $
39.5
million, including $
10.0
million, $
6.1
million, and $
13.1
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.
During the thirteen and thirty-nine weeks ended October 28, 2023, the Company did not recognize income tax benefits on $
20.0
million and $
63.0
million of pretax losses, primarily in Switzerland, resulting in adverse tax impacts of $
3.0
million and $
9.6
million, respectively.
As of February 3, 2024, there were approximately $
7.6
million, $
7.5
million, and $
12.6
million of net deferred tax assets in China, Japan, and the United Kingdom, respectively.
Share-based compensation
Refer to Note 11, “
SHARE-BASED COMPENSATION
,” for details on income tax benefits and charges related to share-based compensation awards during the thirteen and thirty-nine weeks ended November 2, 2024 and October 28, 2023.
| Abercrombie & Fitch Co. |
14
|
2024 3Q Form 10-Q
|
||||||
10.
BORROWINGS
Senior Secured Notes
On July 15, 2024 (the “Redemption Date”), A&F redeemed all of its outstanding
8.75
% Senior Secured Notes due
July 15, 2025
, which had an aggregate principal amount of $
214
million, at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest to, but excluding, the Redemption Date, and incurred a $
0.9
million loss on extinguishment of debt, recognized in interest expense on the Condensed Consolidated Statements of Operations and Comprehensive Income. For the year-to-date period through the Redemption date, A&F Management repurchased $
9.3
million in the open market and redeemed $
214
million of its Senior Secured Notes and incurred a loss on extinguishment of debt of $
1.1
million. As of the Redemption Date, the Senior Secured Notes were
no
longer deemed outstanding and interest on the Senior Secured Notes ceased to accrue.
ABL 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 amends the existing Amended and Restated Credit Agreement, dated as of April 29, 2021 (the “ABL Credit Agreement”), which provided for a $
400
million senior secured asset-based revolving credit 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 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; and
•
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); and
◦
from
1.50
% to
1.75
% when average availability is less than 50% of the Loan Cap.
The ABL Facility is subject to a borrowing base, consisting primarily of inventory located in the U.S., the United Kingdom and the Netherlands, with a letter of credit sub-limit of $
62.5
million, a swing line loan sub-limit of $
30
million, and an accordion feature allowing A&F to increase the revolving commitment by up to $
150
million subject to specified conditions. The ABL Facility is available for working capital, capital expenditures, and other general corporate purposes.
As of November 2, 2024, availability under the ABL Facility was $
499.6
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 $36 million under the ABL Facility, borrowing capacity available to the Company under the ABL Facility was $
449.6
million as of November 2, 2024.
Representations, warranties and covenants
The agreements related to 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.
Certain of the agreements related to the ABL Facility also contain certain affirmative covenants, including reporting requirements such as delivery of financial statements, certificates and notices of certain events, maintaining insurance and providing additional guarantees and collateral in certain circumstances.
The Company was in compliance with all debt covenants under these agreements as of November 2, 2024.
| Abercrombie & Fitch Co. |
15
|
2024 3Q Form 10-Q
|
||||||
11.
SHARE-BASED COMPENSATION
Financial statement impact
The following table provides share-based compensation expense and the related income tax impacts for the thirteen and thirty-nine weeks ended November 2, 2024 and October 28, 2023:
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| (in thousands) | November 2, 2024 | October 28, 2023 | November 2, 2024 | October 28, 2023 | |||||||||||||||||||
| Share-based compensation expense | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Income tax benefits associated with share-based compensation expense recognized
|
|
|
|
|
|||||||||||||||||||
The following table provides discrete income tax benefits and charges related to share-based compensation awards during the thirteen and thirty-nine weeks ended November 2, 2024 and October 28, 2023:
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| (in thousands) | November 2, 2024 | October 28, 2023 | November 2, 2024 | October 28, 2023 | |||||||||||||||||||
|
Income tax discrete benefits realized for tax deductions related to the issuance of shares
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Income tax discrete charges realized upon cancellation of stock appreciation rights |
|
|
|
(
|
|||||||||||||||||||
|
Total income tax discrete benefits related to share-based compensation awards
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
The following table provides 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 thirteen and thirty-nine weeks ended November 2, 2024 and October 28, 2023:
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| (in thousands) | November 2, 2024 | October 28, 2023 | November 2, 2024 | October 28, 2023 | |||||||||||||||||||
|
Employee tax withheld upon issuance of shares
(1)
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(1)
Classified within financing activities on the Condensed Consolidated Statements of Cash Flows.
Restricted stock units
The following table provides the summarized activity for restricted stock units for the thirty-nine weeks ended November 2, 2024:
|
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 |
Weighted-
Average Grant Date Fair Value |
Number of
Underlying Shares |
Weighted-
Average Grant Date Fair Value |
||||||||||||||||||||||||||||||
| Unvested at February 3, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||||||||||||||||||
| Granted |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
|
Adjustments for performance achievement
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Vested |
(
|
|
(
|
|
(
|
|
|||||||||||||||||||||||||||||
| Forfeited |
(
|
|
|
|
|
|
|||||||||||||||||||||||||||||
|
Unvested at November 2, 2024
(1)
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||||||||||||||||||
(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 from zero up to 200% of their target vesting amount.
The following table provides the unrecognized compensation cost and the remaining weighted-average period over which these costs are expected to be recognized for restricted stock units as of November 2, 2024:
|
Service-based Restricted
Stock Units |
Performance-based Restricted
Stock Units |
Market-based Restricted
Stock Units |
|||||||||||||||
|
Unrecognized compensation cost
(in thousands)
|
$ |
|
$ |
|
$ |
|
|||||||||||
| Remaining weighted-average period cost is expected to be recognized (years) |
|
|
|
||||||||||||||
| Abercrombie & Fitch Co. |
16
|
2024 3Q Form 10-Q
|
||||||
The following table provides
additional information pertaining to restricted stock units for the thirty-nine weeks ended November 2, 2024 and October 28, 2023:
| Thirty-Nine Weeks Ended | |||||||||||
| (in thousands) | November 2, 2024 | October 28, 2023 | |||||||||
| Service-based restricted stock units: | |||||||||||
| Total grant date fair value of awards granted | $ |
|
$ |
|
|||||||
| Total grant date fair value of awards vested |
|
|
|||||||||
| Performance-based restricted stock units: | |||||||||||
| Total grant date fair value of awards granted |
|
|
|||||||||
| Total grant date fair value of awards vested |
|
|
|||||||||
| Market-based restricted stock units: | |||||||||||
| Total grant date fair value of awards granted |
|
|
|||||||||
| Total grant date fair value of awards vested |
|
|
|||||||||
The following table provides the weighted-average assumptions used for market-based restricted stock units in the Monte Carlo simulation during the thirty-nine weeks ended November 2, 2024 and October 28, 2023:
| Thirty-Nine Weeks Ended | |||||||||||
| November 2, 2024 | October 28, 2023 | ||||||||||
| Grant date market price | $ |
|
$ |
|
|||||||
| Fair value |
|
|
|||||||||
| Price volatility |
|
% |
|
% | |||||||
| Expected term (years) |
|
|
|||||||||
| Risk-free interest rate |
|
% |
|
% | |||||||
| Dividend yield |
|
|
|||||||||
| Average volatility of peer companies |
|
|
|||||||||
| Average correlation coefficient of peer companies |
|
|
|||||||||
Stock appreciation rights
The following table provides the summarized stock appreciation rights activity for the thirty-nine weeks ended November 2, 2024:
|
Number of
Underlying Shares |
Weighted-Average
Exercise Price |
Aggregate
Intrinsic Value
(in thousands)
|
Weighted-Average
Remaining Contractual Life (years) |
||||||||||||||||||||
| Outstanding at February 3, 2024 |
|
$ |
|
||||||||||||||||||||
| Exercised |
(
|
|
|||||||||||||||||||||
| Forfeited or expired |
|
|
|||||||||||||||||||||
|
Outstanding at November 2, 2024
|
|
$ |
|
$ |
|
|
|||||||||||||||||
| Stock appreciation rights exercisable at November 2, 2024 |
|
$ |
|
$ |
|
|
|||||||||||||||||
As of November 2, 2024, no stock appreciation rights remain outstanding.
The following table provides additional information pertaining to stock appreciation rights exercised during the thirty-nine weeks ended November 2, 2024 and October 28, 2023:
| (in thousands) | November 2, 2024 | October 28, 2023 | |||||||||
| Total grant date fair value of awards exercised | $ |
|
$ |
|
|||||||
| Abercrombie & Fitch Co. |
17
|
2024 3Q Form 10-Q
|
||||||
12.
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.
The Company uses derivative instruments, primarily foreign currency exchange forward contracts designated as cash flow hedges, to hedge the foreign currency exchange rate exposure associated with forecasted foreign-currency-denominated intercompany inventory sales to foreign subsidiaries and the related settlement of the foreign-currency-denominated intercompany receivables. Fluctuations in foreign currency 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 foreign currency exchange forward contracts typically have a maximum term of twelve months. The sale of the inventory to the Company’s customers will result in the reclassification of related derivative gains and losses that are reported in AOCL into earnings.
The Company also uses foreign currency exchange forward contracts to hedge certain foreign-currency-denominated net monetary assets/liabilities. Examples of monetary assets/liabilities include cash balances, receivables and payables. Fluctuations in foreign currency exchange rates result in transaction gains or losses being recorded in earnings, as GAAP requires that monetary assets/liabilities be remeasured at the spot exchange rate at quarter-end and upon settlement. The Company has chosen not to apply hedge accounting to these instruments because there are no anticipated differences in the timing of gain or loss recognition on the hedging instruments and the hedged items.
As of November 2, 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 transactions:
| (in thousands) |
Notional Amount
(1)
|
||||
| Euro | $ |
|
|||
| British pound |
|
||||
| Canadian dollar |
|
||||
(1)
Amounts reported are the U.S. dollar notional amounts outstanding as of November 2, 2024.
The fair value of derivative instruments is determined using quoted market prices of the same or similar instruments, adjusted for counterparty risk. The following table provides the location and amounts of derivative fair values of foreign currency exchange forward contracts on the Condensed Consolidated Balance Sheets as of November 2, 2024 and February 3, 2024:
| (in thousands) | Location | November 2, 2024 | February 3, 2024 | Location | November 2, 2024 | February 3, 2024 | |||||||||||||||||||||||||||||
| Derivatives designated as cash flow hedging instruments |
|
$ |
|
$ |
|
|
$ |
|
$ |
|
|||||||||||||||||||||||||
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
|
Total
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
The following table provides
information pertaining to derivative gains or losses from foreign currency exchange forward contracts designated as cash flow hedging instruments for the thirteen and thirty-nine weeks ended November 2, 2024 and October 28, 2023:
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| (in thousands) | November 2, 2024 | October 28, 2023 | November 2, 2024 | October 28, 2023 | |||||||||||||||||||
|
Gain recognized in AOCL
(1)
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
(Loss) gain reclassified from AOCL to cost of sales, exclusive of depreciation and amortization
(2)
|
(
|
(
|
|
(
|
|||||||||||||||||||
(1)
Amount represents the change in fair value of derivative instruments.
