UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~FORM~~ Form 10-Q

(Mark One)



☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~November 2, 2019~~October 31, 2020

ORor



☐			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 ~~1-12107~~001-12107

~~ABERCROMBIE~~Abercrombie & ~~FITCH CO.~~Fitch Co.

(Exact name of Registrant as specified in its charter)

Delaware

31-1469076

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

6301 Fitch Path,

New Albany,

Ohio

43054

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code:

(614)

283-6500


Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

~~Registrant’s telephone number, including area code: (614) 283-6500~~

~~Not Applicable~~

~~(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

Class A Common Stock, $0.01 Par Value

ANF

New York Stock Exchange

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 ☐¨ 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.



Large accelerated filer	☒x	Accelerated filer	☐¨
Non-accelerated filer	☐¨	Smaller reporting company	☐
		Emerging growth company	☐

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).☐Yes ☒x 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 ~~6, 2019~~2, 2020
$~~.01~~0.01 Par Value						~~62,748,098~~62,390,672

Table of Contents

~~ABERCROMBIE & FITCH CO.~~

~~TABLE OF CONTENTS~~

Table of Contents

PART I. FINANCIAL INFORMATION


~~ITEM 1.~~	~~FINANCIAL STATEMENTS (UNAUDITED)~~

~~ABERCROMBIE & FITCH CO.~~Item 1. Financial Statements (Unaudited)

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)~~

Abercrombie & Fitch Co.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(Thousands, except per share amounts)

(Unaudited)


	Thirteen Weeks Ended				Thirty-nine Weeks Ended
	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
Net sales	$	819,653	$	863,472	$	2,003,340	$	2,438,522
Cost of sales, exclusive of depreciation and amortization	295,220		344,541		791,154		976,868
Gross profit	524,433		518,931		1,212,186		1,461,654
Stores and distribution expense	346,263		377,697		978,757		1,110,656
Marketing, general and administrative expense	121,000		114,075		326,509		341,716
Flagship store exit (benefits) charges	(8,063)		285		(12,490)		47,023
Asset impairment, exclusive of flagship store exit charges	6,329		12,610		57,340		14,987
Other operating loss (income), net	288		(215)		(1,562)		(465)
Operating income (loss)	58,616		14,479		(136,368)		(52,263)
Interest expense, net	8,808		2,922		19,277		4,908
Income (loss) before income taxes	49,808		11,557		(155,645)		(57,171)
Income tax expense (benefit)	5,779		3,987		38,565		(16,931)
Net income (loss)	44,029		7,570		(194,210)		(40,240)
Less: Net income attributable to noncontrolling interests	1,758		1,047		2,203		3,534
Net income (loss) attributable to A&F	$	42,271	$	6,523	$	(196,413)	$	(43,774)

Net income (loss) per share attributable to A&F
Basic	$	0.68	$	0.10	$	(3.14)	$	(0.67)
Diluted	$	0.66	$	0.10	$	(3.14)	$	(0.67)

Weighted-average shares outstanding
Basic	62,558		63,099		62,541		64,932
Diluted	63,877		63,911		62,541		64,932

Other comprehensive (loss) income
Foreign currency translation, net of tax	$	2,142	$	1,355	$	5,477	$	(5,219)
Derivative financial instruments, net of tax	(5,234)		(3,654)		1,224		(574)
Other comprehensive (loss) income	(3,092)		(2,299)		6,701		(5,793)
Comprehensive income (loss)	40,937		5,271		(187,509)		(46,033)
Less: Comprehensive income attributable to noncontrolling interests	1,758		1,047		2,203		3,534
Comprehensive income (loss) attributable to A&F	$	39,179	$	4,224	$	(189,712)	$	(49,567)

Thirteen Weeks Ended Thirty-nine Weeks Ended
November 2, 2019 November 3, 2018 November 2, 2019 November 3, 2018
Net sales $ 863,472
$ 861,194
$ 2,438,522
$ 2,434,507
Cost of sales, exclusive of depreciation and amortization 344,541
333,375
976,868
957,448
Gross profit 518,931
527,819
1,461,654
1,477,059
Stores and distribution expense 377,697
371,859
1,110,656
1,103,758
Marketing, general and administrative expense 114,075
117,181
341,716
365,961
Flagship store exit charges 285
—
47,023
3,808
Asset impairment, exclusive of flagship store exit charges 12,610
656
14,987
10,383
Other operating income, net (215 ) (1,557 ) (465 ) (4,551 )
Operating income (loss) 14,479
39,680
(52,263 ) (2,300 )
Interest expense, net 2,922
2,857
4,908
8,898
Income (loss) before income taxes 11,557
36,823
(57,171 ) (11,198 )
Income tax expense (benefit) 3,987
12,047
(16,931 ) 8,358
Net income (loss) 7,570
24,776
(40,240 ) (19,556 )
Less: Net income attributable to noncontrolling interests 1,047
857
3,534
2,839
Net income (loss) attributable to A&F $ 6,523
$ 23,919
$ (43,774 ) $ (22,395 )

Net income (loss) per share attributable to A&F
Basic $ 0.10
$ 0.36
$ (0.67 ) $ (0.33 )
Diluted $ 0.10
$ 0.35
$ (0.67 ) $ (0.33 )

Weighted-average shares outstanding
Basic 63,099
66,818
64,932
67,775
Diluted 63,911
68,308
64,932
67,775

Other comprehensive loss
Foreign currency translation, net of tax $ 1,355
$ (3,095 ) $ (5,219 ) $ (22,640 )
Derivative financial instruments, net of tax (3,654 ) (681 ) (574 ) 19,026
Other comprehensive loss (2,299 ) (3,776 ) (5,793 ) (3,614 )
Comprehensive income (loss) 5,271
21,000
(46,033 ) (23,170 )
Less: Comprehensive income attributable to noncontrolling interests 1,047
857
3,534
2,839
Comprehensive income (loss) attributable to A&F $ 4,224
$ 20,143
$ (49,567 ) $ (26,009 )

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

Table of Contents

Abercrombie & Fitch Co.

~~ABERCROMBIE & FITCH CO.~~

~~CONDENSED CONSOLIDATED BALANCE SHEETS~~Condensed Consolidated Balance Sheets

(Thousands, except par value amounts)

(Unaudited)


	October 31, 2020		February 1, 2020
Assets
Current assets:
Cash and equivalents	$	812,881	$	671,267
Receivables	89,074		80,251
Inventories	545,548		434,326
Other current assets	73,776		78,905
Total current assets	1,521,279		1,264,749
Property and equipment, net	593,932		665,290
Operating lease right-of-use assets	955,781		1,230,954
Other assets	205,970		388,672
Total assets	$	3,276,962	$	3,549,665
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	334,775	$	219,919
Accrued expenses	356,370		302,214
Short-term portion of operating lease liabilities	255,775		282,829

Income taxes payable	6,663		10,392
Total current liabilities	953,583		815,354
Long-term liabilities:
Long-term portion of operating lease liabilities	1,010,051		1,252,634
Long-term borrowings, net	343,559		231,963
Other liabilities	110,965		178,536
Total long-term liabilities	1,464,575		1,663,133
Stockholders’ equity
Class A Common Stock - $0.01 par value: 150,000 shares authorized and 103,300 shares issued for all periods presented	1,033		1,033
Paid-in capital	396,505		404,983
Retained earnings	2,067,521		2,313,745
Accumulated other comprehensive loss, net of tax (“AOCL”)	(102,185)		(108,886)
Treasury stock, at average cost: 40,916 and 40,514 shares as of October 31, 2020 and February 1, 2020, respectively	(1,513,495)		(1,552,065)
Total Abercrombie & Fitch Co. stockholders’ equity	849,379		1,058,810
Noncontrolling interests	9,425		12,368
Total stockholders’ equity	858,804		1,071,178
Total liabilities and stockholders’ equity	$	3,276,962	$	3,549,665

November 2, 2019 February 2, 2019
Assets
Current assets:
Cash and equivalents $ 410,775
$ 723,135
Receivables 92,736
73,112
Inventories 590,883
437,879
Other current assets 86,275
101,824
Total current assets 1,180,669
1,335,950
Property and equipment, net 665,862
694,855
Operating lease right-of-use assets 1,223,512
—
Other assets 415,962
354,788
Total assets $ 3,486,005
$ 2,385,593
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 269,578
$ 226,878
Accrued expenses 269,334
293,579
Short-term portion of operating lease liabilities 284,694
—
Income taxes payable 13,728
18,902
Short-term portion of deferred lease credits —
19,558
Total current liabilities 837,334
558,917
Long-term liabilities:
Long-term portion of operating lease liabilities 1,234,502
—
Long-term portion of borrowings, net 241,343
250,439
Long-term portion of deferred lease credits —
76,134
Leasehold financing obligations —
46,337
Other liabilities 178,460
235,145
Total long-term liabilities 1,654,305
608,055
Stockholders’ equity
Class A Common Stock - $0.01 par value: 150,000 shares authorized and 103,300 shares issued for all periods presented 1,033
1,033
Paid-in capital 399,981
405,379
Retained earnings 2,244,150
2,418,544
Accumulated other comprehensive loss, net of tax (108,245 ) (102,452 )
Treasury stock, at average cost: 40,543 and 37,073 shares as of November 2, 2019 and February 2, 2019, respectively (1,553,407 ) (1,513,604 )
Total Abercrombie & Fitch Co. stockholders’ equity 983,512
1,208,900
Noncontrolling interests 10,854
9,721
Total stockholders’ equity 994,366
1,218,621
Total liabilities and stockholders’ equity $ 3,486,005
$ 2,385,593

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

Table of Contents

Abercrombie & Fitch Co.

~~ABERCROMBIE & FITCH CO.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~Condensed Consolidated Statements of Stockholders’ Equity

(Thousands, except per share amounts)

(Unaudited)


	Thirteen Weeks Ended October 31, 2020
	Common Stock			Paid-in capital		Non-controlling interests		Retained earnings		AOCL		Treasury stock			Total stockholders’ equity
	Shares outstanding	Par value										Shares	At average cost
Balance, August 1, 2020	62,365	$	1,033	$	392,272	$	7,929	$	2,025,911	$	(99,093)	40,935	$	(1,514,442)	$	813,610
Net income	—	—		—		1,758		42,271		—		—	—		44,029
Share-based compensation issuances and exercises	19	—		(436)		—		(661)		—		(19)	947		(150)
Share-based compensation expense	—	—		4,669		—		—		—		—	—		4,669
Derivative financial instruments, net of tax	—	—		—		—		—		(5,234)		—	—		(5,234)
Foreign currency translation adjustments, net of tax	—	—		—		—		—		2,142		—	—		2,142
Distributions to noncontrolling interests, net	—	—		—		(262)		—		—		—	—		(262)
Ending balance at October 31, 2020	62,384	$	1,033	$	396,505	$	9,425	$	2,067,521	$	(102,185)	40,916	$	(1,513,495)	$	858,804

	Thirteen Weeks Ended November 2, 2019
	Common Stock			Paid-in capital		Non-controlling interests		Retained earnings		AOCL		Treasury stock			Total stockholders’ equity
	Shares outstanding	Par value										Shares	At average cost
Balance, August 3, 2019	63,146	$	1,033	$	394,694	$	11,318	$	2,251,032	$	(105,946)	40,154	$	(1,548,836)	$	1,003,295
Net income	—	—		—		1,047		6,523		—		—	—		7,570
Purchase of Common Stock	(412)	—		—		—		—		—		412	(5,730)		(5,730)
Dividends ($0.20 per share)	—	—		—		—		(12,574)		—		—	—		(12,574)
Share-based compensation issuances and exercises	23	—		(509)		—		(831)		—		(23)	1,159		(181)
Share-based compensation expense	—	—		5,796		—		—		—		—	—		5,796
Derivative financial instruments, net of tax	—	—		—		—		—		(3,654)		—	—		(3,654)
Foreign currency translation adjustments, net of tax	—	—		—		—		—		1,355		—	—		1,355
Distributions to noncontrolling interests, net	—	—		—		(1,511)		—		—		—	—		(1,511)
Ending balance at November 2, 2019	62,757	$	1,033	$	399,981	$	10,854	$	2,244,150	$	(108,245)	40,543	$	(1,553,407)	$	994,366

Thirteen Weeks Ended November 2, 2019
Common Stock
Paid-in
capital
Non-controlling interests
Retained
earnings
Accumulated other
comprehensive
loss
Treasury stock
Total
stockholders’
equity

Shares
outstanding
Par
value
Shares
At average
cost
Beginning balance at August 3, 2019 63,146
$ 1,033
$ 394,694
$ 11,318
$ 2,251,032
$ (105,946 ) 40,154
$ (1,548,836 ) $ 1,003,295
Net income —
—
—
1,047
6,523
—
—
—
7,570
Purchase of common stock (412 ) —
—
—
—
—
412
(5,730 ) (5,730 )
Dividends ($0.20 per share) —
—
—
—
(12,574 ) —
—
—
(12,574 )
Share-based compensation issuances and exercises 23
—
(509 ) —
(831 ) —
(23 ) 1,159
(181 )
Share-based compensation expense —
—
5,796
—
—
—
—
—
5,796
Derivative financial instruments, net of tax —
—
—
—
—
(3,654 ) —
—
(3,654 )
Foreign currency translation adjustments, net of tax —
—
—
—
—
1,355
—
—
1,355
Distributions to noncontrolling interests, net —
—
—
(1,511 ) —
—
—
—
(1,511 )
Ending balance at November 2, 2019 62,757
$ 1,033
$ 399,981
$ 10,854
$ 2,244,150
$ (108,245 ) 40,543
$ (1,553,407 ) $ 994,366

Thirteen Weeks Ended November 3, 2018
Common Stock Paid-in
capital Non-controlling interests Retained
earnings Accumulated other
comprehensive
loss Treasury stock Total
stockholders’
equity
Shares
outstanding Par
value Shares At average
cost
Beginning balance at August 4, 2018 66,975
$ 1,033
$ 401,483
$ 10,074
$ 2,337,100
$ (94,892 ) 36,325
$ (1,507,414 ) $ 1,147,384
Net income —
—
—
857
23,919
—
—
—
24,776
Purchase of common stock (1,184 ) —
—
—
—
—
1,184
(25,000 ) (25,000 )
Dividends ($0.20 per share) —
—
—
—
(13,354 ) —
—
—
(13,354 )
Share-based compensation issuances and exercises 52
—
(1,271 ) —
(1,955 ) —
(52 ) 2,640
(586 )
Share-based compensation expense —
—
5,957
—
—
—
—
—
5,957
Derivative financial instruments, net of tax —
—
—
—
—
(681 ) —
—
(681 )
Foreign currency translation adjustments, net of tax —
—
—
—
—
(3,095 ) —
—
(3,095 )
Distributions to noncontrolling interests, net —
—
—
(1,111 ) —
—
—
—
(1,111 )
Ending balance at November 3, 2018 65,843
$ 1,033
$ 406,169
$ 9,820
$ 2,345,710
$ (98,668 ) 37,457
$ (1,529,774 ) $ 1,134,290

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

Table of Contents

Abercrombie & Fitch Co.

~~ABERCROMBIE & FITCH CO.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~Condensed Consolidated Statements of Stockholders’ Equity

(Thousands, except per share amounts)

(Unaudited)


	Thirty-nine Weeks Ended October 31, 2020
	Common Stock			Paid-in capital		Non-controlling interests		Retained earnings		AOCL		Treasury stock			Total stockholders’ equity
	Shares outstanding	Par value										Shares	At average cost
Balance, February 1, 2020	62,786	$	1,033	$	404,983	$	12,368	$	2,313,745	$	(108,886)	40,514	$	(1,552,065)	$	1,071,178
Net loss	—	—		—		2,203		(196,413)		—		—	—		(194,210)
Purchase of Common Stock	(1,397)	—		—		—		—		—		1,397	(15,172)		(15,172)
Dividends ($0.20 per share)	—	—		—		—		(12,556)		—		—	—		(12,556)
Share-based compensation issuances and exercises	995	—		(22,053)		—		(37,255)		—		(995)	53,742		(5,566)
Share-based compensation expense	—	—		13,575		—		—		—		—	—		13,575
Derivative financial instruments, net of tax	—	—		—		—		—		1,224		—	—		1,224
Foreign currency translation adjustments, net of tax	—	—		—		—		—		5,477		—	—		5,477
Distributions to noncontrolling interests, net	—	—		—		(5,146)		—		—		—	—		(5,146)
Ending balance at October 31, 2020	62,384	$	1,033	$	396,505	$	9,425	$	2,067,521	$	(102,185)	40,916	$	(1,513,495)	$	858,804

	Thirty-nine Weeks Ended November 2, 2019
	Common Stock			Paid-in capital		Non-controlling interests		Retained earnings		AOCL		Treasury stock			Total stockholders’ equity
	Shares outstanding	Par value										Shares	At average cost
Balance, February 2, 2019	66,227	$	1,033	$	405,379	$	9,721	$	2,418,544	$	(102,452)	37,073	$	(1,513,604)	$	1,218,621
Impact from adoption of the new lease accounting standard	—	—		—		—		(75,165)		—		—	—		(75,165)
Net loss	—	—		—		3,534		(43,774)		—		—	—		(40,240)
Purchase of Common Stock	(3,957)	—		—		—		—		—		3,957	(63,542)		(63,542)
Dividends ($0.60 per share)	—	—		—		—		(38,959)		—		—	—		(38,959)
Share-based compensation issuances and exercises	487	—		(13,862)		—		(16,496)		—		(487)	23,739		(6,619)
Share-based compensation expense	—	—		8,464		—		—		—		—	—		8,464
Derivative financial instruments, net of tax	—	—		—		—		—		(574)		—	—		(574)
Foreign currency translation adjustments, net of tax	—	—		—		—		—		(5,219)		—	—		(5,219)
Distributions to noncontrolling interests, net	—	—		—		(2,401)		—		—		—	—		(2,401)
Ending balance at November 2, 2019	62,757	$	1,033	$	399,981	$	10,854	$	2,244,150	$	(108,245)	40,543	$	(1,553,407)	$	994,366

Thirty-nine Weeks Ended November 2, 2019
Common Stock
Paid-in
capital
Non-controlling interests
Retained
earnings
Accumulated other
comprehensive
loss
Treasury stock
Total
stockholders’
equity

Shares
outstanding
Par
value
Shares
At average
cost
Beginning balance at February 2, 2019 66,227
$ 1,033
$ 405,379
$ 9,721
$ 2,418,544
$ (102,452 ) 37,073
$ (1,513,604 ) $ 1,218,621
Impact from adoption of the new lease accounting standard (Refer to Note 2, “Summary of Significant Accounting Policies”) —
—
—
—
(75,165 ) —
—
—
(75,165 )
Net loss —
—
—
3,534
(43,774 ) —
—
—
(40,240 )
Purchase of common stock (3,957 ) —
—
—
—
—
3,957
(63,542 ) (63,542 )
Dividends ($0.60 per share) —
—
—
—
(38,959 ) —
—
—
(38,959 )
Share-based compensation issuances and exercises 487
—
(13,862 ) —
(16,496 ) —
(487 ) 23,739
(6,619 )
Share-based compensation expense —
—
8,464
—
—
—
—
—
8,464
Derivative financial instruments, net of tax —
—
—
—
—
(574 ) —
—
(574 )
Foreign currency translation adjustments, net of tax —
—
—
—
—
(5,219 ) —
—
(5,219 )
Distributions to noncontrolling interests, net —
—
—
(2,401 ) —
—
—
—
(2,401 )
Ending balance at November 2, 2019 62,757
$ 1,033
$ 399,981
$ 10,854
$ 2,244,150
$ (108,245 ) 40,543
$ (1,553,407 ) $ 994,366

Thirty-nine Weeks Ended November 3, 2018
Common Stock Paid-in
capital Non-controlling interests Retained
earnings Accumulated other
comprehensive
loss Treasury stock Total
stockholders’
equity
Shares
outstanding Par
value Shares At average
cost
Beginning balance at February 3, 2018 68,195
$ 1,033
$ 406,351
$ 10,092
$ 2,420,552
$ (95,054 ) 35,105
$ (1,490,503 ) $ 1,252,471
Impact from adoption of the new revenue recognition accounting standard —
—
—
—
6,944
—
—
—
6,944
Net loss —
—
—
2,839
(22,395 ) —
—
—
(19,556 )
Purchase of common stock (2,931 ) —
—
—
—
—
2,931
(68,670 ) (68,670 )
Dividends ($0.60 per share) —
—
—
—
(40,550 ) —
—
—
(40,550 )
Share-based compensation issuances and exercises 579
—
(17,078 ) —
(18,841 ) —
(579 ) 29,399
(6,520 )
Share-based compensation expense —
—
16,896
—
—
—
—
—
16,896
Derivative financial instruments, net of tax —
—
—
—
—
19,026
—
—
19,026
Foreign currency translation adjustments, net of tax —
—
—
—
—
(22,640 ) —
—
(22,640 )
Distributions to noncontrolling interests, net —
—
—
(3,111 ) —
—
—
—
(3,111 )
Ending balance at November 3, 2018 65,843
$ 1,033
$ 406,169
$ 9,820
$ 2,345,710
$ (98,668 ) 37,457
$ (1,529,774 ) $ 1,134,290

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

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Abercrombie & Fitch Co.

~~ABERCROMBIE & FITCH CO.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~Condensed Consolidated Statements of Cash Flows

(Thousands)

(Unaudited)


	Thirty-nine Weeks Ended
	October 31, 2020		November 2, 2019
Operating activities
Net loss	$	(194,210)	$	(40,240)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Depreciation and amortization	127,248		124,910
Asset impairment	57,340		18,216
Loss on disposal	7,586		5,326
Provision for (benefit from) deferred income taxes	27,432		(20,631)
Share-based compensation	13,575		8,464
Changes in assets and liabilities:
Inventories	(109,665)		(154,791)
Accounts payable and accrued expenses	186,806		34,752
Operating lease right-of-use assets and liabilities	(41,976)		42,990
Income taxes	(7,168)		(2,264)
Other assets	30,403		(47,138)
Withdrawal of funds from Rabbi Trust assets	50,000		0
Other liabilities	11,523		(3,433)
Net cash provided by (used for) operating activities	158,894		(33,839)
Investing activities
Purchases of property and equipment	(91,748)		(154,373)
Net cash used for investing activities	(91,748)		(154,373)
Financing activities
Proceeds from issuance of senior secured notes	350,000		0
Proceeds from borrowings under the senior secured asset-based revolving credit facility	210,000		0
Repayment of borrowings under the term loan facility	(233,250)		(10,000)
Repayment of borrowings under the senior secured asset-based revolving credit facility	(210,000)		0
Payment of debt issuance costs and fees	(7,151)		0
Purchases of Common Stock	(15,172)		(63,542)
Dividends paid	(12,556)		(38,959)
Other financing activities	(11,742)		(10,407)
Net cash provided by (used for) financing activities	70,129		(122,908)
Effect of foreign currency exchange rates on cash	2,269		(2,686)
Net increase (decrease) in cash and equivalents, and restricted cash and equivalents	139,544		(313,806)
Cash and equivalents, and restricted cash and equivalents, beginning of period	692,264		745,829
Cash and equivalents, and restricted cash and equivalents, end of period	$	831,808	$	432,023
Supplemental information related to non-cash activities
Purchases of property and equipment not yet paid at end of period	$	26,554	$	36,951
Operating lease right-of-use assets additions, net of terminations, impairments and other reductions	$	(41,305)	$	293,281
Supplemental information related to cash activities
Cash paid for interest	$	9,182	$	12,022
Cash paid for income taxes	$	10,412	$	18,697
Cash received from income tax refunds	$	4,001	$	8,570
Cash paid for amounts included in measurement of operating lease liabilities	$	224,827	$	311,275

Thirty-nine Weeks Ended
November 2, 2019 November 3, 2018
Operating activities
Net loss $ (40,240 ) $ (19,556 )
Adjustments to reconcile net loss to net cash (used for) provided by operating activities:
Depreciation and amortization 124,910
136,263
Amortization of deferred lease credits prior to adoption of new lease accounting standard —
(16,129 )
Asset impairment 18,216
10,383
Loss on disposal 5,326
3,191
Benefit from deferred income taxes (20,631 ) (1,509 )
Share-based compensation 8,464
16,896
Changes in assets and liabilities:
Inventories (154,791 ) (159,421 )
Accounts payable and accrued expenses 34,752
105,452
Operating lease right-of-use assets and liabilities 42,990
—
Income taxes (2,264 ) (3,171 )
Other assets (47,138 ) 6,274
Other liabilities (3,433 ) (1,428 )
Net cash (used for) provided by operating activities (33,839 ) 77,245
Investing activities
Purchases of property and equipment (154,373 ) (98,768 )
Net cash used for investing activities (154,373 ) (98,768 )
Financing activities
Purchases of common stock (63,542 ) (68,670 )
Dividends paid (38,959 ) (40,550 )
Repayment of term loan facility borrowings (10,000 ) —
Other financing activities (10,407 ) (8,761 )
Net cash used for financing activities (122,908 ) (117,981 )
Effect of foreign currency exchange rates on cash (2,686 ) (16,068 )
Net decrease in cash and equivalents, and restricted cash and equivalents (313,806 ) (155,572 )
Cash and equivalents, and restricted cash and equivalents, beginning of period 745,829
697,955
Cash and equivalents, and restricted cash and equivalents, end of period $ 432,023
$ 542,383
Supplemental information related to non-cash activities
Purchases of property and equipment not yet paid at end of period $ 36,951
$ 22,091
Operating lease right-of-use assets obtained in exchange for operating lease liabilities $ 293,281
$ —
Supplemental information related to cash activities
Cash paid for interest $ 12,022
$ 10,428
Cash paid for income taxes $ 18,697
$ 17,712
Cash received from income tax refunds $ 8,570
$ 7,477
Cash paid for operating lease liabilities $ 311,275
$ —

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

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Abercrombie & Fitch Co.

Index for Notes to Condensed Consolidated Financial Statements (Unaudited)

~~ABERCROMBIE & FITCH CO.~~

~~INDEX FOR NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~



				Page No.

Note 1.		~~Nature of Business~~NATURE OF BUSINESS		9

Note 2.		~~Summary of Significant Accounting Policies~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES		9

Note 3.		~~Revenue Recognition~~IMPACT OF COVID-19		1410

Note 4.	~~Net Income (Loss) Per Share~~REVENUE RECOGNITION		1412

Note 5.	~~Fair Value~~NET INCOME (LOSS) PER SHARE		1512

Note 6.	~~Property and Equipment, Net~~FAIR VALUE		1613

Note 7.	~~Leases~~PROPERTY AND EQUIPMENT, NET		1614

Note 8.	~~Asset Impairment~~LEASES		1714

Note 9.	~~Income Taxes~~ASSET IMPAIRMENT		1815

Note 10.	~~Share-Based Compensation~~RABBI TRUST ASSETS		1915

Note 11.	~~Derivative Instruments~~INCOME TAXES		2116

Note 12.	~~Accumulated Other Comprehensive Loss~~BORROWINGS		2216

Note 13.	~~Segment Reporting~~SHARE-BASED COMPENSATION		2318
Note 14.		DERIVATIVE INSTRUMENTS		20
Note ~~14.~~15.		~~Flagship Store Exit Charges~~ACCUMULATED OTHER COMPREHENSIVE LOSS		22
Note 16.		SEGMENT REPORTING		23
Note 17.		FLAGSHIP STORE EXIT (BENEFITS) CHARGES		24

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Abercrombie & Fitch Co.

~~ABERCROMBIE & FITCH CO.~~Notes to Condensed Consolidated Financial Statements (Unaudited)

~~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 “Abercrombie & Fitch” or the “Company”), ~~or “we”)~~ is a global multi-brand omnichannel specialty retailer, whose products are sold primarily through its Company-owned store and digital channels, as well as through various third-party wholesale, franchise and licensing arrangements. The Company offers a broad assortment of apparel, personal care products and accessories for men, women and kids under the Hollister, Abercrombie & Fitch and abercrombie kids brands. The 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 primarily has operations in North America, Europe and Asia, among other regions.

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 an Emirati business venture and in a Kuwaiti business venture with Majid al Futtaim Fashion L.L.C. (“MAF”), each of which meets the definition of a variable interest entity (“VIE”). 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 MAF’s portion of net income presented as net income attributable to noncontrolling interests (“NCI”) on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) and MAF’s portion of 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 ~~consolidated financial statements~~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 ~~commenced.~~commences. All references herein to the Company’s fiscal years are as follows:

Fiscal year

~~Fiscal year~~Year ended

Number of weeks

~~Fiscal 2018~~

~~February 2, 2019~~

Fiscal 2019

February 1, 2020

Fiscal 2020

January 30, 2021

Interim financial statements

The Condensed Consolidated Financial Statements as of ~~November 2, 2019,~~October 31, 2020, and for the thirteen and thirty-nine week periods ended October 31, 2020 and November 2, 2019, ~~and November 3, 2018,~~ are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). 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 ~~2018~~2019 filed with the SEC on ~~April 1, 2019.~~March 31, 2020. The February ~~2, 2019~~1, 2020 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 United States of America (“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 ~~2019.~~2020.

~~Certain prior year~~Use of estimates

The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts ~~have been reclassified for consistency~~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. The extent to which the current ~~year presentation~~outbreak of ~~flagship store exit charges~~coronavirus disease (“COVID-19”) impacts the Company’s business and financial results will depend on numerous evolving factors including, but not limited to: the magnitude and duration of the COVID-19 pandemic and its impact on the ~~Condensed Consolidated Statements~~length or frequency of ~~Operations~~store closures, and ~~Comprehensive Income (Loss).~~the extent to

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which COVID-19 will impact worldwide macroeconomic conditions including interest rates, the speed of the economic recovery, and governmental, business and consumer reactions to the pandemic. The Company’s assessment of these, as well as other factors, could impact management's estimates and 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.

