UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~FORM~~ Form 10-Q

(Mark One)



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

For the quarterly period ended May ~~4, 2019~~2, 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


~~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)

~~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. xYes¨ 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). xYes¨ 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 xNo

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		~~Outstanding at~~Shares outstanding as of June ~~7, 2019~~5, 2020
$~~.01~~0.01 Par Value		~~65,687,994 Shares~~62,375,867

Table of Contents

~~ABERCROMBIE~~PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

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

~~TABLE OF CONTENTS~~Condensed Consolidated Statements of Operations and Comprehensive Loss

(Thousands, except per share amounts)

(Unaudited)



	Thirteen Weeks Ended
	May 2, 2020			May 4, 2019
Net sales	$	485,359		$	733,972
Cost of sales, exclusive of depreciation and amortization	221,214			289,882
Gross profit	264,145			444,090
Stores and distribution expense	322,124			356,612
Marketing, general and administrative expense	108,257			111,947
Flagship store exit (benefits) charges	(543		)	1,744
Asset impairment, exclusive of flagship store exit charges	42,928			1,662
Other operating loss (income), net	506			(617		)
Operating loss	(209,127		)	(27,258		)
Interest expense, net	3,371			616
Loss before income taxes	(212,498		)	(27,874		)
Income tax expense (benefit)	31,533			(9,588		)
Net loss	(244,031		)	(18,286		)
Less: Net income attributable to noncontrolling interests	117			869
Net loss attributable to A&F	$	(244,148	)	$	(19,155	)

Net loss per share attributable to A&F
Basic	$	(3.90	)	$	(0.29	)
Diluted	$	(3.90	)	$	(0.29	)

Weighted-average shares outstanding
Basic	62,541			66,540
Diluted	62,541			66,540

Other comprehensive income (loss)
Foreign currency translation, net of tax	$	(5,399	)	$	(2,786	)
Derivative financial instruments, net of tax	8,865			(53		)
Other comprehensive income (loss)	3,466			(2,839		)
Comprehensive loss	(240,565		)	(21,125		)
Less: Comprehensive income attributable to noncontrolling interests	117			869
Comprehensive loss attributable to A&F	$	(240,682	)	$	(21,994	)

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

Table of Contents

Abercrombie & Fitch Co.

Condensed Consolidated Balance Sheets

(Thousands, except par value amounts)

(Unaudited)



	May 2, 2020			February 1, 2020
Assets
Current assets:
Cash and equivalents	$	703,989		$	671,267
Receivables	88,639			80,251
Inventories	426,594			434,326
Other current assets	67,412			78,905
Total current assets	1,286,634			1,264,749
Property and equipment, net	654,784			665,290
Operating lease right-of-use assets	1,133,618			1,230,954
Other assets	216,795			388,672
Total assets	$	3,291,831		$	3,549,665
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	162,747		$	219,919
Accrued expenses	285,799			302,214
Short-term portion of operating lease liabilities	307,173			282,829
Short-term portion of borrowings	210,000			—
Income taxes payable	8,232			10,392
Total current liabilities	973,951			815,354
Long-term liabilities:
Long-term portion of operating lease liabilities	1,184,448			1,252,634
Long-term portion of borrowings, net	232,178			231,963
Other liabilities	103,188			178,536
Total long-term liabilities	1,519,814			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	389,904			404,983
Retained earnings	2,022,366			2,313,745
Accumulated other comprehensive loss, net of tax (“AOCL”)	(105,420		)	(108,886		)
Treasury stock, at average cost: 41,016 and 40,514 shares as of May 2, 2020 and February 1, 2020, respectively	(1,517,644		)	(1,552,065		)
Total Abercrombie & Fitch Co. stockholders’ equity	790,239			1,058,810
Noncontrolling interests	7,827			12,368
Total stockholders’ equity	798,066			1,071,178
Total liabilities and stockholders’ equity	$	3,291,831		$	3,549,665

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

Table of Contents

Abercrombie & Fitch Co.

Condensed Consolidated Statements of Stockholders’ Equity

(Thousands, except per share amounts)

(Unaudited)



	Thirteen Weeks Ended May 2, 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	—		—		—			117			(244,148		)	—			—		—			(244,031		)
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	895		—		(20,241		)	—			(34,675		)	—			(895	)	49,593			(5,323		)
Share-based compensation expense	—		—		5,162			—			—			—			—		—			5,162
Derivative financial instruments, net of tax	—		—		—			—			—			8,865			—		—			8,865
Foreign currency translation adjustments, net of tax	—		—		—			—			—			(5,399		)	—		—			(5,399		)
Distributions to noncontrolling interests, net	—		—		—			(4,658		)	—			—			—		—			(4,658		)
Ending balance at May 2, 2020	62,284		$	1,033	$	389,904		$	7,827		$	2,022,366		$	(105,420	)	41,016		$	(1,517,644	)	$	798,066

	Thirteen Weeks Ended May 4, 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	—		—		—			869			(19,155		)	—			—		—			(18,286		)
Dividends ($0.20 per share)	—		—		—			—			(13,246		)	—			—		—			(13,246		)
Share-based compensation issuances and exercises	410		—		(12,037		)	—			(14,631		)	—			(410	)	20,380			(6,288		)
Share-based compensation expense	—		—		2,632			—			—			—			—		—			2,632
Derivative financial instruments, net of tax	—		—		—			—			—			(53		)	—		—			(53		)
Foreign currency translation adjustments, net of tax	—		—		—			—			—			(2,786		)	—		—			(2,786		)
Distributions to noncontrolling interests, net	—		—		—			(466		)	—			—			—		—			(466		)
Ending balance at May 4, 2019	66,637		$	1,033	$	395,974		$	10,124		$	2,296,347		$	(105,291	)	36,663		$	(1,493,224	)	$	1,104,963

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

Table of Contents

Abercrombie & Fitch Co.

Condensed Consolidated Statements of Cash Flows

(Thousands)

(Unaudited)



	Thirteen Weeks Ended
	May 2, 2020			May 4, 2019
Operating activities
Net loss	$	(244,031	)	$	(18,286	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization	44,037			41,042
Asset impairment	42,928			1,662
Loss on disposal	6,283			1,991
Provision for (benefit from) deferred income taxes	23,353			(9,895		)
Share-based compensation	5,162			2,632
Changes in assets and liabilities:
Inventories	6,320			4,962
Accounts payable and accrued expenses	(72,533		)	(74,199		)
Operating lease right-of-use assets and liabilities	20,029			(10,862		)
Income taxes	(3,982		)	855
Other assets	32,213			(10,287		)
Withdrawal of funds from Rabbi Trust assets	50,000			—
Other liabilities	(555		)	(931		)
Net cash used for operating activities	(90,776		)	(71,316		)
Investing activities
Purchases of property and equipment	(46,990		)	(43,872		)
Net cash used for investing activities	(46,990		)	(43,872		)
Financing activities
Proceeds from borrowings under the asset-based senior secured credit facility	210,000			—
Purchases of Common Stock	(15,172		)	—
Dividends paid	(12,556		)	(13,246		)
Other financing activities	(10,604		)	(7,076		)
Net cash provided by (used for) financing activities	171,668			(20,322		)
Effect of foreign currency exchange rates on cash	(3,891		)	(2,638		)
Net increase (decrease) in cash and equivalents, and restricted cash and equivalents	30,011			(138,148		)
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	$	722,275		$	607,681
Supplemental information related to non-cash activities
Purchases of property and equipment not yet paid at end of period	$	46,174		$	22,771
Operating lease right-of-use assets obtained in exchange for operating lease liabilities	$	35,182		$	117,829
Supplemental information related to cash activities
Cash paid for interest	$	4,387		$	3,881
Cash paid for income taxes	$	3,714		$	2,872
Cash received from income tax refunds	$	568		$	7,049
Cash paid for operating lease liabilities	$	66,510		$	94,245

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

Table of Contents

Abercrombie & Fitch Co.