(2)
Amount represents (loss) gain reclassified from AOCL to cost of sales, exclusive of depreciation and amortization, on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) when the hedged item affects earnings, which is when merchandise is converted to cost of sales, exclusive of depreciation and amortization.
Substantially all of the unrealized gain will be recognized in costs of sales, exclusive of depreciation and amortization, on the Condensed Consolidated Statements of Operations and Comprehensive Income over the next
twelve months
.
| Abercrombie & Fitch Co. |
18
|
2024 3Q Form 10-Q
|
||||||
The following table provides additional information pertaining to derivative gains or losses from foreign currency exchange forward contracts not designated as hedging instruments for the thirteen and thirty-nine weeks ended November 2, 2024 and October 28, 2023:
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| (in thousands) | November 2, 2024 | October 28, 2023 | November 2, 2024 | October 28, 2023 | |||||||||||||||||||
|
Gain (loss) recognized in other operating (income) loss, net
|
$ |
|
$ |
|
$ |
|
$ |
(
|
|||||||||||||||
13. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following tables provide activity in AOCL fo
r the thirteen and thirty-nine weeks ended November 2, 2024:
| Thirteen Weeks Ended November 2, 2024 | |||||||||||||||||
| (in thousands) | Foreign Currency Translation Adjustment | Unrealized Gain (Loss) on Derivative Financial Instruments | Total | ||||||||||||||
| Beginning balance at August 3, 2024 | $ |
(
|
$ |
(
|
$ |
(
|
|||||||||||
| Other comprehensive income before reclassifications |
|
|
|
||||||||||||||
|
Reclassified loss from AOCL
(1)
|
|
|
|
||||||||||||||
| Tax effect |
|
(
|
(
|
||||||||||||||
| Other comprehensive income after reclassifications |
|
|
|
||||||||||||||
| Ending balance at November 2, 2024 | $ |
(
|
$ |
|
$ |
(
|
|||||||||||
| Thirty-Nine Weeks Ended November 2, 2024 | |||||||||||||||||
| (in thousands) | Foreign Currency Translation Adjustment | Unrealized Gain (Loss) on Derivative Financial Instruments | Total | ||||||||||||||
| Beginning balance at February 3, 2024 | $ |
(
|
$ |
|
$ |
(
|
|||||||||||
| Other comprehensive income before reclassifications |
|
|
|
||||||||||||||
|
Reclassified gain from AOCL
(1)
|
|
(
|
(
|
||||||||||||||
| Tax effect |
|
(
|
(
|
||||||||||||||
| Other comprehensive income after reclassifications |
|
|
|
||||||||||||||
| Ending balance at November 2, 2024 | $ |
(
|
$ |
|
$ |
(
|
|||||||||||
(1)
Amount represents loss reclassified from AOCL to cost of sales, exclusive of depreciation and amortization, on the Condensed Consolidated Statements of Operations and Comprehensive Income.
The following tables provide activity in AOCL for the thirteen and thirty-nine weeks ended October 28, 2023:
| Thirteen Weeks Ended October 28, 2023 | |||||||||||||||||
| (in thousands) | Foreign Currency Translation Adjustment | Unrealized Gain (Loss) on Derivative Financial Instruments | Total | ||||||||||||||
| Beginning balance at July 29, 2023 | $ |
(
|
$ |
(
|
$ |
(
|
|||||||||||
| Other comprehensive (loss) income before reclassifications |
(
|
|
|
||||||||||||||
|
Reclassified loss from AOCL
(1)
|
|
|
|
||||||||||||||
| Tax effect |
|
(
|
(
|
||||||||||||||
| Other comprehensive (loss) income after reclassifications |
(
|
|
|
||||||||||||||
| Ending balance at October 28, 2023 | $ |
(
|
$ |
|
$ |
(
|
|||||||||||
| Thirty-Nine Weeks Ended October 28, 2023 | |||||||||||||||||
| (in thousands) | Foreign Currency Translation Adjustment | Unrealized Gain (Loss) on Derivative Financial Instruments | Total | ||||||||||||||
| Beginning balance at January 28, 2023 | $ |
(
|
$ |
(
|
$ |
(
|
|||||||||||
| Other comprehensive (loss) income before reclassifications |
(
|
|
(
|
||||||||||||||
|
Reclassified loss from AOCL
(1)
|
|
|
|
||||||||||||||
| Tax effect |
|
(
|
(
|
||||||||||||||
| Other comprehensive (loss) income after reclassifications |
(
|
|
|
||||||||||||||
| Ending balance at October 28, 2023 | $ |
(
|
$ |
|
$ |
(
|
|||||||||||
(1)
Amount represents loss reclassified from AOCL to cost of sales, exclusive of depreciation and amortization, on the Condensed Consolidated Statements of Operations and Comprehensive Income.
| Abercrombie & Fitch Co. |
19
|
2024 3Q Form 10-Q
|
||||||
14.
SEGMENT REPORTING
The Company’s reportable segments are based on the financial information the CODM uses to allocate resources and assess performance of its business.
The group comprised of the Company’s (i) Chief Executive Officer and (ii) Chief Financial Officer and Chief Operating Officer functioned as the Company’s CODM as of November 2, 2024. 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 to a physical store location or geographical region that fulfills the order. Operating income 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 November 2, 2024 and February 3, 2024, and for the thirteen and thirty-nine weeks ended November 2, 2024 and October 28, 2023:
| Net Sales | |||||||||||||||||||||||
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| (in thousands) | November 2, 2024 | October 28, 2023 | November 2, 2024 | October 28, 2023 | |||||||||||||||||||
| Americas | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| EMEA |
|
|
|
|
|||||||||||||||||||
| APAC |
|
|
|
|
|||||||||||||||||||
| Segment total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Operating Income (Loss)
|
|||||||||||||||||||||||
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| (in thousands) | November 2, 2024 | October 28, 2023 | November 2, 2024 | October 28, 2023 | |||||||||||||||||||
| Operating Income (loss) | |||||||||||||||||||||||
| Americas | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| EMEA |
|
|
|
|
|||||||||||||||||||
| APAC |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Segment total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Operating (loss) income not attributed to segments:
|
|||||||||||||||||||||||
| Stores and distribution expense |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Marketing, general and administrative expense |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Other operating income (loss), net |
|
(
|
|
|
|||||||||||||||||||
| Total operating income | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Abercrombie & Fitch Co. |
20
|
2024 3Q Form 10-Q
|
||||||
| Assets | |||||||||||
| (in thousands) | November 2, 2024 | February 3, 2024 | |||||||||
| Inventories | |||||||||||
| Americas | $ |
|
$ |
|
|||||||
| EMEA |
|
|
|||||||||
| APAC |
|
|
|||||||||
| Total inventories | $ |
|
$ |
|
|||||||
|
Assets not attributed to segments
|
|
|
|||||||||
| Total assets | $ |
|
$ |
|
|||||||
Brand Information
The following table provides additional disaggregated revenue information, which is categorized by brand, for the thirteen and thirty-nine weeks ended November 2, 2024 and October 28, 2023:
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| (in thousands) | November 2, 2024 | October 28, 2023 | November 2, 2024 | October 28, 2023 | |||||||||||||||||||
|
Abercrombie
(1)
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Hollister
(2)
|
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(1)
Includes
Abercrombie & Fitch and abercrombie kids.
(2)
Includes Hollister and Gilly Hicks
| Abercrombie & Fitch Co. |
21
|
2024 3Q Form 10-Q
|
||||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read together with the Company’s Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q in “
Item 1. Financial Statements (Unaudited)
,” to which all references to Notes in MD&A are made.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Company cautions that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this Quarterly Report on Form 10-Q or made by the Company or its management and spokespeople involve risks and uncertainties and are subject to change based on various important factors, many of which may be beyond the Company’s control. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “should,” “are confident,” “will,” “could,” “outlook,” or the negative versions of these words or other comparable words, and similar expressions may identify forward-looking statements. Future economic and industry trends that could potentially impact revenue and profitability are difficult to predict. Therefore, there can be no assurance that the forward-looking statements included in this Quarterly Report on Form 10-Q will prove to be accurate. Factors that could cause results to differ from those expressed in the Company’s forward-looking statements include, but are not limited to, the risks described or referenced in Part I, Item 1A. “Risk Factors,” in the Company’s Fiscal 2023 Form 10-K and in our subsequent reports and filings with the SEC, as well as the following:
•
risks related to changes in global economic and financial conditions, including inflation, and the resulting impact on consumer spending generally and on our operating results, financial condition, and expense management, and our ability to adequately mitigate the impact;
•
risks related to the geopolitical landscape and conflicts, such as the recent attacks on marine vessels in the Red Sea and the potential escalation of such conflicts, and the impact of such conflicts on international trade, supplier delivery or increased freight costs, acts of terrorism, mass casualty events, social unrest, civil disturbance or disobedience;
•
risks related to natural disasters and other unforeseen catastrophic events;
•
risks related to our failure to engage our customers, anticipate customer demand, expectations, and changing fashion trends, and manage our inventory and product delivery;
•
risks related to our ability to successfully invest in and execute on our customer, digital and omnichannel initiatives;
•
risks related to the effects of seasonal fluctuations on our sales and our performance during the back-to-school and holiday selling seasons;
•
risks related to fluctuations in foreign currency exchange rates;
•
risks related to fluctuations in our tax obligations and effective tax rate, including as a result of earnings and losses generated from our international operations;
•
risks related to our ability to execute on, and maintain the success of, our strategic and growth initiatives, including those outlined in our 2025 Always Forward Plan;
•
risks related to global operations, including changes in the economic or political conditions where we sell or source our products or changes in import tariffs or trade restrictions, including implications related to the change in administration as a result of the 2024 U.S. presidential election;
•
risks and uncertainty related to adverse public health developments;
•
risks related to cybersecurity threats and privacy or data security breaches;
•
risks related to the potential loss or disruption of our information systems;
•
risks related to the continued validity of our trademarks and our ability to protect our intellectual property;
•
risks associated with climate change and other corporate responsibility issues;
•
risks related to reputational harm to the Company, its officers, and directors;
•
risks related to actual or threatened litigation; and
•
uncertainties related to future legislation, regulatory reform, policy changes, or interpretive guidance on existing legislation.
In light of the significant uncertainties in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company, or any other person, that the objectives of the Company will be achieved. The forward-looking statements included herein are based on information presently available to the management of the Company. Except as may be required by applicable law, the Company assumes no obligation to publicly update or revise its forward-looking statements, including any financial targets and estimates, whether as a result of new information, future events, or otherwise. As used herein, “Abercrombie & Fitch Co.,” “A&F,” “the Company,” “we,” “us,” “our,” and similar terms include Abercrombie & Fitch Co. and its subsidiaries, unless the context indicates otherwise.
| Abercrombie & Fitch Co. |
22
|
2024 3Q Form 10-Q
|
||||||
INTRODUCTION
MD&A is provided as a supplement to the accompanying Condensed Consolidated Financial Statements and notes thereto to help provide an understanding of the Company’s results of operations, financial condition, and liquidity. MD&A is organized as follows:
•
Current Trends and Outlook
.