Condensed Consolidated Statements of Cash Flows reconciliation

The following table provides a ~~brief description~~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	October 31, 2020		February 1, 2020		November 2, 2019		February 2, 2019
Cash and equivalents	Cash and equivalents	$	812,881	$	671,267	$	410,775	$	723,135
Long-term restricted cash and equivalents	Other assets	14,633		18,696		18,698		22,694
Short-term restricted cash and equivalents	Other current assets	4,294		2,301		2,550		0
Cash and equivalents and restricted cash and equivalents		$	831,808	$	692,264	$	432,023	$	745,829

3. IMPACT OF COVID-19

Recent developments

The Company has seen, and may continue to see, material adverse impacts as a result of COVID-19. The extent of future impacts of COVID-19 on the Company’s business, including the duration and impact on overall customer demand, are uncertain as current circumstances are dynamic and depend on future developments, including, but not limited to, the duration and spread of COVID- 19 and the availability and acceptance of an effective vaccine or medical treatments.

In January 2020, the Company began to experience business disruptions in the Asia-Pacific (“APAC”) region as a result of COVID-19. In February 2020, the situation escalated as the scope of COVID-19 worsened beyond the APAC region, with the United States (the “U.S.”) and the Europe, Middle East and Africa (“EMEA”) region experiencing significant outbreaks. In March 2020, the COVID-19 outbreak was declared to be a global pandemic by the World Health Organization. In response to COVID-19, certain ~~recent accounting pronouncements~~governments have imposed travel restrictions and local statutory quarantines and the Company has ~~adopted.~~recommended associates who are able to perform their role remotely continue to do so. The Company is reacting to COVID-19 on a daily basis, including by conforming to local government guidance and monitoring developments in government legislation or other government actions in response to the COVID-19 outbreak. The Company has also implemented a range of precautionary health and safety measures with the well-being of the Company’s customers, associates and business partners in mind.



~~Accounting Standards Update (ASU)~~	~~Description~~	~~Effect on the financial statements or other significant matters~~
~~Leases~~ ~~(ASU 2016-02)~~ ~~Date of adoption: February 3, 2019~~	~~This update supersedes the leasing standard in Accounting Standards Codification (“ASC”) 840,~~ ~~Leases~~. The new standard requires an entity to recognize lease assets and lease liabilities on the balance sheet and disclose key leasing information that depicts the lease rights and obligations of an entity.	~~The Company adopted this standard using a modified retrospective transition method and elected to not restate comparative periods.~~ ~~In conjunction with the adoption of this standard, the Company elected:~~ ~~- the package of practical expedients which, among other things, allowed the Company to carry forward historical lease classification for leases existing before the date of adoption; and~~ ~~- to combine lease and nonlease components for all current classes of underlying leased assets.~~ ~~However, the Company did not elect the practical expedient to use hindsight when determining the lease term or assessing impairment.~~ Adoption of this standard resulted in the Company’s total assets and total liabilities on the Condensed Consolidated Balance Sheet each increasing by approximately $1.2 billion, primarily due to the recognition of operating lease right-of-use assets and liabilities. The Company also recognized a cumulative adjustment decreasing the opening balance of retained earnings by $0.1 billion on the date of adoption. The adoption of this standard did not have a significant impact on the timing or classification of the Company’s Consolidated Statement of Cash Flows, the Company’s liquidity or the Company’s debt covenant compliance under current agreements. ~~Additional information regarding the impact from adoption of the new lease accounting standard and updated accounting policies related to leases are provided further in this Note 2.~~
~~Derivatives and Hedging — Targeted Improvements to Accounting for Hedging Activities~~ ~~(ASU 2017-12)~~ ~~Date of adoption: February 3, 2019~~	~~This update amends ASC 815,~~ ~~Derivatives and Hedging~~. The new standard simplifies certain aspects of hedge accounting for both financial and commodity risks to more accurately present the economic effects of an entity’s risk management activities in its financial statements.	The Company adopted this standard using a modified retrospective transition approach, while the amended presentation and disclosure standard requires a prospective approach. Upon adoption of this standard, the Company elected to include time value in its assessment of effectiveness for derivative instruments designated as cash flow hedges. Updated accounting policies related to derivatives have been updated and are provided further in this Note 2. The adoption of this standard did not have a significant impact on the Company’s Condensed Consolidated Financial Statements for the thirteen and thirty-nine weeks ended November 2, 2019, and is not expected to have a significant impact on the Company’s consolidated financial statements for Fiscal 2019.
~~Intangibles — Goodwill and Other —Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract~~ ~~(ASU 2018-15)~~ ~~Date of adoption: February 3, 2019~~	~~This update amends ASC 350,~~ ~~Intangibles — Goodwill and Other —Internal-Use Software.~~ The new standard allows companies to defer certain direct costs related to software as a service (“SaaS”) implementation costs and amortize them to operating expense over the term of the related SaaS arrangement. The criteria for determining whether costs associated with SaaS can be capitalized are now the same criteria applied to internal software development costs in order to assess eligibility for deferral.	~~The Company early adopted this standard on a prospective basis and comparative periods have not been restated.~~ ~~The Company expects to capitalize up to $5.0 million of SaaS implementation costs in Fiscal 2019, of which $3.0 million has been capitalized in the thirty-nine weeks ended November 2, 2019.~~ ~~Amortization expense related to capitalized SaaS implementation costs was $0.5 million and $0.7 million for the thirteen and thirty-nine weeks ended November 2, 2019, respectively.~~

As a result of COVID-19, in January 2020, the Company temporarily closed the majority of its stores in the APAC region and in March 2020, the Company temporarily closed its stores across brands in North America and the EMEA region. The majority of APAC stores were reopened during March 2020, and the Company began to reopen stores in North America and the EMEA region on a rolling basis in late April 2020. As of October 31, 2020, approximately 97% of Company-operated stores had reopened for in-store service, although many with modified operating hours. The Company plans to follow the guidance of local governments to determine when it can reopen stores that have been closed due to COVID-19 and to evaluate whether further store closures will be necessary.

Impact of COVID-19

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as compared to the comparable periods ended November 2, 2019, respectively. The year-over-year decrease in total net sales was primarily driven by temporary widespread store closures and a decline in traffic as compared to the previous year as a result of COVID-19. The year-over-year decline in store sales was partially offset by digital sales growth of approximately 43% and 42% for the thirteen and thirty-nine weeks ended October 31, 2020 as compared to the comparable periods ended November 2, 2019, respectively.

Primarily as a result of COVID-19 and the temporary closure of the Company’s stores, the Company recognized $14.8 million of charges to reduce the carrying value of inventory in cost of sales, exclusive of depreciation and amortization on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) during the thirteen weeks ended May 2, 2020.

During the thirty-nine weeks ended October 31, 2020, reductions in revenue have not been offset by proportional decreases in expense, as the Company continued to incur store occupancy costs such as operating lease costs, net of rent abatements agreed upon during the period, depreciation expense, and certain other costs such as compensation, net of government payroll relief, and administrative expenses resulting in a negative effect on the relationship between the Company’s costs and revenues. During this period, the Company suspended rent payments for a significant number of stores that were closed, and continues to engage with its landlords to find a mutually beneficial and agreeable path forward. The Company has elected to account for all qualifying lease concessions, those that are a direct consequence of COVID-19 and that result in revised lease consideration that is substantially the same or less than the original consideration, as if the enforceable rights and obligations associated with the concession existed in the original lease agreement. Rent abatements associated with such concessions are recognized in variable lease cost. Lease concessions granted as part of an agreement that substantially increases the total consideration as a result of the inclusion of additional terms, such as rent payments associated with a lease term extension, are treated as lease modifications. For stores where the Company suspended payments, the Company reclassified related amounts from operating lease liability to accrued expenses in the period during which rent was due, while continuing to recognize operating lease cost in the Condensed Consolidated Statement of Operations and Comprehensive Income (Loss).

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which among other things, provides refundable employee retention tax credits for wages paid to employees who are unable to work during the COVID-19 outbreak and the deferral of the employer–paid portion of social security taxes. Similar relief programs have also been established throughout the EMEA and APAC regions. Based on the Company's evaluation of the CARES Act and legislation across regions, the Company qualifies for certain payroll tax credits, and such government subsidies have been treated as offsets to the related operating expenses when recognized. During the thirteen and thirty-nine weeks ended October 31, 2020, the Company recognized qualified payroll tax credits reducing payroll expenses by approximately $2.8 million and $14.7 million, respectively, on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), The Company intends to continue to defer qualified payroll and other tax payments as permitted by the CARES Act and other regional legislation.

The Company also recognized asset impairment charges related to the Company’s right-of-use assets and property and equipment of $6.3 million and $57.3 million during the thirteen and thirty-nine weeks ended October 31, 2020, respectively, which were principally the result of the impact of COVID-19 on store cash flows. Refer to Note 9, “ASSET IMPAIRMENT,” for additional information.

In addition, the Company has also experienced other material impacts as a result of COVID-19, such as deferred tax valuation allowances and other tax charges during the thirty-nine weeks ended October 31, 2020, adversely impacting results by $77.4 million. Refer to Note 11, “INCOME TAXES,” for additional information.

Balance sheet, cash flow and liquidity

During the thirty-nine weeks ended October 31, 2020, the Company has taken various actions to preserve liquidity and manage cash flows in order to best position the business for key stakeholders, including (i) partnering with merchandise and non-merchandise vendors in regards to payment terms; (ii) tightly managing inventory receipts to align inventory with expected market demand; (iii) significantly reducing expenses to better align operating costs with sales; and (iv) temporarily suspending its share repurchase program in March 2020 and its dividend program in May 2020. In addition, despite the Company's recent history of partnering with its vendors regarding payment terms, certain payment term extensions were temporary and certain previously deferred payments have since been made. There can be no assurance that the Company will be able to maintain extended payment terms or continue to defer payments, which may result in incremental operating cash outflows in future periods.

As a precautionary measure in response to COVID-19, in March 2020, the Company borrowed $210.0 million under its senior secured asset-based revolving credit facility (the “ABL Facility”) to improve its near-term cash position and withdrew the majority of excess funds from the overfunded Rabbi Trust assets, providing the Company with $50.0 million of additional cash. In July 2020, the Company completed a private offering of $350.0 million aggregate principal amount of senior secured notes (the “Senior Secured Notes”) and used the net proceeds to repay all outstanding borrowings under the Company’s term loan facility (the “Term Loan Facility”), to repay a portion of the outstanding borrowings under the ABL Facility and to pay fees and expenses in connection with such repayments and the offering. Refer to Note 12, “BORROWINGS,” and Note 10, “ RABBI TRUST ASSETS,” for additional information.

As of October 31, 2020, the Company had liquidity of $1.158 billion as compared to $913.8 million as of February 1, 2020, comprised of cash and equivalents and actual incremental borrowing available to the Company under the ABL Facility.

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4. REVENUE RECOGNITION

Disaggregation of revenue

All revenues are recognized in net sales in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). For information regarding the disaggregation of revenue, refer to Note 16, “SEGMENT REPORTING.”

Contract liabilities

The following table details certain contract liabilities representing unearned revenue as of October 31, 2020, February 1, 2020, November 2, 2019 and February 2, 2019:


(in thousands)	October 31, 2020		February 1, 2020		November 2, 2019		February 2, 2019
Gift card liability	$	22,910	$	28,844	$	19,855	$	26,062
Loyalty program liability	$	19,640	$	23,051	$	21,396	$	19,904

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 October 31, 2020 and November 2, 2019:


	Thirteen Weeks Ended				Thirty-nine Weeks Ended
(in thousands)	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
Revenue associated with gift card redemptions and gift card breakage	$	11,717	$	12,653	$	32,792	$	40,729
Revenue associated with reward redemptions and breakage related to the Company’s loyalty programs	$	9,686	$	9,249	$	23,377	$	23,795

5. NET INCOME (LOSS) PER SHARE

Net income (loss) per basic and diluted share attributable to A&F is computed based on the weighted-average number of outstanding shares of Class A Common Stock (“Common Stock”). Additional information pertaining to net income (loss) per share attributable to A&F follows:


	Thirteen Weeks Ended		Thirty-nine Weeks Ended
(in thousands)	October 31, 2020	November 2, 2019	October 31, 2020	November 2, 2019
Shares of Common Stock issued	103,300	103,300	103,300	103,300
Weighted-average treasury shares	(40,742)	(40,201)	(40,759)	(38,368)
Weighted-average — basic shares	62,558	63,099	62,541	64,932
Dilutive effect of share-based compensation awards	1,319	812	0	0
Weighted-average — diluted shares	63,877	63,911	62,541	64,932
Anti-dilutive shares (1)	1,828	2,912	1,988	1,572

(1)Reflects the total number of shares related to outstanding share-based compensation awards that have been excluded from the computation of net income (loss) per diluted share because the impact would have been anti-dilutive. Unvested shares related to restricted stock units with performance-based and market-based vesting conditions can achieve up to 200% of their target vesting amount and are reflected at the maximum vesting amount less any dilutive portion.

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6. 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 three levels of the hierarchy and the distribution of the Company’s assets and liabilities that are measured at fair value on a recurring basis, as of October 31, 2020 and February 1, 2020 were as follows:


	Assets at Fair Value as of October 31, 2020
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents (1)	$	68,271	$	43,596	$	0	$	111,867
Derivative instruments (2)	0		461		0		461
Rabbi Trust assets (3)	1		60,418		0		60,419
Restricted cash equivalents (4)	6,670		7,918		0		14,588
Total assets	$	74,942	$	112,393	$	0	$	187,335

Liabilities:
Derivative instruments (2)	$	0	$	367	$	0	$	367
Total liabilities	$	0	$	367	$	0	$	367


	Assets and Liabilities at Fair Value as of February 1, 2020
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents (1)	$	225	$	58,447	$	0	$	58,672
Derivative instruments (2)	0		1,969		0		1,969
Rabbi Trust assets (3)	1		109,048		0		109,049
Restricted cash equivalents (4)	9,765		4,601		0		14,366
Total assets	$	9,991	$	174,065	$	0	$	184,056

Liabilities:
Derivative instruments (2)	$	0	$	1,460	$	0	$	1,460
Total liabilities	$	0	$	1,460	$	0	$	1,460

(1) Level 1 assets consist of investments in money market funds. Level 2 assets consist of time deposits.

(2) Level 2 assets and liabilities consist primarily of foreign currency exchange forward contracts.

(3) Level 1 assets consist of investments in money market funds. Level 2 assets consist of trust-owned life insurance policies.

(4) Level 1 assets consist of investments in U.S. treasury bills and money market funds. Level 2 assets consist of time deposits.

The Company’s Level 2 assets and liabilities consist of:

•Time deposits, which are valued at cost approximating fair value due to the short-term nature of these investments;

•Trust-owned life insurance policies which are valued using the cash surrender value of the life insurance policies; and

•Derivative instruments, primarily foreign currency exchange forward contracts, which are valued using quoted market prices of the same or similar instruments, adjusted for counterparty risk.

Fair value of long-term borrowings

The Company’s borrowings under the Term Loan Facility and the Senior Secured Notes are carried at historical cost in the accompanying Condensed Consolidated Balance Sheets. The carrying amount and fair value of the Company’s long-term gross borrowings were as follows:


(in thousands)	October 31, 2020		February 1, 2020
Gross borrowings outstanding, carrying amount	$	350,000	$	233,250
Gross borrowings outstanding, fair value	$	374,063	$	233,979

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7. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of:


(in thousands)	October 31, 2020		February 1, 2020
Property and equipment, at cost	$	2,741,167	$	2,744,967
Less: Accumulated depreciation and amortization	(2,147,235)		(2,079,677)
Property and equipment, net	$	593,932	$	665,290

Refer to Note 9, “ASSET IMPAIRMENT,” for details related to property and equipment impairment charges incurred during the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019.

8. 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.

During thirty-nine weeks ended October 31, 2020, the Company suspended rent payments for a significant number of stores that were closed as a result of COVID-19, and continues to engage with its landlords to find a mutually beneficial and agreeable path forward. The Company has elected to account for all qualifying lease concessions, those that are a direct consequence of COVID-19 and that result in revised lease consideration that is substantially the same or less than the original consideration, as if the enforceable rights and obligations associated with the concession existed in the original lease agreement. Rent abatements associated with such concessions are recognized in variable lease cost. Lease concessions granted as part of an agreement that substantially increases the total consideration as a result of the inclusion of additional terms, such as rent payments associated with a lease term extension, are treated as lease modifications. For stores where the Company suspended payments, the Company reclassified related amounts from operating lease liability to accrued expenses in the period during which rent was due, while continuing to recognize operating lease cost in the Condensed Consolidated Statement of Operations and Comprehensive Income (Loss).

In addition, during the thirteen weeks ended October 31, 2020, the Company entered into a sublease agreement with a third party for the remaining lease term of one of its European Abercrombie & Fitch flagship store locations upon its expected closure during the thirteen weeks ending January 30, 2021. As of October 31, 2020, the Company's subleased property had a remaining lease term of 7.1 years with the sublease term from February 1, 2021 through November 30, 2027. The sublease arrangement provides for rent and occupancy related costs such as taxes, utilities and maintenance costs. Initial sublease terms provide for rent escalations based on the index under the lease, which were estimated upon initial measurement of the operating lease right-of-use asset and liability. The sublease agreement does not include residual value guarantees. Consistent with the Company's real estate leases, the sublease contains usage restrictions, but does not contain financial covenants and restrictions. Future minimum tenant operating lease payments remaining under this sublease as of October 31, 2020 were $29.0 million.

The following table provides a summary of the Company’s operating lease costs for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019:


	Thirteen Weeks Ended				Thirty-nine Weeks Ended
(in thousands)	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
Single lease cost (1)	$	83,743	$	104,726	$	264,932	$	318,270
Variable lease cost (2)	14,428		25,990		61,763		129,073
Operating lease right-of-use asset impairment (3)	3,979		9,047		44,397		12,636
Total operating lease cost	$	102,150	$	139,763	$	371,092	$	459,979

(1)Includes amortization and interest expense associated with operating lease right-of-use assets and the impact from ~~adoption~~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, as well as rent abatements related to the effects of the COVID-19 pandemic that resulted in the total payments required by the modified contract being substantially the same as or less than total payments required by the original contract.

(3)Refer to Note 9, “ASSET IMPAIRMENT,” for details related to operating lease right-of-use asset impairment charges.

During the thirty-nine weeks ended October 31, 2020 and November 2, 2019, the Company paid $224.8 million and $311.3 million, respectively, for amounts included in the measurement of operating lease liabilities, net of rent abatements agreed upon during the period. These payments are included within operating activities on the Condensed Consolidated Statements of Cash Flows.

As of October 31, 2020, the Company had minimum commitments related to additional operating lease contracts the terms of which have not yet commenced, primarily for its Company-operated retail stores, of approximately $3.3 million.

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9. ASSET IMPAIRMENT

Asset impairment charges for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019 were as follows:


	Thirteen Weeks Ended				Thirty-nine Weeks Ended
(in thousands)	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
Operating lease right-of-use asset impairment (1)	$	3,979	$	9,047	$	44,397	$	12,636
Property and equipment asset impairment	2,350		3,563		12,943		5,580
Total asset impairment	$	6,329	$	12,610	$	57,340	$	18,216

(1) Includes $3.2 million of operating lease right-of-use asset impairment related to flagship store exit charges for each of the thirteen and thirty-nine weeks ended November 2, 2019. Refer to Note 17, “FLAGSHIP STORE EXIT (BENEFITS) CHARGES.”

Asset impairment charges for the thirteen and thirty-nine weeks ended October 31, 2020 were principally the result of the impact of COVID-19 and were related to certain of the Company’s stores across brands, geographies and store formats. The impairment charges for the thirty-nine weeks ended October 31, 2020 reduced the then carrying amount of the impaired stores’ assets to their fair value of approximately $102.2 million, including $94.2 million related to operating lease right-of-use assets.

Asset impairment charges for the thirteen weeks and thirty-nine weeks ended November 2, 2019, primarily related to certain of the Company’s international flagship stores. The impairment charges for the thirty-nine weeks ended November 2, 2019 reduced the then carrying amount of the impaired stores’ assets to their fair value of approximately $36.8 million, including $32.3 million related to operating lease right-of-use assets.

10. RABBI TRUST ASSETS

As a precautionary measure and to preserve liquidity in light of the circumstances surrounding COVID-19, during the thirty-nine weeks ended October 31, 2020, the Company withdrew the majority of excess funds from the overfunded Rabbi Trust assets, providing the Company with $50.0 million of additional cash.

Investments of Rabbi Trust assets consisted of the following as of October 31, 2020 and February 1, 2020:


(in thousands)	October 31, 2020		February 1, 2020
Trust-owned life insurance policies (at cash surrender value)	$	60,418	$	109,048
Money market funds	1		1
Rabbi Trust assets	$	60,419	$	109,049

Realized gains resulting from the change in cash surrender value of the Rabbi Trust assets for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019 were as follows:


	Thirteen Weeks Ended				Thirty-nine Weeks Ended
(in thousands)	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
Realized gains related to Rabbi Trust assets	$	391	$	805	$	1,369	$	2,394

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11. INCOME TAXES

The quarterly provision for income taxes is based on the current estimate of the annual effective income tax rate and is adjusted as necessary for discrete quarterly events. 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 ~~lease accounting standard~~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 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 and other tax charges during Fiscal 2020

The Company’s effective tax rate for the thirty-nine weeks ended October 31, 2020 was impacted by $77.4 million of adverse tax impacts, ultimately giving rise to income tax expense on a consolidated pre-tax year-to-date loss. Further details regarding these adverse tax impacts are as follows:

•The Company anticipates pre-tax losses for the full fiscal year in certain jurisdictions, based on information currently available, primarily due to the significant adverse impacts of COVID-19. The Company did not recognize income tax benefits on $180.7 million of pre-tax losses during the thirty-nine weeks ended October 31, 2020, resulting in an adverse tax impact of $41.8 million.

•The Company recognized charges of $35.6 million related to the establishment of valuation allowances and other tax charges in certain jurisdictions during the thirty-nine weeks ended October 31, 2020, principally as a result of the significant adverse impacts of COVID–19. These charges related to valuation allowances recognized by the Company of $10.6 million and $6.0 million related to the U.S. and Germany, respectively, as well as valuation allowances and other tax charges in certain other jurisdictions against underlying tax asset balances that existed as of February 1, 2020. The Company also recognized valuation allowances of $78.9 million related to Switzerland with a U.S. branch equally offsetting amount, which in net, did not have an impact on the Condensed Consolidated Statement of Operations and Comprehensive Income (Loss). Changes in assumptions may occur based on new information that becomes available resulting in adjustments in the period in which a determination is made.

Global legislation in response to COVID-19

In March 2020, the CARES Act was enacted into U.S. law, intended to provide economic relief to those impacted by COVID-19 and enhance business’ liquidity. The Company continues to examine impacts that the provisions of the CARES Act may have on U.S. income taxes; however, the Company does not currently expect that these provisions will have a material impact on its income taxes.

The Company is still assessing the applicability of other recently passed global legislation, including the potential income tax measures offered in international jurisdictions where the Company’s operations have also been impacted by COVID-19.

Share-based compensation

Refer to Note 13, “SHARE-BASED COMPENSATION,” for details on income tax benefits and charges related to share-based compensation awards during the thirteen and thirty-nine weeks ended November 2, 2019.

12. BORROWINGS

Details on the Company’s ~~Condensed Consolidated Balance Sheet:~~long-term borrowings, net, as of October 31, 2020 and February 1, 2020 are as follows:


(in thousands)	October 31, 2020		February 1, 2020
Long-term portion of borrowings, gross at carrying amount	$	350,000	$	233,250
Unamortized fees	(6,441)		(932)
Unamortized discount	0		(355)
Long-term borrowings, net	$	343,559	$	231,963

Senior Secured Notes

On July 2, 2020, Abercrombie & Fitch Management Co. (“A&F Management”), a wholly-owned indirect subsidiary of A&F, completed the private offering of the Senior Secured Notes, with $350 million aggregate principal amount due in 2025 at an offering price of 100% of the principal amount thereof. The Senior Secured Notes were issued pursuant to an indenture, dated as

(in thousands)
February 2, 2019
(as reported under previous lease
accounting standard)

Impact from adoption
of new lease
accounting standard

Upon adoption on February 3, 2019
(under new lease accounting standard) ⁽¹⁾
Assets
Current assets:
Cash and equivalents $ 723,135
$ —
$ 723,135
Receivables 73,112
—
73,112
Inventories 437,879
—
437,879
Other current assets ⁽²⁾
101,824
(31,310 ) 70,514
Total current assets 1,335,950
(31,310 ) 1,304,640
Property and equipment, net ⁽³⁾
694,855
(46,624 ) 648,231
Operating lease right-of-use assets ⁽²⁾
—
1,234,515
1,234,515
Other assets^{(2) (5)}
354,788
15,553
370,341
Total assets $ 2,385,593
$ 1,172,134
$ 3,557,727
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 226,878
$ —
$ 226,878
Accrued expenses ⁽²⁾
293,579
(13,508 ) 280,071
Short-term portion of operating lease liabilities⁽⁴⁾
—
280,108
280,108
Short-term portion of deferred lease credits ⁽²⁾
19,558
(19,558 ) —
Income taxes payable 18,902
—
18,902
Total current liabilities 558,917
247,042
805,959
Long-term liabilities:
Long-term portion of operating lease liabilities ⁽⁴⁾
—
1,193,946
1,193,946
Long-term portion of borrowings, net 250,439
—
250,439
Long-term portion of deferred lease credits ⁽²⁾
76,134
(76,134 ) —
Leasehold financing obligations⁽³⁾
46,337
(46,337 ) —
Other liabilities ^{(2) (5)}
235,145
(71,218 ) 163,927
Total long-term liabilities 608,055
1,000,257
1,608,312
Stockholders’ equity
Class A Common Stock 1,033
—
1,033
Paid-in capital 405,379
—
405,379
Retained earnings⁽⁶⁾
2,418,544
(75,165 ) 2,343,379
Accumulated other comprehensive loss, net of tax (102,452 ) —
(102,452 )
Treasury stock, at average cost (1,513,604 ) —
(1,513,604 )
Total Abercrombie & Fitch Co. stockholders’ equity 1,208,900
(75,165 ) 1,133,735
Noncontrolling interests 9,721
—
9,721
Total stockholders’ equity 1,218,621
(75,165 ) 1,143,456
Total liabilities and stockholders’ equity $ 2,385,593
$ 1,172,134
$ 3,557,727


⁽¹⁾	Amounts under “Upon adoption on February 3, 2019 (under new lease accounting standard),” are calculated as February 2, 2019 reported balances adjusted for the impact of adoption on the first day of Fiscal 2019, February 3, 2019.

⁽²⁾

Upon adoption, the Company recognized assets for the rights to use its operating leases on the Condensed Consolidated Balance Sheet. In conjunction with this recognition, the Company reclassified amounts to operating lease right-of-use assets including: short-term prepaid rent from other current assets; key money, long-term prepaid rent and leasehold acquisition costs from other assets; short-term and long-term portions of deferred lease credits; accrued rent and accrued straight-line rent from accrued expenses and other liabilities, respectively.

⁽³⁾

Upon adoption, the Company derecognized construction project assets and related leasehold financing obligations that previously failed to qualify for sale and leaseback accounting. In certain instances, these construction project assets had shielded other assets included within their respective asset groups from impairment, as the fair value of the construction project assets had exceeded the carrying values of their respective asset groups. In such instances, the Company recognized impairment of certain leasehold improvements and store assets upon adoption.


⁽⁴⁾	~~Upon adoption, the Company recognized operating lease liabilities on the Condensed Consolidated Balance Sheet.~~


⁽⁵⁾	~~Upon adoption, the Company established net deferred tax assets for operating lease right-of-use assets and operating lease liabilities.~~

⁽⁶⁾

Upon adoption, the Company recognized a cumulative adjustment decreasing the opening balance of retained earnings, primarily related to right-of-use asset impairment charges for certain of the Company’s stores where it was previously determined that the carrying value of assets was not recoverable, partially offset by benefits to retained earnings to establish net deferred tax assets and a net gain resulting from the derecognition of certain leased building assets and related leasehold financing obligations that previously failed to qualify for sale and leaseback accounting.

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of July 2, 2020, by and among A&F Management, A&F and certain of its wholly-owned subsidiaries, as guarantors, and U.S. Bank National Association, as trustee, and as collateral agent.

The Senior Secured Notes will mature on July 15, 2025 and bear interest at a rate of 8.75% per annum, with semi-annual interest payments beginning in January 2021.

The Company used the net proceeds from the offering of the Senior Secured Notes to repay outstanding borrowings and accrued interest of $233.6 million and $110.8 million under the Term Loan Facility and the ABL Facility, respectively, with the remaining net proceeds used towards fees and expenses in connection with such repayments and the offering of the Senior Secured Notes.

The Company recorded deferred financing fees associated with the issuance of the Senior Secured Notes, which are being amortized to interest expense over the contractual term of the Senior Secured Notes.

ABL Facility

The ABL Facility, which was entered into on August 7, 2014 through A&F Management as the lead borrower (with A&F and certain other subsidiaries of A&F as borrowers or guarantors) and later amended on October 19, 2017, provides for a senior secured asset-based revolving credit facility of up to $400 million (the “ABL Facility”).

The ABL Facility will mature on October 19, 2022.

As a precautionary measure and to improve the Company’s ~~significant accounting policies~~cash position in light of the circumstances surrounding COVID-19, during the thirteen weeks ended May 2, 2020, the Company borrowed $210.0 million under the ABL Facility. During the thirteen weeks ended August 1, 2020, the Company used a portion of the net proceeds from the offering of the Senior Secured Notes and cash on hand to repay all outstanding borrowings under the ABL Facility.

The Company did not have any borrowings outstanding under the ABL Facility as of ~~November 2, 2019~~October 31, 2020 or as of February 1, 2020.