Index for Notes to Condensed Consolidated Financial Statements (Unaudited)

~~Table of Contents~~

~~PART I. FINANCIAL INFORMATION~~


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

~~ABERCROMBIE & FITCH CO.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS~~

~~AND COMPREHENSIVE LOSS~~

~~(Thousands, except per share amounts)~~

~~(Unaudited)~~

Thirteen Weeks Ended
May 4, 2019 May 5, 2018
Net sales $ 733,972
$ 730,899
Cost of sales, exclusive of depreciation and amortization 289,882
288,554
Gross profit 444,090
442,345
Stores and distribution expense 358,356
361,155
Marketing, general and administrative expense 111,947
124,897
Asset impairment 1,662
1,056
Other operating income, net (617 ) (2,560 )
Operating loss (27,258 ) (42,203 )
Interest expense, net 616
3,018
Loss before income taxes (27,874 ) (45,221 )
Income tax benefit (9,588 ) (3,713 )
Net loss (18,286 ) (41,508 )
Less: Net income attributable to noncontrolling interests 869
953
Net loss attributable to A&F $ (19,155 ) $ (42,461 )

Net loss per share attributable to A&F
Basic $ (0.29 ) $ (0.62 )
Diluted $ (0.29 ) $ (0.62 )

Weighted-average shares outstanding
Basic 66,540
68,500
Diluted 66,540
68,500

Other comprehensive (loss) income
Foreign currency translation, net of tax $ (2,786 ) $ (8,339 )
Derivative financial instruments, net of tax (53 ) 12,260
Other comprehensive (loss) income (2,839 ) 3,921
Comprehensive loss (21,125 ) (37,587 )
Less: Comprehensive income attributable to noncontrolling interests 869
953
Comprehensive loss attributable to A&F $ (21,994 ) $ (38,540 )

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

~~Table of Contents~~

~~ABERCROMBIE & FITCH CO.~~

~~CONDENSED CONSOLIDATED BALANCE SHEETS~~

~~(Thousands, except par value amounts)~~

~~(Unaudited)~~

May 4, 2019 February 2, 2019
Assets
Current assets:
Cash and equivalents $ 586,133
$ 723,135
Receivables 82,026
73,112
Inventories 432,350
437,879
Other current assets 71,803
101,824
Total current assets 1,172,312
1,335,950
Property and equipment, net 633,686
694,855
Operating lease right-of-use assets 1,252,249
—
Other assets 364,719
354,788
Total assets $ 3,422,966
$ 2,385,593
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 180,041
$ 226,878
Accrued expenses 240,050
293,579
Short-term portion of operating lease liabilities 278,392
—
Income taxes payable 16,022
18,902
Short-term portion of deferred lease credits —
19,558
Total current liabilities 714,505
558,917
Long-term liabilities:
Long-term portion of operating lease liabilities 1,207,103
—
Long-term portion of borrowings, net 250,736
250,439
Long-term portion of deferred lease credits —
76,134
Leasehold financing obligations —
46,337
Other liabilities 145,659
235,145
Total long-term liabilities 1,603,498
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 395,974
405,379
Retained earnings 2,296,347
2,418,544
Accumulated other comprehensive loss, net of tax (105,291 ) (102,452 )
Treasury stock, at average cost: 36,663 and 37,073 shares as of May 4, 2019 and February 2, 2019, respectively (1,493,224 ) (1,513,604 )
Total Abercrombie & Fitch Co. stockholders’ equity 1,094,839
1,208,900
Noncontrolling interests 10,124
9,721
Total stockholders’ equity 1,104,963
1,218,621
Total liabilities and stockholders’ equity $ 3,422,966
$ 2,385,593

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

~~Table of Contents~~

~~ABERCROMBIE & FITCH CO.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

~~(Thousands, except per share amounts)~~

~~(Unaudited)~~

Thirteen Weeks Ended May 4, 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
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 (Refer to Note 2 “Summary of Significant Accounting Policies”) —
—
—
—
(75,165 ) —
—
—
(75,165 )
Net loss —
—
—
869
(19,155 ) —
—
—
(18,286 )
Dividends ($0.20 per share) —
—
—
—
(13,246 ) —
—
—
(13,246 )
Share-based compensation issuances and exercises 410
—
(12,037 ) —
(14,631 ) —
(410 ) 20,380
(6,288 )
Share-based compensation expense —
—
2,632
—
—
—
—
—
2,632
Derivative financial instruments, net of tax —
—
—
—
—
(53 ) —
—
(53 )
Foreign currency translation adjustments, net of tax —
—
—
—
—
(2,786 ) —
—
(2,786 )
Distributions to noncontrolling interests, net —
—
—
(466 ) —
—
—
—
(466 )
Balance, May 4, 2019 66,637
$ 1,033
$ 395,974
$ 10,124
$ 2,296,347
$ (105,291 ) 36,663
$ (1,493,224 ) $ 1,104,963

Thirteen Weeks Ended May 5, 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
Balance, 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 —
—
—
953
(42,461 ) —
—
—
(41,508 )
Purchase of Common Stock (778 ) —
—
—
—
—
778
(18,670 ) (18,670 )
Dividends ($0.20 per share) —
—
—
—
(13,642 ) —
—
—
(13,642 )
Share-based compensation issuances and exercises 399
—
(11,274 ) —
(14,513 ) —
(399 ) 20,800
(4,987 )
Share-based compensation expense —
—
4,783
—
—
—
—
—
4,783
Derivative financial instruments, net of tax —
—
—
—
—
12,260
—
—
12,260
Foreign currency translation adjustments, net of tax —
—
—
—
—
(8,339 ) —
—
(8,339 )
Distributions to noncontrolling interests, net —
—
—
(466 ) —
—
—
—
(466 )
Balance, May 5, 2018 67,816
$ 1,033
$ 399,860
$ 10,579
$ 2,356,880
$ (91,133 ) 35,484
$ (1,488,373 ) $ 1,188,846

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

~~Table of Contents~~

~~ABERCROMBIE & FITCH CO.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Thousands)~~

~~(Unaudited)~~

Thirteen Weeks Ended
May 4, 2019 May 5, 2018
Operating activities
Net loss $ (18,286 ) $ (41,508 )
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization 41,042
47,647
Non-cash portion of operating lease expense (8,196 ) —
Amortization of deferred lease credits prior to adoption of new lease accounting standard —
(5,040 )
Asset impairment 1,662
1,056
Loss on disposal 1,991
1,239
Benefit from deferred income taxes (9,895 ) (12,290 )
Share-based compensation 2,632
4,783
Changes in assets and liabilities:
Inventories 4,962
11,444
Accounts payable and accrued expenses (74,199 ) (32,186 )
Operating lease right-of-use assets and liabilities (2,666 ) —
Income taxes 855
2,526
Other assets (10,287 ) 5,902
Other liabilities (931 ) 256
Net cash used for operating activities (71,316 ) (16,171 )
Investing activities
Purchases of property and equipment (43,872 ) (23,700 )
Net cash used for investing activities (43,872 ) (23,700 )
Financing activities
Purchases of common stock —
(18,670 )
Dividends paid (13,246 ) (13,642 )
Other financing activities (7,076 ) (5,176 )
Net cash used for financing activities (20,322 ) (37,488 )
Effect of exchange rates on cash (2,638 ) (5,914 )
Net decrease in cash and equivalents, and restricted cash and equivalents (138,148 ) (83,273 )
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 $ 607,681
$ 614,682
Supplemental information related to non-cash activities
Purchases of property and equipment not yet paid at end of period $ 22,771
$ 15,874
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities $ 117,829
$ —
Supplemental information related to cash activities
Cash paid for interest related to Abercrombie & Fitch Co.’s term loan facility $ 3,881
$ 3,492
Cash paid for income taxes $ 2,872
$ 6,683
Cash received from income tax refunds $ 7,049
$ 6,762
Cash paid for amounts included in the measurement of operating lease liabilities $ 94,245
$ —

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

~~Table of Contents~~

~~ABERCROMBIE & FITCH CO.~~

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



		~~Page No.~~

~~Note 1.~~	~~Nature of Business~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	8

~~Note 2.~~	~~Summary of Significant Accounting Policies~~	8

Note 3.	~~Revenue Recognition~~IMPACT OF COVID-19	9
Note 4.	REVENUE RECOGNITION	11
Note 5.	NET LOSS PER SHARE	11
Note 6.	FAIR VALUE	12
Note 7.	PROPERTY AND EQUIPMENT, NET	13

Note 4.8.	~~Net Loss Per Share~~LEASES	13
Note 9.	ASSET IMPAIRMENT	13
Note 5.10.	~~Fair Value~~RABBI TRUST ASSETS	14
Note 11.	INCOME TAXES	14
Note 6.12.	~~Property and Equipment, Net~~BORROWINGS	15

Note 7.13.	~~Leases~~	15

~~Note 8.~~	~~Income Taxes~~SHARE-BASED COMPENSATION	16
Note 14.	DERIVATIVE INSTRUMENTS	18
Note 9.15.	~~Share-based Compensation~~	17

~~Note 10.~~	~~Derivative Instruments~~	19

~~Note 11.~~	~~Accumulated Other Comprehensive Loss~~ACCUMULATED OTHER COMPREHENSIVE LOSS	20

Note ~~12.~~16.	~~Segment Reporting~~	20

~~Note 13.~~	~~Subsequent Events~~SEGMENT REPORTING	21
Note 17.	FLAGSHIP STORE EXIT (BENEFITS) CHARGES	22

Table of Contents

~~ABERCROMBIE~~Abercrombie & ~~FITCH CO.~~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 ~~wholly-owned~~Company-owned store and ~~direct-to-consumer~~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~~men, women and ~~Kids~~kids under the Hollister, Abercrombie & Fitch and abercrombie kids ~~brands.The~~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 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, as was the case for the year ended February 3, 2018.~~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	Year ended	Number of weeks
~~Fiscal 2017~~	~~February 3, 2018~~	53
~~Fiscal 2018~~	~~February 2, 2019~~	52
Fiscal 2019	February 1, 2020	52
Fiscal 2020	January 30, 2021	52

Interim financial statements

The Condensed Consolidated Financial Statements as of May ~~4, 2019,~~2, 2020, and for the thirteen week periods ended May ~~4, 2019~~2, 2020 and May ~~5, 2018,~~4, 2019, 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 (“~~U.S.~~ GAAP”).