A discussion related to certain of the Company’s focus areas for the current fiscal year and a discussion of certain risks and challenges, as well as a summary of the Company’s performance for the thirteen and thirty-nine weeks ended November 2, 2024 and October 28, 2023.
•
Results of Operations
.
An analysis of certain components of the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income
for the thirteen and thirty-nine weeks ended November 2, 2024 and October 28, 2023.
•
Liquidity and Capital Resources
.
A discussion of the Company’s financial condition, changes in financial condition and liquidity as of November 2, 2024, which includes (i) an analysis of financial condition as compared to February 3, 2024; (ii) an analysis of changes in cash flows for the thirty-nine weeks ended November 2, 2024, as compared to the thirty-nine weeks ended October 28, 2023; and (iii) an analysis of liquidity, including availability under the Company’s ABL Facility (as defined below), the Company’s share repurchase program, and outstanding debt and covenant compliance.
•
Recent Accounting Pronouncements
.
A discussion, as applicable, of the recent accounting pronouncements that the Company has adopted or is currently evaluating, including the dates of adoption and/or expected dates of adoption, and anticipated effects on the Company’s Condensed Consolidated Financial Statements.
•
Critical Accounting Estimates
.
A discussion of the accounting estimates considered to be important to the Company’s results of operations and financial condition, which typically require significant judgment and estimation on the part of management in their application.
•
Non-GAAP Financial Measures
.
MD&A provides a discussion of certain financial measures that have been determined to not be presented in accordance with GAAP. This section includes certain reconciliations between GAAP and non-GAAP financial measures and additional details on non-GAAP financial measures, including information as to why the Company believes that the non-GAAP financial measures provided within MD&A are useful to investors.
| Abercrombie & Fitch Co. |
23
|
2024 3Q Form 10-Q
|
||||||
OVERVIEW
Business summary
The Company is a global, digitally-led omnichannel retailer. The Company offers a broad assortment of apparel, personal care products and accessories for men, women and kids, which are sold primarily through its Company-owned stores and digital channels, as well as through various third-party arrangements.
The Company 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.
The Company’s brands include Abercrombie brands, which includes Abercrombie & Fitch and abercrombie kids, and Hollister brands, which includes Hollister and Gilly Hicks. These brands share a commitment to offering unique products of enduring quality and exceptional comfort that allow customers around the world to express their own individuality and style.
The Company’s fiscal year ends on the Saturday closest to January 31. All references herein to the Company’s fiscal years are as follows:
| Fiscal year | Year ended/ending | Number of weeks | ||||||||||||
| Fiscal 2023 | February 3, 2024 | 53 | ||||||||||||
| Fiscal 2024 | February 1, 2025 | 52 | ||||||||||||
| Fiscal 2025 | January 31, 2026 | 52 | ||||||||||||
Seasonality
Historically, the Company’s operations have been seasonal in nature and consist of two principal selling seasons: the spring season, which includes the first and second fiscal quarters (“Spring”), and the fall season, which includes the third and fourth fiscal quarters (“Fall”). Due to the seasonal nature of the retail apparel industry, the results of operations for any current period are not necessarily indicative of the results expected for the full fiscal year and the Company could have significant fluctuations in certain asset and liability accounts. The Company historically experiences its greatest sales activity during the Fall season due to back-to-school and holiday sales periods, respectively.
CURRENT TRENDS AND OUTLOOK
Focus areas for fiscal 2024
In June of Fiscal 2022, we announced our 2025 Always Forward Plan, which outlines our long-term strategy and goals, including growing shareholder value. The 2025 Always Forward Plan is anchored on our strategic growth principles, which are to:
•
Execute focused growth plans;
•
Accelerate an enterprise-wide digital revolution; and
•
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:
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; and
•
using testing and chase strategies to deliver compelling assortments and product collections across genders.
Accelerate an enterprise-wide digital revolution to improve the customer and associate experience by:
•
continuing to progress on our multi-year enterprise resource planning (“ERP”) transformation and cloud migration journey; and
•
investing in digital and technology to improve experiences across key parts of the customer journey while delivering a consistent omnichannel experience.
Operate with financial discipline by:
•
actively managing inventory levels and positioning Abercrombie brands and Hollister brands to chase inventory as appropriate throughout the year; and
•
funding our growth strategies while properly balancing investments, impacts of inflation and efficiency efforts.
| Abercrombie & Fitch Co. |
24
|
2024 3Q Form 10-Q
|
||||||
Current macroeconomic conditions and impact of inflation
Macroeconomic conditions, that include inflation, a volatile interest rate environment, the geopolitical landscape, global political uncertainty, including as a result of the 2024 U.S. presidential and congressional elections, uncertainty regarding significant changes in legislation, regulations, and tariffs, foreign exchange rate fluctuations, and evolving habits in consumer discretionary spending continue to impact 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, while cotton and raw material costs stabilized since the second quarter of Fiscal 2024, freight costs have been increasing since the start of the second quarter of Fiscal 2024. 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.
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. 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 potential tariffs. 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.
Global store network optimization
The Company has a goal of finding the right size, right location and right economics for omni-enabled stores that cater to local customers. The Company continues to use data to inform its focus on aligning store square footage with digital penetration, and has delivered new store experiences across brands during Fiscal 2024. Through the end of the third fiscal quarter, the Company opened 39 new stores, remodeled 30 stores and right-sized eight stores while closing 31 stores. As part of this focus, the Company’s store investment plan includes delivering approximately 20 net store openings during Fiscal 2024 consisting of opening approximately 60 new stores, while closing approximately 40 stores, pending negotiations with our landlord partners. Additionally, the Company expects approximately 60 remodels and rightsizes, during Fiscal 2024, pending negotiations with our landlord partners.
Future closures could be completed through natural lease expirations, while certain other leases include early termination options that can be exercised under specific conditions. The Company may also elect to exit or modify other leases, and could incur charges related to these actions.
Pillar Two Model Rules
In 2021, the Organization for Economic Cooperation and Development (“OECD”) released Pillar Two Global Anti-Base Erosion model rules (“Pillar Two Rules”), designed to ensure large corporations are taxed at a minimum rate of 15% in all countries of operation. Although the U.S. has not yet enacted legislation implementing Pillar Two Rules, other countries where the Company does business, including the U.K. and Germany, have enacted legislation implementing Pillar Two Rules, which are effective from January 1, 2024. The implementation of the Pillar Two Rules in each jurisdiction in which it operates did not have a material impact on the Company’s effective tax rate. The Company will continue to evaluate the impact as additional jurisdictions implement legislation and provide further guidance.
For a discussion of material risks that have the potential to cause our actual results to differ materially from our expectations, refer to Part I, “Item 1A. Risk Factors” on the Fiscal 2023 Form 10-K.
| Abercrombie & Fitch Co. |
25
|
2024 3Q Form 10-Q
|
||||||
Summary of results
The following provides a summary of results for the thirteen and thirty-nine weeks ended November 2, 2024 and October 28, 2023:
| GAAP |
Non-GAAP
(1)
|
|||||||||||||||||||||||||
| Thirteen Weeks Ended |
November 2, 2024
|
October 28, 2023
|
November 2, 2024
|
October 28, 2023
|
||||||||||||||||||||||
|
Net sales
(in thousands)
|
$ | 1,208,966 | $ | 1,056,431 | ||||||||||||||||||||||
| Change in net sales | 14.4 | % | 20.0 | % | ||||||||||||||||||||||
|
Comparable sales
(2)
|
16 | % | 16 | % | ||||||||||||||||||||||
| Gross profit rate | 65.1 | % | 64.9 | % | ||||||||||||||||||||||
|
Operating income
(in thousands)
|
$ | 179,282 | $ | 138,020 | ||||||||||||||||||||||
|
Operating income margin
|
14.8 | % | 13.1 | % | ||||||||||||||||||||||
|
Net income attributable to A&F
(in thousands)
|
$ | 131,979 | $ | 96,211 | ||||||||||||||||||||||
| Net income per share attributable to A&F | 2.50 | 1.83 | ||||||||||||||||||||||||
| Thirty-Nine Weeks Ended | ||||||||||||||||||||||||||
| Net sales | $ | 3,363,670 | $ | 2,827,770 | ||||||||||||||||||||||
| Change in net sales | 19.0 | % | 13.2 | % | ||||||||||||||||||||||
|
Comparable sales
(2)
|
18 | % | 11 | % | ||||||||||||||||||||||
| Gross profit rate | 65.4 | % | 62.9 | % | ||||||||||||||||||||||
| Operating income | $ | 484,756 | $ | 261,870 | $ | 266,306 | ||||||||||||||||||||
|
Operating income margin
|
14.4 | % | 9.3 | % | 9.4 | % | ||||||||||||||||||||
| Net income attributable to A&F | $ | 378,997 | $ | 169,676 | $ | 172,905 | ||||||||||||||||||||
| Net income per share attributable to A&F | 7.13 | 3.25 | 3.32 | |||||||||||||||||||||||
(1)
Discussion as to why the Company believes that these non-GAAP financial measures are useful to investors and a reconciliation of the non-GAAP measures to the most directly comparable financial measure calculated and presented in accordance with GAAP are provided below under “
NON-GAAP FINANCIAL MEASURES
.”
(2)
Comparable sales are calculated on a constant currency basis and exclude revenue other than store and digital sales. Refer to the discussion below in “
NON-GAAP FINANCIAL MEASURES
,” for further details on the comparable sales calculation.
Certain components of the Company’s Condensed Consolidated Balance Sheets as of November 2, 2024 and February 3, 2024 were as follows:
| (in thousands) | November 2, 2024 | February 3, 2024 | ||||||||||||
| Cash and equivalents | $ | 683,089 | $ | 900,884 | ||||||||||
| Inventories | 692,596 | 469,466 | ||||||||||||
| Gross long-term borrowings outstanding, carrying amount | — | 223,214 | ||||||||||||
Certain components of the Company’s Condensed Consolidated Statements of Cash Flows for the thirty-nine week periods ended November 2, 2024 and October 28, 2023 were as follows:
| (in thousands) | November 2, 2024 | October 28, 2023 | ||||||||||||
| Net cash provided by operating activities | $ | 402,756 | $ | 350,142 | ||||||||||
| Net cash used for investing activities | (187,040) | (127,986) | ||||||||||||
| Net cash used for financing activities | (432,570) | (87,106) | ||||||||||||
| Abercrombie & Fitch Co. |
26
|
2024 3Q Form 10-Q
|
||||||
RESULTS OF OPERATIONS
The estimated basis point (“BPS”) change disclosed throughout this Results of Operations section has been rounded based on the change in the percentage of net sales.