As of October 31, 2020, the Company had availability under the ABL Facility of $383.7 million, net of $0.8 million in outstanding stand-by letters of credit. As the Company must maintain excess availability equal to the greater of 10% of the loan cap or $30 million under the ABL Facility, actual incremental borrowing available to the Company under the ABL Facility was $345.2 million as of October 31, 2020.

The provisions under the credit agreement applicable to the ABL Facility have not changed ~~materially~~ from those ~~disclosed~~described in Note ~~2, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,~~12, “BORROWINGS,” ofin the Notes to Consolidated Financial Statements contained in “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of A&F’s Annual Report on Form 10-K for Fiscal ~~2018, with the exception of those discussed below which have been updated to reflect new accounting standards adopted in Fiscal~~ 2019.

Term Loan Facility

~~Leases~~

The Term Loan Facility, which was entered into on August 7, 2014 through A&F Management as the lead borrower (with A&F and certain other subsidiaries of A&F as borrowers or guarantors) and later amended on June 22, 2018, provided for a term loan facility of $300 million.

The Company ~~determines if an arrangement is a lease at inception. On~~had gross borrowings outstanding under the ~~lease commencement date,~~Term Loan Facility of $233.3 million as of February 1, 2020. During the ~~Company recognizes an asset for the right to use a leased asset and a liability based on the present value of remaining lease payments over the lease term.~~

As the rates implicit in the Company's leases are not readily determinable, the Company uses its incremental borrowing rate based on the transactional currency of the lease and the lease term for the initial measurement of the lease right-of-use asset and liability. For leases existing before the adoption of the new lease accounting standard,thirteen weeks ended August 1, 2020, the Company used ~~its incremental borrowing rate~~a portion of the proceeds from the issuance of the Senior Secured Notes to repay all outstanding borrowings under the Term Loan Facility and upon repayment the Term Loan Facility was terminated effective as of July 2, 2020.

The Term Loan Facility was previously scheduled to mature on August 7, 2021.

Representations, warranties and covenants

The agreements related to the ~~date of adoption, determined using~~Senior Secured Notes and ABL Facility contain various representations, warranties and restrictive covenants that, among other things and subject to specified exceptions, restrict the ~~remaining lease term as~~ability of the ~~date~~Company and its subsidiaries to: grant or incur liens; incur, assume or guarantee additional indebtedness; sell or otherwise dispose of ~~adoption. For leases commencing on~~assets, including capital stock of subsidiaries; make investments in certain subsidiaries; pay dividends, make distributions or ~~after~~redeem or repurchase capital stock; change the ~~adoption~~nature of their business; and consolidate or merge with or into, or sell substantially all of the ~~new lease accounting standard, the incremental borrowing rate is determined using the remaining lease term as~~Company’s or A&F Management’s assets to, another entity.

The Senior Secured Notes are guaranteed on a senior secured basis, jointly and severally, by A&F and each of the ~~lease commencement date.~~existing and future wholly-owned domestic restricted subsidiaries of A&F that guarantee or will guarantee A&F Management’s ABL Facility or certain future capital markets indebtedness.

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Certain of the agreements related to the Senior Secured Notes and 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 ~~has elected to combine lease and nonlease components for~~was in compliance with all ~~current classes~~debt covenants under these agreements as of ~~underlying leased assets.~~October 31, 2020.

13. SHARE-BASED COMPENSATION

Financial statement impact

The ~~measurement of lease right-of-use assets~~following table details share-based compensation expense and ~~liabilities includes amounts~~the related ~~to:~~income tax impacts for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019:

~~Lease payments made prior~~


	Thirteen Weeks Ended				Thirty-nine Weeks Ended
(in thousands)	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
Share-based compensation expense	$	4,669	$	5,796	$	13,575	$	8,464
Income tax benefit associated with share-based compensation expense recognized (1)	$	0	$	1,211	$	0	$	1,566

(1) No income tax benefit was recognized related to share-based compensation expense during the thirteen and thirty-nine weeks ended October 31, 2020 due to the ~~lease commencement date;~~U.S. being a loss jurisdiction.

~~Incentives from landlords received~~

The following table details discrete income tax benefits and charges related to share-based compensation awards during the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019:


	Thirteen Weeks Ended				Thirty-nine Weeks Ended
(in thousands)	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
Income tax discrete benefits realized for tax deductions related to the issuance of shares (1)	$	0	$	6	$	0	$	1,175
Income tax discrete charges realized upon cancellation of stock appreciation rights (1)	0		(447)		0		(611)
Total income tax discrete (charges) benefits related to share-based compensation awards	$	0	$	(441)	$	0	$	564

(1) No income tax benefits or charges related to these items were recognized during the thirteen and thirty-nine weeks ended October 31, 2020 due to the U.S. being a loss jurisdiction.

The following table details the amount of employee tax withheld by the Company upon the issuance of shares associated with restricted stock units vesting and the exercise of stock appreciation rights for ~~signing a lease, including construction allowances or deferred lease credits paid to~~ the ~~Company by landlords towards construction~~thirteen and ~~tenant improvement costs, which are presented as a reduction to the right-of-use asset recorded;~~thirty-nine weeks ended October 31, 2020 and November 2, 2019:

~~Fixed payments related to lease components, such as rent escalation payments scheduled at the lease commencement date;~~


	Thirteen Weeks Ended				Thirty-nine Weeks Ended
(in thousands)	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
Employee tax withheld upon issuance of shares (1)	$	150	$	181	$	5,566	$	6,619

~~Fixed payments related to nonlease components, such as taxes, insurance, and maintenance costs; and~~

Unamortized initial direct costs incurred in conjunction with securing a lease, including key money, which are amounts paid directly to a landlord in exchange for securing the lease, and leasehold acquisition costs, which are amounts paid to parties other than the landlord, such as an existing tenant, to secure the desired lease.

~~The measurement of lease right-of-use assets and liabilities excludes amounts related to:~~

~~Costs expected to be incurred to return a leased asset to its original condition, also referred to as asset retirement obligations, which are classified~~(1) Classified within other ~~liabilities on the Condensed Consolidated Balance Sheets;~~

~~Variable payments related to lease components, such as contingent rent payments made by the Company based on performance, the expense of which is recognized in the period incurred~~financing activities on the Condensed Consolidated Statements of ~~Operations and Comprehensive Income (Loss);~~Cash Flows.

~~Variable payments~~

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Restricted stock units

The following table summarizes activity for restricted stock units for the thirty-nine weeks ended October 31, 2020:


	Service-based Restricted Stock Units			Performance-based Restricted Stock Units			Market-based Restricted Stock Units
	Number of Underlying Shares (1)	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 1, 2020	1,676,831	$	18.68	747,056	$	15.11	421,784	$	23.05
Granted	2,280,194	8.57		0	0		519,905	16.24
Adjustments for performance achievement	0	0		38,381	11.37		134,122	11.79
Vested	(790,429)	17.42		(481,304)	9.63		(350,447)	11.79
Forfeited	(107,795)	13.83		(6,917)	22.80		(3,485)	35.61
Unvested at October 31, 2020 (2)	3,058,801	$	11.63	297,216	$	22.43	721,879	$	21.46

(1) Includes 66,624 unvested restricted stock units as of October 31, 2020, subject to vesting requirements related to ~~nonlease components,~~the achievement of certain performance metrics, such as ~~taxes, insurance,~~operating income and ~~maintenance costs,~~net income, for the ~~expense~~fiscal year immediately preceding the vesting date. Holders of ~~which is recognized~~these restricted stock units have the opportunity to earn back one or more installments of the award if the cumulative performance requirements are met in a subsequent year.

(2) 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. Certain unvested shares related to restricted stock units with performance-based vesting conditions can be achieved at up to 200% of their target vesting amount.

The following table details unrecognized compensation cost and the remaining weighted-average period ~~incurred~~these costs are expected to be recognized for restricted stock units as of October 31, 2020:


(in thousands)	Service-based Restricted Stock Units		Performance-based Restricted Stock Units		Market-based Restricted Stock Units
Unrecognized compensation cost	$	27,879	$	0	$	9,939
Remaining weighted-average period cost is expected to be recognized (years)	1.3		0.0		1.1

Additional information pertaining to restricted stock units for the thirty-nine weeks ended October 31, 2020 and November 2, 2019 follows:


(in thousands)	October 31, 2020		November 2, 2019
Service-based restricted stock units:
Total grant date fair value of awards granted	$	19,541	$	16,175
Total grant date fair value of awards vested	$	13,769	$	13,087

Performance-based restricted stock units:
Total grant date fair value of awards granted	$	0	$	5,379
Total grant date fair value of awards vested	$	4,635	$	0

Market-based restricted stock units:
Total grant date fair value of awards granted	$	8,443	$	4,176
Total grant date fair value of awards vested	$	4,132	$	511

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The weighted-average assumptions used for market-based restricted stock units in the ~~Condensed Consolidated Statements of Operations~~Monte Carlo simulation during the thirty-nine weeks ended October 31, 2020 and ~~Comprehensive Income (Loss); and~~November 2, 2019, respectively, were as follows:

Leases not related to Company-operated retail stores with an initial term of 12 months or less, the expense of which is recognized in the period incurred in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Certain of the Company’s leases include options to extend the lease or to terminate the lease. The Company assesses these leases and, depending on the facts and circumstances, may or may not include these options in the measurement of the Company’s lease right-of-use assets and liabilities. Generally, the Company’s options to extend its leases are at the Company’s sole discretion and at the time of lease commencement are not reasonably certain of being exercised. There may be instances in which a lease is being renewed on a month-to-month basis and, in these instances, the Company will recognize lease expense in the period incurred in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) until a new agreement has been executed.

Amortization and interest expense related to lease right-of-use assets and liabilities are generally calculated on a straight-line basis over the lease term. Amortization and interest expense related to previously impaired lease right-of-use assets are calculated on a front-loaded pattern. Depending on the nature of the lease, amortization and interest expense is recorded within stores and distribution expense, marketing, general and administrative expense, or flagship store exit charges on the Consolidated Statements of Operations and Comprehensive Income (Loss).

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	October 31, 2020			November 2, 2019
Grant date market price	$	12.31		$	25.34
Fair value	$	16.24		$	36.24
Assumptions:
Price volatility	67		%	57		%
Expected term (years)	2.4			2.9
Risk-free interest rate	0.2		%	2.2		%
Dividend yield	0		%	3.2		%
Average volatility of peer companies	66.0		%	40.0		%
Average correlation coefficient of peer companies	0.4967			0.2407

The Company’s lease right-of-use assets are assessed for indicators of impairment at least quarterly, in accordance with the long-lived asset impairment policy disclosed in Note 2, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ~~Property and equipment, net,” of the Notes to Consolidated Financial Statements contained in “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,” of A&F’s Annual Report on Form 10-K for Fiscal 2018.~~

Stock appreciation rights

The ~~Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. In addition,~~following table summarizes stock appreciation rights activity for the ~~Company does not have any sublease arrangements with any related party or third party.~~thirty-nine weeks ended October 31, 2020:


	Number of Underlying Shares	Weighted-Average Exercise Price		Aggregate Intrinsic Value		Weighted-Average Remaining Contractual Life (years)
Outstanding at February 1, 2020	796,725	$	40.06
Granted	0	0
Exercised	0	0
Forfeited or expired	(382,225)	47.87
Outstanding at August 1, 2020	414,500	$	32.86	$	0	3.2
Stock appreciation rights exercisable at October 31, 2020	414,500	$	32.86	$	0	3.2
Stock appreciation rights expected to become exercisable in the future as of October 31, 2020	0	$	0	$	0	0.0

~~Refer~~

No stock appreciation rights were exercised during the thirty-nine weeks ended October 31, 2020. Additional information pertaining to ~~Note 7, “~~stock appreciation rights for the thirty-nine weeks ended November 2, 2019 follows:


(in thousands)	November 2, 2019
Total grant date fair value of awards exercised	$	620

~~LEASES~~.”

~~Derivative instruments~~

14. DERIVATIVE INSTRUMENTS

The Company is exposed to risks associated with changes in foreign currency exchange rates and uses derivative instruments, primarily forward contracts, to manage the financial impacts of these exposures. The Company does not use forward contracts to engage in currency speculation and does not enter into derivative financial instruments for trading purposes.

In order to qualify for hedge accounting treatment, a derivative instrument must be considered highly effective at offsetting changes in either the hedged item’s cash flows or fair value. Additionally, the hedge relationship must be documented to include the risk management objective and strategy, the hedging instrument, the hedged item, the risk exposure, and how hedge effectiveness will be assessed prospectively and retrospectively. The extent to which a hedging instrument has been, and is expected to continue to be, effective at offsetting changes in fair value or cash flows is assessed and documented at least quarterly. If the underlying hedged item is no longer probable of occurring, hedge accounting is discontinued.

For derivative instruments that either do not qualify for hedge accounting or are not designated as hedges, all changes in the fair value of the derivative instrument are recognized in earnings. For qualifying cash flow hedges, the change in the fair value of the derivative instrument is recorded as a component of other comprehensive income (loss) (“OCI”) and recognized in earnings when the hedged cash flows affect earnings. If the cash flow hedge relationship is terminated, the derivative instrument gains or losses that are deferred in OCI will be recognized in earnings when the hedged cash flows occur. However, for cash flow hedges that are terminated because the forecasted transaction is not expected to occur in the original specified time period, or a two-month period thereafter, the derivative instrument gains or losses are immediately recognized in earnings.

The Company uses derivative instruments, primarily foreign currency exchange forward contracts designated as cash flow hedges, to hedge the foreign currency exchange rate exposure associated with forecasted ~~foreign-currency-denominated~~foreign currency denominated intercompany inventory ~~transactions with~~sales to foreign subsidiaries ~~before inventory is sold to third parties.~~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 ~~conversion~~sale of the inventory to ~~cost of sales, exclusive of depreciation and amortization,~~the Company’s customers will result in the reclassification of related derivative gains and losses that are reported in ~~accumulated other comprehensive loss (“AOCL”)~~AOCL into ~~earnings on the Condensed Consolidated Balance Sheets.~~earnings.

The Company also uses foreign currency exchange forward contracts to hedge certain foreign-currency-denominated net monetary ~~assets and~~ assets/liabilities. Examples of monetary assets/liabilities ~~such as~~include cash balances, receivables and payables. Fluctuations in foreign currency exchange rates result in transaction gains ~~and~~or losses being recorded in earnings, as U.S. GAAP requires that monetary ~~assets and~~ assets/liabilities ~~are~~be remeasured at the spot exchange rate at quarter-end or upon settlement. The Company has chosen not to apply hedge accounting to these ~~foreign currency exchange forward contracts~~instruments because there are no differences in the timing of gain or loss recognition on the hedging instruments and the hedged items.

The Company presents its derivative assets and derivative liabilities at their gross fair values within other current assets and accrued liabilities, respectively, on the Condensed Consolidated Balance Sheets. However, the Company’s derivative contracts allow net settlements under certain conditions.

~~Refer to Note 11, “DERIVATIVE INSTRUMENTS~~.”

1320

Table of Contents

~~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, 2019 February 2, 2019 November 3, 2018 February 3, 2018
Cash and equivalents Cash and equivalents $ 410,775
$ 723,135
$ 520,523
$ 675,558
Long-term restricted cash and equivalents Other assets 18,698
22,694
21,860
22,397
Short-term restricted cash and equivalents Other current assets $ 2,550
$ —
$ —
$ —
Cash and equivalents and restricted cash and equivalents $ 432,023
$ 745,829
$ 542,383
$ 697,955

~~3. REVENUE RECOGNITION~~

~~Contract liabilities~~

~~The following table details certain contract liabilities representing unearned revenue as of November 2, 2019, February 2, 2019, November 3, 2018 and February 3, 2018:~~

(in thousands) November 2, 2019 February 2, 2019 November 3, 2018 February 3, 2018
Unearned revenue liabilities related to the Company’s gift card program $ 19,855
$ 26,062
$ 17,351
$ 28,939
Unearned revenue liabilities related to the Company’s loyalty programs $ 21,396
$ 19,904
$ 24,287
$ 15,965

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, 2019 and November 3, 2018:

Thirteen Weeks Ended Thirty-nine Weeks Ended
(in thousands) November 2, 2019 November 3, 2018 November 2, 2019 November 3, 2018
Recognized revenue associated with gift card redemptions and gift card breakage $ 12,653
$ 11,163
$ 40,729
$ 37,001
Recognized revenue associated with reward redemptions and breakage related to the Company’s loyalty programs $ 9,249
$ 8,725
$ 23,795
$ 24,150

~~Disaggregation of revenue~~

~~4. NET INCOME (LOSS) PER SHARE~~

Thirteen Weeks Ended Thirty-nine Weeks Ended
(in thousands) November 2, 2019 November 3, 2018 November 2, 2019 November 3, 2018
Shares of Common Stock issued 103,300
103,300
103,300
103,300
Weighted-average treasury shares (40,201 ) (36,482 ) (38,368 ) (35,525 )
Weighted-average — basic shares 63,099
66,818
64,932
67,775
Dilutive effect of share-based compensation awards 812
1,490
—
—
Weighted-average — diluted shares 63,911
68,308
64,932
67,775
Anti-dilutive shares ⁽¹⁾
2,912
1,925
1,572
3,827

⁽¹⁾

Reflects the total number of shares related to outstanding share-based compensation awards that have been excluded from the computation of net income (loss) per diluted share because the impact would have been anti-dilutive. Unvested shares related to restricted stock units with performance-based and market-based vesting conditions can achieve up to 200% of their target vesting amount and are reflected at the maximum vesting amount less any dilutive portion.

~~Table of Contents~~

~~5. FAIR VALUE~~

~~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.~~

Assets and Liabilities at Fair Value as of November 2, 2019
(in thousands) Level 1 Level 2 Level 3 Total
Assets:
Cash equivalents ⁽¹⁾
$ 222
$ 25,920
$ —
$ 26,142
Derivative instruments ⁽²⁾
—
2,478
—
2,478
Rabbi Trust assets ⁽³⁾
1
108,271
—
108,272
Restricted cash equivalents ⁽⁴⁾
9,812
5,511
—
15,323
Total assets $ 10,035
$ 142,180
$ —
$ 152,215

Liabilities:
Derivative instruments ⁽²⁾
$ —
$ 1,767
$ —
$ 1,767
Total liabilities $ —
$ 1,767
$ —
$ 1,767

Assets and Liabilities at Fair Value as of February 2, 2019
(in thousands) Level 1 Level 2 Level 3 Total
Assets:
Cash equivalents ⁽¹⁾
$ 55,558
$ 34,440
$ —
$ 89,998
Derivative instruments ⁽²⁾
—
2,162
—
2,162
Rabbi Trust assets ⁽³⁾
5
105,877
—
105,882
Restricted cash equivalents ⁽⁴⁾
10,910
4,588
—
15,498
Total assets $ 66,473
$ 147,067
$ —
$ 213,540

Liabilities:
Derivative instruments ⁽²⁾
$ —
$ 332
$ —
$ 332
Total liabilities $ —
$ 332
$ —
$ 332


⁽¹⁾	~~Level 1 assets consist of investments in money market funds. Level 2 assets consist of time deposits.~~


⁽²⁾	~~Level 2 assets and liabilities consist primarily of foreign currency exchange forward contracts.~~


⁽³⁾	~~Level 1 assets consist of investments in money market funds. Level 2 assets consist of trust-owned life insurance policies.~~


⁽⁴⁾	~~Level 1 assets consist of investments in U.S. treasury bills and money market funds. Level 2 assets consist of time deposits.~~

~~The Company’s Level 2 assets and liabilities consist of:~~

~~Time deposits, which are valued at cost approximating fair value due to the short-term nature of these investments;~~

~~Trust-owned life insurance policies, which are valued using the cash surrender value of the life insurance policies; and~~

~~Derivative instruments, primarily foreign currency exchange forward contracts, which are valued using quoted market prices of the same or similar instruments, adjusted for counterparty risk.~~

~~Table of Contents~~

~~Fair value of borrowings~~

The Company’s borrowings under the Company’s credit facilities are carried at historical cost in the accompanying Condensed Consolidated Balance Sheets. The carrying amount and fair value of gross borrowings under the Company’s term loan credit facility were as follows:

(in thousands) November 2, 2019 February 2, 2019
Gross borrowings outstanding, carrying amount $ 243,250
$ 253,250
Gross borrowings outstanding, fair value $ 243,706
$ 252,933

~~No borrowings were outstanding under the Company’s senior secured revolving credit facility as of November 2, 2019 or February 2, 2019.~~

~~6. PROPERTY AND EQUIPMENT, NET~~

~~Property and equipment, net consisted of:~~

(in thousands) November 2, 2019 February 2, 2019
Property and equipment, at cost $ 2,773,862
$ 2,829,250
Less: Accumulated depreciation and amortization (2,108,000 ) (2,134,395 )
Property and equipment, net $ 665,862
$ 694,855

The Company had $34.7 million of construction project assets in property and equipment, net as of February 2, 2019, related to the construction of buildings in certain lease arrangements where, under the previous lease accounting standard, the Company was deemed to be the owner of the construction project. Upon adoption of the new lease accounting standard, described further in Note 2, “~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~,~~” the Company derecognized these construction project assets.~~

~~Refer to Note 8, “ASSET IMPAIRMENT,” for details related to property and equipment impairment charges incurred during the thirteen and thirty-nine weeks ended November 2, 2019 and November 3, 2018.~~

~~7. LEASES~~

~~The Company has 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, 2019:~~

(in thousands) Thirteen Weeks Ended Thirty-nine Weeks Ended
Single lease cost ⁽¹⁾
$ 104,726
$ 318,270
Variable lease cost ⁽²⁾
25,990
129,073
Operating lease right-of-use asset impairment ⁽³⁾
9,047
12,636
Total operating lease cost $ 139,763
$ 459,979


⁽¹⁾	Includes amortization and interest expense associated with operating lease right-of-use assets and liabilities. Includes $23.3 million of charges included in flagship store exit charges on the Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirty-nine weeks ended November 2, 2019. Refer to Note 14, “~~FLAGSHIP STORE EXIT CHARGES~~.”

⁽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. Includes $20.2 million of charges included in flagship store exit charges on the Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirty-nine weeks ended November 2, 2019. Refer to Note 14, “~~FLAGSHIP STORE EXIT CHARGES~~.”


⁽³⁾	Includes $3.2 million of asset charges included in flagship store exit charges on the Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirty-nine weeks ended November 2, 2019. Refer to Note 14, “~~FLAGSHIP STORE EXIT CHARGES~~.”

~~Table of Contents~~

The following table provides the weighted-average remaining lease term of the Company’s operating leases and the weighted-average discount rates used to calculate the Company’s operating lease liabilities as of November 2, 2019:



	~~November 2, 2019~~
~~Weighted-average remaining lease term (years)~~	~~6.1~~
~~Weighted-average discount rate~~	~~5.5~~	%

~~The following table provides a maturity analysis of the Company’s operating lease liabilities, based on undiscounted cash flows, as of November 2, 2019:~~

(in thousands)
Fiscal 2019 (excluding the thirty-nine weeks ended November 2, 2019) $ 76,951
Fiscal 2020 371,357
Fiscal 2021 311,061
Fiscal 2022 262,530
Fiscal 2023 219,723
Fiscal 2024 and thereafter 560,067
Total undiscounted operating lease payments $ 1,801,689
Less: Imputed interest (282,493 )
Present value of operating lease liabilities $ 1,519,196

As of November 2, 2019, the Company had minimum commitments related to additional operating lease contracts that have not yet commenced, primarily for its Company-operated retail stores, of approximately $22.5 million.

As reported under the previous accounting standard, the following table provides a summary of operating lease commitments, including leasehold financing obligations, under noncancelable leases as of February 2, 2019:

(in thousands)
Fiscal 2019 $ 367,622
Fiscal 2020 304,270
Fiscal 2021 205,542
Fiscal 2022 159,617
Fiscal 2023 128,626
Fiscal 2024 and thereafter 310,003
Total $ 1,475,680

~~8. ASSET IMPAIRMENT~~

~~The following table provides additional details related to long-lived asset impairment charges for thirteen and thirty-nine weeks ended November 2, 2019 and November 3, 2018.~~

Thirteen Weeks Ended Thirty-nine Weeks Ended
(in thousands) November 2, 2019 November 3, 2018 November 2, 2019 November 3, 2018
Operating lease right-of-use asset impairment ⁽¹⁾
$ 9,047
$ —
$ 12,636
$ —
Property and equipment asset impairment 3,563
656
5,580
10,383
Total asset impairment $ 12,610
$ 656
$ 18,216
$ 10,383


⁽¹⁾	Includes $3.2 million of operating lease right-of-use asset impairment included in flagship store exit charges on the Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirty-nine weeks ended November 2, 2019. Refer to Note 14, “~~FLAGSHIP STORE EXIT CHARGES~~.”

Long-lived asset impairment charges for the thirteen and thirty-nine weeks ended November 2, 2019 and November 3, 2018 primarily related to the Company’s flagship store assets whose carrying value exceeded fair value.

~~Table of Contents~~

~~9. INCOME TAXES~~

The quarterly tax provision for income taxes is based on the current estimate of the annual effective income tax rate and is adjusted as necessary for discrete quarterly events. The Company’s quarterly tax provision and the estimate of the annual effective tax rate are subject to significant variation due to several factors. These 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 law, regulations, interpretations and administrative practices, relative changes in expenses or losses for which tax benefits are not recognized and the impact of discrete items. The impact of these items on the effective tax rate will be greater at lower levels of pre-tax earnings.

~~Tax Cuts and Jobs Act of 2017~~

In December 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law. The Act made broad and significantly complex changes to the U.S. corporate income tax system by, among other things: reducing the U.S. federal corporate income tax rate from 35% to 21%; transitioning U.S. international taxation to a modified territorial tax system; and imposing a mandatory one-time deemed repatriation tax, payable over eight years, on accumulated undistributed foreign subsidiary earnings and profits as of DecemberOctober 31, 2017. Given the significant changes resulting from and complexities associated with the Act, the estimated financial impacts related to the enactment of the Act were provisional as of November 3, 2018. Provisional amounts were finalized after the Company’s Fiscal 2017 U.S. corporate income tax return was filed in the fourth quarter of Fiscal 2018, no later than one year from the enactment of the Act.

Primarily due to regulatory guidance issued by the Internal Revenue Service in Fiscal 2018, the Company recognized measurement period charges of $0.4 million and $2.4 million during the thirteen and thirty-nine weeks ended November 3, 2018.

~~Swiss Tax Reform~~

~~In May 2019, Switzerland voted to approve the Federal Act on Tax Reform and AHV Financing (“Swiss Tax Reform”), effective at the federal level beginning January~~ 2020, which will result in the abolishment of preferential tax regimes by the cantons. In addition to the abolishment of the preferential tax regimes, the cantons will need to implement new, mandatory tax provisions in their cantonal tax law which are subject to a referendum process as a result of Swiss Tax Reform. As a result of changes in Swiss tax law and actions taken by the Company, both of which occurred during the third quarter of Fiscal 2019, the Company increased its deferred income tax assets and liabilities, which are recorded on the Condensed Balance Sheet within other assets and other liabilities, respectively, by $38.0 million during the third quarter of Fiscal 2019. Swiss Tax Reform did not have an impact to the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) or the Company’s cash flows during the period.

~~Share-based compensation~~

~~Refer to Note 10, “SHARE-BASED COMPENSATION,” for details on discrete income tax benefits and charges related to share-based compensation awards during the thirteen and thirty-nine weeks ended November 2, 2019 and November 3, 2018.~~

~~Table of Contents~~

~~10. SHARE-BASED COMPENSATION~~

~~Financial statement impact~~

~~The following table details share-based compensation expense and the related income tax benefit for the thirteen and thirty-nine weeks ended November 2, 2019 and November 3, 2018:~~

Thirteen Weeks Ended Thirty-nine Weeks Ended
(in thousands) November 2, 2019 November 3, 2018 November 2, 2019 November 3, 2018
Share-based compensation expense $ 5,796
$ 5,957
$ 8,464
$ 16,896
Income tax benefit associated with share-based compensation expense recognized during the period $ 1,211
$ 1,252
$ 1,566
$ 3,426

~~The following table details discrete income tax benefits and charges related to share-based compensation awards during the thirteen and thirty-nine weeks ended November 2, 2019 and November 3, 2018:~~

Thirteen Weeks Ended Thirty-nine Weeks Ended
(in thousands) November 2, 2019 November 3, 2018 November 2, 2019 November 3, 2018
Income tax discrete benefits realized for tax deductions related to the issuance of shares during the period $ 6
$ 106
$ 1,175
$ 1,131
Income tax discrete charges realized upon cancellation of stock appreciation rights during the period (447 ) (1,942 ) (611 ) (10,883 )
Total income tax discrete benefits (charges) related to share-based compensation awards $ (441 ) $ (1,836 ) $ 564
$ (9,752 )

Thirteen Weeks Ended Thirty-nine Weeks Ended
(in thousands) November 2, 2019 November 3, 2018 November 2, 2019 November 3, 2018
Employee tax withheld upon issuance of shares ⁽¹⁾
$ 181
$ 586
$ 6,619
$ 6,520


⁽¹⁾	~~Classified within other financing activities on the Condensed Consolidated Statements of Cash Flows.~~

~~Restricted stock units~~

~~The following table summarizes activity for restricted stock units for the thirty-nine weeks ended November 2, 2019:~~

Service-based Restricted
Stock Units Performance-based Restricted
Stock Units Market-based Restricted
Stock Units

Number of
Underlying
Shares ⁽¹⁾
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 2, 2019 2,020,030
$ 16.76
801,527
$ 13.65
435,970
$ 21.24
Granted 731,886
22.10
234,984
22.89
115,238
36.24
Adjustments for performance achievement —
—
(90,616 ) 24.06
(72,497 ) 28.20
Vested (736,858 ) 17.76
—
—
(18,125 ) 28.20
Forfeited (288,194 ) 16.62
(198,022 ) 13.08
(38,802 ) 29.90
Unvested at November 2, 2019 1,726,864
$ 18.62
747,873
$ 15.41
421,784
$ 23.05

⁽¹⁾

Includes 259,016 unvested restricted stock units as of November 2, 2019, subject to vesting requirements related to the achievement of certain performance metrics, such as operating income and net income, for the fiscal year immediately preceding the vesting date. Holders of these restricted stock units have the opportunity to earn back one or more installments of the award if the cumulative performance requirements are met in a subsequent year.