In the opinion of management, the accompanying Condensed Consolidated Financial Statements reflect all adjustments (which are of a normal recurring nature) necessary to state fairly, in all material respects, the financial position, results of operations and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for Fiscal ~~2019.~~2020.

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Use of estimates

The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. Due to the inherent uncertainty involved with estimates, actual results may differ. The extent to which the current outbreak of 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 length or frequency of store closures, and the extent to which COVID-19 will impact worldwide macroeconomic conditions including interest rates, the speed of the anticipated recovery, and governmental, business and consumer reactions to the pandemic. The Company’s assessment of these, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

Recent accounting pronouncements

The Company reviews recent accounting pronouncements on a quarterly basis and has excluded discussion of those not applicable to the Company and those that did not have, or are not expected to have, a material impact on the Company’s consolidated financial statements. ~~The following table provides a brief description of certain recent accounting pronouncements the Company has adopted.~~



~~Accounting Standards Update (ASU)~~	~~Description~~	~~Date of adoption~~	~~Effect on the financial statements or other significant matters~~
~~ASU 2016-02,~~ ~~Leases~~	~~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.	~~February 3, 2019~~	~~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:~~ Ÿ~~the package of practical expedients which, among other things, allowed the Company tocarry forward historical lease classification for leases existing before the date of adoption; and~~ Ÿ~~to combine lease and nonlease components for leases existing before the date of adoption, as well as for any new leases.~~ ~~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 Condensed Consolidated Statements of Operations and Comprehensive Loss for the thirteen weeks ended May 4, 2019.~~ 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.~~
~~ASU 2017-12,~~ ~~Derivatives and Hedging — Targeted Improvements to Accounting for Hedging Activities~~	~~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.	~~February 3, 2019~~	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 weeks ended May 4, 2019, and is not expected to have a significant impact on the Company’s consolidated financial statements for Fiscal 2019.
~~ASU 2018-15.~~ ~~Intangibles — Goodwill and Other —Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract~~	~~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 is now the same criteria applied to internal software development costs in order to assess eligibility for deferral.	~~February 3, 2019~~	~~The Company early adopted this standard on a prospective basis and comparative periods have not been restated.~~ ~~The adoption of this standard did not have a significant impact on the Company’s Condensed Consolidated Financial Statements for the thirteen weeks ended May 4, 2019.~~ ~~The Company expects to capitalize up to $10 million of SaaS implementation costs in Fiscal 2019.~~

~~Table of Contents~~

~~The following table provides the impact from adoption of the new lease accounting standard on the Company’s Condensed Consolidated Balance Sheet:~~

(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.

~~Table of Contents~~

The Company’s significant accounting policies as of May 4, 2019 have not changed materially from those disclosed 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, with the exception of those discussed below which have been updated to reflect new accounting standards adopted in Fiscal 2019.

~~Leases~~

The Company determines if an arrangement is a lease at inception and 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.

As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate. 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 has elected to combine lease and nonlease components for all leases existing before the adoption of the new lease accounting standard, as well as for any new leases.~~

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

~~Lease payments made prior to the lease commencement date;~~

Incentives from landlords received by the Company for signing a lease, including construction allowances or deferred lease credits paid to the Company by landlords towards construction and tenant improvement costs, which are presented as a reduction to the right-of-use asset recorded;

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

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

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

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

Costs expected to be incurred to return a leased asset to its original condition, also referred to as asset retirement obligations, which are classified within other liabilities on the 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 on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss);

Variable payments related to nonlease components, such as taxes, insurance, and maintenance costs, the expense of which is recognized in the period incurred in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss); and

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

~~Table of Contents~~

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.~~

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. In addition, the Company does not have any sublease arrangements with any related party or third-party.

~~Refer to Note 7, “LEASES~~.”

~~Derivative instruments~~

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

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

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

The Company uses derivative instruments, primarily forward contracts designated as cash flow hedges, to hedge the foreign currency exchange rate exposure associated with forecasted foreign-currency-denominated intercompany inventory transactions with foreign subsidiaries before inventory is sold to third parties. Fluctuations in exchange rates will either increase or decrease the Company’s intercompany equivalent cash flows and affect the Company’s U.S. Dollar earnings. Gains or losses on the foreign currency exchange forward contracts that are used to hedge these exposures are expected to partially offset this variability. Foreign currency exchange forward contracts represent agreements to exchange the currency of one country for the currency of another country at an agreed upon settlement date. These forward contracts typically have a maximum term of twelve months. The conversion of the inventory to cost of sales, exclusive of depreciation and amortization, will result in the reclassification of related derivative gains and losses that are reported in accumulated other comprehensive loss (“AOCL”) into earnings on the Condensed Consolidated Balance Sheets.

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

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

~~Refer to Note 10, “DERIVATIVE INSTRUMENTS~~.”

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Condensed Consolidated Statements of Cash Flows reconciliation

The following table provides a reconciliation of cash and equivalents and restricted cash and equivalents ~~which is recorded in other assets on the Condensed Consolidated Balance Sheets,~~ to the amounts shown on the Condensed Consolidated Statements of Cash ~~Flows.~~Flows:



(in thousands)	Location	May 2, 2020		February 1, 2020		May 4, 2019		February 2, 2019
Cash and equivalents	Cash and equivalents	$	703,989	$	671,267	$	586,133	$	723,135
Long-term restricted cash and equivalents	Other assets	18,286		18,696		21,548		22,694
Short-term restricted cash and equivalents	Other current assets	—		2,301		—		—
Cash and equivalents and restricted cash and equivalents		$	722,275	$	692,264	$	607,681	$	745,829

(in thousands) May 4, 2019 February 2, 2019 May 5, 2018 February 3, 2018
Cash and equivalents $ 586,133
$ 723,135
$ 591,960
$ 675,558
Restricted cash and equivalents 21,548
22,694
22,722
22,397
Cash and equivalents and restricted cash and equivalents $ 607,681
$ 745,829
$ 614,682
$ 697,955

3. ~~REVENUE RECOGNITION~~IMPACT OF COVID-19

~~Contract liabilities~~Recent developments

As a result of COVID-19, in January 2020, the Company began to experience business disruptions in the Asia-Pacific (“APAC”) region, including the temporary closure of stores in China and the surrounding area, modified operating hours in certain stores that remained open, and a decline in traffic. In late 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. The Company is monitoring and reacting to the COVID-19 situation on a daily basis, including by conforming to local governments’ guidance and recommending associates who are able to perform their role remotely to do so.

In mid-March 2020, with the well-being of the Company’s customers, associates and business partners in mind, the Company temporarily closed its Company-operated stores across brands in North America and the EMEA region. The Company began to reopen these stores on a rolling basis beginning in late April 2020. The Company has experienced sales productivity for reopened stores of approximately 80% and 60% for the U.S. and the EMEA region, respectively, since their reopenings as compared to last year’s levels. The majority of the Company’s stores in the APAC region have also reopened, although many with temporarily reduced operating hours. The Company plans to follow the guidance of local governments to determine when it can reopen remaining stores and to evaluate whether further store closures will be necessary. As of June 5, 2020, approximately 58% of Company-operated stores were open.

The ~~following table details contract liabilities representing unearned~~Company’s digital operations across brands have continued to serve the Company’s customers during this unprecedented period of temporary store closures. The Company experienced 25% digital sales growth for the first quarter of Fiscal 2020 as compared to the first quarter of Fiscal 2019, with month-over-month acceleration in digital sales growth since temporary store closures were enacted in mid-March and through the Company's most recent fiscal month of May.

The Company has seen, and may continue to see, material adverse impacts as a result of COVID-19. Current circumstances are dynamic and future impacts, including the duration and impact on overall customer demand, are uncertain.

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Impact of COVID-19 during the first quarter of Fiscal 2020

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 for the first quarter of Fiscal 2020 decreased approximately 34% as compared to the first quarter of Fiscal 2019. The year-over-year decline was primarily driven by temporary widespread store closures in response to COVID-19, partially offset by digital sales growth of approximately 25% to more than $275 million.

As a result of the continued effects of COVID-19 and the temporary closure of the Company’s stores, the Company recognized approximately $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 Loss during the first quarter of Fiscal 2020.