Net sales
Net sales by segment are presented by attributing revenues on the basis of the segment that fulfills the order. The Company’s net sales by reportable segment for the thirteen and thirty-nine weeks ended November 2, 2024 and October 28, 2023 were as follows:
| Thirteen Weeks Ended | |||||||||||||||||||||||||||||
| (in thousands, except ratios) | November 2, 2024 | October 28, 2023 | $ Change | % Change |
Comparable
Sales
(1
)
|
||||||||||||||||||||||||
| By segment: | |||||||||||||||||||||||||||||
| Americas | $ | 986,449 | $ | 867,566 | $ | 118,883 | 14 | % | 16 | % | |||||||||||||||||||
| EMEA | 181,592 | 157,976 | 23,616 | 15 | 13 | ||||||||||||||||||||||||
| APAC | 40,925 | 30,889 | 10,036 | 32 | 16 | ||||||||||||||||||||||||
| Total | $ | 1,208,966 | $ | 1,056,431 | $ | 152,535 | 14 | 16 | |||||||||||||||||||||
| Thirty-Nine Weeks Ended | |||||||||||||||||||||||||||||
| (in thousands, except ratios) | November 2, 2024 | October 28, 2023 | $ Change | % Change |
Comparable
Sales
(1)
|
||||||||||||||||||||||||
| Americas | $ | 2,707,794 | $ | 2,264,415 | $ | 443,379 | 20 | % | 18 | % | |||||||||||||||||||
| EMEA | 546,052 | 468,045 | 78,007 | 17 | 17 | ||||||||||||||||||||||||
| APAC | 109,824 | 95,310 | 14,514 | 15 | 20 | ||||||||||||||||||||||||
| Total | $ | 3,363,670 | $ | 2,827,770 | $ | 535,900 | 19 | 18 | |||||||||||||||||||||
(1)
Comparable sales are calculated on a constant currency basis. Refer to
“
NON-GAAP FINANCIAL MEASURES
,
”
for further details on the comparable sales calculation.
| Abercrombie & Fitch Co. |
27
|
2024 3Q Form 10-Q
|
||||||
For the third quarter of Fiscal 2024, net sales increased 14% as compared to the third quarter of Fiscal 2023. The increase was primarily attributable to a high-single digit growth in unit volume from traffic growth in comparable company owned and operated stores and digital channels. Mid-single digit increase in average unit retail (“AUR”) from lower promotional activity and category mix into higher ticket items also contributed to the increase in net sales. The increase was partially offset by approximately $10 million due to the timing of sales volume based on the impact of the calendar shift in fiscal 2024 due to the 53rd selling week in fiscal 2023. The year-over-year increase in net sales reflects positive comparable sales of 16%, as compared to the third quarter of Fiscal 2023.
•
Net sales growth in the Americas region of 14%. The increase was attributable to both 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 15%. The increase was attributable to both 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.
•
In the APAC region net sales grew 32% and 16% on a comparable sales basis. In the third quarter, APAC net sales growth had an outsized benefit relative to total company from the calendar shift of the 53rd selling week. This third quarter benefit will be offset in the fourth quarter. Comparable sales growth led by high unit sales across company owned and operated stores and digital channels.
For the year-to-date period of Fiscal 2024, net sales increased 19%, as compared to the year-to-date period of Fiscal 2023. The increase was primarily attributable to a double-digit increase in AUR from lower promotional activity and category mix into higher ticket items. Mid-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 benefit of approximately $30 million due to the timing of sales volume based on the impact of the calendar shift in Fiscal 2024 due to the 53rd selling week in Fiscal 2023. The year-over-year increase in net sales reflects positive comparable sales of 18%, as compared to the year-to-date period of Fiscal 2023.
•
Net sales growth in the Americas region of 20% and 18% on a comparable basis. The increase was attributable to a higher AUR from lower promotional activity and category mix into higher ticket items. Growth in unit volume as a result of increased traffic and transactions in company owned and operated stores and digital channels also contributed to the increase in net sales.
•
Net sales growth in the EMEA 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. Growth in unit volume as a result of increased traffic and transactions in company owned and operated stores and digital channels contributed to the increase in net sales.
•
In the APAC region net sales grew 15% and 20% on a comparable sales basis. Comparable sales growth percentage is higher than net sales growth percentage, as comparable sales excludes the impact of store closures during the period and the effects of foreign currency, both of which had negative impacts on net sales growth.
The Company’s net sales by brand for the thirteen and thirty-nine weeks ended November 2, 2024 and October 28, 2023 were as follows:
| Thirteen Weeks Ended | |||||||||||||||||||||||||||||
| (in thousands, except ratios) | November 2, 2024 | October 28, 2023 | $ Change | % Change |
Comparable
Sales
(1)
|
||||||||||||||||||||||||
|
Abercrombie
(2)
|
$ | 629,835 | $ | 547,728 | $ | 82,107 | 15 | % | 11 | % | |||||||||||||||||||
|
Hollister
(3)
|
579,131 | 508,703 | 70,428 | 14 | 21 | ||||||||||||||||||||||||
| Total | $ | 1,208,966 | $ | 1,056,431 | $ | 152,535 | 14 | 16 | |||||||||||||||||||||
| Thirty-Nine Weeks Ended | |||||||||||||||||||||||||||||
| (in thousands, except ratios) | November 2, 2024 | October 28, 2023 | $ Change | % Change |
Comparable
Sales
(1)
|
||||||||||||||||||||||||
|
Abercrombie
(2)
|
$ | 1,783,764 | $ | 1,446,483 | $ | 337,281 | 23 | % | 20 | % | |||||||||||||||||||
|
Hollister
(3)
|
1,579,906 | 1,381,287 | 198,619 | 14 | 16 | ||||||||||||||||||||||||
| Total | $ | 3,363,670 | $ | 2,827,770 | $ | 535,900 | 19 | 18 | |||||||||||||||||||||
(1)
Comparable sales are calculated on a constant currency basis. Refer to
“
NON-GAAP FINANCIAL MEASURES
,
”
for further details on the comparable sales calculation.
(2)
Includes Abercrombie & Fitch and abercrombie kids.
(3)
Includes Hollister and Gilly Hicks.
| Abercrombie & Fitch Co. |
28
|
2024 3Q Form 10-Q
|
||||||
Cost of sales, exclusive of depreciation and amortization
| Thirteen Weeks Ended | |||||||||||||||||||||||||||||
| November 2, 2024 | October 28, 2023 | ||||||||||||||||||||||||||||
| (in thousands, except ratios) | % of Net sales | % of Net sales | BPS Change | ||||||||||||||||||||||||||
| Cost of sales, exclusive of depreciation and amortization | $ | 422,034 | 34.9 | % | $ | 370,762 | 35.1 | % | (20) | ||||||||||||||||||||
| Thirty-Nine Weeks Ended | |||||||||||||||||||||||||||||
| November 2, 2024 | October 28, 2023 | ||||||||||||||||||||||||||||
| (in thousands, except ratios) | % of Net Sales | % of Net Sales | BPS Change | ||||||||||||||||||||||||||
| Cost of sales, exclusive of depreciation and amortization | $ | 1,163,019 | 34.6 | % | $ | 1,047,927 | 37.1 | % | (250) | ||||||||||||||||||||
For the third quarter of Fiscal 2024, cost of sales, exclusive of depreciation and amortization, as a percentage of net sales decreased by approximately 20 basis points, as compared to the third quarter of Fiscal 2023. The percentage decline was primarily attributable to cost of sales leverage from a higher AUR on reduced promotions, partially offset by higher freight costs compared to the third quarter of Fiscal 2023.
For the year-to-date period of Fiscal 2024, cost of sales, exclusive of depreciation and amortization, as a percentage of net sales decreased by approximately 250 basis points as compared to the year-to-date period of Fiscal 2023. The percentage decline 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 the year-to-date period of Fiscal 2023.
Gross profit, exclusive of depreciation and amortization
| Thirteen Weeks Ended | |||||||||||||||||||||||||||||
| November 2, 2024 | October 28, 2023 | ||||||||||||||||||||||||||||
| (in thousands, except ratios) | % of Net sales | % of Net sales | BPS Change | ||||||||||||||||||||||||||
| Gross profit, exclusive of depreciation and amortization | $ | 786,932 | 65.1 | % | $ | 685,669 | 64.9 | % | 20 | ||||||||||||||||||||
| Thirty-Nine Weeks Ended | |||||||||||||||||||||||||||||
| November 2, 2024 | October 28, 2023 | ||||||||||||||||||||||||||||
| (in thousands, except ratios) | % of Net Sales | % of Net Sales | BPS Change | ||||||||||||||||||||||||||
| Gross profit, exclusive of depreciation and amortization | $ | 2,200,651 | 65.4 | % | $ | 1,779,843 | 62.9 | % | 250 | ||||||||||||||||||||
| Abercrombie & Fitch Co. |
29
|
2024 3Q Form 10-Q
|
||||||
Stores and distribution expense
| Thirteen Weeks Ended | |||||||||||||||||||||||||||||
| November 2, 2024 | October 28, 2023 | ||||||||||||||||||||||||||||
| (in thousands, except ratios) | % of Net sales | % of Net sales | BPS Change | ||||||||||||||||||||||||||
| Stores and distribution expense | $ | 419,235 | 34.7 | % | $ | 383,883 | 36.3 | % | (160) | ||||||||||||||||||||
| Thirty-Nine Weeks Ended | |||||||||||||||||||||||||||||
| November 2, 2024 | October 28, 2023 | ||||||||||||||||||||||||||||
| (in thousands, except ratios) | % of Net Sales | % of Net Sales | BPS Change | ||||||||||||||||||||||||||
| Stores and distribution expense | $ | 1,181,154 | 35.1 | % | $ | 1,072,662 | 37.9 | % | (280) | ||||||||||||||||||||
For the third quarter of Fiscal 2024, stores and distribution expense increased by $35 million compared to the third quarter of 2023. Stores and distribution expense as a percentage of net sales decreased 160 basis points, as compared to the third quarter of Fiscal 2023. The decrease in rate was primarily driven by expense leverage from higher net sales, including approximately 110 basis points in stores expense, primarily relating to store occupancy and store payroll, and approximately 60 basis points in distribution center and order fulfillment costs as compared to the third quarter of Fiscal 2023.
For the year-to-date period of Fiscal 2024, stores and distribution expense increased by $108 million and decreased 280 basis points, as a percentage of net sales, as compared to the year-to-date period of Fiscal 2023. The decrease as a percent of net sales was primarily driven by expense leverage from higher net sales, including approximately 250 basis points in stores expense, primarily relating to store occupancy and store payroll, and 30 basis points in distribution center and order fulfillment costs compared to the year-to-date period of Fiscal 2023.
Marketing, general and administrative expense
| Thirteen Weeks Ended | |||||||||||||||||||||||||||||
| November 2, 2024 | October 28, 2023 | ||||||||||||||||||||||||||||
| (in thousands, except ratios) | % of Net sales | % of Net sales | BPS Change | ||||||||||||||||||||||||||
| Marketing, general and administrative expense | $ | 190,001 | 15.7 | % | $ | 162,510 | 15.4 | % | 30 | ||||||||||||||||||||
| Thirty-Nine Weeks Ended | |||||||||||||||||||||||||||||
| November 2, 2024 | October 28, 2023 | ||||||||||||||||||||||||||||
| (in thousands, except ratios) | % of Net Sales | % of Net Sales | BPS Change | ||||||||||||||||||||||||||
| Marketing, general and administrative expense | $ | 538,352 | 16.0 | % | $ | 449,643 | 15.9 | % | 10 | ||||||||||||||||||||
For the third quarter of Fiscal 2024, marketing, general and administrative expense increased by $27 million compared to the third quarter of Fiscal 2023. Marketing, general and administrative expense as a percentage of net sales increased 30 basis points, as compared to the third quarter of Fiscal 2023. The increase in expense rate was primarily driven by an 80 basis point increase in marketing expense, primarily due to media campaigns and content, partially offset by 50 basis points of other general and administrative costs primarily relating to payroll expense leverage from higher net sales.