~~Table of Contents~~

Fair value of both service-based and performance-based restricted stock units is calculated using the market price of the underlying common stock on the date of grant reduced for anticipated dividend payments on unvested shares. In determining fair value, the Company does not take into account performance-based vesting requirements. Performance-based vesting requirements are taken into account in determining the number of awards expected to vest. For market-based restricted stock units, fair value is calculated using a Monte Carlo simulation with the number of shares that ultimately vest dependent on the Company’s total stockholder return measured against the total stockholder return of a select group of peer companies over a three-year period. For awards with performance-based or market-based vesting requirements, the number of shares that ultimately vest can vary from 0% to 200% of target depending on the level of achievement of performance criteria. Unvested shares related to restricted stock units with performance-based and market-based vesting conditions can achieve up to 200% of their target vesting amount and are reflected at 100% of their target vesting amount in the table above.

Service-based restricted stock units are expensed on a straight-line basis over the award’s requisite service period. Performance-based restricted stock units subject to graded vesting are expensed on an accelerated attribution basis. Performance share award expense is primarily recognized in the performance period of the award’s requisite service period. Market-based restricted stock units without graded vesting features are expensed on a straight-line basis over the award’s requisite service period. Compensation expense for stock appreciation rights is recognized on a straight-line basis over the award’s requisite service period. The Company adjusts share-based compensation expense on a quarterly basis for actual forfeitures.

~~The following table details unrecognized compensation cost and the remaining weighted-average period these costs are expected to be recognized for restricted stock units as of November 2, 2019:~~

(in thousands) Service-based Restricted
Stock Units Performance-based Restricted
Stock Units Market-based Restricted
Stock Units
Unrecognized compensation cost 23,655
2,684
4,667
Remaining weighted-average period cost is expected to be recognized (years) 1.3
1.1
1.0

~~Additional information pertaining to restricted stock units for the thirty-nine weeks ended November 2, 2019 and November 3, 2018 follows:~~

(in thousands) November 2, 2019 November 3, 2018
Service-based restricted stock units:
Total grant date fair value of awards granted $ 16,175
$ 16,652
Total grant date fair value of awards vested $ 13,087
$ 15,873

Performance-based restricted stock units:
Total grant date fair value of awards granted $ 5,379
$ 4,310
Total grant date fair value of awards vested $ —
$ —

Market-based restricted stock units:
Total grant date fair value of awards granted $ 4,176
$ 4,784
Total grant date fair value of awards vested $ 511
$ 137

~~The weighted-average assumptions used for market-based restricted stock units in the Monte Carlo simulation during the thirty-nine weeks ended November 2, 2019 and November 3, 2018 were as follows:~~

November 2, 2019 November 3, 2018
Grant date market price $ 25.34
$ 23.59
Fair value $ 36.24
$ 33.69
Assumptions:
Price volatility 57 % 54 %
Expected term (years) 2.9
2.9
Risk-free interest rate 2.2 % 2.4 %
Dividend yield 3.2 % 3.4 %
Average volatility of peer companies 40.0 % 37.4 %
Average correlation coefficient of peer companies 0.2407
0.2709

~~Table of Contents~~

~~Stock appreciation rights~~

~~The following table summarizes stock appreciation rights activity for the thirty-nine weeks ended November 2, 2019:~~

Number of
Underlying
Shares

Weighted-Average
Exercise Price

Aggregate
Intrinsic Value

Weighted-Average
Remaining
Contractual Life (years)
Outstanding at February 2, 2019 1,041,867
$ 37.81

Granted —
—

Exercised (43,463 ) 22.41

Forfeited or expired (201,679 ) 32.27

Outstanding at November 2, 2019 796,725
$ 40.06
$ —
2.6
Stock appreciation rights exercisable at November 2, 2019 796,100
$ 40.08
$ —
2.6
Stock appreciation rights expected to become exercisable in the future as of November 2, 2019 607
$ 22.55
$ —
6.2

~~Additional information pertaining to stock appreciation rights for the thirty-nine weeks ended November 2, 2019 and November 3, 2018 follows:~~

(in thousands) November 2, 2019 November 3, 2018
Total grant date fair value of awards exercised $ 620
$ 1,279

~~11. DERIVATIVE INSTRUMENTS~~

~~As of November 2, 2019,~~ the Company had outstanding the following foreign currency exchange forward contracts that were entered into to hedge either a portion, or all, of forecasted foreign-currency-denominated intercompany inventory sales, the resulting settlement of the foreign-currency-denominated intercompany accounts receivable, or both:

(in thousands)
Notional Amount ⁽¹⁾
Euro $ 183,360
British pound $ 86,097
Canadian dollar $ 29,673
Japanese yen $ 17,336


(in thousands)			^{Notional Amount}(1)			~~Amounts reported are the U.S. Dollar notional amounts outstanding as of November 2, 2019.~~

~~As of November 2, 2019, foreign currency exchange forward contracts that were entered into to hedge foreign-currency-denominated net monetary assets and liabilities were as follows:~~

(in thousands)
Notional Amount ⁽¹⁾
Chinese yuan $ 21,230
Euro $ 17,347
British pound $ 3,884

Euro	$	65,537
⁽¹⁾British pound	~~Amount reported is the U.S. Dollar notional amount outstanding as of November 2, 2019.~~$	29,603
Canadian dollar	$	11,239

(1) Amount reported is the U.S. Dollar notional amount outstanding as of October 31, 2020.

The fair value of derivative instruments is valued using quoted market prices of the same or similar instruments, adjusted for counterparty risk. The location and amounts of derivative fair values of foreign currency exchange forward contracts on the Condensed Consolidated Balance ~~Sheets~~Sheet as of ~~November 2, 2019 and~~ February ~~2, 2019~~1, 2020 were as follows:


(in thousands)	Location	October 31, 2020		February 1, 2020		Location	October 31, 2020		February 1, 2020
Derivatives designated as cash flow hedging instruments	Other current assets	$	461	$	1,869	Accrued expenses	$	367	$	1,377
Derivatives not designated as hedging instruments	Other current assets	0		100		Accrued expenses	0		83
Total		$	461	$	1,969		$	367	$	1,460

(in thousands) Location November 2, 2019 February 2, 2019 Location November 2, 2019 February 2, 2019
Derivatives designated as cash flow hedging instruments Other current assets $ 2,476
$ 2,162
Accrued expenses $ 1,613
$ 15
Derivatives not designated as hedging instruments Other current assets 2
—
Accrued expenses 154
317
Total $ 2,478
$ 2,162
$ 1,767
$ 332

~~Refer to Note 5, “FAIR VALUE~~,~~” for further discussion~~As a result of COVID-19, there was a significant change in the expected timing of previously hedged intercompany sales transactions, resulting in a dedesignation of the ~~determination~~related hedge instruments. At the time of dedesignation of these hedges, they were in a net gain position of approximately $12.6 million. Due to the ~~fair value~~extenuating circumstances leading to dedesignation, gains associated with these hedges at the time of ~~derivative instruments.~~dedesignation are deferred in AOCL until being reclassified into cost of goods sold, exclusive of depreciation and amortization when the originally forecasted transactions occur and the hedged items affect earnings. During the thirty-nine weeks ended October 31, 2020, $11.1 million had been reclassified from AOCL into earnings. During the thirty-nine weeks ended October 31, 2020 and subsequent to the dedesignation of these hedges, these hedge contracts were settled.

~~Additional information~~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 October 31, 2020 and November 2, 2019 ~~and November 3, 2018~~ follows:


	Thirteen Weeks Ended				Thirty-nine Weeks Ended
(in thousands)	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
Gain (loss) recognized in AOCL (1)	$	93	$	(1,136)	$	12,328	$	5,918
Gain reclassified from AOCL into cost of sales, exclusive of depreciation and amortization (2)	$	5,327	$	2,541	$	11,104	$	6,845

~~Table~~(1)Amount represents the change in fair value of ~~Contents~~derivative contracts.

(2)Amount represents 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.

Thirteen Weeks Ended Thirty-nine Weeks Ended
(in thousands) November 2, 2019 November 3, 2018 November 2, 2019 November 3, 2018
(Loss) gain recognized in AOCL ⁽¹⁾
$ (1,136 ) $ 2,051
$ 5,918
$ 18,716
Gain (loss) reclassified from AOCL into cost of sales, exclusive of depreciation and amortization ⁽²⁾
$ 2,541
$ 2,814
$ 6,845
$ (2,408 )


⁽¹⁾	~~Amount represents the change in fair value of derivative contracts.~~


⁽²⁾	Amount represents gain (loss) reclassified from accumulated other comprehensive loss 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 ~~gains or losses related to foreign currency exchange forward contracts designated as cash flow hedging instruments as of November 2, 2019~~gain will be recognized in ~~cost~~costs of sales, exclusive of depreciation and amortization, on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) over the next twelve months.

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 October 31, 2020 and November 2, 2019 ~~and November 3, 2018~~ follows:


	Thirteen Weeks Ended				Thirty-nine Weeks Ended
(in thousands)	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
(Loss) gain recognized in other operating (income) loss, net	$	0	$	(1,023)	$	742	$	157

Thirteen Weeks Ended Thirty-nine Weeks Ended
(in thousands) November 2, 2019 November 3, 2018 November 2, 2019 November 3, 2018
(Loss) gain recognized in other operating income, net $ (1,023 ) $ (1,912 ) $ 157
$ 2,684

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~~12.~~15. ACCUMULATED OTHER COMPREHENSIVE LOSS

~~The~~For the thirteen and thirty-nine weeks ended October 31, 2020, the activity in ~~accumulated other comprehensive~~AOCL was as follows:


	Thirteen Weeks Ended October 31, 2020
(in thousands)	Foreign Currency Translation Adjustment		Unrealized Gain (Loss) on Derivative Financial Instruments		Total
Beginning balance at August 1, 2020	$	(106,632)	$	7,539	$	(99,093)
Other comprehensive income before reclassifications	2,142		93		2,235
Reclassified gain from accumulated other comprehensive loss (1)	0		(5,327)		(5,327)

Other comprehensive income (loss) after reclassifications (2)	2,142		(5,234)		(3,092)
Ending balance at October 31, 2020	$	(104,490)	$	2,305	$	(102,185)

	Thirty-nine Weeks Ended October 31, 2020
(in thousands)	Foreign Currency Translation Adjustment		Unrealized Gain (Loss) on Derivative Financial Instruments		Total
Beginning balance at February 1, 2020	$	(109,967)	$	1,081	$	(108,886)
Other comprehensive income before reclassifications	5,477		12,328		17,805
Reclassified gain from accumulated other comprehensive loss (1)	0		(11,104)		(11,104)

Other comprehensive income after reclassifications (2)	5,477		1,224		6,701
Ending balance at October 31, 2020	$	(104,490)	$	2,305	$	(102,185)

(1) Amount represents gain reclassified from AOCL to cost of sales, exclusive of depreciation and amortization, on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

(2) No tax effect was recognized during the thirteen and thirty-nine weeks ended October 31, 2020 due to the U.S. being a loss ~~for~~jurisdiction.

For the thirteen and thirty-nine weeks ended November 2, 2019, the activity in AOCL was as follows:


	Thirteen Weeks Ended November 2, 2019
(in thousands)	Foreign Currency Translation Adjustment		Unrealized Gain (Loss) on Derivative Financial Instruments		Total
Beginning balance at August 3, 2019	$	(111,461)	$	5,515	$	(105,946)
Other comprehensive (loss) income before reclassifications	1,355		(1,136)		219
Reclassified gain from accumulated other comprehensive loss (1)	0		(2,541)		(2,541)
Tax effect	0		23		23
Other comprehensive income (loss) after reclassifications	1,355		(3,654)		(2,299)
Ending balance at November 2, 2019	$	(110,106)	$	1,861	$	(108,245)

	Thirty-nine Weeks Ended November 2, 2019
(in thousands)	Foreign Currency Translation Adjustment		Unrealized Gain (Loss) on Derivative Financial Instruments		Total
Beginning balance at February 2, 2019	$	(104,887)	$	2,435	$	(102,452)
Other comprehensive (loss) income before reclassifications	(5,219)		5,918		699
Reclassified gain from accumulated other comprehensive loss (1)	0		(6,845)		(6,845)
Tax effect	0		353		353
Other comprehensive (loss) income after reclassifications	(5,219)		(574)		(5,793)
Ending balance at November 2, 2019	$	(110,106)	$	1,861	$	(108,245)

Thirteen Weeks Ended November 2, 2019
(in thousands) Foreign Currency Translation Adjustment Unrealized Gain (Loss) on Derivative Financial Instruments Total
Beginning balance at August 3, 2019 $ (111,461 ) $ 5,515
$ (105,946 )
Other comprehensive income (loss) before reclassifications 1,355
(1,136 ) 219
Reclassified gain from accumulated other comprehensive loss ⁽¹⁾
—
(2,541 ) (2,541 )
Tax effect —
23
23
Other comprehensive income (loss) after reclassifications 1,355
(3,654 ) (2,299 )
Ending balance at November 2, 2019 $ (110,106 ) $ 1,861
$ (108,245 )

Thirty-nine Weeks Ended November 2, 2019
(in thousands) Foreign Currency Translation Adjustment Unrealized Gain (Loss) on Derivative Financial Instruments Total
Beginning balance at February 2, 2019 $ (104,887 ) $ 2,435
$ (102,452 )
Other comprehensive (loss) income before reclassifications (5,219 ) 5,918
699
Reclassified gain from accumulated other comprehensive loss ⁽¹⁾
—
(6,845 ) (6,845 )
Tax effect —
353
353
Other comprehensive loss after reclassifications (5,219 ) (574 ) (5,793 )
Ending balance at November 2, 2019 $ (110,106 ) $ 1,861
$ (108,245 )


⁽¹⁾(1) Amount represents gain reclassified from AOCL to cost of sales, exclusive of depreciation and amortization, on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).	Amount represents gain reclassified from accumulated other comprehensive loss to cost of sales, exclusive of depreciation and amortization, on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

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~~The activity in accumulated other comprehensive loss for the thirteen and thirty-nine weeks ended November 3, 2018 was as follows:~~

Thirteen Weeks Ended November 3, 2018
(in thousands) Foreign Currency Translation Adjustment Unrealized Gain (Loss) on Derivative Financial Instruments Total
Beginning balance at August 4, 2018 $ (104,492 ) $ 9,600
$ (94,892 )
Other comprehensive (loss) income before reclassifications (3,111 ) 2,051
(1,060 )
Reclassified gain from accumulated other comprehensive loss ⁽¹⁾
—
(2,814 ) (2,814 )
Tax effect 16
82
98
Other comprehensive loss after reclassifications (3,095 ) (681 ) (3,776 )
Ending balance at November 3, 2018 $ (107,587 ) $ 8,919
$ (98,668 )

Thirty-nine Weeks Ended November 3, 2018
(in thousands) Foreign Currency Translation Adjustment Unrealized Gain (Loss) on Derivative Financial Instruments Total
Beginning balance at February 3, 2018
$ (84,947 ) $ (10,107 ) $ (95,054 )
Other comprehensive (loss) income before reclassifications (22,656 ) 18,716
(3,940 )
Reclassified loss from accumulated other comprehensive loss⁽¹⁾
—
2,408
2,408
Tax effect 16
(2,098 ) (2,082 )
Other comprehensive (loss) income after reclassifications (22,640 ) 19,026
(3,614 )
Ending balance at November 3, 2018 $ (107,587 ) $ 8,919
$ (98,668 )


⁽¹⁾	Amount represents gain or loss reclassified from accumulated other comprehensive loss to cost of sales, exclusive of depreciation and amortization, on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

~~13.~~16. SEGMENT REPORTING

The Company’s 2 operating segments are brand-based: Hollister and Abercrombie, the latter of which includes the Company’s Abercrombie & Fitch and abercrombie kids brands. These operating segments have similar economic characteristics, classes of consumers, products, and production and distribution methods, operate in the same regulatory environments, and have been aggregated into 1 reportable segment. Amounts shown below include net sales from wholesale, franchise and licensing operations, which are not a significant component of total revenue, and are aggregated within their respective operating segment and geographic area.

The ~~following table provides the~~ Company’s net sales by operating segment for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019 ~~and November 3, 2018.~~were as follows:


	Thirteen Weeks Ended				Thirty-nine Weeks Ended
(in thousands)	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
Hollister	$	476,665	$	514,772	$	1,178,925	$	1,447,975
Abercrombie	342,988		348,700		824,415		990,547
Total	$	819,653	$	863,472	$	2,003,340	$	2,438,522

Thirteen Weeks Ended Thirty-nine Weeks Ended
(in thousands) November 2, 2019 November 3, 2018 November 2, 2019 November 3, 2018
Hollister $ 514,772
$ 515,125
$ 1,447,975
$ 1,439,589
Abercrombie 348,700
346,069
990,547
994,918
Total $ 863,472
$ 861,194
$ 2,438,522
$ 2,434,507

Net sales by geographic area are presented by attributing revenues to an individual country on the basis of the country in which the merchandise was sold for in-store purchases and on the basis of the shipping location provided by customers for digital orders. The ~~following table provides the~~ Company’s net sales by geographic area for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019 ~~and November 3, 2018.~~were as follows:


	Thirteen Weeks Ended				Thirty-nine Weeks Ended
(in thousands)	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
U.S.	$	557,814	$	583,593	$	1,339,347	$	1,596,723
EMEA	190,214		191,977		474,165		566,563
APAC	43,618		55,910		117,768		188,836
Other	28,007		31,992		72,060		86,400
International	$	261,839	$	279,879	$	663,993	$	841,799
Total	$	819,653	$	863,472	$	2,003,340	$	2,438,522

Thirteen Weeks Ended Thirty-nine Weeks Ended
(in thousands) November 2, 2019 November 3, 2018 November 2, 2019 November 3, 2018
United States $ 583,593
$ 562,590
$ 1,596,723
$ 1,543,162
Europe 177,844
187,516
518,905
549,530
Other 102,035
111,088
322,894
341,815
Total $ 863,472
$ 861,194
$ 2,438,522
$ 2,434,507

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~~14.~~17. FLAGSHIP STORE EXIT (BENEFITS) CHARGES

~~Global Store Network Optimization~~

Reflecting a continued focus on one of the Company’s key transformation initiatives ‘Global Store Network Optimization,’ the Company continues to pivot away from its large format flagship stores and strives to open smaller, more productive omnichannel focused brand experiences. As a result, the Company has closed certain of its flagship stores and may have additional closures as it executes against this strategy.

As part of this ongoing effort, the Company recently announced the early exit of four European Abercrombie & Fitch flagship locations. Three of the leases will be transferred through assignment while the fourth lease will be subleased to a new tenant. The Company ~~recognizes charges related~~no longer has lease obligations beyond Fiscal 2020 for the three transfers and is scheduled to ~~the exit of~~receive payments to fully offset its ~~flagship stores in flagship store exit charges~~lease obligations on the ~~Consolidated Statements of Operations and Comprehensive Income (Loss). Details of~~sublease. Refer to Note 8, “ LEASES,” for additional information on the ~~charges incurred during the thirteen and thirty-nine weeks ended November 2, 2019 and November 3, 2018 related to this initiative were as follows:~~

Thirteen Weeks Ended Thirty-nine Weeks Ended
(in thousands) November 2, 2019 November 3, 2018 November 2, 2019 November 3, 2018
Single lease cost ⁽¹⁾
$ —
$ —
$ 23,269
$ —
Variable lease cost ⁽²⁾
—
—
20,218
—
Operating lease right-of-use asset impairment —
—
3,229
—
Operating lease cost —
—
46,716
—
Lease termination fees ⁽³⁾
—
—
—
3,688
Asset disposals and other store-closure costs ⁽⁴⁾
—
—
(1,687 ) —
Employee severance and other employee transition costs 285
—
1,994
120
Total flagship store exit charges $ 285
$ —
$ 47,023
$ 3,808


⁽¹⁾sublease arrangement.	~~Amounts represent accelerated amortization associated with the operating lease right-of-use assets and the impact from remeasurement of operating lease liabilities.~~


⁽²⁾	~~Amounts represent the remeasurement of the lease liability to reflect variable lease costs that became fixed upon decision to close flagship stores.~~


⁽³⁾	~~Under the new lease accounting standard, which the Company adopted on February 3, 2019, similar charges would be incorporated into the above table as a component of operating lease cost.~~


⁽⁴⁾	Amounts represent costs incurred in returning the store to its original condition, including updates to previous accruals for asset retirement obligations and costs to remove inventory and store assets.

Future fixed lease payments associated with closed flagship stores are reflected within short-term and long-term operating lease liabilities on the Condensed Consolidated Balance ~~Sheet. These~~Sheets. Future fixed lease payments associated with flagship stores that were closed as of October 31, 2020, excluding the subleased flagship store, are scheduled to be paid through the fiscal year ending January 30, 2029 (“Fiscal 2028”) and are not expected to exceed $15 million in aggregate in any fiscal year. ~~Refer~~

The Company recognizes impacts related to ~~Note 7, “LEASES,” for a maturity analysis~~the exit of its flagship stores in flagship store exit (benefits) charges on the Consolidated Statements of Operations and Comprehensive Income (Loss). Details of the ~~Company’s operating lease liabilities, based on undiscounted cash flows.~~(benefits) charges incurred during the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019 related to this initiative follow:


	Thirteen Weeks Ended				Thirty-nine Weeks Ended
(in thousands)	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
Operating lease cost	(1,729)		0		(6,959)		46,716
Gain on lease assignment	(5,237)		0		(5,237)		0
Asset disposals and other store-closure costs (1)	(405)		0		(3,610)		(1,687)
Employee severance and other employee transition costs	(692)		285		3,316		1,994
Total flagship store exit (benefits) charges	$	(8,063)	$	285	$	(12,490)	$	47,023

(1) Amounts represent costs incurred or benefits associated with returning the store to its original condition, including updated estimates to previously established accruals for asset retirement obligations and costs to remove inventory and store assets.

As the Company continues its ‘Global Store Network Optimization’ efforts, it may incur future cash expenditures or incremental charges or ~~future cash expenditures~~realize benefits not currently contemplated due to events that may occur as a result of, or that are associated with, previously announced flagship store closures and flagship store closures that have not yet been finalized. At this time, the Company is not able to quantify the amount of ~~charges or~~ future impacts, including any cash expenditures that may take place in future periods resulting from any potential flagship store closures given the unpredictable nature of lease exit negotiations and ultimate lease renewal decisions.

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~~ITEM 2.~~	~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

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 ~~unaudited~~ Condensed Consolidated Financial Statements and notes thereto ~~which are~~ 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.

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:

•

•Overview. This section provides a general description of the Company’s business and certain segment information.

•Current Trends and Outlook.This section provides a discussion related to COVID-19’s impact on the Company’s business and other certain risks and challenges, as well as a summary of the Company’s performance for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019.

•Results of Operations.This section provides an analysis of certain components of the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019.

•Liquidity and Capital Resources.This section provides a discussion of the Company’s financial condition, changes in financial condition and liquidity as of October 31, 2020, which includes (i) an analysis of changes in cash flows for the thirty-nine weeks ended October 31, 2020 as compared to the ~~Company’s business and certain segment information.~~


•	~~Current Trends and Outlook~~. ~~This section provides a summary of the Company’s performance for the thirteen and~~

thirty-nine weeks ended November 2, ~~2019~~2019; and ~~November 3, 2018. In addition, this~~(ii) an analysis of liquidity, including a discussion related to preserving liquidity during COVID-19, remaining availability under the ABL Facility, the Company’s share repurchase and dividend programs, and outstanding debt and covenant compliance.

•Recent Accounting Pronouncements.The recent accounting pronouncements 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, are discussed, as applicable.

•Critical Accounting Policies and Estimates. This section discusses accounting policies 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 in accordance with GAAP. This section includes certain reconciliations for non-GAAP financial measures and additional details on these financial measures, including information as to why the Company believes the non-GAAP financial measures provided within MD&A are useful to investors.

The following risks, categorized by the primary nature of ~~management’s expectations~~the associated risk, including the disclosures in “ITEM 1A. RISK FACTORS” of A&F’s Annual Report on Form 10-K for Fiscal 2019, as well as those disclosed in the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 17, 2020 and in “ITEM 1A. RISK FACTORS” of this Quarterly Report on Form 10-Q, in some cases have affected and in the future could affect the Company’s financial performance and cause actual results for Fiscal 2020 and beyond to differ materially from those expressed or implied in any of the forward-looking statements included in this Quarterly Report on Form 10-Q or otherwise made by management. The following risks, or a combination of risks, may be exacerbated by COVID-19 and could result in adverse impacts on the Company’s business, results of operations, financial condition and cash flows.

Macroeconomic and industry risks include:

•Changes in global economic and financial conditions, and the resulting impact on consumer confidence and consumer spending, as well as other changes in consumer discretionary spending habits could have a material adverse impact on our business;

•Failure to engage our customers, anticipate customer demand and changing fashion trends, and manage our inventory commensurately could have a material adverse impact on our business;

•Our failure to operate in a highly competitive and constantly evolving industry could have a material adverse impact on our business;

•Fluctuations in foreign currency exchange rates could have a material adverse impact on our business;

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•Our ability to attract customers to our stores depends, in part, on the success of the shopping malls or area attractions that our stores are located in or around;

•The impact of war, acts of terrorism, mass casualty events or civil unrest could have a material adverse impact on our business;

•The impact of extreme weather, infectious disease outbreaks, including COVID-19, and other unexpected events could result in an interruption to our business, as well as to the operations of our third-party partners, and have a material adverse impact on our business; and

•The current outbreak of the novel coronavirus, or COVID‐19, has materially adversely impacted and disrupted, and may continue to materially adversely impact and cause disruption to, our business, financial performance and condition, operating results, liquidity and cash flows. The spread of the COVID‐19 outbreak has caused significant disruptions in the United States and global economy, the extent of the impact and duration of which is not yet known. Any future outbreak of any other highly infectious or contagious disease could have a similar impact.

Strategic risks include:

•Failure to successfully develop an omnichannel shopping experience, a significant component of our growth strategy, or failure to successfully invest in customer, digital and omnichannel initiatives could have a material adverse impact on our business;

•Our failure to optimize our global store network could have a material adverse impact on our business; and

•Our failure to execute our international growth strategy successfully and inability to conduct business in international markets as a result of legal, tax, regulatory, political and economic risks could have a material adverse impact on our business.

Operational risks include:

•Failure to protect our reputation could have a material adverse impact on our business;

•If our information technology systems are disrupted or cease to operate effectively it could have a material adverse impact on our business;

•We may be exposed to risks and costs associated with cyber-attacks, data protection, credit card fraud and identity theft that could have a material adverse impact on our business;

•Our reliance on our distribution centers makes us susceptible to disruptions or adverse conditions affecting our supply chain;

•Changes in the cost, availability and quality of raw materials, labor, transportation, and trade relations could have a material adverse impact on our business;

•We depend upon independent third parties for the ~~upcoming fiscal year.~~manufacture and delivery of all our merchandise, and a disruption of the manufacture or delivery of our merchandise could have a material adverse impact on our business; and

•

~~Results of Operations~~•We rely on the experience and skills of our executive officers and associates, and the failure to attract or retain this talent, or effectively manage succession could have a material adverse impact on our business.. ~~This section provides an analysis of certain components of the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)for the thirteen and thirty-nine weeks ended November 2, 2019 and November 3, 2018.~~

•

~~Liquidity and Capital Resources~~. This section provides a discussion of the Company’s financial condition and liquidity as of November 2, 2019, which includes (i) an analysis of financial condition as compared to February 2, 2019; (ii) an analysis of changes in cash flows for the thirty-nine weeks ended November 2, 2019 as compared to the thirty-nine weeks ended November 3, 2018; (iii) and an analysis of liquidity, including the availability under credit facilities, payments of dividends, and outstanding debt and covenant compliance.


•	~~Recent Accounting Pronouncements~~. The recent accounting pronouncements the Company has adopted, including the dates of adoption and anticipated effects on the Company’s unaudited Condensed Consolidated Financial Statements, are included in this Quarterly Report on Form 10-Q in “~~ITEM 1. FINANCIAL STATEMENTS~~.”


•	~~Critical Accounting Policies and Estimates~~. This section discusses accounting policies 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 discussion of certain financial measures that have been determined to not be in accordance with accounting principles generally accepted in the U.S. (“GAAP”). This section includes certain reconciliations for non-GAAP financial measures and additional details on these financial measures, including information as to why the Company believes the non-GAAP financial measures provided within MD&A are useful to investors.

~~Safe harbor statement under~~

Legal, tax, regulatory and compliance risks include:

•Fluctuations in our tax obligations and effective tax rate may result in volatility in our results of operations and could have a material adverse impact on our business;

•Our litigation exposure, or any securities litigation and shareholder activism, could have a material adverse impact on our business;

•Failure to adequately protect our trademarks could have a negative impact on our brand image and limit our ability to penetrate new markets which could have a material adverse impact on our business;

•Changes in the ~~Private Securities Litigation Reform Act~~regulatory or compliance landscape could have a material adverse impact on our business; and

•The agreements related to our senior secured asset-based revolving credit facility and our senior secured notes include restrictive covenants that limit our flexibility in operating our business and our inability to obtain credit on reasonable terms in the future could have an adverse impact on our business.

The factors listed above are not our only risks. Additional risks may arise, and current evaluations of ~~1995~~risks may change, which could lead to material, adverse effects on our business, operating results and financial condition.