During the first quarter of Fiscal 2020, reductions in revenue have not been offset by proportional decreases in expense, as ~~of May 4, 2019, February 2, 2019, May 5, 2018~~the Company continued to incur store occupancy costs such as operating lease costs and ~~February 3, 2018:~~

(in thousands) May 4, 2019 February 2, 2019 May 5, 2018 February 3, 2018
Unearned revenue liabilities related to the Company’s gift card program $ 22,067
$ 26,062
$ 19,246
$ 28,939
Unearned revenue liabilities related to the Company’s loyalty programs $ 19,830
$ 19,904
$ 16,708
$ 15,965

~~For~~depreciation expense, and certain other costs such as compensation and administrative expenses, resulting in a negative effect on the relationship between the Company’s costs and revenues. During the thirteen weeks ended May ~~4, 2019 and May 5, 2018,~~2, 2020, the Company ~~recognized revenue~~suspended rent payments for a significant number of ~~approximately $15.3 million~~stores, and ~~$13.8 million, respectively, associated~~continues to engage with ~~gift card redemptions and gift card breakage.~~

~~For~~its landlords. In the ~~thirteen weeks ended May 4, 2019 and May 5, 2018,~~period during which rent was due, the Company reclassified related amounts from operating lease liability to accrued expenses, while continuing to recognize operating lease cost in the Condensed Consolidated Statement of Operations and Comprehensive 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 preliminary 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 first quarter of Fiscal 2020, the qualified payroll tax credits reduced payroll expenses by approximately $8.8 million on the Condensed Consolidated Statements of Operations and Comprehensive Loss, with $7.9 million of expected relief classified in receivables on the Condensed Consolidated Balance Sheet as of May 2, 2020. 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 ~~revenue of approximately $6.5 million and $7.2 million, respectively, associated with reward redemptions and breakage~~asset impairment charges related to the Company’s ~~loyalty~~right-of-use assets and property and equipment of $42.9 million during the first quarter of Fiscal 2020, 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 the establishment of deferred tax valuation allowances and other tax charges, adversely impacting results in the first quarter of Fiscal 2020 by approximately $90.9 million. Refer to Note 11, “INCOME TAXES,” for additional information.

Balance sheet, cash flow and liquidity

Throughout the first quarter of Fiscal 2020, the Company took 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) reducing and recadencing inventory receipts to better align inventory with expected market demand; (iii) significantly reducing expenses to better align operating costs with sales; and (iv) implementing various compensation actions related to the Company’s store and corporate associates, as well as A&F’s non-associate directors.

As a precautionary measure and to improve the Company’s cash position, in March 2020, the Company borrowed $210.0 million under its asset-based senior secured revolving credit facility and withdrew the majority of excess funds from the Company’s overfunded Rabbi Trust assets, which provided the Company with $50.0 million of additional cash. Refer to Note 12, “BORROWINGS,” and Note 10 “ RABBI TRUST ASSETS,” for additional information.

In addition, in response to COVID-19, in March 2020, the Company announced that it has temporarily suspended its share repurchase program and in May 2020, the Company announced that it has temporarily suspended its dividend program, in order to preserve liquidity and maintain financial flexibility. 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.

As of May 2, 2020, the Company had liquidity of $763.4 million as compared to $913.8 million as of February 1, 2020, comprising of cash and equivalents and actual incremental borrowing available to the Company under the Amended 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 Loss. For information regarding the disaggregation of revenue, refer to Note ~~12,~~16, “SEGMENT REPORTING.”

Contract liabilities

The following table details certain contract liabilities representing unearned revenue as of May 2, 2020, February 1, 2020, May 4, 2019 and February 2, 2019:



(in thousands)	May 2, 2020		February 1, 2020		May 4, 2019		February 2, 2019
Gift card liability	$	24,671	$	28,844	$	22,067	$	26,062
Loyalty program liability	$	18,814	$	23,051	$	19,830	$	19,904

The following table details recognized revenue associated with the Company’s gift card program and loyalty programs for the thirteen weeks ended May 2, 2020 and May 4, 2019:



	Thirteen Weeks Ended
(in thousands)	May 2, 2020		May 4, 2019
Revenue associated with gift card redemptions and gift card breakage	$	11,009	$	15,284
Revenue associated with reward redemptions and breakage related to the Company’s loyalty programs	$	5,709	$	6,518

4.5. NET LOSS PER SHARE

Net 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 loss per share attributable to A&F is as follows:


	Thirteen Weeks Ended				Thirteen Weeks Ended
(in thousands)	May 4, 2019		May 5, 2018		May 2, 2020		May 4, 2019
Shares of Common Stock issued	103,300		103,300		103,300		103,300
Weighted-average treasury shares	(36,760	)	(34,800	)	(40,759	)	(36,760	)
Weighted-average — basic shares	66,540		68,500		62,541		66,540
Dilutive effect of share-based compensation awards	—		—		—		—
Weighted-average — diluted shares	66,540		68,500		62,541		66,540
Anti-dilutive shares ⁽¹⁾	2,812		4,599		2,195		2,812

⁽¹⁾

Reflects the total number of shares related to outstanding share-based compensation awards that have been excluded from the computation of net 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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5.6. 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, were as follows:

Assets and Liabilities at Fair Value as of May 4, 2019
(in thousands) Level 1 Level 2 Level 3 Total
Assets:
Cash equivalents ⁽¹⁾
$ 10,149
$ 39,660
$ —
$ 49,809
Derivative instruments ⁽²⁾
—
2,508
—
2,508
Rabbi Trust assets ⁽³⁾
3
106,668
—
106,671
Restricted cash equivalents ⁽⁴⁾
10,114
4,571
—
14,685
Total assets $ 20,266
$ 153,407
$ —
$ 173,673

Liabilities:
Derivative instruments ⁽²⁾
$ —
$ 316
$ —
$ 316
Total liabilities $ —
$ 316
$ —
$ 316



	Assets at Fair Value as of May 2, 2020
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents ⁽¹⁾	$	265	$	23,571	$	—	$	23,836
Rabbi Trust assets ⁽²⁾	1		59,638		—		59,639
Restricted cash equivalents ⁽³⁾	6,298		8,050		—		14,348
Total assets	$	6,564	$	91,259	$	—	$	97,823



	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	$	—	$	58,672
Derivative instruments ⁽⁴⁾	—		1,969		—		1,969
Rabbi Trust assets ⁽²⁾	1		109,048		—		109,049
Restricted cash equivalents ⁽³⁾	9,765		4,601		—		14,366
Total assets	$	9,991	$	174,065	$	—	$	184,056

Liabilities:
Derivative instruments ⁽⁴⁾	$	—	$	1,460	$	—	$	1,460
Total liabilities	$	—	$	1,460	$	—	$	1,460

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⁾⁽³⁾	Level 1 assets consist of investments in U.S. treasury bills and money market funds. Level 2 assets consist of time deposits.


⁽⁴⁾	Level 2 assets and liabilities consist primarily of foreign currency exchange forward contracts.

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 long-term borrowings

The Company’s borrowings under the Company’s ~~credit facilities~~term loan facility 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)	May 2, 2020		February 1, 2020
Gross borrowings outstanding, carrying amount	$	233,250	$	233,250
Gross borrowings outstanding, fair value	$	219,255	$	233,979

(in thousands) May 4, 2019 February 2, 2019
Gross borrowings outstanding, carrying amount $ 253,250
$ 253,250
Gross borrowings outstanding, fair value $ 253,250
$ 252,933

~~No borrowings were outstanding under the Company’s senior secured revolving credit facility as of May 4, 2019 or February 2, 2019.~~

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7. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of:



(in thousands)	May 2, 2020			February 1, 2020
Property and equipment, at cost	$	2,751,471		$	2,744,967
Less: Accumulated depreciation and amortization	(2,096,687		)	(2,079,677		)
Property and equipment, net	$	654,784		$	665,290

(in thousands) May 4, 2019 February 2, 2019
Property and equipment, at cost $ 2,740,339
$ 2,829,250
Less: Accumulated depreciation and amortization (2,106,653 ) (2,134,395 )
Property and equipment, net $ 633,686
$ 694,855

~~The Company incurred store asset~~Refer to Note 9, “ASSET IMPAIRMENT,” for details related to property and equipment impairment charges ~~of $1.7 million and $1.1 million for~~incurred during the thirteen weeks ended May ~~4, 2019,~~2, 2020 and May ~~5, 2018, respectively.~~4, 2019.

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.~~

7.8. 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.

During the thirteen weeks ended May 2, 2020, the Company suspended rent payments for a significant number of stores, and continues to engage with its landlords. In the period during which rent was due, the Company reclassified related amounts from operating lease liability to accrued expenses, while continuing to recognize operating lease cost in the Condensed Consolidated Statement of Operations and Comprehensive Loss.