For the year-to-date period of Fiscal 2024, marketing, general and administration expense increased by $89 million and increased 10 basis points as a percentage of net sales, as compared to the year-to-date period of Fiscal 2023, with a 50 basis point increase in marketing expense, primarily due to media campaigns and content, partially offset by a 40 basis point decrease in other general and administrative costs primarily relating to payroll expense leverage from higher net sales.
Other operating (income) loss, net
| Thirteen Weeks Ended | |||||||||||||||||||||||||||||
| November 2, 2024 | October 28, 2023 | ||||||||||||||||||||||||||||
| (in thousands, except ratios) | % of Net sales | % of Net sales | BPS Change | ||||||||||||||||||||||||||
| Other operating (income) loss, net | $ | (1,586) | (0.1) | % | $ | 1,256 | 0.1 | % | (20) | ||||||||||||||||||||
| Thirty-Nine Weeks Ended | |||||||||||||||||||||||||||||
| November 2, 2024 | October 28, 2023 | ||||||||||||||||||||||||||||
| (in thousands, except ratios) | % of Net Sales | % of Net Sales | BPS Change | ||||||||||||||||||||||||||
| Other operating income, net | $ | (3,611) | (0.1) | % | $ | (4,332) | (0.2) | % | 10 | ||||||||||||||||||||
| Abercrombie & Fitch Co. |
30
|
2024 3Q Form 10-Q
|
||||||
Operating income
| Thirteen Weeks Ended | |||||||||||||||||||||||||||||
| November 2, 2024 | October 28, 2023 | ||||||||||||||||||||||||||||
| (in thousands, except ratios) |
% of Net sales
(1)
|
% of Net sales
(1)
|
BPS Change | ||||||||||||||||||||||||||
| Americas | $ | 304,542 | 30.9 | % | $ | 257,440 | 29.7 | % | 120 | ||||||||||||||||||||
| EMEA | 21,708 | 12.0 | 20,795 | 13.2 | (120) | ||||||||||||||||||||||||
| APAC | (4,181) | (10.2) | (3,261) | (10.6) | 40 | ||||||||||||||||||||||||
| Operating loss not attributed to segments | (142,787) | (136,954) | |||||||||||||||||||||||||||
| Operating income | $ | 179,282 | 14.8 | $ | 138,020 | 13.1 | 170 | ||||||||||||||||||||||
| Thirty-Nine Weeks Ended | |||||||||||||||||||||||||||||
| November 2, 2024 | October 28, 2023 | ||||||||||||||||||||||||||||
| (in thousands, except ratios) |
% of Net Sales
(1)
|
% of Net Sales
(1)
|
BPS Change | ||||||||||||||||||||||||||
| Americas | $ | 832,009 | 30.7 | % | $ | 590,948 | 26.1 | % | 460 | ||||||||||||||||||||
| EMEA | 84,249 | 15.4 | 49,170 | 10.5 | 490 | ||||||||||||||||||||||||
| APAC | (7,748) | (7.1) | (6,272) | (6.6) | (50) | ||||||||||||||||||||||||
| Operating loss not attributed to segments | (423,754) | (371,976) | |||||||||||||||||||||||||||
| Operating income | $ | 484,756 | 14.4 | $ | 261,870 | 9.3 | 510 | ||||||||||||||||||||||
| Excluded items: | |||||||||||||||||||||||||||||
|
Asset impairment charges
(2)
|
— | — | 4,436 | 0.2 | (20) | ||||||||||||||||||||||||
| Adjusted non-GAAP operating income | $ | 484,756 | 14.4 | $ | 266,306 | 9.4 | 500 | ||||||||||||||||||||||
(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.
For the third quarter of Fiscal 2024, operating income increased by $41 million, or 170 basis points, as a percentage of net sales, as compared to the third quarter of Fiscal 2023.
•
Operating income for the Americas region increased $47 million or 120 basis points as a percentage of region net sales, as compared to the third quarter of 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 payroll and occupancy expenses.
•
Operating income for the EMEA region increased $1 million and decreased 120 basis points as a percentage of region net sales, as compared to the third quarter of Fiscal 2023. The decrease as a percent of net sales is primarily attributed to higher freight costs and increased marketing expense, partially offset by expense leverage from comparable sales growth of 13%.
•
Operating (loss) for the APAC region increased by $(1) million or 40 basis points as a percentage of region net sales, as compared to the third quarter of Fiscal 2023. The loss was impacted by store impairments taken during the quarter, which more than offset the expense leverage from comparable sales growth of 16%.
For the year-to-date period of Fiscal 2024, operating income increased by $223 million, or 510 basis points, as a percentage of net sales as compared to the year-to-date period of Fiscal 2023.
•
Operating income for the Americas increased $241 million or 460 basis points as a percentage of region net sales as compared to the year-to-date period of Fiscal 2023. The increase as a percent of sales primarily relates to positive comparable sales of 18%, relating to higher unit volume, increased AUR on reduced promotions, and expense leverage relating to payroll and occupancy expenses.
•
Operating income for EMEA increased $35 million or 490 basis points as a percentage of region net sales as compared to the year-to-date period of 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 payroll and occupancy expenses.
•
Operating (loss) for APAC increased $(1) million or 50 basis points as a percentage of region net sales as compared to the year-to-date period of Fiscal 2023. The loss was impacted by store impairments and marketing investments, which more than offset the expense leverage from comparable sales growth of 20%.
| Abercrombie & Fitch Co. |
31
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2024 3Q Form 10-Q
|
||||||
Interest (income) expense, net
| Thirteen Weeks Ended | |||||||||||||||||||||||||||||
| November 2, 2024 | October 28, 2023 | ||||||||||||||||||||||||||||
| (in thousands, except ratios) | % of Net sales | % of Net sales | BPS Change | ||||||||||||||||||||||||||
| Interest expense | $ | 569 | — | % | $ | 8,568 | 0.8 | % | (80) | ||||||||||||||||||||
| Interest income | (9,302) | (0.7) | (7,897) | (0.7) | — | ||||||||||||||||||||||||
| Interest (income) expense, net | $ | (8,733) | (0.7) | $ | 671 | 0.1 | (80) | ||||||||||||||||||||||
| Thirty-Nine Weeks Ended | |||||||||||||||||||||||||||||
| November 2, 2024 | October 28, 2023 | ||||||||||||||||||||||||||||
| (in thousands, except ratios) | % of Net Sales | % of Net Sales | BPS Change | ||||||||||||||||||||||||||
| Interest expense | $ | 11,538 | 0.3 | % | $ | 23,661 | 0.8 | % | (50) | ||||||||||||||||||||
| Interest income | (30,497) | (0.9) | (18,450) | (0.6) | (30) | ||||||||||||||||||||||||
| Interest (income) expense, net | $ | (18,959) | (0.6) | $ | 5,211 | 0.2 | (80) | ||||||||||||||||||||||
For the third quarter of Fiscal 2024, interest (income) expense, net increased $9.4 million, as compared to the third quarter of Fiscal 2023. The increase in interest income was due to the increased balance on time deposits and money market accounts compared to the third quarter of Fiscal 2023. Additionally, interest expense decreased compared to the third quarter of Fiscal 2023 as result of the repurchases in late Fiscal 2023 and Fiscal 2024 and redemption of the remaining outstanding Senior Secured Notes on July 15, 2024.
For the year-to-date period of Fiscal 2024, interest (income) expense, net increased $24.2 million, as compared to the year-to-date period of Fiscal 2023. The increase was a result of higher interest income due to the increased balance on time deposits and money market accounts. Additionally, interest expense decreased compared to the year-to-date period Fiscal 2023 as result of the repurchases in late Fiscal 2023 and Fiscal 2024 and redemption of the remaining outstanding Senior Secured Notes on July 15, 2024.
Income tax expense
| Thirteen Weeks Ended | |||||||||||||||||||||||
| November 2, 2024 | October 28, 2023 | ||||||||||||||||||||||
| (in thousands, except ratios) | Effective Tax Rate | Effective Tax Rate | |||||||||||||||||||||
| Income tax expense | $ | 54,151 | 28.8 | % | $ | 39,617 | 28.8 | % | |||||||||||||||
| Thirty-Nine Weeks Ended | |||||||||||||||||||||||
| November 2, 2024 | October 28, 2023 | ||||||||||||||||||||||
| (in thousands, except ratios) | Effective Tax Rate | Effective Tax Rate | |||||||||||||||||||||
| Income tax expense | $ | 119,394 | 23.7 | % | $ | 82,349 | 32.1 | % | |||||||||||||||
| Excluded items: | |||||||||||||||||||||||
|
Tax effect of pre-tax excluded items
(1)
|
— | 1,207 | |||||||||||||||||||||
| Adjusted non-GAAP income tax expense | $ | 119,394 | 23.7 | $ | 83,556 | 32.0 | |||||||||||||||||
(1)
The tax effect of pre-tax excluded items is the difference between the tax provision calculation on a GAAP basis and on an adjusted non-GAAP basis. Refer to “
Operating income
” and “
NON-GAAP FINANCIAL MEASURES
” for details of pre-tax excluded items.