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, its management or 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,” 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. In light of the significant uncertainties in the forward-looking statements included herein, including the uncertainty surrounding COVID-19, 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 even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

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The following factors, categorized by the primary nature of the associated risk, including the disclosures under the heading “FORWARD-LOOKING STATEMENTS AND RISK FACTORS” in “ITEM 1A. RISK FACTORS” of A&F’s Annual Report on Form 10-K for Fiscal 2018, in some cases have affected and in the future could affect the Company’s financial performance and could cause actual results for Fiscal 2019 and beyond to differ materially from those expressed or implied in any of the forward-looking statements included in this Quarterly Report on Form 10-Q or otherwise made by management:

~~Macroeconomic and industry risks include:~~

Changes in global economic and financial conditions, and the resulting impact on consumer confidence and consumer spending, as well as other changes in consumer discretionary spending habits, could have a material adverse effect on our business, results of operations and liquidity;

~~Failure to anticipate customer demand and changing fashion trends and to manage our inventory commensurately could adversely impact our sales levels and profitability;~~

~~Our market share may be negatively impacted by increasing competition and pricing pressures from companies with brands or merchandise competitive with ours;~~

~~Fluctuations in foreign currency exchange rates could adversely impact our financial condition and results of operations;~~

~~Our ability to attract customers to our stores depends, in part, on the success of the shopping malls or area attractions that our stores are located in or around; and~~

~~The impact of war, acts of terrorism or civil unrest could have a material adverse effect on our operating results and financial condition.~~

~~Strategic risks include:~~

The expansion of our direct-to-consumer sales channels and omnichannel initiatives are significant components of our growth strategy, and the failure to successfully develop our position across all channels could have an adverse impact on our results of operations;

~~Our international growth strategy and ability to conduct business in international markets may be adversely affected by legal, regulatory, political and economic risks; and~~

~~Failure to successfully implement our strategic plans could have a negative impact on our growth and profitability.~~

~~Operational risks include:~~

~~Failure to protect our reputation could have a material adverse effect on our brands;~~

~~Our business could suffer if our information technology systems are disrupted or cease to operate effectively;~~

~~We may be exposed to risks and costs associated with cyber-attacks, data protection, credit card fraud and identity theft that would cause us to incur unexpected expenses and reputation loss;~~

~~Our reliance on DCs makes us susceptible to disruptions or adverse conditions affecting our supply chain;~~

~~Changes in the cost, availability and quality of raw materials, labor, transportation, and trade relations could cause manufacturing delays and increase our costs;~~

We depend upon independent third parties for the manufacture and delivery of all our merchandise, and a disruption of the manufacture or delivery of our merchandise could result in lost sales and could increase our costs;

~~We rely on the experience and skills of our senior executive officers and associates, the loss of whom could have a material adverse effect on our business; and~~

Extreme weather conditions, including natural disasters, pandemic disease and other unexpected events, could negatively impact our facilities, systems and stores, as well as the facilities and systems of our vendors and manufacturers, which could result in an interruption to our business and adversely affect our operating results.

~~Legal, tax, regulatory and compliance risks include:~~

~~Fluctuations in our tax obligations and effective tax rate may result in volatility in our results of operations;~~

~~Our litigation exposure could have a material adverse effect on our financial condition and results of operations;~~

~~Failure to adequately protect our trademarks could have a negative impact on our brand image and limit our ability to penetrate new markets;~~

Changes in the regulatory or compliance landscape and compliance with changing regulations for accounting, corporate governance and public disclosure could adversely affect our business, results of operations and reported financial results; and

~~Our Asset-Based Revolving Credit Agreement and our Term Loan Agreement include restrictive covenants that limit our flexibility in operating our business.~~

The factors listed above are not our only risks. Additional risks may arise and current evaluations of risks may change, which could lead to material, adverse effects on our business, operating results and financial condition. These risk factors could cause actual results to differ materially from those expressed or implied in any of our forward-looking statements.

~~Table of Contents~~

OVERVIEW

Business summary

The Companyis a global multi-brand omnichannel specialty retailer, whose products are sold primarily through its Company-owned store and digital channels, as well as through various third-party wholesale, franchise and licensing arrangements. The Company offers a broad assortment of apparel, personal care products and accessories for men, women and kids under the Hollister, Abercrombie & Fitch and abercrombie kids brands. The 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 primarily has operations in North America, Europe and Asia, among other regions.

The Company’s two operating segments are brand-based: Hollister and Abercrombie, the latter of which includes the Company’s Abercrombie & Fitch and abercrombie kids brands. These operating segments have similar economic characteristics, classes of consumers, products, and production and distribution methods, operate in the same regulatory environments, and have been aggregated into one reportable segment.

The Company’s fiscal year ends on the Saturday closest to January 31. ~~This typically results in a fifty-two week year, but occasionally gives rise to an additional week, resulting in a fifty-three week year, as was the case for the fiscal year ended February 3, 2018.~~ All references herein to the Company’s fiscal years are as follows:

Fiscal year

~~Fiscal year~~Year ended

Number of weeks

~~Fiscal 2017~~

~~February 3, 2018~~

Fiscal 2018

February 2, 2019

Fiscal 2019

February 1, 2020

Fiscal 2020

January 30, 2021

~~Fiscal 2021~~

~~January 29, 2022~~

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. The seasonality of~~year and the ~~Company’s operations may also lead to~~Company could have significant fluctuations in certain asset and liability accounts. The Company historically experiences its greatest sales activity during the fall season, the third and fourth fiscal quarters, due to back-to-school and holiday sales periods, respectively.

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CURRENT TRENDS AND OUTLOOK

~~Throughout~~COVID-19

In January 2020, the ~~lifetime~~Company began to experience business disruptions in the Asia-Pacific (“APAC”) region as a result of ~~our~~COVID-19. In February 2020, the situation escalated as the scope of COVID-19 worsened beyond the APAC region, with the United States (the “U.S.”) and the Europe, Middle East and Africa (“EMEA”) region experiencing significant outbreaks. In March 2020, the COVID-19 outbreak was declared to be a global pandemic by the World Health Organization. In response to COVID-19, certain governments have imposed travel restrictions and local statutory quarantines and the Company wehas recommended associates who are able to perform their role remotely continue to do so. The Company is reacting to COVID-19 on a daily basis, including by conforming to local government guidance and monitoring developments in government legislation or other government actions in response to the COVID-19 outbreak.

As a result of COVID-19, in January 2020, the Company temporarily closed the majority of its stores in the APAC region and in March 2020, the Company temporarily closed its stores across brands in North America and the EMEA region. The majority of APAC stores were reopened during March 2020, and the Company began to reopen stores in North America and the EMEA region on a rolling basis in late April 2020. The Company had reopened approximately 97% of Company-operated stores for in-store service as of October 31, 2020. Since October 31, 2020, the Company has experienced additional store reclosures in response to COVID-19, primarily in the EMEA region, most of which have ~~taken strides~~since reopened. As of December 4, 2020 approximately 98% of the Company-operated stores were open for in-store service. The Company plans to ~~transform our brands as consumer habits~~follow the guidance of local governments to determine when it can reopen closed stores and ~~shopping preferences change. We aim~~ to ~~keep pace~~evaluate whether further store closures will be necessary.

The Company has also implemented a range of precautionary health and safety measures with the well-being of the Company’s customers, associates and ~~anticipate our customers’ needs through a test-and-learn mentality, which~~business partners in mind, including:

•Requiring associates to use face coverings, depending on geographic region;

•Encouraging or requiring customers to use face coverings, depending on geographic region;

•Conducting associate wellness checks in accordance with local government direction;

•Enhancing cleaning routines and installing plexiglass barriers in the majority of store locations;

•Implementing various measures to encourage social distancing, including managing occupancy limits;

•Encouraging contactless payment options, where available;

•Opening fitting rooms where permissible, with additional cleaning procedures for clothing that has been ~~embedded throughout our organization. Our plans~~tried on;

•Removing returned merchandise from the sales floor for ~~long-term growth are centered around our strategic pillars~~a period of time where mandated by local government;

•Reducing store hours in select locations;

•Continuing to offer Purchase-Online-Pickup-in-Store;

•Increasing its omnichannel capabilities by introducing curbside pick-up at a majority of U.S. locations;

•Following recommended cleaning and ~~are best categorized into three planned phases:~~

~~Phase I: Stabilizing while Transforming~~


–	~~Fiscal 2015 through Fiscal 2017~~

~~Phase II: Growing while Transforming~~


–	~~Fiscal 2018 through Fiscal 2020~~

~~Phase III: Accelerating Growth~~


–	~~Fiscal 2021 and thereafter~~

distancing measures in the Company's distribution centers; and

•Maximizing work-from-home and digital collaboration alternatives to minimize in-person meetings whenever possible.

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The Company has seen, and may continue to see, material reductions in sales across brands and regions as a result of COVID-19. Total net sales decreased approximately 5% and 18% for the thirteen and thirty-nine weeks ended October 31, 2020 as compared to the comparable periods ended November 2, 2019, respectively, primarily driven by temporary store closures and a decline in traffic as compared to the previous year as a result of COVID-19. For the U.S. and the EMEA region, which collectively accounted for 89% of total net sales in Fiscal 2019, the Company experienced sales productivity for reopened stores of approximately 75%, as compared to last year’s levels during the thirteen weeks ended October 31, 2020.

The Company’s digital operations across brands have continued to serve the Company’s customers during this unprecedented period of temporary store closures as the Company’s distribution centers implemented enhanced cleaning and social distancing measures in order to remain operational. In response to elevated digital demand during this period, the Company has increased its omnichannel capabilities by continuing to offer Purchase-Online-Pickup-in-Store, including curbside pick-up at a majority of U.S. locations, and by utilizing ship-from-store capabilities. In addition, to prepare for the Fiscal 2020 holiday season, the Company has entered into a short-term lease for an additional distribution center and has partnered with incremental carriers. Digital sales increased approximately 43% and 42% for the thirteen and thirty-nine weeks ended October 31, 2020 as compared to the comparable periods ended November 2, 2019, respectively. Despite the recent strength in digital sales, the Company has historically generated the majority of its annual net sales through stores and there can be no assurance that the current performance in the digital channel will continue.

The Company is also focused on managing inventories and the ~~second year~~impacts COVID-19 has had, and continues to have, on its global supply chain, including potential disruptions of ~~Phase II,~~ product deliveries. The Company sources the majority of its merchandise outside of the U.S. through arrangements with vendors primarily located in southeast Asia and, as of October 31, 2020, the vast majority of the factories the Company partners with were operating at full capacity. In order to complete production, these manufacturing factories are dependent on raw materials from fabric mills that are primarily located in the APAC region. The Company continues to collaborate with its third-party partners to mitigate significant delays in delivery of merchandise. During Fiscal 2020, the Company has reduced certain orders that were not already in production, delayed and altered the cadence of deliveries and implemented various strategies to tightly manage inventories, including utilizing ship-from-store capabilities in select locations.

“~~Growing~~

Despite these near-term challenges presented by COVID-19, the Company remains committed to, and confident in, its long-term vision. The Company continues to evaluate opportunities to make progress against its key transformation initiatives while ~~Transforming,” which we expect to continue through Fiscal 2020. We have developed~~balancing the near-term challenges and unprecedented uncertainty presented by COVID-19. The Company’s progress executing against the following key transformation initiatives ~~which, along with accelerating top-line growth, are essential~~has created the foundation to ~~achieving our previously disclosed Fiscal 2020 profitability target of doubling Fiscal 2017 adjusted non-GAAP operating income margin of 2.9%:~~allow the Company to respond quickly to COVID-19:

•Optimizing ~~our~~the global store network;

•Enhancing digital and omnichannel capabilities;

•Increasing the speed and efficiency of ~~our concept-to-consumer~~the concept-to-customer product life cycle by further investing in capabilities to position ~~our~~the supply chain for greater speed, agility and efficiency, while leveraging data and analytics to offer the right product at the right time and the right price; and

•Improving ~~our~~ customer engagement through ~~our~~ loyalty programs and marketing optimization.

~~For~~The Company entered this period of uncertainty with a healthy liquidity position and has taken and continues to take immediate, aggressive and prudent actions, including reevaluating all expenditures, to balance short and long-term liquidity needs, in order to best position the ~~third quarter~~business for its key stakeholders. Actions to preserve liquidity and manage cash flows during Fiscal 2020, include, but are not limited to:

•Partnering with merchandise and non-merchandise vendors in regards to payment terms;

•Tightly managing inventory receipts to align inventory with expected market demand;

•Reducing expenses to better align operating costs with sales;

•Borrowed $210.0 million under the ABL Facility in March 2020 which was then repaid in July 2020 along with the Term Loan Facility;

•Completed a private offering of ~~Fiscal 2019, net sales~~$350.0 million aggregate principal amount of senior secured notes;

•Withdrew $50.0 million from the overfunded Rabbi Trust assets, which represented the majority of excess funds;

•Temporarily suspended the Company's share repurchase and ~~comparable sales~~dividend programs; and

•Assessing government policy and economic stimulus responses to COVID-19 for both business and individuals.

In addition, despite the Company's recent history of partnering with its vendors regarding payment terms, certain payment term extensions were ~~approximately flat~~temporary and certain previously deferred payments have since been made. There can be no assurance that the Company will be able to maintain extended payment terms or continue to defer payments, which may result in incremental operating cash outflows in future periods.

As of October 31, 2020, the Company had liquidity of $1.158 billion as compared to ~~last year,~~$913.8 million as ~~strength~~of February 1, 2020, comprised of cash and equivalents and actual incremental borrowing available to the Company under the ABL Facility.

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It is possible that our preparations for the events listed above are not adequate to mitigate their impact, and that these events could further adversely affect our business and results of operations. For a discussion of significant risks that have the potential to cause our actual results to differ materially from our expectations, refer to the disclosures under the heading “FORWARD-LOOKING STATEMENTS AND RISK FACTORS” in “ITEM 1A. RISK FACTORS” of A&F’s Annual Report on Form 10-K for Fiscal 2019. as well as the discussion provided in the ~~U.S., was offset by international headwinds. On a constant currency basis, we delivered our third consecutive quarter~~Current Report on Form 8-K filed with the Securities and Exchange Commission on June 17, 2020 and in “ITEM 1A. RISK FACTORS” of revenue growth and our ninth consecutive quarter of positive U.S. comparable sales. A summary of results for the thirteen and thirty-nine weeks ended November 2, 2019 and November 3, 2018 is as follows:this Quarterly Report on Form 10-Q.

GAAP
Non-GAAP ⁽¹⁾
(in thousands, except change in net sales, comparable sales, gross profit rate, operating margin and per share amounts) November 2, 2019 November 3, 2018 November 2, 2019 November 3, 2018
Thirteen Weeks Ended
Net sales $ 863,472
$ 861,194

Change in net sales 0.3 % 0.2 %
Comparable sales ⁽²⁾
0 % 3 %
Gross profit rate 60.1 % 61.3 %
Operating income $ 14,479
$ 39,680
$ 24,947
$ 36,675
Operating income margin 1.7 % 4.6 % 2.9 % 4.3 %
Net income attributable to A&F $ 6,523
$ 23,919
$ 14,506
$ 22,383
Net income per diluted share attributable to A&F $ 0.10
$ 0.35
$ 0.23
$ 0.33

Thirty-nine Weeks Ended
Net sales $ 2,438,522
$ 2,434,507

Change in net sales 0.2 % 5.9 %
Comparable sales ⁽²⁾
0 % 3 %
Gross profit rate 59.9 % 60.7 %
Operating (loss) income ⁽³⁾
$ (52,263 ) $ (2,300 ) $ (41,795 ) $ 8,966
Operating (loss) income margin (2.1 )% (0.1 )% (1.7 )% 0.4 %
Net loss attributable to A&F $ (43,774 ) $ (22,395 ) $ (35,791 ) $ (11,848 )
Net loss per diluted share attributable to A&F $ (0.67 ) $ (0.33 ) $ (0.55 ) $ (0.17 )


⁽¹⁾	~~Discussion as to why the Company believes that these non-GAAP financial measures are useful to investors is provided below under “NON-GAAP FINANCIAL MEASURES~~.”


⁽²⁾	~~Comparable sales are calculated on a constant currency basis and exclude revenue other than store and digital sales. Refer to the discussion below in “NON-GAAP FINANCIAL MEASURES,” for further details on the comparable sales calculation.~~


⁽³⁾	~~The thirty-nine week periods ended November 2, 2019 and November 3, 2018 include $47.0 million and $3.8 million of flagship store exit charges, respectively. Refer to Note 14, “FLAGSHIP STORE EXIT CHARGES~~.”

~~Table of Contents~~

~~Certain components of the Company’s Condensed Consolidated Balance Sheets as of November 2, 2019 and February 2, 2019 were as follows:~~

(in thousands) November 2, 2019 February 2, 2019
Cash and equivalents $ 410,775
$ 723,135
Long-term portion of borrowings, gross at carrying amount $ 243,250
$ 253,250
Inventories $ 590,883
$ 437,879

~~Certain components of the Company’s Condensed Consolidated Statements of Cash Flows for the thirty-nine week periods ended November 2, 2019 and November 3, 2018 were as follows:~~

November 2, 2019 November 3, 2018
Net cash (used for) provided by operating activities $ (33,839 ) $ 77,245
Purchases of property and equipment $ (154,373 ) $ (98,768 )
Purchases of common stock $ (63,542 ) $ (68,670 )
Dividends paid $ (38,959 ) $ (40,550 )
Repayment of term loan facility borrowings $ (10,000 ) $ —

~~For the full year of Fiscal 2019, we expect:~~

Net sales to be in the range of flat to up 1% from Fiscal 2018 net sales of $3.59 billion, driven by comparable sales and net new store contribution, partially offset by an adverse impact from changes in foreign currency exchange rates of approximately $40 million of which approximately $35 million has been reflected in year-to-date results;

~~Comparable sales to be in the range of flat to up 1%, against positive comparable sales of 3% last year;~~

~~Gross profit rate to be down approximately 100 basis points~~United Kingdom’s withdrawal from the ~~Fiscal 2018 rate of 60.2%, reflecting a combined adverse impact of 40 basis points from changes in foreign currency exchange rates and anticipated China tariffs;~~

Operating expense, excluding other operating income, to be up in the range 2% to 3% from Fiscal 2018 adjusted non-GAAP operating expense of $2.03 billion, reflecting second quarter flagship store exit charges this year of $45 million and third quarter asset impairment charges this year of $13 million;

~~Effective tax rate to be in the mid 20s;~~

~~Diluted weighted-average shares outstanding of approximately 66 million shares, excluding the effect of potential share buybacks; and~~

~~Capital investments of approximately $200 million.~~

~~Certain risks and challenges~~

We are a global multi-brand omnichannel specialty retailer, with operations in North America, Europe and Asia, among other regions and, as a result, we are mindful of macroeconomic risks and challenges that could adversely impact certain areas of our business.

European Union (“Brexit”)

In particular, there continues to be uncertainty with respect to trade policies, tariffs and government regulations affecting trade between the U.S. and other countries, such as the threat of additional tariffs on imported consumer goods from China. A summary of certain recent tariffs impacting our business include:

Additional tariffs imposed on fashion accessories, handbags and hats of up to 25%, which were effective beginning September 2018 at the starting rate of 10% and increased from 10% to 25% in May 2019 (“List 3”); and

~~Additional tariffs imposed on select apparel and footwear of up to 25%, which were effective beginning September 2019 at the starting rate of 15% (“List 4A”).~~

These List 3 and List 4A tariffs have not had a material impact on results for the thirteen and thirty-nine week periods ended November 2, 2019. List 3 and List 4A tariffs are expected to have a direct adverse impact on Fiscal 2019 cost of merchandise and gross profit of approximately $5 million. This impact is based on the List 4A starting rate of 15% and the List 3 rate of 25%.

We believe we have a number of measures available to help mitigate this risk and continue to focus on the diversification of our global supply chain. Our team has taken actions to proactively prepare for potential impacts, including shifting production into other countries and regions to both existing and new partners as necessary. Only a portion of our total goods sourced from China are imported into the U.S. and are subject to these additional tariffs. For context, in Fiscal 2018 approximately 25% of our total global merchandise receipts were sourced from China and imported to the U.S. and we expect to reduce this percentage to 16% for Fiscal 2019 and to the low-teens for Fiscal 2020.

~~Table of Contents~~

~~In addition, in~~ June 2016, the United Kingdom passed a referendum to recommend withdrawing from the European Union. ~~The~~Although the United Kingdom ~~is now scheduled to exit~~left the European Union ~~no later than~~in January ~~31,~~ 2020, ~~and~~ the final terms of the United Kingdom’s withdrawal remain unclear. AsThe Company believes that this referendum and the uncertainty surrounding the terms of the United Kingdom’s withdrawal adversely impacted international sales results in Fiscal 2019, with decreased traffic and declining values of the Euro and British Pound as compared to the U.S. Dollar over Fiscal 2018.

Upon withdrawal from the European Union in January 2020, the United Kingdom entered a ~~result,~~transition period during which there will be on-going negotiations. During this transition period, the United Kingdom’s existing trading relationship with the European Union will remain in place and it will continue to follow the European Union's rules. It is not clear at this time what, if any, agreements will be reached by the current December 31, 2020 transition period deadline, or the impact that COVID-19 may have on the negotiation timeline.

There is continued uncertainty related to the impact on consumer behavior, trade relations, economic conditions, foreign currency exchange rates and the free movement of goods, services, people and capital between the United Kingdom and the European ~~Union. We believe that~~Union during this ~~referendum and the uncertainty surrounding the terms~~time of United Kingdom’s withdrawal has adversely impacted international results in Fiscal 2019, and we have experienced decreased traffic in the United Kingdom and declining values of the Euro and British Pound as compared to the U.S. Dollar over last year.transition. The United Kingdom’s withdrawal from the European Union could also adversely impact other areas of ~~our~~the business, including, but not limited to, an increase in duties and delays in the delivery of merchandise from ~~our~~the Company’s Netherlands DCdistribution center to ~~our~~its customers in the United Kingdom if trade barriers materialize. The United Kingdom’s withdrawal from the European Union could also adversely impact the operations of ~~our~~the Company’s vendors and of our other third-party partners. In order to mitigate the risks associated with the United Kingdom’s withdrawal from the European Union, ~~our team~~the Company is: collaborating across the organization and testing ~~our~~ systems; working with external partners to develop contingency plans for potential adverse impacts; and taking actions to reduce, to the extent possible, the potential impact of any incremental duty exposure.

We also continue to monitor certain other events of global, political unrest, such as the ongoing protests in Hong Kong which have impacted our business and resulted in temporary store closures. Our team is developing contingency plans as it continues to assess the potential impacts these protests and similar events may have on the business in future periods.

It is possible that ~~our~~ preparations for ~~these~~the events listed above are not adequate to mitigate their impact, and that these events could further adversely affect ~~our~~the business and results of operations. For further discussion of significant risk factors that have the potential to cause our actual results to differ materially from our expectations, refer to “ITEM 1A. RISK FACTORS,” included in A&F’s Annual Report on Form 10-K for Fiscal 2018.

Global Store Network Optimization

Reflecting a continued focus on our key transformation initiative ‘Global Store Network Optimization,’ we expect to deliver approximately 85 new store experiences in Fiscal 2019 across brands, including approximately: 40 new stores; 25 remodeled stores; and 20 right-sizes.

We also expect to close up to 40 stores in Fiscal 2019, primarily in the U.S. through natural lease expirations. In addition to natural lease expirations, certain other of our leases also include early termination options that can be exercised under specific conditions, allowing for significant lease flexibility. We may also elect to exit or modify our other leases, and could incur charges related to these actions.

A component of optimizing ~~our~~the Company’s global store fleet is pivoting away from large format flagship stores ~~as we strive to open~~and striving towards opening smaller, more productive omnichannel focused brand ~~experiences.~~experiences that cater to local customers. As a result, ~~we have~~the Company has closed certain of ~~our~~its flagship stores and may have additional closures in the future as ~~we execute~~the Company executes against this strategy. ~~For context,~~Although some of these closures may be completed through natural lease expirations, certain other of the Company’s 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 or realize benefits related to these actions.

As part of its ongoing global store network optimization, the Company recently announced the early exit of four European Abercrombie & Fitch flagship locations. The Dusseldorf flagship closed during the third quarter of Fiscal 2020, and the London, Munich and Paris flagships will close by the end of Fiscal 2020, all well ahead of their natural lease expirations. Three of the leases will be transferred through assignment while the fourth lease will be subleased to a new tenant. The Company no longer has lease obligations beyond Fiscal 2020 for the three transfers and is scheduled to receive payments to fully offset its lease obligations on the sublease. In addition to these four early lease exits, the Brussels, Madrid and Fukuoka Abercrombie & Fitch flagships are expected to close by the end of Fiscal 2020 due to natural lease expirations. These recent actions removed approximately $85 million of lease liabilities from the balance sheet, and will leave the Company with eight operating flagships at the end of Fiscal 2020, down from 15 at the beginning of Fiscal 2019, we had 19 flagship stores, and as of the end of the third quarter of Fiscal 2019, we had 17 flagship stores. In addition to the two flagship stores closed during the thirty-nine weeks ended November 2, 2019, we have also announced an additional four flagship closures. 2020.

Details related to ~~previously announced~~recently closed flagship ~~store closures are as follows:~~

stores follow:

Brand⁽¹⁾

~~Location~~Flagship location

~~Actual or expected flagship~~Timing of store closure ~~date~~

Abercrombie & Fitch

Pedder Street, Hong Kong Special Administrative Region, China

~~Closed in the first~~First quarter of Fiscal 2017

Abercrombie & Fitch

Copenhagen, Denmark

~~Closed in the first~~First quarter of Fiscal 2019

Hollister

SoHo, New York City, ~~United States~~U.S.

~~Closed in the second~~Second quarter of Fiscal 2019

Abercrombie

Milan, Italy

~~Expected to close by the end~~Fourth quarter of Fiscal 2019

~~Hollister~~

5abercrombie kids ^th ~~Avenue, New York City, United States~~(2)

~~Expected to close by the end~~London, United Kingdom

Fourth quarter of Fiscal 2019

Abercrombie

Dusseldorf, Germany

Third quarter of Fiscal 2020

~~Abercrombie & Fitch~~

~~Fukuoka, Japan~~

~~Expected to close in the second half of Fiscal 2020~~

~~abercrombie kids~~

~~London, United Kingdom~~


*	~~Closure date has not been finalized.~~


⁽¹⁾(1) Abercrombie includes the Abercrombie & Fitch and abercrombie kids brands and, when used in the table above, signifies a location with an abercrombie kids carveout within an Abercrombie & Fitch store that would be represented as a single store count.	Abercrombie includes the Company’s Abercrombie & Fitch and abercrombie kids brands and, when used in the table above, signifies a location with an abercrombie kids carveout within an Abercrombie & Fitch store that would be represented as a single store count.

~~For~~(2) The abercrombie kids store in London is expected to be converted to corporate office space to be utilized as the Company’s EMEA regional headquarters.

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Additional details ~~on flagship~~related to store ~~exit charges incurred during~~count and gross square footage follow:


	Hollister (1)		Abercrombie (2)		Total Company
	U.S.	International	U.S.	International	U.S.	International	Total
Number of stores:
February 1, 2020	391	155	256	52	647	207	854
New	2	2	4	4	6	6	12
Permanently closed	(7)	(3)	(5)	(2)	(12)	(5)	(17)
October 31, 2020	386	154	255	54	641	208	849





Gross square footage (in thousands):
October 31, 2020	2,568	1,257	1,817	575	4,385	1,832	6,217

(1) Locations with Gilly Hicks carveouts within Hollister stores are represented as a single store count. Excludes nine international franchise stores as of each of October 31, 2020 and February 1, 2020. Excludes 15 Company-operated temporary stores as of October 31, 2020 and 16 as of February 1, 2020.

(2) Abercrombie includes the Company's Abercrombie & Fitch and abercrombie kids brands. Locations with abercrombie kids carveouts within Abercrombie & Fitch stores are represented as a single store count. Excludes eight international franchise stores as of October 31, 2020 and seven as of February 1, 2020. Excludes five Company-operated temporary stores as of October 31, 2020 and eight as of February 1, 2020.

Summary of results

A summary of results for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019 follows:


	GAAP						Non-GAAP (1)
(in thousands, except change in net sales, gross profit rate, operating margin and per share amounts)	October 31, 2020(2)			November 2, 2019(3)			October 31, 2020(2)			November 2, 2019(3)
Thirteen Weeks Ended
Net sales	$	819,653		$	863,472
Change in net sales	(5.1)		%	0.3		%

Gross profit rate	64.0		%	60.1		%
Operating income	$	58,616		$	14,479		$	64,945		$	24,947
Operating income margin	7.2		%	1.7		%	7.9		%	2.9		%
Net income attributable to A&F	$	42,271		$	6,523		$	48,231		$	14,506
Net income per diluted share attributable to A&F	$	0.66		$	0.10		$	0.76		$	0.23
Thirty-nine Weeks Ended
Net sales	$	2,003,340		$	2,438,522
Change in net sales	(17.8)		%	0.2		%
Gross profit rate	60.5		%	59.9		%
Operating loss	$	(136,368)		$	(52,263)		$	(79,028)		$	(41,795)
Operating loss margin	(6.8)		%	(2.1)		%	(3.9)		%	(1.7)		%
Net loss attributable to A&F	$	(196,413)		$	(43,774)		$	(142,708)		$	(35,791)
Net loss per diluted share attributable to A&F	$	(3.14)		$	(0.67)		$	(2.28)		$	(0.55)

(1) Discussion as to why the Company believes that these non-GAAP financial measures are useful to investors is provided below under “NON-GAAP FINANCIAL MEASURES.”

(2) Results for Fiscal 2020 reflect significant adverse tax impacts related to valuation allowances on deferred tax assets and ~~November 3, 2018, refer~~other tax charges. Refer to Note ~~14,~~11, “INCOME TAXES.”

(3) Results for Fiscal 2019 reflect significant adverse impacts related to flagship store exit charges. Refer to Note 17, “FLAGSHIP STORE EXIT (BENEFITS) CHARGES.”