The following table provides a summary of the Company’s operating lease costs for the thirteen weeks ended May 2, 2020 and May 4, 2019:


			Thirteen Weeks Ended
(in thousands)	May 4, 2019		May 2, 2020		May 4, 2019
Single lease cost ⁽¹⁾	$	92,274	$	93,492	$	92,274
Variable lease cost ⁽²⁾	42,845		27,901		42,845
Operating lease right-of-use asset impairment ⁽³⁾			35,008		—
Total operating lease cost	$	135,119	$	156,401	$	135,119


⁽¹⁾	Includes amortization and interest expense associated with operating lease right-of-use assets and 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.

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 May 4, 2019:



⁽³⁾	~~May 4, 2019~~
~~Weighted-average remaining~~ Refer to Note 9, “ASSET IMPAIRMENT,” for details related to operating lease ~~term (years)~~	~~6.2~~
~~Weighted-average discount rate~~	~~5.4~~	%right-of-use asset impairment charges.

~~Table of Contents~~

~~The following table provides a maturity analysis of the Company’s operating lease liabilities, based on undiscounted cash flows, as of May 4, 2019:~~

(in thousands)
Fiscal 2019 (excluding the thirteen weeks ended May 4, 2019) $ 265,232
Fiscal 2020 328,707
Fiscal 2021 281,713
Fiscal 2022 233,274
Fiscal 2023 189,987
Fiscal 2024 and thereafter 466,402
Total undiscounted operating lease payments $ 1,765,315
Less: Imputed interest (279,820 )
Present value of operating lease liabilities $ 1,485,495

As of May ~~4, 2019,~~2, 2020, 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 ~~$21.1~~$2.6 million.

9. ASSET IMPAIRMENT

Asset impairment charges for the thirteen weeks ended May 2, 2020 and May 4, 2019 were as follows:



	Thirteen Weeks Ended
(in thousands)	May 2, 2020		May 4, 2019
Operating lease right-of-use asset impairment	$	35,008	$	—
Property and equipment asset impairment	7,920		1,662
Total asset impairment	$	42,928	$	1,662

Asset impairment charges for the thirteen weeks ended May 2, 2020 were principally the result of the impact of COVID-19 on store cash flows and were related to certain of the Company’s stores across brands, geographies and store formats. The impairment charge reduced the carrying value of these stores’ assets to their estimated fair value of approximately $127.9 million, including $118.8 million related to operating lease right-of-use assets.

Asset impairment charges for the thirteen weeks ended May 4, 2019, related to certain of the Company’s mall-based stores. The impairment charge reduced the carrying value of these stores’ assets to their estimated fair value of approximately $2.8 million, all of which related to operating lease right-of-use assets.

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10. RABBI TRUST ASSETS

As ~~reported under~~a precautionary measure and to preserve liquidity in light of the ~~previous accounting standard,~~circumstances surrounding COVID-19, during the thirteen weeks ended May 2, 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 ~~table provides a summary of operating lease commitments, including leasehold financing obligations, under noncancelable leases~~ as of May 2, 2020 and February ~~2, 2019:~~1, 2020:

(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



(in thousands)	May 2, 2020		February 1, 2020
Trust-owned life insurance policies (at cash surrender value)	$	59,638	$	109,048
Money market funds	1		1
Rabbi Trust assets	$	59,639	$	109,049

Realized gains resulting from the change in cash surrender value of the Rabbi Trust assets for the thirteen weeks ended May 2, 2020 and May 4, 2019 were as follows:



	Thirteen Weeks Ended
(in thousands)	May 2, 2020		May 4, 2019
Realized gains related to Rabbi Trust assets	$	590	$	791

8.11. 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 factors include variability in the pre-tax jurisdictional mix of earnings, changes in how the Company does business including entering into new businesses or geographies, changes in foreign currency exchange rates, changes in ~~law,~~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 are excluded from the overall computation of estimated annual effective tax rate and no tax benefit 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 the first quarter of Fiscal 2020

The Company’s effective tax rate for the first quarter of Fiscal 2020 was impacted by $90.9 million of adverse tax impacts, ultimately giving rise to income tax expense on a consolidated pre-tax loss. Further details regarding these adverse tax impacts are as follows:

The Company ~~incurred $1.1~~anticipates pre-tax losses for the 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 $212.0 million of pre-tax losses during the first quarter of Fiscal 2020, resulting in an adverse tax impact of $56.6 million.

The Company recognized discrete charges of $34.3 million related to the establishment of valuation allowances and other tax charges in certain jurisdictions during the thirteen weeks ended May 2, 2020, principally as a result of the significant adverse impacts of COVID–19. These charges related to valuation allowances recognized by the Company of $10.5 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 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 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 other 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 discrete income tax benefits and charges related to share-based compensation awards during the thirteen weeks ended May 4, 2019.

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12. BORROWINGS

Asset-based revolving credit facility

On August 7, 2014, the Company, through its subsidiary Abercrombie & Fitch Management Co. (“A&F Management”) as 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, the Company, through its subsidiary A&F Management, entered into a Second Amendment to Credit Agreement (the “ABL Second Amendment”), amending and extending the maturity date 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 revolving credit facility of up to $400 million (the “Amended ABL Facility”).

As a precautionary measure and to improve the Company’s 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 Amended ABL Facility. Borrowings under the Amended ABL Facility as of May 2, 2020 and February 1, 2020 were as follows:



(in thousands)	May 2, 2020		February 1, 2020
Short-term portion of borrowings, gross at carrying amount	$	210,000	$	—

As of May 2, 2020, the interest rate on borrowings under the Amended ABL Facility was 1.82%. The Amended ABL Facility will mature on October 19, 2022.

As of May 2, 2020, the Company had availability under the Amended ABL Facility of $89.4 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 Amended ABL Facility, actual incremental borrowing available to the Company under the Amended ABL Facility was $59.4 million as of May 2, 2020.

The provisions under the credit agreement applicable to the Amended ABL Facility have not changed from those described in Note 12, “BORROWINGS,” in 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 2019.

Term loan facility

On June 22, 2018, A&F, through A&F Management, entered into the Second Amendment to Term Loan Credit Agreement (the “Term Loan Second Agreement”), which served to reprice the Term Loan Facility. As permitted under the credit agreement applicable to the Term Loan Facility, among other things, the Term Loan Second Amendment provided for the issuance by A&F Management of refinancing term loans in an aggregate principal amount of $253.3 million in exchange for the term loans then outstanding under the Term Loan Facility, which resulted in the reduction of the applicable margins for term loans by 0.25%.

Additional details on borrowings under the Term Loan Facility as of May 2, 2020 and February 1, 2020 are as follows:



(in thousands)	May 2, 2020			February 1, 2020
Long-term portion of borrowings, gross at carrying amount	$	233,250		$	233,250
Unamortized discount	(296		)	(355		)
Unamortized fees	(776		)	(932		)
Long-term portion of borrowings, net	232,178			231,963
Less: short-term portion of borrowings, net	—			—
Long-term portion of borrowings, net	$	232,178		$	231,963

The interest rate on borrowings under the Term Loan Facility was 4.50% as of May 2, 2020. The Term Loan Facility will mature on August 7, 2021.

The provisions under the credit agreement applicable to the Term Loan Facility have not changed from those described in Note 12, “BORROWINGS,” in 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 2019.

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Representations, warranties and covenants

The Credit Facilities contain various representations, warranties and restrictive covenants that, among other things and subject to specified exceptions, restrict the ability of A&F and its subsidiaries to incur indebtedness (including guarantees), grant liens, make investments, pay dividends or distributions with respect to capital stock, make prepayments on other indebtedness, engage in mergers, dispose of certain assets or change the nature of their business. In addition, excess availability equal to the greater of 10% of the loan cap or $30 million must be maintained under the Amended ABL Facility. The Credit Facilities do not otherwise contain financial maintenance covenants.

Both Credit Facilities contain certain affirmative covenants, including reporting requirements such as delivery of financial statements, certificates and notices of certain events, maintaining insurance and providing additional guarantees and collateral in certain circumstances.

The Company was in compliance with the covenants under the Credit Facilities as of May 2, 2020.

13. SHARE-BASED COMPENSATION

Financial statement impact

The following table details share-based compensation expense and the related income tax benefit for the thirteen weeks ended May 2, 2020 and May 4, ~~2019, primarily~~2019:



	Thirteen Weeks Ended
(in thousands)	May 2, 2020		May 4, 2019
Share-based compensation expense	$	5,162	$	2,632
Income tax benefit associated with share-based compensation expense recognized ⁽¹⁾	$	—	$	550


⁽¹⁾	No income tax benefit was recognized related to share-based compensation expense during the thirteen weeks ended May 2, 2020 due to the U.S. being a loss jurisdiction.