Compared with the year-to-date period of 2023, the change in the effective tax rates during Fiscal 2024 is due to jurisdictional mix and higher levels of pre-tax income offset by a larger tax benefit on share-based compensation.
| Abercrombie & Fitch Co. |
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|
2024 3Q Form 10-Q
|
||||||
Net income attributable to A&F
| Thirteen Weeks Ended | |||||||||||||||||||||||||||||
| November 2, 2024 | October 28, 2023 | ||||||||||||||||||||||||||||
| (in thousands) | % of Net sales | % of Net sales | BPS Change | ||||||||||||||||||||||||||
| Net income attributable to A&F | $ | 131,979 | 10.9 | % | $ | 96,211 | 9.1 | % | 180 | ||||||||||||||||||||
| Thirty-Nine Weeks Ended | |||||||||||||||||||||||||||||
| November 2, 2024 | October 28, 2023 | ||||||||||||||||||||||||||||
| (in thousands) | % of Net Sales | % of Net Sales | BPS Change | ||||||||||||||||||||||||||
| Net income attributable to A&F | $ | 378,997 | 11.3 | % | $ | 169,676 | 6.0 | % | 530 | ||||||||||||||||||||
|
Excluded items, net of tax
(1)
|
— | — | 3,229 | 0.1 | (10) | ||||||||||||||||||||||||
|
Adjusted non-GAAP net income attributable to A&F
(2)
|
$ | 378,997 | 11.3 | $ | 172,905 | 6.1 | 520 | ||||||||||||||||||||||
(1)
Excluded items presented above under “
Operating income
,” and “
Income tax expense
”
Net income per share attributable to A&F
| Thirteen Weeks Ended | |||||||||||||||||
| November 2, 2024 | October 28, 2023 | $ Change | |||||||||||||||
|
Net income per diluted share attributable to A&F
|
$ | 2.50 | $ | 1.83 | $ | 0.67 | |||||||||||
| Impact from changes in foreign currency exchange rates | — | 0.07 | (0.07) | ||||||||||||||
|
Adjusted non-GAAP net income per diluted share attributable to A&F on a constant currency basis
(2)
|
$ | 2.50 | $ | 1.90 | $ | 0.60 | |||||||||||
| Thirty-Nine Weeks Ended | |||||||||||||||||
| November 2, 2024 | October 28, 2023 | $ Change | |||||||||||||||
|
Net income per diluted share attributable to A&F
|
$ | 7.13 | $ | 3.25 | $ | 3.88 | |||||||||||
|
Excluded items, net of tax
(1)
|
— | 0.06 | (0.06) | ||||||||||||||
|
Adjusted non-GAAP net income per diluted share attributable to A&F
(2)
|
$ | 7.13 | $ | 3.32 | $ | 3.81 | |||||||||||
| Impact from changes in foreign currency exchange rates | — | 0.05 | (0.05) | ||||||||||||||
|
Adjusted non-GAAP net income per diluted share attributable to A&F on a constant currency basis
(2)
|
$ | 7.13 | $ | 3.37 | $ | 3.76 | |||||||||||
(1)
Excluded items presented above under “
Operating income
,” and “
Income tax expense.
”
| Abercrombie & Fitch Co. |
33
|
2024 3Q Form 10-Q
|
||||||
EBITDA and adjusted EBITDA
| Thirteen Weeks Ended | |||||||||||||||||||||||||||||
| November 2, 2024 | October 28, 2023 | ||||||||||||||||||||||||||||
| (in thousands, except ratios) | % of Net sales | % of Net sales | BPS Change | ||||||||||||||||||||||||||
| Net income | $ | 133,864 | 11.1 | % | $ | 97,732 | 9.3 | % | 180 | ||||||||||||||||||||
| Income tax expense | 54,151 | 4.5 | 39,617 | 3.8 | 70 | ||||||||||||||||||||||||
| Interest (income) expense, net | (8,733) | (0.7) | 671 | 0.1 | (80) | ||||||||||||||||||||||||
| Depreciation and amortization | 39,566 | 3.2 | 33,136 | 3.0 | 20 | ||||||||||||||||||||||||
|
EBITDA
(1)
|
$ | 218,848 | 18.1 | $ | 171,156 | 16.2 | 190 | ||||||||||||||||||||||
| Thirty-Nine Weeks Ended | |||||||||||||||||||||||||||||
| November 2, 2024 | October 28, 2023 | ||||||||||||||||||||||||||||
| (in thousands, except ratios) | % of Net sales | % of Net sales | BPS Change | ||||||||||||||||||||||||||
| Net income | $ | 384,321 | 11.4 | % | $ | 174,310 | 6.2 | % | 520 | ||||||||||||||||||||
| Income tax expense | 119,394 | 3.5 | 82,349 | 2.9 | 60 | ||||||||||||||||||||||||
| Interest (income) expense, net | (18,959) | (0.6) | 5,211 | 0.2 | (80) | ||||||||||||||||||||||||
| Depreciation and amortization | 116,610 | 3.6 | 105,547 | 3.7 | (10) | ||||||||||||||||||||||||
|
EBITDA
(1)
|
$ | 601,366 | 17.9 | $ | 367,417 | 13.0 | 490 | ||||||||||||||||||||||
| Excluded items: | |||||||||||||||||||||||||||||
|
Asset impairment charges
(1)
|
— | — | 4,436 | 0.2 | (20) | ||||||||||||||||||||||||
|
Adjusted EBITDA
(1)
|
$ | 601,366 | 17.9 | $ | 371,853 | 13.2 | 470 | ||||||||||||||||||||||
(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. Refer to “
NON-GAAP FINANCIAL MEASURES
” for further details.
| Abercrombie & Fitch Co. |
34
|
2024 3Q Form 10-Q
|
||||||
LIQUIDITY AND CAPITAL RESOURCES
Overview
The Company’s capital allocation strategy and priorities are reviewed by the 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 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 and dividends
.”
Primary sources and uses of cash
The Company’s business has two principal selling seasons: 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
”.
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, 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, management continuously evaluates potential opportunities to strategically deploy excess cash and/or deleverage the balance sheet, in consideration of 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 and with the Company’s strategic pillars as described within Part I, “Item 1. Business - STRATEGY AND KEY BUSINESS PRIORITIES” included on the Fiscal 2023 Form 10-K, including being opportunistic regarding growth opportunities. Examples of potential investment opportunities include, but are not limited to, new store experiences, and investments in the Company’s digital and omnichannel initiatives. Historically, the Company has utilized free cash flow generated from operations to fund any discretionary capital expenditures, which have been prioritized towards new store experiences, as well as digital and omnichannel investments, and information technology. For the year-to-date period ended November 2, 2024, the Company invested $132.0 million towards capital expenditures. Total capital expenditures for Fiscal 2024 are expected to be approximately $170 million.
The Company measures liquidity using total cash and cash equivalents and incremental borrowing available under the ABL Facility. As of November 2, 2024, the Company had cash and cash equivalents of $683.1 million and total liquidity of approximately $1.1 billion, compared with cash and cash equivalents of $900.9 million and total liquidity of approximately $1.2 billion at the beginning of Fiscal 2024.
Share repurchases and dividends
In November 2021, the Board of Directors approved a $500 million share repurchase authorization, replacing the prior 2021 share repurchase authorization of 10.0 million shares, which had approximately 3.9 million shares remaining available. During the year-to-date period ended November 2, 2024, the Company repurchased approximately 0.9 million shares of its Common Stock pursuant to this share repurchase authorization for approximately $129.8 million. As of November 2, 2024 t
he Company had $102 million in share repurchases remaining under the authorization approved in November 2021.
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 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”), through privately negotiated transactions or other transactions or by a combination of such methods.
In May 2020, the Company suspended its dividend program. The Company may in the future review its dividend program to determine, in light of facts and circumstances at that time, whether and when to reinstate. Any dividends are declared at the discretion of the Company’s Board of Directors. The Board of Directors reviews and establishes a dividend amount, if at all, based on the Company’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 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.
| Abercrombie & Fitch Co. |
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|
2024 3Q Form 10-Q
|
||||||
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 2025, 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, together with the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent for the lenders. The Second Amendment amends the existing ABL Credit Agreement, which provided for a $400 million senior secured asset-based revolving credit 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 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; and
•
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); and
•
from 1.50% to 1.75% when average availability is less than 50% of the Loan Cap.
As of November 2, 2024, the Company did not have any borrowings outstanding under the ABL Facility.
Details regarding the remaining borrowing capacity under the ABL Facility as of November 2, 2024 are as follows:
| (in thousands) | November 2, 2024 | ||||
| Loan cap | $ | 500,000 | |||
| Less: Outstanding stand-by letters of credit | (443) | ||||
| Borrowing capacity | 499,557 | ||||
|
Less: Minimum excess availability
(1)
|
(50,000) | ||||
| Borrowing capacity available | $ | 449,557 | |||
(1)
Under the ABL Facility, the Company must maintain excess availability equal to the greater of 10% of the loan cap or $36 million.
Income taxes
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 could be repatriated without incurring additional tax expense. As of November 2, 2024, $262.8 million of the Company’s $683.1 million of cash and equivalents were held by foreign affiliates.
| Abercrombie & Fitch Co. |
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|
2024 3Q Form 10-Q
|
||||||
Analysis of cash flows
The table below provides certain components of the Company’s Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks ended November 2, 2024 and October 28, 2023:
| Thirty-Nine Weeks Ended | |||||||||||
| November 2, 2024 | October 28, 2023 | ||||||||||
| (in thousands) | |||||||||||
| Cash and equivalents, and restricted cash and equivalents, beginning of period | $ | 909,685 | $ | 527,569 | |||||||
| Net cash provided by operating activities | 402,756 | 350,142 | |||||||||
| Net cash used for investing activities | (187,040) | (127,986) | |||||||||
| Net cash used for financing activities | (432,570) | (87,106) | |||||||||
| Effect of foreign currency exchange rates on cash | (1,834) | (4,491) | |||||||||
| Net (decrease) increase in cash and equivalents, and restricted cash and equivalents | (218,688) | 130,559 | |||||||||
| Cash and equivalents, and restricted cash and equivalents, end of period | $ | 690,997 | $ | 658,128 | |||||||
Operating activities
-
During the year-to-date period ended November 2, 2024, net cash provided by operating activities included increased cash receipts as a result of the 19% year-over-year increase in net sales. During the year-to-date period ended October 28, 2023, net cash used for operating activities included increased cash receipts as a result of the 13% year-over-year increase in net sales, as well as increased payments to vendors in the fourth quarter of Fiscal 2022, which resulted in lower cash payments in the first quarter of Fiscal 2023.
Investing activities
-
During the year-to-date period ended November 2, 2024, net cash used for investing activities was primarily used for capital expenditures of $132 million, as well as the purchase of $55 million of marketable securities. Net cash used for investing activities for the year-to-date period ended October 28, 2023 was primarily used for capital expenditures of $128.6 million.
Financing activities
-
During the year-to-date period ended November 2, 2024, net cash used for financing activities included the repurchase of $9.3 million in the open market and the complete redemption of $214 million of outstanding Senior Secured Notes, $70 million related to shares of Common Stock withheld (repurchased) to cover tax withholdings upon vesting of share-based compensation awards, and the purchase of approximately 0.9 million shares of Common Stock with a market value of approximately $129.8 million. During the year-to-date period ended October 28, 2023, net cash used for financing activities included amounts related to shares of Common Stock withheld (repurchased) to cover tax withholdings upon vesting of share-based compensation awards, the repurchase of Senior Secured Notes in the open market.
Contractual obligations
The Company’s contractual obligations consist primarily of operating leases, purchase orders for merchandise inventory, unrecognized tax benefits, certain retirement obligations, lease deposits, and other agreements to purchase goods and services that are legally binding and that require minimum quantities to be purchased. These contractual obligations impact the Company’s short-term and long-term liquidity and capital resource needs.
There have been no material changes in the Company’s contractual obligations since February 3, 2024, with the exception of those obligations which occurred in the normal course of business (primarily changes in the Company’s merchandise inventory-related purchases and lease obligations, which fluctuate throughout the year as a result of the seasonal nature of the Company’s operations).
RECENT ACCOUNTING PRONOUNCEMENTS
The Company describes its significant accounting policies in Note 2, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
,
” of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data” included on the Fiscal 2023 Form 10-K. The Company reviews recent accounting pronouncements on a quarterly basis and has excluded discussion of those not applicable to the Company and those that did not have, or are not expected to have, a material impact on the Company’s consolidated financial statements.