~~Table~~Certain components of ~~Contents~~

~~Store count~~the Company’s Condensed Consolidated Balance Sheets as of October 31, 2020 and ~~gross square footage by brand and geography for the thirty-nine weeks ended November 2, 2019 and November 3, 2018~~February 1, 2020 were as follows:


(in thousands)	October 31, 2020		February 1, 2020
Cash and equivalents	$	812,881	$	671,267
Gross long-term borrowings outstanding, carrying amount	$	350,000	$	233,250
Inventories	$	545,548	$	434,326

Certain components of the Company’s Condensed Consolidated Statements of Cash Flows for the thirty-nine week periods ended October 31, 2020 and November 2, 2019 were as follows:


(in thousands)	October 31, 2020		November 2, 2019
Net cash provided by (used for) operating activities	$	158,894	$	(33,839)
Net cash used for investing activities	$	(91,748)	$	(154,373)
Net cash provided by (used for) financing activities	$	70,129	$	(122,908)

Thirty-nine weeks ended November 2, 2019

Hollister ⁽¹⁾

Abercrombie ⁽²⁾
Total Company
United States International United States International United States International Total
Number of stores:
February 2, 2019 393
149
270
49
663
198
861
New 10
5
10
2
20
7
27
Closed (3 ) —
(3 ) (1 ) (6 ) (1 ) (7 )
November 2, 2019 400
154
277
50
677
204
881

Gross square footage:

November 2, 2019 (in thousands)
2,659
1,261
2,001
635
4,660
1,896
6,556

Thirty-nine weeks ended November 3, 2018

Hollister ⁽¹⁾

Abercrombie ⁽²⁾
Total Company
United States International United States International United States International Total
Number of stores:
February 3, 2018 394
144
285
45
679
189
868
New 6
3
4
3
10
6
16
Closed —
—
(5 ) —
(5 ) —
(5 )
November 3, 2018 400
147
284
48
684
195
879

Gross square footage:

November 3, 2018 (in thousands)
2,705
1,219
2,156
639
4,861
1,858
6,719


⁽¹⁾	~~Excludes nine international franchise stores as of each of November 2, 2019 and August 3, 2019and eight as of February 2, 2019. Excludes~~ 10 ~~U.S. Company-operated temporary stores as of November 2, 2019 and~~ ~~six~~ ~~as of August 3, 2019.~~

⁽²⁾

Abercrombie includes the company's Abercrombie & Fitch and abercrombie kids brands. Locations with abercrombie kids carveouts within Abercrombie & Fitch stores are represented as a single store count. Excludes seven international franchise stores as of each of November 2, 2019, August 3, 2019 and February 2, 2019. Excludes ~~seven~~ ~~U.S. Company-operated temporary stores as of November 2, 2019 and~~ ~~four~~ ~~as of August 3, 2019.~~

Table of Contents

RESULTS OF OPERATIONS

~~THIRTEEN~~ ~~AND~~ ~~THIRTY-NINE WEEKS ENDED NOVEMBER 2, 2019 VERSUS NOVEMBER 3, 2018~~

Net sales

Thirteen Weeks Ended
November 2, 2019 November 3, 2018
(in thousands) Net Sales Net Sales $ Change % Change
Comparable
Sales ⁽¹⁾
Hollister $ 514,772
$ 515,125
$ (353 ) 0% (2)%
Abercrombie⁽²⁾
348,700
346,069
2,631
1% 3%
Total company $ 863,472
$ 861,194
$ 2,278
0% 0%

United States $ 583,593
$ 562,590
$ 21,003
4% 3%
International 279,879
298,604
(18,725 ) (6)% (8)%
Total company $ 863,472
$ 861,194
$ 2,278
0% 0%

Thirty-nine Weeks Ended
November 2, 2019 November 3, 2018
(in thousands) Net Sales Net Sales $ Change % Change
Comparable
Sales ⁽¹⁾
Hollister $ 1,447,975
$ 1,439,589
$ 8,386
1% 0%
Abercrombie⁽²⁾
990,547
994,918
(4,371 ) 0% 1%
Total net sales $ 2,438,522

$ 2,434,507

$ 4,015
0% 0%

United States $ 1,596,723
$ 1,543,162
$ 53,561
3% 3%
International 841,799
891,345
(49,546 ) (6)% (5)%
Total net sales $ 2,438,522

$ 2,434,507

$ 4,015
0% 0%
The Company’s net sales by operating segment for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019 were as follows:


	Thirteen Weeks Ended
(in thousands)	October 31, 2020		November 2, 2019		$ Change		% Change
Hollister	$	476,665	$	514,772	$	(38,107)	(7)%
Abercrombie (1)	342,988		348,700		(5,712)		(2)%







Total	$	819,653	$	863,472	$	(43,819)	(5)%


	Thirty-nine Weeks Ended
(in thousands)	October 31, 2020		November 2, 2019		$ Change		% Change
Hollister	$	1,178,925	$	1,447,975	$	(269,050)	(19)%
Abercrombie (1)	824,415		990,547		(166,132)		(17)%




Total	$	2,003,340	$	2,438,522	$	(435,182)	(18)%

⁽¹⁾

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

Net sales by geographic area are presented by attributing revenues to an individual country on the basis of the country in which the merchandise was sold for in-store purchases and the shipping location provided by customers for digital orders. The Company’s net sales by geographic area for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019 were as follows:


	Thirteen Weeks Ended
(in thousands)	October 31, 2020		November 2, 2019		$ Change		% Change




U.S.	$	557,814	$	583,593	$	(25,779)	(4)%
EMEA	190,214		191,977		(1,763)		(1)%
APAC	43,618		55,910		(12,292)		(22)%
Other	28,007		31,992		(3,985)		(12)%
International	$	261,839	$	279,879	$	(18,040)	(6)%

Total	$	819,653	$	863,472	$	(43,819)	(5)%


	Thirty-nine Weeks Ended
(in thousands)	October 31, 2020		November 2, 2019		$ Change		% Change



U.S.	$	1,339,347	$	1,596,723	$	(257,376)	(16)%
EMEA	474,165		566,563		(92,398)		(16)%
APAC	117,768		188,836		(71,068)		(38)%
Other	72,060		86,400		(14,340)		(17)%
International	$	663,993	$	841,799	$	(177,806)	(21)%
Total	$	2,003,340	$	2,438,522	$	(435,182)	(18)%

~~Calculated on a constant currency basis. Refer to~~ “~~NON-GAAP FINANCIAL MEASURES~~,” ~~for further details.~~


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

For the third quarter of Fiscal ~~2019,~~2020, net sales ~~were approximately flat~~decreased 5% as compared to the third quarter of Fiscal ~~2018, reflecting an increase~~2019, primarily due to a decrease in units sold driven by reduced store traffic, including as it relates to temporary store closures as a result of COVID-19, partially offset by ~~a decrease in average~~43% digital sales growth. Average unit retail increased year-over-year, driven by ~~the adverse impact~~less promotions and lower clearance levels, with benefits from changes in foreign currency exchange ~~rates.~~rates of approximately $12 million. Excluding the ~~adverse impact of~~benefit from changes in foreign currency exchange rates, net sales for the third quarter of Fiscal ~~2019 increased 1%~~2020 decreased 6% as compared to the third quarter of Fiscal ~~2018.~~2019.

For the year-to-date period of Fiscal ~~2019,~~2020, net sales ~~were approximately flat~~decreased 18% as compared to the year-to-date period of Fiscal ~~2018, reflecting an increase~~2019, primarily due to a decrease in units sold driven by reduced store traffic, including as it relates to temporary store closures as a result of COVID-19, partially offset by ~~a decrease in average~~42% digital sales growth. Average unit retail increased year-over-year, driven by ~~the adverse impact~~less promotions and lower clearance levels, with benefits from changes in foreign currency exchange ~~rates.~~rates of approximately $3 million. Excluding the ~~adverse impact of~~benefit from changes in foreign currency exchange rates, net sales for the year-to-date period of Fiscal ~~2019 increased 2%~~2020 decreased 18% as compared to the year-to-date period of Fiscal ~~2018.~~2019.

Table of Contents

Cost of sales, exclusive of depreciation and amortization


	Thirteen Weeks Ended
	October 31, 2020			November 2, 2019
(in thousands)			% of Net sales			% of Net sales	BPS Change (1)
Cost of sales, exclusive of depreciation and amortization	$	295,220	36.0%	$	344,541	39.9%	(390)


	Thirty-nine Weeks Ended
	October 31, 2020			November 2, 2019
(in thousands)			% of Net Sales			% of Net Sales	BPS Change (1)
Cost of sales, exclusive of depreciation and amortization	$	791,154	39.5%	$	976,868	40.1%	(60)

Thirteen Weeks Ended
November 2, 2019 November 3, 2018
(in thousands) % of Net Sales % of Net Sales
Cost of sales, exclusive of depreciation and amortization $ 344,541
39.9% $ 333,375
38.7%

Gross profit $ 518,931
60.1% $ 527,819
61.3%
Gross profit on a non-GAAP constant currency basis ⁽¹⁾
$ 518,931
60.1% $ 519,288
60.9%

Thirty-nine Weeks Ended
November 2, 2019 November 3, 2018
(in thousands) % of Net Sales % of Net Sales
Cost of sales, exclusive of depreciation and amortization $ 976,868
40.1% $ 957,448
39.3%

Gross profit $ 1,461,654
59.9% $ 1,477,059
60.7%
Gross profit on a non-GAAP constant currency basis ⁽¹⁾
$ 1,461,654
59.9% $ 1,452,058
60.5%
(1) )The estimated basis point (“BPS”) change has been rounded based on the change in the percentage of net sales.


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

For the third quarter of Fiscal ~~2019,~~2020, cost of sales, exclusive of depreciation and amortization, as a percentage of net sales ~~increased~~decreased by approximately ~~120~~390 basis points as compared to the third quarter of Fiscal ~~2018, reflecting the adverse impact~~2019. The year-over-year decline was primarily attributable to increased average unit retail and lower average unit cost, benefiting from ~~higher year-over-year~~inventory shrink ~~of approximately 50 basis points as a result of physical inventory counts completed in the third quarter of Fiscal 2019,~~favorability and ~~the adverse impact from~~ changes in foreign currency exchange ~~rates, net of hedging, of approximately 40 basis points.~~rates.

For the year-to-date period of Fiscal ~~2019,~~2020, cost of sales, exclusive of depreciation and amortization, as a percentage of net sales ~~increased~~decreased by approximately 8060 basis points as compared to the year-to-date period of Fiscal ~~2018, primarily due to lower average unit retail without a corresponding decrease in average unit cost, the adverse impact~~2019. The year-over-year decline reflects benefits from ~~higher year-over-year~~inventory shrink ~~of approximately 20 basis points as a result of physical inventory counts completed in the third quarter of Fiscal 2019~~favorability and ~~the adverse impact from~~ changes in foreign currency exchange rates, ~~net~~as well as adverse impacts related to charges reducing the carrying value of ~~hedging,~~inventory during the first quarter of Fiscal 2020 of approximately 20$15 million.

Gross profit, exclusive of depreciation and amortization


	Thirteen Weeks Ended
	October 31, 2020			November 2, 2019
(in thousands)			% of Net sales			% of Net sales	BPS Change (1)
Gross profit, exclusive of depreciation and amortization	$	524,433	64.0%	$	518,931	60.1%	390



	Thirty-nine Weeks Ended
	October 31, 2020			November 2, 2019
(in thousands)			% of Net Sales			% of Net Sales	BPS Change (1)
Gross profit, exclusive of depreciation and amortization	$	1,212,186	60.5%	$	1,461,654	59.9%	60

(1) The estimated basis ~~points.~~point change has been rounded based on the change in the percentage of net sales.

Table of Contents

Stores and distribution expense


	Thirteen Weeks Ended
	October 31, 2020			November 2, 2019
(in thousands)			% of Net sales			% of Net sales	BPS Change (1)
Stores and distribution expense	$	346,263	42.2%	$	377,697	43.7%	(150)


	Thirty-nine Weeks Ended
	November 2, 2019			November 3, 2018
(in thousands)			% of Net Sales			% of Net Sales	BPS Change (1)
Stores and distribution expense	$	978,757	48.9%	$	1,110,656	45.5%	340

Thirteen Weeks Ended
November 2, 2019 November 3, 2018
(in thousands) % of Net Sales % of Net Sales
Stores and distribution expense $ 377,697
43.7% $ 371,859
43.2%

Thirty-nine Weeks Ended
November 2, 2019 November 3, 2018
(in thousands) % of Net Sales % of Net Sales
Stores and distribution expense $ 1,110,656
45.5% $ 1,103,758
45.3%

(1) The estimated basis point change has been rounded based on the change in the percentage of net sales.

For the third quarter of Fiscal ~~2019,~~2020, stores and distribution expense ~~as a percentage of net sales increased by approximately 50 basis points~~decreased 8% as compared to the third quarter of Fiscal ~~2018,~~2019, primarily ~~due to increased shipping and handling~~driven by a $24 million reduction in store occupancy expense and ~~increased depreciation~~a $11 million reduction in payroll expense, which was net of a benefit of $3 million related to expected government subsidies in certain jurisdictions where the Company qualifies, reflecting the impact of COVID-19 on ~~omnichannel investments,~~operations including temporary store closures. These reductions in expense were partially offset by a ~~decrease~~$10 million increase in ~~store occupancy~~shipping and fulfillment expense ~~as a percentage of net~~related to 43% year-over-year digital sales ~~of approximately 50 basis points.~~growth.

For the year-to-date period of Fiscal ~~2019,~~2020, stores and distribution expense ~~as a percentage of net sales increased by approximately 20 basis points~~decreased 12% as compared to the year-to-date period of Fiscal ~~2018,~~2019, primarily ~~due~~driven by a $77 million reduction in payroll expense, which was net of a benefit of $15 million related to ~~increased shipping~~expected government subsidies in certain jurisdictions where the Company qualifies, and ~~handling~~a $64 million reduction in store occupancy expense, ~~increased depreciation~~reflecting the impact of COVID-19 on operations including temporary store closures. These reductions in expense ~~on omnichannel investments,~~were partially offset by a ~~decrease~~$31 million increase in ~~store occupancy~~shipping and fulfillment expense ~~as a percentage of net~~related to 42% year-over-year digital sales ~~of approximately 50 basis points.~~growth.

~~Table of Contents~~

Marketing, general and administrative expense


	Thirteen Weeks Ended
	October 31, 2020			November 2, 2019
(in thousands)			% of Net sales			% of Net sales	BPS Change (1)
Marketing, general and administrative expense	$	121,000	14.8%	$	114,075	13.2%	160


	Thirty-nine Weeks Ended
	October 31, 2020			November 2, 2019
(in thousands)			% of Net Sales			% of Net Sales	BPS Change (1)
Marketing, general and administrative expense	$	326,509	16.3%	$	341,716	14.0%	230

Thirteen Weeks Ended
November 2, 2019 November 3, 2018
(in thousands) % of Net Sales % of Net Sales
Marketing, general and administrative expense $ 114,075
13.2% $ 117,181
13.6%
Deduct:
Benefits related to certain legal matters⁽¹⁾
—
0.0% 3,005
0.3%
Adjusted non-GAAP marketing, general and administrative expense $ 114,075
13.2% $ 120,186
14.0%

Thirty-nine Weeks Ended
November 2, 2019 November 3, 2018
(in thousands) % of Net Sales % of Net Sales
Marketing, general and administrative expense $ 341,716
14.0% $ 365,961
15.0%
Deduct:
Net charges related to certain legal matters⁽¹⁾
—
0.0% (2,595 ) (0.1)%
Adjusted non-GAAP marketing, general and administrative expense $ 341,716
14.0% $ 363,366
14.9%
(1) The estimated basis point change has been rounded based on the change in the percentage of net sales.


⁽¹⁾	~~Amounts reflect legal charges and benefits in connection with a then proposed settlement of a class action claim, which received final court approval and was paid in the fourth quarter of Fiscal 2018.~~

For the third quarter of Fiscal ~~2019,~~2020, marketing, general and administrative expense ~~as a percentage of net sales decreased by approximately 40 basis points~~increased 6% as compared to the third quarter of Fiscal ~~2018,~~2019, primarily ~~due to decreased consulting, marketing and~~driven by an increase in payroll expense as a result of higher performance-based compensation ~~expense. The aforementioned decreases were~~expense, partially offset by ~~increased information technology expense~~lower non-customer facing and the impact of benefits related to certain legal matters included in last year’s results, the latter of which was a benefit of 30 basis points to third quarter of Fiscal 2018 results. Excluding the benefits related to certain legal matters presented above, third quarter of Fiscal 2019 adjusted non-GAAPin-store marketing ~~general and administrative expense as a percentage of net sales decreased by approximately 80 basis points as compared to the third quarter of Fiscal 2018.~~costs.

For the year-to-date period of Fiscal ~~2019,~~2020, marketing, general and administrative expense ~~as a percentage of net sales~~ decreased ~~by approximately 100 basis points~~4% as compared to the year-to-date period of Fiscal ~~2018,~~2019, primarily ~~due to decreased performance-based compensation, consulting,~~by driven by lower marketing and depreciation expense, as well as the impact of charges related to certain legal matters included in last year’s results, the last of which was an adverse impact of 10 basis points to year-to-date Fiscal 2018 results. The aforementioned decreases wereother controllable expenses, partially offset by ~~increases~~an increase in information technology expense and executive employee severance charges. Excluding the net charges related to certain legal matters presented above, year-to-date Fiscal 2019 adjusted non-GAAP marketing, general and administrativepayroll expense as a ~~percentage~~result of ~~net sales decreased by approximately 90 basis points as compared to the year-to-date period~~higher performance-based compensation expense.

Table of ~~Fiscal 2018.~~Contents

Flagship store exit (benefits) charges

Thirteen Weeks Ended
November 2, 2019 November 3, 2018
(in thousands) % of Net Sales % of Net Sales
Flagship store exit charges $ 285
0.0% $ —
0.0%

Thirty-nine Weeks Ended
November 2, 2019 November 3, 2018
(in thousands) % of Net Sales % of Net Sales
Flagship store exit charges $ 47,023
1.9% $ 3,808
0.2%


	Thirteen Weeks Ended
	October 31, 2020			November 2, 2019
(in thousands)			% of Net sales			% of Net sales	BPS Change (1)
Flagship store exit (benefits) charges	$	(8,063)	(1.0)%	$	285	—%	(100)


	Thirty-nine Weeks Ended
	October 31, 2020			November 2, 2019
(in thousands)			% of Net Sales			% of Net Sales	BPS Change (1)
Flagship store exit (benefits) charges	$	(12,490)	(0.6)%	$	47,023	1.9%	(250)

~~For~~(1) The estimated basis point change has been rounded based on the ~~year-to-date period~~change in the percentage of net sales.

Flagship store exit benefits in Fiscal ~~2019,~~2020 primarily relate to the planned closure of several international Abercrombie & Fitch flagship stores. Flagship store exit charges ~~as a percentage of net sales increased by approximately 170 basis points as compared to the year-to-date period of~~for Fiscal ~~2018,~~2019 primarily ~~related~~relate to the closure of the Company’s SoHo, ~~Hollister flagship in~~ New York City ~~during the second quarter of Fiscal 2019.~~Hollister flagship store. Refer to Note ~~14,~~17, “FLAGSHIP STORE EXIT (BENEFITS) CHARGES.”

~~Table of Contents~~

Asset impairment, exclusive of flagship store exit charges

Thirteen Weeks Ended
November 2, 2019 November 3, 2018
(in thousands) % of Net Sales % of Net Sales
Asset impairment, exclusive of flagship store exit charges $ 12,610
1.5% $ 656
0.1%
Deduct:
Flagship asset impairment charges ⁽¹⁾
(10,468 ) (1.2)% —
0.0%
Adjusted non-GAAP asset impairment, exclusive of flagship store exit charges $ 2,142
0.2% $ 656
0.1%

Thirty-nine Weeks Ended
November 2, 2019 November 3, 2018
(in thousands) % of Net Sales % of Net Sales
Asset impairment, exclusive of flagship store exit charges $ 14,987
0.6% $ 10,383
0.4%
Deduct:
Certain flagship asset impairment charges ⁽¹⁾
(10,468 ) (0.4)% (8,671 ) (0.4)%
Adjusted non-GAAP asset impairment, exclusive of flagship store exit charges $ 4,519
0.2% $ 1,712
0.1%


⁽¹⁾	~~Amounts reflect asset impairment charges related to certain of the Company’s international Abercrombie flagship stores.~~


	Thirteen Weeks Ended
	October 31, 2020			November 2, 2019
(in thousands)			% of Net sales			% of Net sales	BPS Change (1)
Asset impairment, exclusive of flagship store exit charges	$	6,329	0.8%	$	12,610	1.5%	(70)
Excluded items:
Asset impairment charges (2)	(6,329)		(0.8)%	(10,468)		(1.2)%	40
Adjusted non-GAAP asset impairment, exclusive of flagship store exit charges	$	—	0.0%	$	2,142	0.2%	(20)


	Thirty-nine Weeks Ended
	October 31, 2020			November 2, 2019
(in thousands)			% of Net Sales			% of Net Sales	BPS Change (1)
Asset impairment, exclusive of flagship store exit charges	$	57,340	2.9%	$	14,987	0.6%	230
Excluded items:
Asset impairment charges (2)	(57,340)		(2.9)%	(10,468)		(0.4)%	(250)
Adjusted non-GAAP asset impairment, exclusive of flagship store exit charges	$	—	0.0%	$	4,519	0.2%	(20)

~~For~~(1) The estimated basis point change has been rounded based on the ~~third quarter and year-to-date period of Fiscal 2019, asset impairment, exclusive of flagship store exit charges, as a~~change in the percentage of net ~~sales increased by approximately 140 basis points and 20 basis points as compared~~sales.

(2) Refer to ~~the third quarter and year-to-date period of Fiscal 2018, respectively.~~ “NON-GAAP FINANCIAL MEASURES,” for further details.

Refer to Note 8,9, “ASSET IMPAIRMENT.”

Other operating (loss) income, net

Thirteen Weeks Ended
November 2, 2019 November 3, 2018
(in thousands) % of Net Sales % of Net Sales
Other operating income, net $ 215
0.0% $ 1,557
0.2%

Thirty-nine Weeks Ended
November 2, 2019 November 3, 2018
(in thousands) % of Net Sales % of Net Sales
Other operating income, net $ 465
0.0% $ 4,551
0.2%


	Thirteen Weeks Ended
	October 31, 2020			November 2, 2019
(in thousands)			% of Net sales			% of Net sales	BPS Change (1)
Other operating (loss) income, net	$	(288)	—%	$	215	—%	—


	Thirty-nine Weeks Ended
	October 31, 2020			November 2, 2019
(in thousands)			% of Net Sales			% of Net Sales	BPS Change (1)
Other operating income, net	$	1,562	0.1%	$	465	—%	10

~~For both~~

(1) The estimated basis point change has been rounded based on the ~~third quarter and year-to-date period of Fiscal 2019, other operating income, net as a~~change in the percentage of net ~~sales decreased by approximately 20~~sales.

Table of Contents

Operating income (loss)


	Thirteen Weeks Ended
	October 31, 2020			November 2, 2019
(in thousands)			% of Net sales			% of Net sales	BPS Change (1)
Operating income	$	58,616	7.2%	$	14,479	1.7%	550
Excluded items:
Asset impairment charges (2)	6,329		0.8%	10,468		1.2%	(40)

Adjusted non-GAAP operating income	$	64,945	7.9%	$	24,947	2.9%	500


	Thirty-nine Weeks Ended
	October 31, 2020			November 2, 2019
(in thousands)			% of Net Sales			% of Net Sales	BPS Change (1)
Operating loss	$	(136,368)	(6.8)%	$	(52,263)	(2.1)%	(470)
Excluded items:
Asset impairment charges (2)	57,340		2.9%	10,468		0.4%	250

Adjusted non-GAAP operating loss	$	(79,028)	(3.9)%	$	(41,795)	(1.7)%	(220)

(1) The estimated basis ~~points as compared to~~point change has been rounded based on the ~~third quarter and year-to-date period~~change in the percentage of ~~Fiscal 2018, respectively, reflecting lower foreign currency exchange rate related gains and the impact resulting from the adoption of the new derivative accounting standard in Fiscal 2019.~~net sales.

(2) Refer to ~~Note 2,~~ “NON-GAAP FINANCIAL MEASURES~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~,” for further ~~discussion of the new derivative accounting standard.~~details.

~~Table of Contents~~

~~Operating income (loss)~~

Thirteen Weeks Ended
November 2, 2019 November 3, 2018
(in thousands) % of Net Sales % of Net Sales
Operating income $ 14,479
1.7% $ 39,680
4.6%
Deduct:
Flagship asset impairment charges ⁽²⁾
10,468
1.2% —
0.0%
Benefit related to certain legal matters ⁽³⁾
—
0.0% (3,005 ) (0.3)%
Adjusted non-GAAP operating income $ 24,947
2.9% $ 36,675
4.3%
Adjusted non-GAAP operating income on a constant currency basis ⁽¹⁾
$ 24,947
2.9% $ 31,269
3.7%

Thirty-nine Weeks Ended
November 2, 2019 November 3, 2018
(in thousands) % of Net Sales % of Net Sales
Operating loss $ (52,263 ) (2.1)% $ (2,300 ) (0.1)%
Deduct:
Certain flagship asset impairment charges ⁽²⁾
10,468
0.4% 8,671
0.4%
Net charges related to certain legal matters ⁽³⁾
—
0.0% 2,595
0.1%
Adjusted non-GAAP operating (loss) income $ (41,795 ) (1.7)% $ 8,966
0.4%
Adjusted non-GAAP operating loss on a constant currency basis ⁽¹⁾
$ (41,795 ) (1.7)% $ (3,070 ) (0.1)%


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


⁽²⁾	~~Amounts reflect asset impairment charges related to certain of the Company’s international Abercrombie flagship stores.~~


⁽³⁾	~~Amounts reflect legal charges and benefits in connection with a then proposed settlement of a class action claim, which received final court approval and was paid in the fourth quarter of Fiscal 2018.~~

Interest expense, net


	Thirteen Weeks Ended
	October 31, 2020			November 2, 2019
(in thousands)			% of Net sales			% of Net sales	BPS Change (1)
Interest expense	$	9,408	1.1%	$	5,500	0.6%	50
Interest income	(600)		(0.1)%	(2,578)		(0.3)%	20
Interest expense, net	$	8,808	1.1%	$	2,922	0.3%	80


	Thirty-nine Weeks Ended
	October 31, 2020			November 2, 2019
(in thousands)			% of Net Sales			% of Net Sales	BPS Change (1)
Interest expense	$	22,242	1.1%	$	14,518	0.6%	50
Interest income	(2,965)		(0.1)%	(9,610)		(0.4)%	30
Interest expense, net	$	19,277	1.0%	$	4,908	0.2%	80

Thirteen Weeks Ended
November 2, 2019 November 3, 2018
(in thousands) % of Net Sales % of Net Sales
Interest expense $ 5,500
0.6% $ 5,643
0.7%
Interest income (2,578 ) (0.3)% (2,786 ) (0.3)%
Interest expense, net $ 2,922
0.3% $ 2,857
0.3%

Thirty-nine Weeks Ended
November 2, 2019 November 3, 2018
(in thousands) % of Net Sales % of Net Sales
Interest expense $ 14,518
0.6% $ 17,000
0.7%
Interest income (9,610 ) (0.4)% (8,102 ) (0.3)%
Interest expense, net $ 4,908
0.2% $ 8,898
0.4%

(1) The estimated basis point change has been rounded based on the change in the percentage of net sales.

For the third quarter of Fiscal ~~2019,~~2020, interest expense, net ~~as a percentage of net sales was approximately flat~~increased $5.9 million as compared to the third quarter of Fiscal ~~2018. Interest~~2019. For the year-to-date period of Fiscal 2020, interest expense, net increased $14.4 million as ~~a percentage~~compared to the year-to-date period of ~~sales decreased by approximately 10 basis points year-over-year,~~Fiscal 2019.

The increase in interest expense, net, for the aforementioned periods is primarily driven by ~~the elimination of landlord financing obligations and the related~~higher interest expense ~~upon~~in the ~~adoption~~current year, reflecting incremental expense in connection with the issuance of the ~~new lease accounting standard in Fiscal 2019, partially offset by~~Senior Secured Notes and an increase in interest expense related to certain of the Company’s long-term ~~obligations.~~

~~For the year-to-date period of Fiscal 2019, interest expense, net~~obligations, as ~~a percentage of net sales decreased by approximately 20 basis points~~well as compared to the year-to-date period of Fiscal 2018. Interest expense as a percentage of sales decreased by approximately 10 basis points year-over-year, primarily driven by the elimination of landlord financing obligations and the related interest expense upon adoption of the new lease accounting standard in Fiscal 2019, partially offset by an increase in interest expense related to certain of the Company’s long-term obligations. Interest income as a percentage of sales increased by approximately 10 basis points year-over-year primarily driven by higherlower interest income earned on the Company’s investments and cash holdings.