The following table details discrete income tax benefits and charges related to share-based compensation awards during the thirteen weeks ended May 2, 2020 and May 4, 2019:



	Thirteen Weeks Ended
(in thousands)	May 2, 2020		May 4, 2019
Income tax discrete benefits realized for tax deductions related to the issuance of shares ⁽¹⁾	$	—	$	1,239
Income tax discrete charges realized upon cancellation of stock appreciation rights ⁽¹⁾	—		(165		)
Total income tax discrete benefits related to share-based compensation awards	$	—	$	1,074


⁽¹⁾	No income tax benefits or charges related to these items were recognized during the thirteen weeks ended May 2, 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 ~~certain share-based compensation awards. The Company incurred $8.2 million of discrete non-cash income tax charges~~stock appreciation rights for the thirteen weeks ended May ~~5, 2018, primarily related to the expiration of certain share-based compensation awards.~~2, 2020 and May 4, 2019:



	Thirteen Weeks Ended
(in thousands)	May 2, 2020		May 4, 2019
Employee tax withheld upon issuance of shares ⁽¹⁾	$	5,323	$	6,288


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

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~~9. SHARE-BASED COMPENSATION~~

~~Financial statement impact~~

The Company recognized share-based compensation expense of $2.6 million and $4.8 million for the thirteen weeks ended May 4, 2019 and May 5, 2018, respectively. The Company recognized tax benefits associated with share-based compensation expense of $0.5 million and $0.9 million for the thirteen weeks ended May 4, 2019 and May 5, 2018, respectively.

Restricted stock units

The following table summarizes activity for restricted stock units for the thirteen weeks ended May ~~4, 2019:~~2, 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	1,646,771		7.29		—		—		—		—
Adjustments for performance achievement	—		—		38,381		11.37		134,122		11.79
Vested	(639,921	)	18.00		(478,728	)	9.58		(350,447	)	11.79
Forfeited	(12,881	)	19.99		(817	)	17.56		—		—
Unvested at May 2, 2020 ⁽²⁾	2,670,800		$	11.81	305,892		$	22.39	205,459		$	34.90

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 617,986
23.42
230,464
23.05
115,238
36.24
Adjustments for performance achievement —
—
(90,616 ) 24.06
(72,497 ) 28.20
Vested (629,090 ) 17.44
—
—
(18,125 ) 28.20
Forfeited (55,590 ) 16.12
(4,903 ) 22.94
—
—
Unvested at May 4, 2019 1,953,336
$ 18.67
936,472
$ 14.88
460,586
$ 23.63

⁽¹⁾

Includes ~~370,616~~79,028 unvested restricted stock units as of May ~~4, 2019,~~2, 2020, 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.

⁽²⁾

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. 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.

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.

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. Unrecognized compensation expense presented excludes the effect of potential forfeitures, and will be adjusted for actual forfeitures as they occur.

~~As of May 4, 2019, there was $32.5 million, $8.6 million and $7.3 million of total~~following table details unrecognized compensation cost ~~related to service-based, performance-based~~ and ~~market-based restricted stock units, respectively. The unrecognized compensation cost is~~the remaining weighted-average period these costs are expected to be recognized ~~over a remaining weighted-average period of 17 months, 14 months and 15 months~~ for ~~service-based, performance-based and market-based~~ restricted stock units ~~respectively.~~

~~The actual tax benefit realized for tax deductions related to the issuance~~as of ~~shares associated with restricted stock units vesting was $4.0 million and $3.4 million for the thirteen weeks ended~~ May ~~4, 2019 and May 5, 2018, respectively.~~

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 was $6.3 million and $5.0 million for the thirteen weeks ended May 4, 2019 and May 5, 2018, respectively, and is classified within other financing activities on the Condensed Consolidated Statements of Cash Flows.

2, 2020:

~~Table of Contents~~



(in thousands)	Service-based Restricted Stock Units		Performance-based Restricted Stock Units		Market-based Restricted Stock Units
Unrecognized compensation cost	$	28,275	$	161	$	3,308
Remaining weighted-average period cost is expected to be recognized (years)	1.4		0.1		0.9

Additional information pertaining to restricted stock units for the thirteen weeks ended May ~~4, 2019~~2, 2020 and May ~~5, 2018~~4, 2019 follows:


(in thousands)	May 4, 2019		May 5, 2018		May 2, 2020		May 4, 2019
Service-based restricted stock units:
Total grant date fair value of awards granted	$	14,473	$	14,627	$	12,005	$	14,473
Total grant date fair value of awards vested	10,971		10,774		$	11,519	$	10,971

Performance-based restricted stock units:
Total grant date fair value of awards granted	$	5,312	$	3,026	$	—	$	5,312
Total grant date fair value of awards vested	—		—		$	4,586	$	—

Market-based restricted stock units:
Total grant date fair value of awards granted	$	4,176	$	4,784	$	—	$	4,176
Total grant date fair value of awards vested	511		137		$	4,132	$	511

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No market-based restricted stock units were granted during the thirteen weeks ended May 2, 2020. The weighted-average assumptions used for market-based restricted stock units in the Monte Carlo simulation during the thirteen weeks ended May 4, 2019 ~~and May 5, 2018~~ were as follows:


	May 4, 2019			May 5, 2018			May 4, 2019
Grant date market price	$	25.34		$	23.59		$	25.34
Fair value	$	36.24		$	33.69		$	36.24
Assumptions:
Price volatility	57		%	54		%	57		%
Expected term (years)	2.9			2.9			2.9
Risk-free interest rate	2.2		%	2.4		%	2.2		%
Dividend yield	3.2		%	3.4		%	3.2		%
Average volatility of peer companies	40.0		%	37.4		%	40.0		%
Average correlation coefficient of peer companies	0.2407			0.2709			0.2407

Stock appreciation rights

The following table summarizes stock appreciation rights activity for the thirteen weeks ended May ~~4, 2019:~~2, 2020:

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 (52,725 ) 33.96

Outstanding at May 4, 2019 945,679
$ 38.75
$ 2,217,851
3.4
Stock appreciation rights exercisable at May 4, 2019 936,341
$ 38.93
$ 2,126,591
3.4
Stock appreciation rights expected to become exercisable in the future as of May 4, 2019 8,989
$ 20.72
$ 87,773
6.3



	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	—		—
Exercised	—		—
Forfeited or expired	(162,475	)	44.86
Outstanding at May 2, 2020	634,250		$	38.84	$	—	2.6
Stock appreciation rights exercisable at May 2, 2020	634,250		$	38.84	$	—	2.6
Stock appreciation rights expected to become exercisable in the future as of May 2, 2020	—		$	—	$	—	0.0

~~As of~~No stock appreciation rights were exercised during the thirteen weeks ended May ~~4, 2019, total unrecognized compensation cost related~~2, 2020. Additional information pertaining to stock appreciation rights ~~was insignificant and is expected to be recognized over a weighted-average period of 3 months.~~

~~The grant date fair value of stock appreciation rights that vested during~~for the thirteen weeks ended May 4, 2019 ~~and May 5, 2018 was $2.4 million and $0.9 million, respectively.~~

follows:



(in thousands)	May 4, 2019
Total grant date fair value of awards exercised	$	2,379

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~~10.~~14. DERIVATIVE INSTRUMENTS

AsThe 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 ~~May 4, 2019, the~~these exposures. The Company ~~had outstanding the following~~does not use forward contracts to engage in currency speculation and does not enter into derivative financial instruments for trading purposes.

The Company uses derivative instruments, primarily foreign currency exchange forward contracts ~~that were entered into~~designated as cash flow hedges, to hedge ~~either a portion, or all, of~~the foreign currency exchange rate exposure associated with forecasted foreign currency denominated intercompany inventory sales to foreign subsidiaries and the ~~resulting~~related settlement of the foreign currency denominated intercompany ~~accounts receivable,~~receivables. Fluctuations in foreign currency exchange rates will either increase or ~~both:~~

(in thousands)
Notional Amount ⁽¹⁾
Euro $ 61,003
British pound $ 28,562
Canadian dollar $ 11,890
Japanese yen $ 6,654


⁽¹⁾	~~Amounts reported are~~decrease the Company’s intercompany equivalent cash flows and affect the Company’s U.S. Dollar earnings. Gains or losses on the ~~U.S. Dollar notional amounts outstanding as of May 4, 2019.~~

~~As of May 4, 2019,~~ foreign currency exchange forward contracts that ~~were entered into~~are used to hedge ~~foreign-currency-denominated~~these exposures are expected to partially offset this variability. Foreign currency exchange forward contracts represent agreements to exchange the currency of one country for the currency of another country at an agreed upon settlement date. These foreign currency exchange forward contracts typically have a maximum term of twelve months. The sale of the inventory to the Company’s customers will result in the reclassification of related derivative gains and losses that are reported in accumulated other comprehensive loss (“AOCL”) into earnings.