CRITICAL ACCOUNTING ESTIMATES
The Company describes its critical accounting estimates in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included on the Fiscal 2023 Form 10-K. There have been no significant changes in critical accounting policies and estimates since the end of Fiscal 2023.
| Abercrombie & Fitch Co. |
37
|
2024 3Q Form 10-Q
|
||||||
NON-GAAP FINANCIAL MEASURES
This Quarterly Report on Form 10-Q includes discussion of certain financial measures calculated and presented on both a GAAP and a non-GAAP basis. The Company believes that each of the non-GAAP financial measures presented in this “
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
” is useful to investors as it provides a meaningful basis to evaluate the Company’s operating performance excluding the effect of certain items that the Company believes may not reflect its future operating outlook, such as certain asset impairment charges, thereby supplementing investors’ understanding of comparability of operations across periods. Management used these non-GAAP financial measures during the periods presented to assess the Company’s performance and to develop expectations for future operating performance. These non-GAAP financial measures should be used as a supplement to, and not as an alternative to, the Company’s GAAP financial results, and may not be calculated in the same manner as similar measures presented by other companies.
Comparable sales
The Company provides comparable sales, defined as the year-over-year percentage change in the aggregate of (1) net sales for stores that have been open as the same brand at least one year and square footage has not been expanded or reduced by more than 20% within the past year, with the prior year’s net sales converted at the current year’s foreign currency exchange rates to remove the impact of foreign currency exchange rate fluctuations, and (2) digital net sales with the prior year’s net sales converted at the current year’s foreign currency exchange rates to remove the impact of foreign currency exchange rate fluctuations. Comparable sales excludes revenue other than store and digital sales. Management uses comparable sales to understand the drivers of year-over-year changes in net sales and believes that comparable sales can be a useful metric as it can assist investors in distinguishing the portion of the Company’s revenue attributable to existing locations from the portion attributable to the opening or closing of stores. The most directly comparable GAAP financial measure is change in net sales.
Excluded items
The following financial measures are disclosed on a GAAP and on an adjusted non-GAAP basis excluding the following items, as applicable:
|
Financial measures
(1)
|
Excluded items | |||||||
| Operating income | Asset impairment charges | |||||||
|
Income tax expense
(2)
|
Tax effect of pre-tax excluded items | |||||||
|
Net income and net income per share attributable to A&F
(2)
|
Pre-tax excluded items and the tax effect of pre-tax excluded items | |||||||
(1)
Certain of these financial measures are also expressed as a percentage of net sales.
(2)
The tax effect of excluded items is the difference between the tax provision calculation on a GAAP basis and on an adjusted non-GAAP basis.
| Abercrombie & Fitch Co. |
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|
2024 3Q Form 10-Q
|
||||||
Financial information on a constant currency basis
The Company provides certain financial information on a constant currency basis to enhance investors’ understanding of underlying business trends and operating performance by removing the impact of foreign currency exchange rate fluctuations. 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 per diluted share effect from foreign currency exchange rates is calculated using a 26% effective tax rate.
Reconciliations of non-GAAP financial metrics on a constant currency basis to financial measures calculated and presented in accordance with GAAP for the thirteen and thirty-nine weeks ended November 2, 2024 and October 28, 2023 were as follows:
| (in thousands, except change in net sales, gross profit rate, operating margin and per share data) | Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||||||||||||||||||||
| Net sales | November 2, 2024 | October 28, 2023 | % Change | November 2, 2024 | October 28, 2023 | % Change | |||||||||||||||||||||||||||||
| GAAP | $ | 1,208,966 | $ | 1,056,431 | 14 | % | $ | 3,363,670 | $ | 2,827,770 | 19 | % | |||||||||||||||||||||||
| Impact from changes in foreign currency exchange rates | — | 5,289 | (1) | — | 2,378 | — | |||||||||||||||||||||||||||||
| Non-GAAP on a constant currency basis | $ | 1,208,966 | $ | 1,061,720 | 14 | % | $ | 3,363,670 | $ | 2,830,148 | 19 | % | |||||||||||||||||||||||
| Gross profit, exclusive of depreciation and amortization expense | November 2, 2024 | October 28, 2023 |
BPS Change
(1)
|
November 2, 2024 | October 28, 2023 |
BPS Change
(1)
|
|||||||||||||||||||||||||||||
| GAAP | $ | 786,932 | $ | 685,669 | 20 | $ | 2,200,651 | $ | 1,779,843 | 250 | |||||||||||||||||||||||||
| Impact from changes in foreign currency exchange rates | — | 5,319 | (20) | — | 6,129 | (20) | |||||||||||||||||||||||||||||
| Non-GAAP on a constant currency basis | $ | 786,932 | $ | 690,988 | — | $ | 2,200,651 | $ | 1,785,972 | 230 | |||||||||||||||||||||||||
| Operating income | November 2, 2024 | October 28, 2023 |
BPS Change
(1)
|
November 2, 2024 | October 28, 2023 |
BPS Change
(1)
|
|||||||||||||||||||||||||||||
| GAAP | $ | 179,282 | $ | 138,020 | 170 | $ | 484,756 | $ | 261,870 | 510 | |||||||||||||||||||||||||
|
Excluded items
(2)
|
— | — | — | — | (4,436) | 10 | |||||||||||||||||||||||||||||
| Adjusted non-GAAP | $ | 179,282 | $ | 138,020 | 170 | $ | 484,756 | $ | 266,306 | 500 | |||||||||||||||||||||||||
| Impact from changes in foreign currency exchange rates | — | 4,915 | (40) | — | 3,912 | (10) | |||||||||||||||||||||||||||||
| Adjusted non-GAAP on a constant currency basis | $ | 179,282 | $ | 142,935 | 130 | $ | 484,756 | $ | 270,218 | 490 | |||||||||||||||||||||||||
| Net income per share attributable to A&F | November 2, 2024 | October 28, 2023 | $ Change | November 2, 2024 | October 28, 2023 | $ Change | |||||||||||||||||||||||||||||
| GAAP | $ | 2.50 | $ | 1.83 | $ | 0.67 | $ | 7.13 | $ | 3.25 | $ | 3.88 | |||||||||||||||||||||||
|
Excluded items, net of tax
(2)
|
— | — | — | — | (0.06) | 0.06 | |||||||||||||||||||||||||||||
| Adjusted non-GAAP | $ | 2.50 | $ | 1.83 | $ | 0.67 | $ | 7.13 | $ | 3.32 | $ | 3.81 | |||||||||||||||||||||||
| Impact from changes in foreign currency exchange rates | — | 0.07 | (0.07) | — | 0.05 | (0.05) | |||||||||||||||||||||||||||||
| Adjusted non-GAAP on a constant currency basis | $ | 2.50 | $ | 1.90 | $ | 0.60 | $ | 7.13 | $ | 3.37 | $ | 3.76 | |||||||||||||||||||||||
(1)
The estimated basis point change has been rounded based on the change in the percentage of net sales.
(2)
Excluded items for the thirty-nine weeks ended October 28, 2023 consisted of pre-tax store asset impairment charges and the tax effect of pre-tax excluded items.
| Abercrombie & Fitch Co. |
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2024 3Q Form 10-Q
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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 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 the thirteen and thirty-nine weeks ended November 2, 2024 and October 28, 2023 were as follows:
| Thirteen Weeks Ended | ||||||||||||||||||||
| (in thousands, except ratios) | November 2, 2024 |
% of
Net Sales |
October 28, 2023 |
% of
Net Sales |
||||||||||||||||
| Net income | $ | 133,864 | 11.1 | % | $ | 97,732 | 9.3 | % | ||||||||||||
| Income tax expense | 54,151 | 4.5 | 39,617 | 3.8 | ||||||||||||||||
| Interest (income) expense, net | (8,733) | (0.7) | 671 | 0.1 | ||||||||||||||||
| Depreciation and amortization | 39,566 | 3.2 | 33,136 | 3.0 | ||||||||||||||||
|
EBITDA
(1)
|
$ | 218,848 | 18.1 | $ | 171,156 | 16.2 | ||||||||||||||
| Thirty-Nine Weeks Ended | ||||||||||||||||||||
| (in thousands, except ratios) | November 2, 2024 |
% of
Net Sales |
October 28, 2023 |
% of
Net Sales |
||||||||||||||||
| Net income | $ | 384,321 | 11.4 | % | $ | 174,310 | 6.2 | % | ||||||||||||
| Income tax expense | 119,394 | 3.5 | 82,349 | 2.9 | ||||||||||||||||
| Interest (income) expense, net | (18,959) | (0.6) | 5,211 | 0.2 | ||||||||||||||||
| Depreciation and amortization | 116,610 | 3.6 | 105,547 | 3.7 | ||||||||||||||||
|
EBITDA
(1)
|
$ | 601,366 | 17.9 | $ | 367,417 | 13.0 | ||||||||||||||
| Adjustments to EBITDA | ||||||||||||||||||||
|
Asset impairment
(1)
|
— | — | 4,436 | 0.2 | ||||||||||||||||
|
Adjusted EBITDA
(1)
|
$ | 601,366 | 17.9 | $ | 371,853 | 13.2 | ||||||||||||||
(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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2024 3Q Form 10-Q
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
INVESTMENT SECURITIES
The Company maintains its cash equivalents in financial instruments, primarily time deposits and money market funds, with original maturities of three months or less. Recently the Company invested in short-term marketable securities with maturities less than twelve months. Due to the short-term nature of these instruments, changes in interest rates are not expected to materially affect the fair value of these financial instruments.
The Rabbi Trust includes amounts 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. The change in cash surrender value resulted in realized gains of $0.3 million and $0.3 million for the thirteen weeks ended November 2, 2024 and October 28, 2023, respectively and $1.0 million and $1.6 million for the thirty-nine weeks ended November 2, 2024 and October 28, 2023, respectively. The realized gains were recorded in interest (income) expense, net on the Condensed Consolidated Statements of Operations and Comprehensive Income.
The Rabbi Trust assets were included in other assets on the Condensed Consolidated Balance Sheets as of November 2, 2024 and February 3, 2024 and are restricted in their use as noted above.
INTEREST RATE RISK
Prior to July 2, 2020, the Company’s exposure to market risk due to changes in interest rates related primarily to the increase or decrease in the amount of interest expense from fluctuations in the LIBO rate, or an alternate base rate associated with the Company’s former term loan facility (the “Term Loan Facility”) and the ABL Facility. On July 2, 2020, the Company issued the Senior Secured Notes and repaid all outstanding borrowings under the Term Loan Facility and the ABL Facility, thereby eliminating any then-existing cash flow market risk due to changes in interest rates. On July 15, 2024, the Company redeemed all of its outstanding Senior Secured Notes, thereby eliminating that interest rate risk. This analysis for Fiscal 2024 may differ from the actual results due to potential changes in gross borrowings outstanding under the ABL Facility and potential changes in interest rate terms and limitations described within the Amended and Restated Credit Agreement.