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Income tax expense (benefit)


	Thirteen Weeks Ended
	October 31, 2020			November 2, 2019
(in thousands, except ratios)			Effective Tax Rate			Effective Tax Rate
Income tax expense	$	5,779	11.6%	$	3,987	34.5%
Excluded items:
Tax effect of pre-tax excluded items (1)	369			2,485
Adjusted non-GAAP income tax expense	$	6,148	11.0%	$	6,472	29.4%




	Thirty-nine Weeks Ended
	October 31, 2020			November 2, 2019
(in thousands, except ratios)			Effective Tax Rate			Effective Tax Rate
Income tax expense (benefit)	$	38,565	(24.8)%	$	(16,931)	29.6%
Deduct:
Tax effect of pre-tax excluded items (1)	3,635			2,485
Adjusted non-GAAP income tax expense (benefit)	$	42,200	(42.9)%	$	(14,446)	30.9%

Thirteen Weeks Ended
November 2, 2019 November 3, 2018
(in thousands, except ratios) Effective Tax Rate Effective Tax Rate
Income tax expense $ 3,987
34.5% $ 12,047
32.7%
Deduct:
Tax effect of pre-tax excluded items ⁽¹⁾
2,485

(1,064 )
Tax Cuts and Jobs Act of 2017 charges⁽²⁾
—
(405 )
Adjusted non-GAAP income tax expense $ 6,472
29.4% $ 10,578
31.3%

Thirty-nine Weeks Ended
November 2, 2019 November 3, 2018
(in thousands, except ratios) Effective Tax Rate Effective Tax Rate
Income tax (benefit) expense $ (16,931 ) 29.6% $ 8,358
(74.6)%
Deduct:
Tax effect of pre-tax excluded items ⁽¹⁾
2,485
3,166

Tax Cuts and Jobs Act of 2017 charges ⁽²⁾
—
(2,447 )
Adjusted non-GAAP income tax (benefit) expense $ (14,446 ) 30.9% $ 9,077
13,348.5%

(1) The tax effect of pre-tax excluded items is the difference between the tax provision calculation on a GAAP basis and on an adjusted non-GAAP basis. Refer to “Operating income (loss)” for details of pre-tax excluded items.


⁽¹⁾	~~Refer to~~ “~~Operating income (loss)~~” ~~for details of pre-tax excluded items.~~ ~~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.~~


⁽²⁾	~~Refer to Note 9, “INCOME TAXES,” for details on the Tax Cuts and Jobs Act of 2017.~~

The year-over-year change in the effective tax rate in Fiscal 2019 as compared to Fiscal 2018, was primarily driven by changes in the level and mix of consolidated pre-tax earnings between operating and valuation allowance jurisdictions as well as discrete items.

The effective tax rate for the third quarter of Fiscal 2019 and the third quarter of Fiscal 2018 was impacted by discrete tax items related to share-based compensation awards discussed within Note 10, “~~SHARE-BASED COMPENSATION~~.” The effective tax rate for the third quarter of Fiscal 2018 was also impacted by discrete income tax charges detailed in the table above related to the then provisional estimate of the Tax Cuts and Jobs Act of 2017.

~~The~~Company’s effective tax rate for the year-to-date period of Fiscal ~~2019 and the year-to-date period of Fiscal 2018~~2020 was impacted by ~~discrete items related~~$77.4 million of adverse tax impacts, ultimately giving rise to ~~share-based compensation awards discussed within Note 10, “~~income tax expense on a consolidated pre-tax loss. These adverse tax impacts are as follows:

•~~SHARE-BASED COMPENSATION~~.” The ~~year-to-date Fiscal 2018 effective~~Company did not recognize income tax ~~rate, which was highly sensitive at lower levels~~benefits on $180.7 million of pre-tax ~~earnings, was also impacted by discrete income tax charges detailed~~losses generated in the ~~table above~~thirty-nine weeks ended October 31, 2020 in certain jurisdictions as the Company currently anticipates pre-tax losses in these jurisdictions for the fiscal year, resulting in adverse tax impacts of $41.8 million.

•The Company recognized discrete charges of $35.6 million related to the ~~then provisional estimate~~establishment of valuation allowances and other tax charges in certain jurisdictions, including, but not limited to Switzerland, Germany and the U.S. principally as a result of the ~~Tax Cuts and Jobs Act~~significant adverse impacts of ~~2017.~~COVID-19.

Refer to Note 9,11, “INCOME TAXES,.” ~~for further discussion on certain discrete items.~~

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Net income (loss) attributable to A&F


	Thirteen Weeks Ended
	October 31, 2020			November 2, 2019
(in thousands)			% of Net sales			% of Net sales	BPS Change (1)
Net income attributable to A&F	$	42,271	5.2%	$	6,523	0.8%	440
Excluded items, net of tax (2)	5,960		0.7%	7,983		0.9%	(20)
Adjusted non-GAAP net income attributable to A&F	$	48,231	5.9%	$	14,506	1.7%	420


	Thirty-nine Weeks Ended
	October 31, 2020 (3)			November 2, 2019
(in thousands)			% of Net Sales			% of Net Sales	BPS Change (1)
Net loss attributable to A&F	$	(196,413)	(9.8)%	$	(43,774)	(1.8)%	(800)
Excluded items, net of tax (2)	53,705		2.7%	7,983		0.3%	240
Adjusted non-GAAP net loss attributable to A&F	$	(142,708)	(7.1)%	$	(35,791)	(1.5)%	(560)

(1) The estimated basis point change has been rounded based on the change in the percentage of net sales.

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

(3) Results for Fiscal 2020 reflect significant adverse tax impacts related to valuation allowances on deferred tax assets and other tax charges. Refer to Note 11, “INCOME TAXES.”

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


	Thirteen Weeks Ended
	October 31, 2020		November 2, 2019		$ Change
Net income per diluted share attributable to A&F	$	0.66	$	0.10	$0.56
Excluded items, net of tax (1)	$	0.09	$	0.12	$(0.03)
Adjusted non-GAAP net income per diluted share attributable to A&F	$	0.76	$	0.23	$0.53
Impact from changes in foreign currency exchange rates	$	—	$	0.15	$(0.15)
Adjusted non-GAAP net income per diluted share attributable to A&F on a constant currency basis	$	0.76	$	0.37	$0.39

	Thirty-nine Weeks Ended
	October 31, 2020 (2)		November 2, 2019		$ Change
Net loss per diluted share attributable to A&F	$	(3.14)	$	(0.67)	$(2.47)
Excluded items, net of tax (1)	$	0.86	$	0.12	$0.74
Adjusted non-GAAP net loss per diluted share attributable to A&F	$	(2.28)	$	(0.55)	$(1.73)
Impact from changes in foreign currency exchange rates	$	—	$	0.12	$(0.12)
Adjusted non-GAAP net loss per diluted share attributable to A&F on a constant currency basis	$	(2.28)	$	(0.43)	$(1.85)

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

(2) Results for Fiscal 2020 reflect significant adverse tax impacts related to valuation allowances on deferred tax assets and other tax charges. Refer to Note 11, “INCOME TAXES.”

Thirteen Weeks Ended
November 2, 2019 November 3, 2018
(in thousands) % of Net Sales % of Net Sales
Net income attributable to A&F $ 6,523
0.8% $ 23,919
2.8%
Adjusted non-GAAP net income attributable to A&F ⁽¹⁾
$ 14,506
1.7% $ 22,383
2.6%

Net income per diluted share attributable to A&F $ 0.10

$ 0.35

Adjusted non-GAAP net income per diluted share attributable to A&F⁽¹⁾
$ 0.23
$ 0.33

Adjusted non-GAAP net income per diluted share attributable to A&F on a constant currency basis⁽²⁾
$ 0.23
$ 0.27

Thirty-nine Weeks Ended
November 2, 2019 November 3, 2018
(in thousands) % of Net Sales % of Net Sales
Net loss attributable to A&F $ (43,774 ) (1.8)% $ (22,395 ) (0.9)%
Adjusted non-GAAP net loss attributable to A&F⁽¹⁾
$ (35,791 ) (1.5)% $ (11,848 ) (0.5)%

Net loss per diluted share attributable to A&F $ (0.67 ) $ (0.33 )
Adjusted non-GAAP net loss per diluted share attributable to A&F ⁽¹⁾
$ (0.55 ) $ (0.17 )
Adjusted non-GAAP net loss per diluted share attributable to A&F on a constant currency basis⁽²⁾
$ (0.55 ) $ (0.31 )


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


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

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LIQUIDITY AND CAPITAL RESOURCES

~~HISTORICAL SOURCES AND USES OF CASH~~Overview

~~Seasonality~~The Company’s capital allocation strategy, priorities and investments are reviewed by A&F’s Board of Directors considering both liquidity and valuation factors. The Company’s current capital allocation strategy is to prioritize navigating the near-term challenges that COVID-19 presents and continuing to fund operating activities. The Company believes that it will have adequate liquidity to fund operating activities over the next 12 months.

Primary sources and uses of cash ~~flows~~

The Company’s business has two principal selling seasons: the spring season, which includes the first and second fiscal quarters (“Spring”) and the fall season, which includes the third and fourth fiscal quarters (“Fall”). ~~As is typical in the apparel industry, the~~The Company generally experiences its greatest sales activity during the Fall season, due to ~~Back-to-School~~the back-to-school and ~~Holiday~~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 ~~a revolving credit facility~~the ABL Facility available as a source of additional ~~funding.~~funding, which is described further below under “Credit facilities and Senior Secured Notes”.

~~Credit Facilities~~

~~On August 7, 2014,~~As a precautionary measure in response to COVID-19, in March 2020, the Company ~~through~~borrowed $210.0 million under the ABL Facility to improve its ~~subsidiary Abercrombie & Fitch Management Co. (“A&F Management”) as~~near-term cash position and withdrew the ~~lead borrower (with A&F and certain other subsidiaries as borrowers or guarantors), entered into an asset-based revolving credit agreement.~~

~~On October 19, 2017,~~majority of excess funds from the overfunded Rabbi Trust assets, providing the Company ~~through its subsidiary A&F Management, entered into a Second Amendment to Credit Agreement (the “ABL Second Amendment”), amending and extending~~with $50.0 million of additional cash. In July 2020, the ~~maturity date~~Company completed the issuance of the ~~asset-based revolving credit agreement to October 19, 2022. As amended, the asset-based revolving credit agreement continues to provide for a senior secured credit facility~~Senior Secured Notes and received gross proceeds of ~~up to $400 million (the “Amended ABL Facility”).~~

~~As of November 2, 2019, the borrowing base on the Amended ABL Facility was $400.0~~$350.0 million.

The Company ~~uses, in~~used the ~~ordinary course of business, stand-by letters of credit under~~net proceeds from the existing Amended ABL Facility. As of both November 2, 2019 and February 2, 2019, the Company had not drawn on the Amended ABL Facility, but had approximately $0.4 million of outstanding stand-by letters of credit under the Amended ABL Facility.

~~As of November 2, 2019, the Company had availability under the Amended ABL Facility of $399.6 million. In addition, excess availability equal to the greater of 10%~~offering of the ~~loan cap or $30 million must be maintained under the Amended ABL Facility.~~

~~On August 7, 2014, the Company, through its subsidiary A&F Management as the borrower (with A&F~~Senior Secured Notes, along with existing cash on hand, to repay outstanding borrowings and certain other subsidiaries as guarantors), entered into a term loan agreement, which provides for a term loan facility of $300 million (the “Term Loan Facility” and, together with the Amended ABL Facility, the “Credit Facilities”). The Term Loan Facility will mature on August 7, 2021.

On June 22, 2018, the Company, through its subsidiary A&F Management, entered into a Second Amendment to Term Loan Credit Agreement, which, among other things, repriced the Term Loan Facility by reducing the applicable margins for term loans by 0.25%.

The Company’s term loan debt is presented on the Condensed Consolidated Balance Sheets, net of the unamortized discount and fees. Net borrowings as of November 2, 2019 and February 2, 2019 were as follows:

(in thousands) November 2, 2019 February 2, 2019
Long-term portion of borrowings, gross at carrying amount $ 243,250
$ 253,250
Unamortized discount (525 ) (845 )
Unamortized fees (1,382 ) (1,966 )
Long-term portion of borrowings, net 241,343
250,439
Less: short-term portion of borrowings, net —
—
Long-term portion of borrowings, net $ 241,343
$ 250,439

~~The~~accrued interest ~~rate on borrowings~~ under the Term Loan Facility ~~was 5.33% as~~and the ABL Facility, with the remaining net proceeds used towards fees and expenses in connection with such repayments and the offering of ~~November 2, 2019.~~the Senior Secured Notes.

Over the next twelve months, the Company expects its primary cash requirements to be directed towards funding operating activities, including the acquisition of inventory, and obligations related to compensation, marketing, leases and any lease buyouts or modifications it may exercise, taxes and other operating activities. The Company entered this period of uncertainty with a healthy liquidity position and has taken and continues to take immediate, aggressive and prudent actions, including reevaluating all expenditures, in order to balance the Company’s short and long-term liquidity needs and best position the business for key stakeholders.

The Company ~~was~~also evaluates opportunities for investments in ~~compliance~~line with ~~the covenants under the Credit Facilities as of November 2, 2019.~~

~~The material provisions of the Credit Facilities~~its key transformation initiatives, which have ~~not changed from those disclosed in Note 10, “BORROWINGS,” of the Notes to Consolidated Financial Statements contained in “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of A&F’s Annual Report on Form 10-K for Fiscal 2018.~~

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~~Cash flows from operating, investing, and financing activities~~

~~The table below provides certain components of the Company’s Condensed Consolidated Statements of Cash Flows for the thirty-nine week periods ended November 2, 2019 and November 3, 2018:~~

Thirty-nine Weeks Ended
November 2, 2019 November 3, 2018
(in thousands)
Cash and equivalents, and restricted cash and equivalents, beginning of period $ 745,829
$ 697,955
Net cash (used for) provided by operating activities (33,839 ) $ 77,245
Net cash used for investing activities (154,373 ) (98,768 )
Net cash used for financing activities (122,908 ) (117,981 )
Effects of foreign currency exchange rate changes on cash (2,686 ) (16,068 )
Net decrease in cash and equivalents, and restricted cash and equivalents (313,806 ) (155,572 )
Cash and equivalents, and restricted cash and equivalents, end of period $ 432,023
$ 542,383

~~Operating activities -~~ For both the thirty-nine weeks ended November 2, 2019 and November 3, 2018, the primary source of cash from operations was merchandise sales which were approximately flat year-over-year. The year-over-year decrease in cash flows from operating activities for the thirty-nine weeks ended November 2, 2019 as compared to the thirty-nine weeks ended November 3, 2018 reflects: a larger year-to-date loss before income taxes in the current year as compared to the prior year, resulting in increased benefits from deferred tax assets; changes in the timing of payments to vendors, resulting in increased payments in the first quarter of Fiscal 2019 as compared to the prior year; and decreased incentive compensation payments in Fiscal 2019 as compared to the prior year.

~~Investing activities -~~ ~~For the thirty-nine weeks ended November 2, 2019 and November 3, 2018, net cash outflows for investing activities were used for purchases of property and equipment.~~

~~Financing activities -~~ For the thirty-nine weeks ended November 2, 2019, net cash used for financing activities primarily consisted of the repurchase of approximately 4.0 million shares of A&F’s Common Stock in the open market with a market value of approximately $63.5 million, dividend payments of $39.0 million and a voluntary debt repayment of $10.0 million. For the thirty-nine weeks ended November 3, 2018, net cash used for financing activities consisted primarily of the repurchase of approximately 2.9 million shares of A&F’s Common Stock in the open market with a market value of approximately $68.7 million and dividend payments of $40.6 million.

~~FUTURE CASH REQUIREMENTS AND SOURCES OF CASH~~

~~The Company’s capital allocation strategy remains to prioritize investments in~~positioned the business to ~~build on~~quickly respond to the ~~foundation for sustainable long-term growth~~COVID-19 pandemic, and ~~seeks~~strives to invest in projects that have high expected returns. ~~The Company also evaluates opportunities to accelerate potential investments, including improvements in customer experience, both in stores and online.~~ These improvements may include ~~store remodels and right-sizes,~~ new store ~~openings, and acceleration of our transformation efforts. The~~experiences or investments in its omnichannel initiatives or loyalty programs. In addition, the Company ~~also~~ evaluates store closures, including flagship lease buyouts and options to early terminate ~~its~~ store leases. ~~In addition,~~Historically, the Company ~~returns~~has utilized free cash flow generated from operations to ~~stockholders through~~fund any discretionary capital expenditures, which have been prioritized towards new store experiences, as well as digital and omnichannel investments, information technology, and other projects. For the year-to-date period ended October 31, 2020, the Company used $91.7 million towards capital expenditures. Total capital expenditures for Fiscal 2020 are expected to be approximately $110 million, down from $202.8 million of capital expenditures in Fiscal 2019.

Share repurchases and dividends

In order to preserve liquidity and ~~completes~~maintain financial flexibility in light of COVID-19, in March 2020, the Company announced that it had temporarily suspended its share ~~repurchases as deemed appropriate.~~ repurchase program and in May 2020, the Company announced that it had temporarily suspended its dividend program. The Company will review these temporary suspensions throughout the year to determine, in light of facts and circumstances at that time, whether and when to reinstate these programs.

Dividends are declared at the discretion of A&F’s Board of Directors. A quarterly dividend, of $0.20 per share outstanding, was declared in February for Fiscal 2020 and in each of February, May, August and November in Fiscal 2019 and Fiscal 2018. Dividends were paid in March for Fiscal 2020, and each of March, June, September and December in Fiscal 2019 and Fiscal 2018. A&F’s Board of Directors reviews the dividend on a quarterly basis and establishes the dividend ~~rate~~amount based on A&F’s financial condition, results of operations, capital requirements, current and projected cash flows, business prospects and other factors, ~~which~~including the ~~Board~~potential severity of ~~Directors deems relevant. Capital allocation priorities~~impacts to the business resulting from COVID-19 and ~~investments are reviewed by~~any restrictions related to the Company’s ~~Board of Directors considering both liquidity~~agreements related to the Senior Secured Notes and ~~valuation factors.~~

~~To execute its capital allocation strategy,~~the ABL Facility. There can be no assurance that the Company ~~relies on excess operating cash flows, which are largely generated~~will reinstate its dividend program in the ~~Fall season, to fund operations throughout the fiscal year and to reinvest in the business to support~~ future ~~growth. The Company also has availability under the Amended ABL Facility as a source of additional funding. Over the next twelve months, the Company’s primary cash requirements~~or, if dividends are paid, that they will be in amounts similar to ~~fund operating activities, including the acquisition of inventory, and obligations related to compensation, leases, any lease buyouts or options to terminate store leases~~past dividends.

Historically, the Company may exercise, taxes and other operating activities, as well as to fund capital expenditures, marketing initiatives, quarterly dividends to stockholders subject to approval by A&F’s Board of Directors and debt service requirements, including voluntary debt prepayments, or required repayments, if any, based on annual excess cash flows, as defined in the term loan agreement applicable to the Term Loan Facility.

~~The Company may repurchase~~has repurchased shares of its Common Stock from time to time, dependent on market and business conditions, with the primary objective to offset dilution from issuances of Common Stock associated with the exercise of employee stock appreciation

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rights and the vesting of restricted stock units. Shares may be repurchased in the open market, including pursuant to any trading plans established in accordance with Rule 10b5-1 of the ~~Securities~~ Exchange Act, ~~of 1934,~~ through privately negotiated transactions or other transactions or by a combination of such methods. ~~The Company would anticipate funding such repurchases by utilizing free cash flow generated from operations or proceeds from the Amended ABL Facility.~~ Refer to “~~Item~~ITEM 2. ~~Unregistered Sales~~UNREGISTERED SALES

Table of ~~Equity Securities and Use~~Contents

OF EQUITY SECURITIES AND USE OF PROCEEDS” of ~~Proceeds~~”Part II of this Quarterly Report on Form 10-Q for ~~additional information regarding the Company’s share repurchases during the third quarter of Fiscal 2019 and~~ the number of shares remaining available for purchase under the Company’s June 2019 publicly announced stock repurchase ~~authorizations.~~authorization.

Credit facilities and Senior Secured Notes

In July 2020, the Company completed the private offering of the Senior Secured Notes, and received gross proceeds of $350.0 million. The Senior Secured Notes will mature on July 15, 2025 and bear interest at a rate of 8.75% per annum, with semi-annual interest payments beginning in January 2021. The Company’s debt related to the Senior Secured Notes is presented on the Condensed Consolidated Balance Sheet, net of the unamortized fees. As of October 31, 2020, the Company had $350.0 million of gross borrowings outstanding under the Senior Secured Notes.

In addition, the ABL Facility provides for a senior secured asset-based revolving credit facility of up to$400 million. As of October 31, 2020, the Company did not have any borrowings outstanding under the ABL Facility. The ABL Facility matures on October 19, 2022.

Details regarding the remaining borrowing capacity under the ABL Facility as of October 31, 2020 are as follows:


(in thousands)	October 31, 2020
Borrowing base	$	384,544
Less: Outstanding stand-by letters of credit	(847)
Borrowing capacity	383,697
Less: Minimum excess availability (1)	(38,454)
Actual incremental borrowing available	$	345,243

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

Refer to Note 12, “BORROWINGS.”

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 has determined that the ~~remaining~~ 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 ~~earning~~earnings and profits earned after February 2, 2019, in such a manner that these funds could be repatriated without incurring additional taxes.

As of ~~November 2, 2019, $191.4~~October 31, 2020, $316.4 million of the Company’s ~~$410.8~~$812.9 million of cash and equivalents ~~was~~were held by foreign affiliates. The Company is not dependent on dividends from its foreign affiliates to fund its U.S. operations or pay dividends, if any, to A&F’s stockholders.

~~In December 2017, the Tax Cuts and Jobs Act of 2017 was signed into law and, in May 2019, Switzerland voted to approve the Federal Act on Tax Reform and AHV Financing.~~ Refer to Note 9,11, “INCOME TAXES,.” ~~for additional details regarding the impact these events had on~~

Analysis of cash flows

The table below provides certain components of the Company’s ~~consolidated financial statements.~~Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks ended October 31, 2020 and November 2, 2019:


	Thirty-nine Weeks Ended
	October 31, 2020		November 2, 2019
(in thousands)
Cash and equivalents, and restricted cash and equivalents, beginning of period	$	692,264	$	745,829
Net cash provided by (used for) operating activities	158,894		(33,839)
Net cash used for investing activities	(91,748)		(154,373)
Net cash provided by (used for) financing activities	70,129		(122,908)
Effect of foreign currency exchange rates on cash	2,269		(2,686)
Net increase (decrease) in cash and equivalents, and restricted cash and equivalents	139,544		(313,806)
Cash and equivalents, and restricted cash and equivalents, end of period	$	831,808	$	432,023

~~Capital investments~~

~~For Fiscal 2019,~~Operating activities - The year-over-year change in operating cash flows was primarily due to actions taken by the Company ~~expects~~during Fiscal 2020 to preserve liquidity and manage cash flows in light of COVID-19, including, but not limited to:

•Partnering with merchandise and non-merchandise vendors regarding payment terms;

•Reducing and altering the cadence of inventory receipts to align inventory with expected market demand;

•Reducing expenses to align operating costs with sales;

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•Withdrawing $50.0 million from the overfunded Rabbi Trust assets, which represented the majority of excess funds; and

•Suspending rent payments for a significant number of stores that were closed for a period of time during Fiscal 2020 as a result of COVID-19, which, coupled with rent abatements and changes in payment cadence, attributed to a year-over-year decrease in cash paid for operating lease liabilities.

These benefits to operating cash flows were partially offset by lower cash receipts as a result of the 18% decrease in net sales from last year driven by temporary store closures and a decline in store traffic in response to COVID-19 during Fiscal 2020.

The Company continues to engage with its landlords to find a mutually beneficial and agreeable path forward.In addition, despite the Company's recent history of partnering with its vendors regarding payment terms, certain payment term extensions were temporary and certain previously deferred payments have since been made. There can be no assurance that the Company will be able to maintain extended payment terms or continue to defer payments, which may result in incremental operating cash outflows in future periods.

Investing activities - For the thirty-nine weeks ended October 31, 2020, net cash outflows for investing activities were used for capital ~~investments~~expenditures of $91.7 million as compared to ~~be approximately $200~~$154.4 million ~~prioritized~~for the thirty-nine weeks ended November 2, 2019, reflecting actions taken in Fiscal 2020 to preserve liquidity and manage cash flows in light of the COVID-19 pandemic.

Financing activities - For the thirty-nine weeks ended October 31, 2020, net cash provided by financing activities primarily consisted of the issuance of the Senior Secured Notes and receipt of related gross proceeds of $350.0 million and borrowings under the ABL Facility of $210.0 million. The gross proceeds from the Senior Secured Notes offering were used along with existing cash on hand, to repay all then outstanding borrowings and accrued interest under the Term Loan Facility and ABL Facility, with the remaining net proceeds used towards ~~new store experiences,~~fees and expenses in connection with such repayments and the offering. In addition, the Company returned $27.7 million to shareholders during the thirty-nine weeks ended October 31, 2020, prior to the Company’s decision to temporarily suspend its share repurchase and dividend programs in light of COVID-19, as ~~well as digital and omnichannel investments, information technology, and other projects.~~compared to $102.5 million during the thirty-nine weeks ended November 2, 2019.

~~OFF-BALANCE SHEET ARRANGEMENTS~~Off-balance sheet arrangements

As of ~~November 2, 2019,~~October 31, 2020, the Company did not have any material off-balance sheet arrangements.

~~CONTRACTUAL OBLIGATIONS~~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.

During the ~~thirty-nine~~thirteen weeks ended ~~November 2, 2019, there were~~August 1, 2020, the Company issued the Senior Secured Notes, which mature in July 2025. The Company received $350.0 million in proceeds from this transaction and repaid all outstanding borrowings under the ABL Facility and the Term Loan Facility. Based on the aggregate principal amount of the Senior Secured Notes outstanding as of October 31, 2020, estimated interest payments related to the Senior Secured Notes are as follows:


(in thousands)	Total		Fiscal 2020		Fiscal 2021-Fiscal 2023		Fiscal 2024-Fiscal 2025		Fiscal 2026 and thereafter
Interest payments due by period	$	154,231	$	16,418	$	91,875	$	45,938	$	—

There have been no material changes during the thirteen weeks ended October 31, 2020 in the contractual obligations as of February ~~2, 2019,~~1, 2020, 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” of A&F’s Annual Report on Form 10-K for Fiscal ~~2018. Refer to Note 2, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” of the Notes to Condensed Consolidated Financial Statements included in “ITEM 1. FINANCIAL STATEMENTS (UNAUDITED),” of this Quarterly Report on Form 10-Q for~~2019. The Company reviews recent accounting pronouncements on a quarterly basis and has excluded discussion of those not applicable to the Company ~~has adopted, including the dates of adoption~~ and ~~estimated effects~~those that did not have, or are not expected to have, a material impact on the ~~Condensed Consolidated Financial Statements.~~Company’s consolidated financial statements.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company describes its critical accounting policies and estimates in “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” of A&F’s Annual Report on Form 10-K for Fiscal ~~2018.~~2019. There have been no ~~other~~ significant changes in critical accounting policies and estimates since the end of Fiscal ~~2018, except as described below and in Note 2, “~~2019.

~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Recent accounting pronouncements~~”

In Fiscal 2020, the Company incurred significant asset impairment charges which were principally the result of the ~~Notes~~impact of COVID-19 and were related to ~~Condensed Consolidated Financial Statements included in “ITEM 1. FINANCIAL STATEMENTS (UNAUDITED),”~~certain of ~~this Quarterly Report on Form 10-Q.~~

the Company’s stores across brands, geographies and store formats. Additional details regarding the Company's long-lived assets are as follows:



Policy		Effect if Actual Results Differ from Assumptions
~~Impairment of long-lived assets~~Long-lived Assets
Long-lived assets, primarily operating lease right-of-use assets, leasehold improvements, furniture, fixtures and equipment, are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset group might not be recoverable. These include, but are not limited to, material declines in operational performance, a history of losses, an expectation of future losses, adverse market conditions and store closure or relocation decisions. On at least a quarterly basis, the Company reviews for indicators of impairment at the individual store level, the lowest level for which cash flows are identifiable. Stores that display an indicator of impairment are subjected to an impairment assessment. The Company’s impairment assessment requires management to make assumptions and judgments related, but not limited, to management’s expectations for future operations and projected cash flows. The key assumptions used in the Company’s undiscounted future store cash flow models include sales, gross profit and, to a lesser extent, operating expenses. An impairment loss may be recognized when these undiscounted future cash flows are less than the carrying amount of the asset group. In the circumstance of impairment, any loss would be measured as the excess of the carrying amount of the asset group over its fair value. ~~The fair~~Fair value of the ~~asset group~~Company’s store-related assets is determined at the individual store level based on the highest and best use of the asset ~~group, which~~group. The key assumptions used in the Company’s fair value analysis may include ~~consideration of market rent for the lease right–of–use assets included in the asset group. The Company also may utilize assumptions related to projected~~discounted future store cash flows ~~when estimating the fair value of impaired assets.~~ and comparable market rents.		If actual results are not consistent with the estimates and assumptions used, there may be a material impact on the Company’s financial condition or results of operation. Store assets that were tested for impairment as of October 31, 2020 and not impaired, ~~during the thirteen weeks ended November 2, 2019,~~ had long-lived assets with a net book value of ~~$69.7~~$132.2 million, which included ~~$61.9~~$108.8 million of operating lease right-of-use assets, as of ~~November 2, 2019. These stores had undiscounted cash flows which were in the range of 100% to 150% of their respective net asset values.~~ October 31, 2020. Store assets that were previously impaired as of ~~November 2, 2019~~October 31, 2020, had a remaining net book value of ~~$134.4~~$124.8 million, which included ~~$128.1~~$114.1 million of operating lease right-of-use ~~assets.~~
~~Leases~~
~~The Company’s lease right-of-use~~ assets, represent the Company’s right to use an underlying asset for the lease term. The Company’s lease liabilities represent the Company’s obligation to make lease payments arising from the lease. On the lease commencement date, the Company recognizes an asset for the right to use a leased asset and a liability based on the present value of remaining lease payments over the lease term on the Condensed Consolidated Balance Sheets. In measuring the Company’s lease liabilities, the remaining lease payments are discounted to present value using a discount rate. As the rates implicit in the Company's leases are not readily determinable, the Company uses its incremental borrowing rate based on the transactional currency of the lease and the lease term for the initial measurement of the lease right-of-use asset and liability. For leases existing before the adoption of the new lease accounting standard, the Company used its incremental borrowing rate as of the date of adoption, determined using the remaining lease term as of the date of adoption. For leases commencing on or after the adoption of the new lease accounting standard, the incremental borrowing rate is determined using the remaining lease term as of the lease commencement date. The Company estimates its incremental borrowing rate on a quarterly basis, based on the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.	~~The Company does not expect material changes to the underlying assumptions used to measure its lease liabilities as of November 2, 2019.~~ An increase or decrease of 10% in the Company’s weighted-average discount rate as of November 2, 2019, would impact both the Company’s total assets and total liabilities by less than 1% and would not have a material impact on the Company’s pre-tax income for Fiscal 2019. October 31, 2020.