The Company also uses foreign currency exchange forward contracts to hedge certain foreign–currency–denominated net monetary ~~assets~~assets/liabilities. Examples of monetary assets/liabilities include cash balances, receivables and payables. Fluctuations in foreign currency exchange rates result in transaction gains or losses being recorded in earnings, as U.S. GAAP requires that monetary assets/liabilities ~~were as follows:~~be remeasured at the spot exchange rate at quarter–end or upon settlement. The Company has chosen not to

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(in thousands)
Notional Amount ⁽¹⁾
Chinese yuan $ 22,218
Japanese yen $ 896


⁽¹⁾	~~Amount reported is the U.S. Dollar notional amount outstanding as of May 4, 2019.~~

apply hedge accounting to these instruments because there are no differences in the timing of gain or loss recognition on the hedging instruments and the hedged items.

The Company did not have any outstanding foreign currency exchange forward contracts as of May 2, 2020. The location and amounts of derivative fair values of foreign currency exchange forward contracts on the Condensed Consolidated Balance ~~Sheets~~Sheet as of ~~May 4, 2019 and~~ February ~~2, 2019~~1, 2020 were as follows:



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

(in thousands) Location May 4,
2019 February 2,
2019 Location May 4,
2019 February 2,
2019
Derivatives designated as hedging instruments:
Foreign currency exchange forward contracts Other current assets $ 2,508
$ 2,162
Accrued expenses $ 258
$ 15
Derivatives not designated as hedging instruments:
Foreign currency exchange forward contracts Other current assets $ —
$ —
Accrued expenses $ 58
$ 317
Total $ 2,508
$ 2,162
$ 316
$ 332

~~Refer to Note 5, “FAIR VALUE~~,~~” for further discussion of the determination of the~~The fair value of derivative ~~instruments.~~instruments is valued using quoted market prices of the same or similar instruments, adjusted for counterparty risk.

~~The location~~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 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 extenuating circumstances leading to dedesignation, gains associated with these hedges at the time of dedesignation are deferred in AOCL until being reclassified into cost of goods sold, exclusive of depreciation and ~~amounts~~amortization when the originally forecasted transactions occur and the hedged items affect earnings. During the thirteen weeks ended May 2, 2020 and subsequent to the dedesignation of these hedges, these hedge contracts were settled.

Information pertaining to derivative gains ~~and~~or losses from foreign currency exchange forward contracts designated as cash flow hedging instruments for the thirteen weeks ended May ~~4, 2019~~2, 2020 and May ~~5, 2018 on the Condensed Consolidated Statements of Operations and Comprehensive Loss were as~~4, 2019 follows:

(in thousands) Thirteen Weeks Ended
Derivatives not designated as hedging instruments: Location May 4, 2019 May 5, 2018
Foreign currency exchange forward contracts gain Other operating income, net $ 275
$ 2,702



	Thirteen Weeks Ended
(in thousands)	May 2, 2020		May 4, 2019
Gain recognized in AOCL ⁽¹⁾	$	12,235	$	2,263
Gain reclassified from AOCL into cost of sales, exclusive of depreciation and amortization ⁽²⁾	$	3,370	$	2,541

Gain Recognized in AOCL on Derivative Contracts⁽¹⁾
Location
Gain (Loss) Reclassified from AOCL into Earnings ⁽²⁾
Thirteen Weeks Ended
(in thousands) May 4, 2019 May 5, 2018 May 4, 2019 May 5, 2018
Derivatives in cash flow hedging relationships:
Foreign currency exchange forward contracts $ 2,263
$ 8,607
Cost of sales, exclusive of depreciation and amortization $ 2,541
$ (5,072 )


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

⁽²⁾

~~The amount~~Amount represents gain reclassified from accumulated other comprehensive loss to cost of sales, exclusive of depreciation and amortization, on the ~~reclassification from AOCL into earnings~~Condensed Consolidated Statements of Operations and Comprehensive Loss when the hedged item affects earnings, which is when merchandise is converted to cost of sales, exclusive of ~~deprecation~~depreciation and amortization.

Substantially all of the unrealized ~~gains or losses related to designated cash flow hedges as of May 4, 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 weeks ended May 2, 2020 and May 4, 2019 follows:



	Thirteen Weeks Ended
(in thousands)	May 2, 2020		May 4, 2019
Gain recognized in other operating loss (income), net	$	742	$	275

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~~11.~~15. ACCUMULATED OTHER COMPREHENSIVE LOSS

~~The~~For the thirteen weeks ended May 2, 2020, the activity in accumulated other comprehensive loss ~~for the thirteen weeks ended May 4, 2019~~ was as follows:



	Thirteen Weeks Ended May 2, 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 (loss) income before reclassifications	(5,399		)	12,235			6,836
Reclassified gain from accumulated other comprehensive loss ⁽¹⁾	—			(3,370		)	(3,370		)
Other comprehensive (loss) income after reclassifications ⁽²⁾	(5,399		)	8,865			3,466
Ending balance at May 2, 2020	$	(115,366	)	$	9,946		$	(105,420	)

Thirteen Weeks Ended May 4, 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 (2,786 ) 2,263
(523 )
Reclassified from accumulated other comprehensive loss ⁽¹⁾
—
(2,541 ) (2,541 )
Tax effect —
225
225
Other comprehensive loss (2,786 ) (53 ) (2,839 )
Ending balance at May 4, 2019 $ (107,673 ) $ 2,382
$ (105,291 )


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


⁽²⁾	No tax effect was recognized during the thirteen weeks ended May 2, 2020 due to the U.S. being a loss jurisdiction.

~~The~~For the thirteen weeks ended May 4, 2019, the activity in accumulated other comprehensive loss ~~for the thirteen weeks ended May 5, 2018~~ was as follows:



	Thirteen Weeks Ended May 4, 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	(2,786		)	2,263			(523		)
Reclassified gain from accumulated other comprehensive loss⁽¹⁾	—			(2,541		)	(2,541		)
Tax effect	—			225			225
Other comprehensive loss after reclassifications	(2,786		)	(53		)	(2,839		)
Ending balance at May 4, 2019	$	(107,673	)	$	2,382		$	(105,291	)

Thirteen Weeks Ended May 5, 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 (8,339 ) 8,607
268
Reclassified from accumulated other comprehensive loss ⁽¹⁾
—
5,072
5,072
Tax effect —
(1,419 ) (1,419 )
Other comprehensive (loss) income (8,339 ) 12,260
3,921
Ending balance at May 5, 2018 $ (93,286 ) $ 2,153
$ (91,133 )


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

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~~12.~~

16. SEGMENT REPORTING

The Company’s ~~two~~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 ~~one~~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 weeks ended May 2, 2020 and May 4, 2019 ~~and May 5, 2018.~~were as follows:



	Thirteen Weeks Ended
(in thousands)	May 2, 2020		May 4, 2019
Hollister	$	273,012	$	428,448
Abercrombie	212,347		305,524
Total	$	485,359	$	733,972

Thirteen Weeks Ended
(in thousands) May 4, 2019 May 5, 2018
Hollister $ 428,448
$ 423,628
Abercrombie 305,524
307,271
Total $ 733,972
$ 730,899

~~Table~~Net sales by geographic area are presented by attributing revenues to an individual country on the basis of ~~Contents~~

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 weeks ended May 2, 2020 and May 4, 2019 ~~and May 5, 2018.~~were as follows:



	Thirteen Weeks Ended
(in thousands)	May 2, 2020		May 4, 2019
U.S.	$	322,862	$	469,658
EMEA	112,654		173,944
APAC	32,335		65,576
Other	17,508		24,794
International	$	162,497	$	264,314
Total	$	485,359	$	733,972

Thirteen Weeks Ended
(in thousands) May 4, 2019 May 5, 2018
United States $ 469,658
$ 449,126
Europe 158,245
169,660
Other 106,069
112,113
Total $ 733,972
$ 730,899

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~~13. SUBSEQUENT EVENTS~~

17. FLAGSHIP STORE EXIT (BENEFITS) CHARGES

~~On May 22, 2019,~~

Global Store Network Optimization

Reflecting a continued focus on one of the Company’s key transformation initiatives ‘Global Store Network Optimization,’ the Company determined that it will be ceasing operations of its SoHo Hollister flagship store in New York City, and expects to close this store in the second quarter of Fiscal 2019. In addition, on May 28, 2019, the Company exercised an option to terminate its Fukuoka, Japan A&F flagship store lease, and expects to close this store in the second half of Fiscal 2020. These actions represent important ongoing steps in the Company’s global store network optimization efforts as it continues to pivot away from its large format flagship stores and strives to open smaller, more productive omnichannel focused brand experiences.

As a result, ~~of these store closures,~~ the Company ~~expects to incur pre-tax net lease-related charges~~has closed certain of ~~$45 million during the second quarter of Fiscal 2019, primarily~~its flagship stores and may have additional closures as it executes against this strategy.