In July 2017, the Financial Conduct Authority (the authority that regulates LIBO rate) announced it intended to stop compelling banks to submit rates for the calculation of LIBO rate after 2021. Certain publications of the LIBO rate were phased out at the end of 2021 and all LIBO rate publications ceased after June 30, 2023. On March 15, 2023, the Company entered into the First Amendment to the Amended and Restated Credit Agreement (the “First Amendment”) to eliminate LIBO rate based loans and to use the current market definitions with respect to the Secured Overnight Financing Rate, as well as to make other conforming changes.
FOREIGN CURRENCY EXCHANGE RATE RISK
A&F’s international subsidiaries generally operate with functional currencies other than the U.S. dollar. Since the Company’s Condensed Consolidated Financial Statements are presented in U.S. dollars, the Company must translate all components of these financial statements from functional currencies into U.S. dollars at exchange rates in effect during or at the end of the reporting period. The fluctuation in the value of the U.S. dollar against other currencies affects the reported amounts of revenues, expenses, assets, and liabilities. The potential impact of foreign currency exchange rate fluctuations increases as international operations relative to domestic operations increase.
A&F and its subsidiaries have exposure to changes in foreign currency exchange rates associated with foreign currency transactions and forecasted foreign currency transactions, including the purchase of inventory between subsidiaries and foreign-currency-denominated assets and liabilities. The Company has established a program that primarily utilizes foreign currency exchange forward contracts to partially offset the risks associated with the effects of certain foreign currency transactions and forecasted transactions. Under this program, increases or decreases in foreign currency exchange rate exposures are partially offset by gains or losses on foreign currency exchange forward contracts, to mitigate the impact of foreign currency exchange gains or losses. The Company does not use forward contracts to engage in currency speculation. Outstanding foreign currency exchange forward contracts are recorded at fair value at the end of each fiscal period.
Foreign currency exchange forward contracts are sensitive to changes in foreign currency exchange rates. As of November 2, 2024, the Company assessed the risk of loss in fair values from the effect of a hypothetical 10% devaluation of the U.S. dollar against the exchange rates for foreign currencies under contract. Such a hypothetical devaluation would decrease derivative contract fair values by approximately $15.7 million. As the Company’s foreign currency exchange forward contracts are primarily designated as cash flow hedges of forecasted transactions, the hypothetical change in fair values would be expected to be largely offset by the net change in fair values of the underlying hedged items. Refer to Note 12, “
DERIVATIVE INSTRUMENTS
,” for the fair value of any outstanding foreign currency exchange forward contracts included in other current assets and accrued expenses as of November 2, 2024 and February 3, 2024.
| Abercrombie & Fitch Co. |
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2024 3Q Form 10-Q
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Item 4. Controls and Procedures
DISCLOSURE CONTROLS AND PROCEDURES
A&F maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed in the reports that A&F files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to A&F’s management, including A&F’s Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Because of inherent limitations, disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of disclosure controls and procedures are met.
A&F’s management, including the Chief Executive Officer of A&F (who serves as Principal Executive Officer of A&F) and the Senior Vice President and Chief Financial Officer of A&F (who serves as Principal Financial Officer of A&F), evaluated the effectiveness of A&F’s design and operation of its disclosure controls and procedures as of the end of the fiscal quarter ended November 2, 2024. The Chief Executive Officer of A&F (in such individual’s capacity as the Principal Executive Officer of A&F) and the Senior Vice President, Chief Financial Officer of A&F (in such individual’s capacity as the Principal Financial Officer of A&F) concluded that A&F’s disclosure controls and procedures were effective at a reasonable level of assurance as of November 2, 2024.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in A&F’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended November 2, 2024 that materially affected, or are reasonably likely to materially affect, A&F’s internal control over financial reporting.
| Abercrombie & Fitch Co. |
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2024 3Q Form 10-Q
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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. The Company’s accrued charges for certain legal contingencies are classified within accrued expenses on the Condensed Consolidated Balance Sheets included in “
Item 1. Financial Statements (Unaudited)
,” of Part I of this Quarterly Report on Form 10-Q. 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 and the terms of any approval by the courts, and there can be no assurance that the 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.
In addition, pursuant to Item 103(c)(3)(iii) of Regulation S-K under the Exchange Act, the Company is required to disclose certain information about environmental proceedings to which a governmental authority is a party if the Company reasonably believes such proceedings may result in monetary sanctions, exclusive of interest and costs, above a stated threshold. The Company has elected to apply a threshold of $1 million for purposes of determining whether disclosure of any such proceedings is required.
Item 1A. Risk Factors
Other than identified below, the Company’s risk factors as of November 2, 2024 have not changed materially from those disclosed in Part I, “Item 1A. Risk Factors” of the Fiscal 2023 Form 10-K.
Misconduct or illegal activities by our current and former associates, directors, advisers, third-party service providers, or others affiliated, or perceived to be affiliated, with the Company could subject to us to reputational harm, regulatory scrutiny or inquiries, or legal liability
.
There is a risk that current or former associates, executives, directors, advisers or third party-service providers of the Company, or others who are actually or perceived to be affiliated with the Company, could engage, deliberately or recklessly, in misconduct or fraud that creates legal exposure for the Company and adversely affects our business. If such individuals were to engage, or be accused of engaging in, illegal or suspicious activities, sexual misconduct or harassment, racial or gender discrimination, improper use or disclosure of confidential information, fraud, payment or solicitation of bribes, or any other type of similar misconduct or violation of other laws and regulations, during their employment or service with the Company, we could suffer serious harm to our brand, reputation, be subject to penalties or sanctions, suffer serious harm to our financial position and current and future business relationships, and face potentially significant litigation or investigations.
In particular, Michael Jeffries, who served as chief executive officer of the Company from 1992 to 2014, has been accused of sexual abuse and exploitation, which accusations include claims relating to behavior that is alleged to have occurred during his prior tenure with the Company. Criminal charges have been filed against Mr. Jeffries, and there is a pending civil suit against Mr. Jeffries and the Company that relates to this alleged behavior. Although we believe the claims against the Company are without merit, the allegations against this former executive, as well as the claims brought against the Company, have resulted in negative media attention and may result in additional litigation or may result in other adverse consequences to our reputation, brand, and business. In addition, in early March 2024, the Delaware Court of Chancery ruled that Mr. Jeffries was entitled to advancement by the Company of his defense costs for the civil litigation. Mr. Jeffries is now seeking advancement of defense costs for his criminal prosecution, which the Company intends to oppose.
| Abercrombie & Fitch Co. |
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|
2024 3Q Form 10-Q
|
||||||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no sales of equity securities during the third quarter of Fiscal 2024 that were not registered under the Securities Act of 1933, as amended.
The following table provides information regarding the purchase of shares of Common Stock made by or on behalf of A&F or any “affiliated purchaser” as defined in Rule 10b-18(a)(3) under the Exchange Act during each fiscal month of the thirteen weeks ended November 2, 2024:
| Period (fiscal month) |
Total Number of Shares Purchased
(1)
|
Average Price Paid per Share
(4)
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
(2)
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
(2)(3)(4)
|
|||||||||||||||||||
| August 4, 2024 through August 31, 2024 | 8,307 | $ | 165.22 | — | $ | 202,184,894 | |||||||||||||||||
| September 1, 2024 through October 5, 2024 | 578,557 | 136.13 | 572,391 | 124,253,992 | |||||||||||||||||||
| October 6, 2024 through November 2, 2024 | 149,367 | 147.61 | 148,296 | 102,378,203 | |||||||||||||||||||
| Total | 736,231 | 138.79 | 720,687 | 102,378,203 | |||||||||||||||||||
(1)
An aggregate of 15,544 shares of Common Stock purchased during the thirteen weeks ended November 2, 2024 were withheld for tax payments due upon the vesting of employee restricted stock units and the exercise of employee stock appreciation rights.
(2)
On November 23, 2021, the Company announced that A&F’s Board of Directors approved a new $500 million share repurchase authorization, replacing the prior 2021 share repurchase authorization of 10.0 million shares, which had approximately 3.9 million shares remaining available for repurchase.
(3)
The number shown represents, as of the end of each period, the approximate dollar value of Common Stock that may yet be purchased under A&F’s publicly announced share repurchase authorization described in footnote 2 above. The shares may be purchased, from time to time depending on business and market conditions.
(4)
The aggregate cost of share repurchases and average price paid per share excludes excise tax.
| Abercrombie & Fitch Co. |
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2024 3Q Form 10-Q
|
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Item 5. Other Information
During the thirteen weeks ended November 2, 2024,
no
director or officer of the Company adopted a new “Rule 10b5-1 trading arrangement ” or “non-Rule 10b5-1 trading arrangement,” and
no
director or officer of the Company modified or terminated an existing “Rule 10b5-1 trading arrangement ” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K under the Exchange Act, other than as follows:
•
On
August 30, 2024
,
Fran Horowitz
, our
Chief Executive Officer
,
adopted
a trading plan intended to satisfy the conditions under Rule 10b5-1(c) of the Exchange Act. Ms. Horowitz’s plan is for the sale of up to
250,000
shares of our common stock in amounts and prices determined in accordance with plan terms and terminates on the earlier of: (i) the date that all the shares under the plan are sold or (ii) August 22, 2025.
Item 6. Exhibits
| Exhibit | Document | |||||||
| 3.1 | ||||||||
| 3.2 |
Amended and Restated Bylaws of Abercrombie & Fitch Co. reflecting amendments through the date of this Quarterly Report on Form 10-Q, incorporated herein by reference to Exhibit 3.1 to A&F’s Current Report on Form 8-K dated and filed
No
vember 26
, 202
4
(File No. 001-12107) [This document represents the Amended and Restated Bylaws of Abercrombie & Fitch Co. in compiled form incorporating all amendments.]
|
|||||||
|
10.1
|
||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its Inline XBRL tags are embedded within the Inline XBRL document.* | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document.* | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document.* | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document.* | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document.* | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document.* | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101).* | |||||||
* Filed herewith.
** Furnished herewith.
Ɨ
Certain schedules and attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish a copy of such schedules and attachments to the Securities and Exchange Commission upon its request.
| Abercrombie & Fitch Co. |
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2024 3Q Form 10-Q
|
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Abercrombie & Fitch Co. | ||||||||
|
Date: December 6, 2024
|
By: |
/s/ Robert J. Ball
|
||||||
|
Robert J. Ball
|
||||||||
|
Senior Vice President, Chief Financial Officer
(Principal Financial Officer and Authorized Officer)
|
||||||||
|
By:
|
/s/ Joseph Frericks
|
|||||||
|
Joseph Frericks
|
||||||||
|
Group Vice President, Corporate Controller
(Principal Accounting Officer)
|
||||||||
| Abercrombie & Fitch Co. |
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2024 3Q Form 10-Q
|
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TABLE OF CONTENTS
Part I. Financial InformationprintItem 1. Financial Statements (unaudited)printItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 3. Quantitative and Qualitative Disclosures About Market RiskprintItem 4. Controls and ProceduresprintPart II. Other InformationprintItem 1. Legal ProceedingsprintItem 1A. Risk FactorsprintItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 5. Other InformationprintItem 6. Exhibitsprint