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NON-GAAP FINANCIAL MEASURES

This Quarterly Report on Form 10-Q includes discussion of certain financial measures ~~under “RESULTS OF OPERATIONS~~” on both a GAAP and a non-GAAP basis. The Company believes that each of the non-GAAP financial measures presented in this ~~“ITEM~~“ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF ~~OPERATIONS”~~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 do not reflect its future operating outlook, such as certain ~~flagship~~ asset impairment charges related to the Company’s flagship stores and ~~thereby supplements~~significant impairments primarily attributable to the COVID-19 pandemic, therefore 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~~At times, the Company provides comparable sales, defined as the year-over-year percentage change in the aggregate of (1) sales for stores that have been open as the same brand at least one year and whose square footage has not been expanded or reduced by more than 20% within the past year, with the prior year’s net sales converted at the current year’s foreign currency exchange rates to remove the impact of foreign currency exchange rate fluctuations, and (2) digital sales with the prior year’s net sales converted at the current year’s foreign currency exchange rates to remove the impact of foreign currency exchange rate fluctuations. Comparable sales exclude revenue other than store and digital sales. Management uses comparable sales to understand the drivers of year-over-year changes in net sales ~~as well as a performance metric for certain performance-based restricted stock units. The Company~~and believes comparable sales is a useful metric as it can assist investors in distinguishing the portion of the Company’s revenue attributable to existing locations from the portion attributable to the opening or closing of stores. The most directly comparable GAAP financial measure is change in net sales. In light of store closures related to COVID-19, the Company has not disclosed comparable sales for Fiscal 2020.

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
~~Marketing, general and administrative expense~~	~~Benefit and net charges related to certain legal matters~~
Asset impairment, exclusive of flagship store exit charges	~~Flagship~~Certain asset impairment charges
Operating income (loss)		~~Benefit and net charges related to certain legal matters and flagship~~Certain asset impairment charges
Income tax expense (benefit) (2)		Tax effect of pre-tax excluded items
Net income (loss) and net income (loss) per share attributable to A&F ⁽²⁾		~~Benefits and charges related to certain legal matters; flagship asset impairment charges; discrete net tax charges related to the Tax Cuts and Jobs Act of 2017;~~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.


⁽¹⁾	~~Certain of these financial measures are also expressed as a percentage of net sales.~~

⁽²⁾

~~The Company also presents income tax (benefit) expense and the effective tax rate on both a GAAP and on an adjusted non-GAAP basis excluding the items listed under “~~

(2) ~~Operating income (loss),” as applicable, in the table above and discrete net tax charges related to the Act.~~ 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.

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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.

A reconciliation of financial metrics on a constant currency basis to GAAP for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019 ~~and November 3, 2018 is calculated using a 27% effective tax rate.~~follows:


(in thousands, except change in net sales, gross profit rate, operating margin and per share data)	Thirteen Weeks Ended					Thirty-nine Weeks Ended
Net sales	October 31, 2020		November 2, 2019		% Change	October 31, 2020		November 2, 2019		% Change
GAAP	$	819,653	$	863,472	(5)%	$	2,003,340	$	2,438,522	(18)%
Impact from changes in foreign currency exchange rates	—		11,896		(1)%	—		2,948		—%
Non-GAAP on a constant currency basis	$	819,653	$	875,368	(6)%	$	2,003,340	$	2,441,470	(18)%
Gross profit, exclusive of depreciation and amortization expense	October 31, 2020		November 2, 2019		BPS Change (1)	October 31, 2020		November 2, 2019		BPS Change (1)
GAAP	$	524,433	$	518,931	390	$	1,212,186	$	1,461,654	60
Impact from changes in foreign currency exchange rates	—		14,779		(90)	—		7,323		(30)
Non-GAAP on a constant currency basis	$	524,433	$	533,710	300	$	1,212,186	$	1,468,977	30
Operating income (loss)	October 31, 2020		November 2, 2019		BPS Change (1)	October 31, 2020		November 2, 2019		BPS Change (1)
GAAP	$	58,616	$	14,479	550	$	(136,368)	$	(41,795)	(470)
Excluded items (2)	(6,329)		(10,468)		50	(57,340)		—		(250)
Adjusted non-GAAP	$	64,945	$	24,947	500	$	(79,028)	$	(41,795)	(220)
Impact from changes in foreign currency exchange rates	—		7,410		(80)	—		5,221		20
Adjusted non-GAAP on a constant currency basis	$	64,945	$	32,357	420	$	(79,028)	$	(36,574)	(240)
Net income (loss) per diluted share attributable to A&F (3)	October 31, 2020		November 2, 2019		$ Change	October 31, 2020		November 2, 2019		$ Change
GAAP	$	0.66	$	0.10	$0.56	$	(3.14)	$	(0.67)	$(2.47)
Excluded items, net of tax (2)	(0.09)		(0.12)		0.03	(0.86)		(0.12)		(0.74)
Adjusted non-GAAP	$	0.76	$	0.23	$0.53	$	(2.28)	$	(0.55)	$(1.73)
Impact from changes in foreign currency exchange rates	—		0.15		(0.15)	—		0.12		(0.12)
Adjusted non-GAAP on a constant currency basis	$	0.76	$	0.37	$0.39	$	(2.28)	$	(0.43)	$(1.85)

~~A reconciliation~~

(1) The estimated basis point change has been rounded based on the change in the percentage of ~~constant currency financial measures~~net sales.

(2) Excluded items for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019 consist of pre-tax store asset impairment charges and ~~November 3, 2018 follows:~~the tax effect of pre-tax excluded items.

(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, 2019 November 3, 2018 % Change November 2, 2019 November 3, 2018 % Change
GAAP $ 863,472
$ 861,194
0% $ 2,438,522
$ 2,434,507
0%
Impact from changes in foreign currency exchange rates —
(8,302 ) 1% —
(34,547 ) 1%
Net sales on a constant currency basis $ 863,472
$ 852,892
1% $ 2,438,522
$ 2,399,960
2%

Gross profit ⁽¹⁾
November 2, 2019 November 3, 2018
BPS Change ⁽²⁾
November 2, 2019 November 3, 2018
BPS Change ⁽²⁾
GAAP $ 518,931
$ 527,819
(120) $ 1,461,654
$ 1,477,059
(80)
Impact from changes in foreign currency exchange rates —
(8,531 ) 40 —
(25,001 ) 20
Gross profit on a constant currency basis $ 518,931
$ 519,288
(80) $ 1,461,654
$ 1,452,058
(60)

Operating income (loss) November 2, 2019 November 3, 2018
BPS Change ⁽²⁾
November 2, 2019 November 3, 2018
BPS Change ⁽²⁾
GAAP $ 14,479
$ 39,680
(290) $ (52,263 ) $ (2,300 ) (200)
Excluded items ⁽³⁾
(10,468 ) 3,005
(150) (10,468 ) (11,266 ) 10
Adjusted non-GAAP $ 24,947
$ 36,675
(140) $ (41,795 ) $ 8,966
(210)
Impact from changes in foreign currency exchange rates —
(5,406 ) 60 —
(12,036 ) 50
Adjusted non-GAAP on a constant currency basis $ 24,947
$ 31,269
(80) $ (41,795 ) $ (3,070 ) (160)

Net income (loss) per diluted share attributable to Abercrombie & Fitch Co. November 2, 2019 November 3, 2018 $ Change November 2, 2019 November 3, 2018 $ Change
GAAP $ 0.10
$ 0.35
$(0.25) $ (0.67 ) $ (0.33 ) $(0.34)
Excluded items, net of tax ⁽³⁾
(0.12 ) 0.02
(0.14) (0.12 ) (0.16 ) 0.04
Adjusted non-GAAP $ 0.23
$ 0.33
$(0.10) $ (0.55 ) $ (0.17 ) $(0.38)
Impact from changes in foreign currency exchange rates —
(0.06 ) 0.06 —
(0.13 ) 0.13
Adjusted non-GAAP on a constant currency basis $ 0.23
$ 0.27
$(0.04) $ (0.55 ) $ (0.31 ) $(0.24)


⁽¹⁾	~~Gross profit is derived from cost of sales, exclusive of depreciation and amortization.~~


⁽²⁾	~~The estimated basis point change has been rounded based on the change in the percentage of net sales.~~


⁽³⁾	~~Refer to~~ “~~RESULTS OF OPERATIONS~~” ~~for details on excluded items.~~

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~~ITEM~~Item 3. ~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

~~Investment securities~~

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. 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 of the trust-owned life insurance policies held in the Rabbi Trust resulted in realized gains of $0.4 million and $1.4 million for the thirteen and thirty-nine weeks ended October 31, 2020, respectively, and $0.8 million and $2.4 million for the thirteen and thirty-nine weeks ended November 2, 2019, ~~respectively, and realized~~respectively. These gains ~~of $0.8 million and $2.3 million for the thirteen and thirty-nine weeks ended November 3, 2018, respectively, which~~ are recorded in interest expense, net on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

The Rabbi Trust assets are included in other assets on the Condensed Consolidated Balance Sheets as of ~~November 2, 2019~~October 31, 2020 and February ~~2, 2019,~~1, 2020, and are restricted in their use as noted above.

~~Interest rate risks~~INTEREST RATE RISK

~~As of November~~Prior to July 2, ~~2019, the Company has approximately $243.3 million~~2020, our exposure to market risk due to changes in ~~gross borrowings outstanding under its Term Loan Facility and no borrowings outstanding under its Amended ABL Facility. The Credit Facilities carry~~ interest rates ~~that are tied~~related primarily to the increase or decrease in the amount of interest expense from fluctuations in the LIBO rate, or an alternate base rate ~~plus a margin. The interest rate on~~associated with the Term Loan Facility ~~has~~and ABL Facility. On July 2, 2020 the Company issued the Senior Secured Notes due in 2025 with a ~~100 basis point LIBO rate floor, and assuming no changes in the Company’s financial structure as it stands, an increase in the~~8.75% fixed interest rate onper annum and repaid all outstanding borrowings under the Term Loan Facility ~~as of November 2, 2019 of 100 basis points would increase Fiscal 2019 annual~~and the ABL Facility, thereby eliminating any then existing cash flow market risk due to changes in interest ~~expense by approximately $2.5 million.~~rates. The Senior Secured Notes are exposed to interest rate risk that is limited to changes in fair value. This ~~hypothetical~~ analysis for the remainder of Fiscal ~~2019~~2020 may differ from the actual ~~change in interest expense~~results due to potential changes in ~~interest rates or~~ gross borrowings outstanding under the ~~Company’s Credit Facilities.~~ ABL Facility and potential changes in interest rate terms and limitations described within the credit agreement.

The expected transition from the widespread use of LIBO rate to alternative rates over the next several years is not expected to have a material impact on ~~interest expense on borrowings outstanding under~~ the Company’s ~~Credit Facilities.~~interest expense. In addition, the Company has seen, and may continue to see, lower interest income earned on the Company’s investments and cash holdings, reflecting the lower interest rate environment.

~~Foreign exchange rate risk~~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 ~~sale~~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. ~~All outstanding~~Outstanding foreign currency exchange forward contracts are recorded at fair value at the end of each fiscal period. ~~Refer to Note 11, “~~

~~DERIVATIVE INSTRUMENTS,” for the fair value of outstanding foreign currency exchange forward contracts included in other current assets and accrued expenses as of November 2, 2019 and February 2, 2019.~~

Foreign currency exchange forward contracts are sensitive to changes in foreign currency exchange rates. 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 ~~$35.6~~$10.6 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 ~~value~~values would be expected to be largely offset by the net change in fair values of the underlying hedged ~~items.~~

items.Refer to Note 14, “DERIVATIVE INSTRUMENTS,” for the fair value of outstanding foreign currency exchange forward contracts included in other current assets and accrued expenses as of October 31, 2020 and February 1, 2020.

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~~ITEM 4.~~	~~CONTROLS AND PROCEDURES~~

Item 4. Controls and Procedures

~~Disclosure 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 Securities Exchange Act of 1934, as amended (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 ~~the~~A&F’s principal executive officer and ~~the~~A&F’s 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 and Principal Accounting 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, 2019.~~October 31, 2020. 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 and 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, 2019,~~October 31, 2020, the end of the period covered by this Quarterly Report on Form 10-Q.

~~Changes in internal control over financial reporting~~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) that occurred during A&F’s fiscal quarter ended ~~November 2, 2019~~October 31, 2020 that materially affected, or are reasonably likely to materially affect, A&F’s internal control over financial reporting.

As the COVID-19 pandemic evolves, the Company will continue to monitor and assess any potential impacts COVID-19 may have on the design and operating effectiveness of the Company’s internal controls.

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PART II. OTHER INFORMATION


~~ITEM 1.~~	~~LEGAL PROCEEDINGS~~

Item 1. Legal Proceedings

The Company is a defendant in lawsuits and other adversary proceedings arising in the ordinary course of business. 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~~“ITEM 1. FINANCIAL STATEMENTS (UNAUDITED),” 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, court approvals 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.


~~ITEM 1A.~~	~~RISK FACTORS~~

Item 1A. Risk Factors.

The Company’s risk factors as of ~~November 2, 2019~~October 31, 2020 have not changed materially from those disclosed in Part I, “ITEM 1A. RISK FACTORS” of A&F’s Annual Report on Form 10-K for Fiscal ~~2018.~~2019 and those furnished under “Item 7.01, Regulation FD Disclosure” of A&F’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 17, 2020, other than those disclosed below due to the issuance of the Senior Secured Notes and termination of the Term Loan Facility during the thirteen weeks ended August 1, 2020. The COVID-19 pandemic may exacerbate the risks discussed within the aforementioned Annual Report on Form 10-K and Current Report on Form 8-K, certain of which have had and could continue to have a material effect on the Company.

The risk factor titled “Our credit facilities include restrictive covenants that limit our flexibility in operating our business and our inability to obtain credit on reasonable terms in the future could have an adverse impact on our business” has been modified to read in full as follows:

The agreements related to our senior secured asset-based revolving credit facility and our senior secured notes include restrictive covenants that limit our flexibility in operating our business and our inability to obtain credit on reasonable terms in the future could have an adverse impact on our business.

Our senior secured asset-based revolving credit agreement, as amended (the “ABL Facility”) expires on October 19, 2022 and our senior secured notes, which have a fixed 8.75% interest rate, will mature on July 15, 2025 (the “Senior Secured Notes”). Both our ABL Facility and the indenture governing our Senior Secured Notes contain restrictive covenants that, subject to specified exemptions, restrict, among other things, the following: our ability to incur, assume or guarantee additional indebtedness; grant or incur liens; sell or otherwise dispose of assets, including capital stock of subsidiaries; make investments in certain subsidiaries; pay dividends or make distributions on our capital stock; redeem or repurchase capital stock; change the nature of our business; and consolidate or merge with or into, or sell substantially all of our assets to another entity.

If an event of default occurs, any outstanding obligations under the Senior Secured Notes and the ABL Facility could be declared immediately due and payable or the lenders could foreclose on or exercise other remedies with respect to the assets securing the indebtedness under the Senior Secured Notes and the ABL Facility. In addition, there is no assurance that we would have the cash resources available to repay such accelerated obligations. In addition, the Senior Secured Notes and ABL Facility are secured by certain of our real property, intellectual property, general intangibles and receivables, among other things, and lenders may exercise remedies against the collateral in the event of our default.

We have, and expect to continue to have, a level of indebtedness. In addition, we may, from time to time, incur additional indebtedness. We may need to refinance all or a portion of our existing indebtedness before maturity, including the Senior Secured Notes, and any indebtedness under the ABL Facility. There can be no assurance that we would be able to obtain sufficient funds to enable us to repay or refinance our debt obligations on commercially

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reasonable terms, or at all. Changes in market conditions could potentially impact the size and terms of a replacement facility or facilities in the future. The inability to obtain credit on commercially reasonable terms in the future could adversely impact our liquidity and results of operations.


~~ITEM 2.~~	~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no sales of equity securities during the third quarter of Fiscal ~~2019~~2020 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 of A&F made by or on behalf of A&F or any “affiliated purchaser” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended, during each fiscal month of the thirteen weeks ended ~~November~~October 31, 2020:


Period (fiscal month)	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs (3)
August 2, 2020 through August 29, 2020	1,569	$	11.41	—	3,218,058
August 30, 2020 through October 3, 2020	5,324	$	13.58	—	3,218,058
October 4, 2020 through October 31, 2020	3,594	$	16.27	—	3,218,058
Total	10,487	$	14.18	—	3,218,058

(1)All 10,487 shares of A&F’s Common Stock purchased during the thirteen weeks ended October 31, 2020 were withheld for tax payments due upon the vesting of employee restricted stock units.

(2)On June 12, 2019, A&F’s Board of Directors authorized the repurchase of 5.0 million shares of A&F’s Common Stock, which was announced on June 12, 2019.

(3)The number shown represents, as of the end of each period, the maximum number of shares of A&F’s Common Stock that may yet be purchased under A&F’s publicly announced stock repurchase authorization described in footnote 2 ~~2019:~~above. The shares may be purchased, from time to time, depending on business and market conditions. The Company has temporarily suspended its share repurchase program in order to preserve liquidity and maintain financial flexibility in light of the circumstances surrounding COVID-19.

Period (Fiscal Month)
Total Number of Shares Purchased ⁽¹⁾
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽²⁾

Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs ⁽³⁾
August 4, 2019 through August 31, 2019 1,967
$ 15.77
—
5,027,107
September 1, 2019 through October 5, 2019 284,915
$ 13.90
279,200
4,747,907
October 6, 2019 through November 2, 2019 136,745
$ 14.05
132,461
4,615,446
Total 423,627
$ 13.96
411,661
4,615,446


⁽¹⁾	~~11,966 shares of A&F’s Common Stock purchased during the thirteen weeks ended November 2, 2019 represented shares withheld for tax payments due upon the vesting of employee restricted stock units.~~

⁽²⁾

Amounts represent shares of A&F’s Common Stock repurchased during the thirteen weeks ended November 2, 2019 pursuant to A&F’s publicly announced stock repurchase authorizations. On August 14, 2012, A&F’s Board of Directors authorized the repurchase of 10.0 million shares of A&F’s Common Stock, which was announced on August 15, 2012. On June 12, 2019, A&F’s Board of Directors authorized the repurchase of an additional 5.0 million shares of A&F’s Common Stock, which was announced on June 12, 2019. As of November 2, 2019, no shares remain available for repurchase under the August 14, 2012 repurchase authorization.


⁽³⁾	The number shown represents, as of the end of each period, the maximum number of shares of A&F’s Common Stock that may yet be purchased under A&F’s publicly announced stock repurchase authorizations described in footnote 2 above. The shares may be purchased, from time to time, depending on business and market conditions.

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~~ITEM~~Item 6. ~~EXHIBITS~~

Exhibits



Exhibit ~~No.~~						Document
3.1						Amended and Restated Certificate of Incorporation of Abercrombie & Fitch Co., reflecting amendments through the date of this Quarterly Report on Form 10-Q, incorporated herein by reference to Exhibit 3.2 to A&F’s Quarterly Report on Form 10-Q for the quarterly period ended July 30, 2011 (File No. 001-12107). [This document represents the Amended and Restated Certificate of Incorporation of Abercrombie & Fitch Co. in compiled form incorporating all amendments. This compiled document has not been filed with the Delaware Secretary of State.]
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 3.10 to A&F’s Annual Report on Form 10-K for the fiscal year ended February 3, 2018 (File No. 001-12107). [This document represents the Amended and Restated Bylaws of Abercrombie & Fitch Co. in compiled form incorporating all amendments.]
~~31.1~~10.1						Form of Performance Share Award Agreement used to evidence the grant of performance shares to associates (employees) of Abercrombie & Fitch Co. and its subsidiaries under the Abercrombie & Fitch Co. 2016 Long-Term Incentive Plan for Associates on or after August 28, 2020.*
10.2						Form of Retention Restricted Stock Unit Award Agreement, made to be effective as of August 28, 2020, between Abercrombie & Fitch Co. and each of Scott Lipesky, Kristin Scott and Gregory J. Henchel, incorporated herein by reference to Exhibit 10.1 to A&F’s Current Report on Form 8-K dated and filed on September 2, 2020 (File No. 001-12107).
31.1						Certifications by Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2						Certifications by Senior Vice President and Chief Financial Officer (Principal Financial Officer) pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1						Certifications by Chief Executive Officer (who serves as Principal Executive Officer) and Senior Vice President and Chief Financial Officer (who serves as Principal Financial Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
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.~~

* Filed herewith.

** Furnished herewith.

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Signatures

~~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.

		~~ABERCROMBIE & FITCH CO.~~
Date: December ~~11, 2019~~7, 2020	ByBy:		/s/ Scott Lipesky
				Scott Lipesky
				Senior Vice President and Chief Financial Officer (Principal Financial Officer, Principal Accounting Officer and Authorized Officer)



					~~Page No.~~
~~Part I~~PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)		3

	Condensed Consolidated Balance Sheets		4

	Condensed Consolidated Statements of Stockholders’ Equity		5

	Condensed Consolidated Statements of Cash Flows		7

	Index for Notes to Condensed Consolidated Financial Statements		8

	Notes to Condensed Consolidated Financial Statements		9

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		4544

Item 4.	Controls and Procedures		4645

~~Part II~~PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		4746

Item 1A.	Risk Factors		4746

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		47

Item 6.	Exhibits		48

	Signatures		49



(in thousands)	February 2, 2019 (as reported under previous lease accounting standard)			Impact from adoption of new lease accounting standard			Upon adoption on February 3, 2019 (under new lease accounting standard) ⁽¹⁾
Assets
Current assets:
Cash and equivalents	$	723,135		$	—		$	723,135
Receivables	73,112			—			73,112
Inventories	437,879			—			437,879
Other current assets ⁽²⁾	101,824			(31,310		)	70,514
Total current assets	1,335,950			(31,310		)	1,304,640
Property and equipment, net ⁽³⁾	694,855			(46,624		)	648,231
Operating lease right-of-use assets ⁽²⁾	—			1,234,515			1,234,515
Other assets^{(2) (5)}	354,788			15,553			370,341
Total assets	$	2,385,593		$	1,172,134		$	3,557,727
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	226,878		$	—		$	226,878
Accrued expenses ⁽²⁾	293,579			(13,508		)	280,071
Short-term portion of operating lease liabilities⁽⁴⁾	—			280,108			280,108
Short-term portion of deferred lease credits ⁽²⁾	19,558			(19,558		)	—
Income taxes payable	18,902			—			18,902
Total current liabilities	558,917			247,042			805,959
Long-term liabilities:
Long-term portion of operating lease liabilities ⁽⁴⁾	—			1,193,946			1,193,946
Long-term portion of borrowings, net	250,439			—			250,439
Long-term portion of deferred lease credits ⁽²⁾	76,134			(76,134		)	—
Leasehold financing obligations⁽³⁾	46,337			(46,337		)	—
Other liabilities ^{(2) (5)}	235,145			(71,218		)	163,927
Total long-term liabilities	608,055			1,000,257			1,608,312
Stockholders’ equity
Class A Common Stock	1,033			—			1,033
Paid-in capital	405,379			—			405,379
Retained earnings⁽⁶⁾	2,418,544			(75,165		)	2,343,379
Accumulated other comprehensive loss, net of tax	(102,452		)	—			(102,452		)
Treasury stock, at average cost	(1,513,604		)	—			(1,513,604		)
Total Abercrombie & Fitch Co. stockholders’ equity	1,208,900			(75,165		)	1,133,735
Noncontrolling interests	9,721			—			9,721
Total stockholders’ equity	1,218,621			(75,165		)	1,143,456
Total liabilities and stockholders’ equity	$	2,385,593		$	1,172,134		$	3,557,727



(in thousands)
Fiscal 2019 (excluding the thirty-nine weeks ended November 2, 2019)	$	76,951
Fiscal 2020	371,357
Fiscal 2021	311,061
Fiscal 2022	262,530
Fiscal 2023	219,723
Fiscal 2024 and thereafter	560,067
Total undiscounted operating lease payments	$	1,801,689
Less: Imputed interest	(282,493		)
Present value of operating lease liabilities	$	1,519,196



(in thousands)
Fiscal 2019	$	367,622
Fiscal 2020	304,270
Fiscal 2021	205,542
Fiscal 2022	159,617
Fiscal 2023	128,626
Fiscal 2024 and thereafter	310,003
Total	$	1,475,680



(in thousands)	Notional Amount ⁽¹⁾
Euro	$	183,360
British pound	$	86,097
Canadian dollar	$	29,673
Japanese yen	$	17,336



(in thousands)	Notional Amount ⁽¹⁾
Chinese yuan	$	21,230
Euro	$	17,347
British pound	$	3,884



	Thirteen Weeks Ended November 3, 2018
(in thousands)	Foreign Currency Translation Adjustment			Unrealized Gain (Loss) on Derivative Financial Instruments			Total
Beginning balance at August 4, 2018	$	(104,492	)	$	9,600		$	(94,892	)
Other comprehensive (loss) income before reclassifications	(3,111		)	2,051			(1,060		)
Reclassified gain from accumulated other comprehensive loss ⁽¹⁾	—			(2,814		)	(2,814		)
Tax effect	16			82			98
Other comprehensive loss after reclassifications	(3,095		)	(681		)	(3,776		)
Ending balance at November 3, 2018	$	(107,587	)	$	8,919		$	(98,668	)

	Thirty-nine Weeks Ended November 3, 2018
(in thousands)	Foreign Currency Translation Adjustment			Unrealized Gain (Loss) on Derivative Financial Instruments			Total
Beginning balance at February 3, 2018	$	(84,947	)	$	(10,107	)	$	(95,054	)
Other comprehensive (loss) income before reclassifications	(22,656		)	18,716			(3,940		)
Reclassified loss from accumulated other comprehensive loss⁽¹⁾	—			2,408			2,408
Tax effect	16			(2,098		)	(2,082		)
Other comprehensive (loss) income after reclassifications	(22,640		)	19,026			(3,614		)
Ending balance at November 3, 2018	$	(107,587	)	$	8,919		$	(98,668	)



	GAAP						Non-GAAP ⁽¹⁾
(in thousands, except change in net sales, comparable sales, gross profit rate, operating margin and per share amounts)	November 2, 2019			November 3, 2018			November 2, 2019			November 3, 2018
Thirteen Weeks Ended
Net sales	$	863,472		$	861,194
Change in net sales	0.3		%	0.2		%
Comparable sales ⁽²⁾							0		%	3		%
Gross profit rate	60.1		%	61.3		%
Operating income	$	14,479		$	39,680		$	24,947		$	36,675
Operating income margin	1.7		%	4.6		%	2.9		%	4.3		%
Net income attributable to A&F	$	6,523		$	23,919		$	14,506		$	22,383
Net income per diluted share attributable to A&F	$	0.10		$	0.35		$	0.23		$	0.33

Thirty-nine Weeks Ended
Net sales	$	2,438,522		$	2,434,507
Change in net sales	0.2		%	5.9		%
Comparable sales ⁽²⁾							0		%	3		%
Gross profit rate	59.9		%	60.7		%
Operating (loss) income ⁽³⁾	$	(52,263	)	$	(2,300	)	$	(41,795	)	$	8,966
Operating (loss) income margin	(2.1		)%	(0.1		)%	(1.7		)%	0.4		%
Net loss attributable to A&F	$	(43,774	)	$	(22,395	)	$	(35,791	)	$	(11,848	)
Net loss per diluted share attributable to A&F	$	(0.67	)	$	(0.33	)	$	(0.55	)	$	(0.17	)



	November 2, 2019			November 3, 2018
Net cash (used for) provided by operating activities	$	(33,839	)	$	77,245
Purchases of property and equipment	$	(154,373	)	$	(98,768	)
Purchases of common stock	$	(63,542	)	$	(68,670	)
Dividends paid	$	(38,959	)	$	(40,550	)
Repayment of term loan facility borrowings	$	(10,000	)	$	—



	Thirty-nine weeks ended November 2, 2019
	Hollister ⁽¹⁾			Abercrombie ⁽²⁾				Total Company
	United States		International	United States		International		United States		International		Total
Number of stores:
February 2, 2019	393		149	270		49		663		198		861
New	10		5	10		2		20		7		27
Closed	(3	)	—	(3	)	(1	)	(6	)	(1	)	(7	)
November 2, 2019	400		154	277		50		677		204		881

Gross square footage:
November 2, 2019 (in thousands)	2,659		1,261	2,001		635		4,660		1,896		6,556

	Thirty-nine weeks ended November 3, 2018
	Hollister ⁽¹⁾			Abercrombie ⁽²⁾				Total Company
	United States		International	United States		International		United States		International		Total
Number of stores:
February 3, 2018	394		144	285		45		679		189		868
New	6		3	4		3		10		6		16
Closed	—		—	(5	)	—		(5	)	—		(5	)
November 3, 2018	400		147	284		48		684		195		879

Gross square footage:
November 3, 2018 (in thousands)	2,705		1,219	2,156		639		4,861		1,858		6,719



Period (Fiscal Month)	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽²⁾	Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs ⁽³⁾
August 4, 2019 through August 31, 2019	1,967	$	15.77	—	5,027,107
September 1, 2019 through October 5, 2019	284,915	$	13.90	279,200	4,747,907
October 6, 2019 through November 2, 2019	136,745	$	14.05	132,461	4,615,446
Total	423,627	$	13.96	411,661	4,615,446