The Company recognizes impacts related to the ~~present value~~exit of ~~future~~its flagship stores in flagship store exit (benefits) charges on the Consolidated Statements of Operations and Comprehensive Loss. Details of the (benefits) charges incurred during the thirteen weeks ended May 2, 2020 and May 4, 2019 related to this initiative were as follows:



	Thirteen Weeks Ended
(in thousands)	May 2, 2020			May 4, 2019
Asset disposals and other store-closure costs ⁽¹⁾	$	—		$	(12	)
Employee severance and other employee transition costs	(543		)	1,756
Total flagship store exit (benefits) charges	$	(543	)	$	1,744


⁽¹⁾	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 ~~these~~closed flagship stores ~~that will be due subsequent to their closure. The Company expects future~~are reflected within short-term and long-term operating lease liabilities on the Condensed Consolidated Balance Sheets. These payments ~~associated with these stores of approximately $105 million, which~~ are ~~expected~~scheduled to be paid ~~subsequent to the dates of the respective actions~~ through the fiscal year ending January 30, 2029 (“Fiscal 2028”)~~. These future lease payments~~ and are not expected to exceed $15 million in aggregate in any fiscal year.

~~The estimated amounts for the charges and future cash expenditures described above are preliminary and are dependent on~~As the Company ~~fulfilling certain obligations required pursuant to the related lease agreements. Actual amounts~~continues its ‘Global Store Network Optimization’ efforts, it may ~~be materially different from these estimates and the Company may also~~ incur ~~additional~~incremental charges or future cash expenditures not currently contemplated due to events that may occur as a result of, or that are associated with, ~~these~~previously announced flagship store ~~closures.~~closures and flagship store closures that have not yet been finalized. At this time, the Company is not able to quantify the amount of incremental charges or future 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 weeks ended May ~~4, 2019~~2, 2020 and May ~~5, 2018. In addition, this section discusses certain of management’s expectations for the upcoming fiscal year.~~4, 2019.


•	Results of Operations.This section provides an analysis of certain components of the Company’s Condensed Consolidated Statements of Operations and Comprehensive Lossfor the thirteen weeks ended May ~~4, 2019~~2, 2020 and May ~~5, 2018.~~4, 2019.

•

Liquidity and Capital Resources.This section provides a discussion of the Company’s financial condition, changes in financial condition and liquidity as of May ~~4, 2019,~~2, 2020, which includes (i) an analysis of financial condition as compared to February ~~2, 2019;~~1, 2020; (ii) an analysis of changes in cash flows for the thirteen weeks ended May ~~4, 2019~~2, 2020 as compared to the thirteen weeks ended May ~~5, 2018;~~4, 2019; and (iii) ~~and~~ an analysis of liquidity, including a discussion related to preserving liquidity during COVID-19, the availability under credit facilities, ~~payments of dividends,~~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 ~~unaudited~~ Condensed Consolidated Financial Statements, are ~~included in this Quarterly Report on Form 10-Q in “ITEM 1. FINANCIAL STATEMENTS~~.”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. ~~This section~~MD&A provides a discussion of certain financial measures ~~provided with MD&A~~ that have been determined to not be in accordance with ~~accounting principles generally accepted in the U.S. (“GAAP”),~~GAAP. This section includes certain reconciliations for non-GAAP financial measures and additional details on these financial measures, including information onas to why the Company believes the non-GAAP financial measures provided within MD&A are useful to investors.

~~Safe harbor statement~~The COVID-19 pandemic poses various risks to the Company, certain of which are detailed throughout the disclosures under the ~~Private Securities Litigation Reform Act~~heading “FORWARD-LOOKING STATEMENTS AND RISK FACTORS” in “ITEM 1A. RISK FACTORS” of ~~1995~~A&F’s Annual Report on Form 10-K for Fiscal 2019. Any one of these risks, or a combination of risks could result in further adverse impacts on the Company’s business, results of operations, financial condition and cash flows. In addition, 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 2019, 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:

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; and

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.

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 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

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.

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 regulatory or compliance landscape could have a material adverse impact on our business; and

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.

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.

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.

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OVERVIEW

Business summary

The Companyis a global multi-brand omnichannel specialty retailer, whose products are sold primarily through its ~~wholly-owned~~Company-owned store and ~~direct-to-consumer~~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~~men, women and ~~Kids~~kids under the Hollister, Abercrombie & Fitch and abercrombie kids ~~brands.The~~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, 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. ~~Fiscal years are designated in the Condensed Consolidated Financial Statements and notes by the calendar year in which the fiscal year commences.~~ All references herein to ~~“Fiscal 2019” represent~~ the ~~fifty-two-week~~Company’s fiscal ~~year that will end on February 1, 2020, and to “Fiscal 2018” represent the fifty-two-week fiscal year that ended February 2, 2019.~~years are as follows:



Fiscal year	Year ended	Number of weeks
Fiscal 2018	February 2, 2019	52
Fiscal 2019	February 1, 2020	52
Fiscal 2020	January 30, 2021	52

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

As a result of COVID 19, in January 2020, we began to experience business disruptions in the ~~lifetime~~APAC region, including the temporary closure of stores in China and the surrounding area, modified operating hours in certain stores that remained open, and a decline in traffic. In late February 2020, the situation escalated as the scope of COVID-19 worsened beyond the APAC region, with the U.S. and the 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 we have recommended associates who are able to perform their role remotely to do so. We are reacting to the COVID-19 situation 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.

In mid-March 2020, with the well-being of our ~~Company,~~customers, associates and business partners in mind, we ~~have taken strides~~temporarily closed our Company-operated stores across brands in North America and the EMEA region. We began to ~~transform our brands as consumer habits and shopping preferences change. We aim to keep pace with and anticipate our customers’ needs through~~reopen these stores on a test-and-learn mentality, which has been embedded throughout our organization. Our plans for long-term growth are centered around our strategic pillars 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~~

~~Fiscal 2019 is the second year of Phase II,~~ “~~Growing while Transforming,” which we expect to continue through Fiscal~~rolling basis beginning in late April 2020. We have ~~developed~~experienced sales productivity for reopened stores of approximately 80% and 60% for the U.S. and the EMEA region, respectively, since their reopenings as compared to last year’s levels. The majority of our stores in the APAC region have reopened, although many with temporarily reduced operating hours. We plan to follow the guidance of local governments to determine when we can reopen remaining stores and to evaluate whether further store closures will be necessary. As of June 5, 2020, approximately 58% of Company-operated stores were open.

We are following guidance from government and health authorities, and complying with the requirements, to put a range of precautionary measures in place, including:

Requiring associates to use face coverings;

Encouraging or requiring customers to use face coverings, in accordance with local government direction;

Conducting associate wellness checks in accordance with local government direction;

Enhancing cleaning routines;

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

Installing plexiglass barriers at checkout in some locations;

Encouraging contactless payment options, where available;

Opening fitting rooms where permissible, with additional cleaning and social distancing procedures;

Reducing hours in select locations;

Removing returned merchandise from the sales floor for a period of time; and

Continuing to offer in-store pickups for online orders at certain locations when selected during the online checkout.

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Our robust digital operations across brands have continued to serve our customers during this unprecedented period of temporary store closures as our distribution centers implemented enhanced cleaning and social distancing measures in order to remain operational. We experienced 25% digital sales growth for the first quarter of Fiscal 2020 as compared to the first quarter of Fiscal 2019, with month-over-month acceleration in digital sales growth since temporary store closures were enacted in mid-March. This growth has further accelerated in May. Despite the recent strength in digital sales, we have historically generated the majority of our revenue through stores and there can be no assurance that the current performance in the digital channel will continue.

We are focused on managing inventories and the impacts COVID-19 has had, and continues to have, on our global supply chain, including potential disruptions of product deliveries. We source the majority of our merchandise outside of the U.S. through arrangements with vendors primarily located in southeast Asia. In order to complete production, these vendors’ manufacturing factories are dependent on raw materials from fabric mills that are primarily located in the APAC region. We continue to collaborate with our third-party partners to mitigate significant delays in delivery of merchandise as certain factories are operating at a limited capacity. During the first quarter of Fiscal 2020, we reduced certain orders that were not already in production, delayed and recadenced deliveries and implemented various strategies to tightly manage inventories, including utilizing our ship-from-store capabilities in select locations to unlock in-store inventory.

We remain committed to, and confident in, our long-term vision and continue to evaluate opportunities to make progress against our key transformation initiatives while balancing the near-term challenges and unprecedented uncertainty presented by COVID-19. Our progress executing against the following key transformation initiatives ~~in order~~has created the foundation to ~~deliver on our previously disclosed Fiscal 2020 targets:~~allow us to quickly respond to COVID-19:

Optimizing our global store network;

Enhancing digital and omnichannel capabilities;

Increasing the speed and efficiency of our ~~concept-to-consumer~~concept-to-customer product life cycle by further investing in capabilities to position our 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.

We ~~are pleased~~entered this period of uncertainty with a healthy liquidity position and have taken and continue to take immediate, aggressive and prudent actions, including reevaluating all expenditures, to balance our ~~first quarter performance,~~short and long-term liquidity needs, in order to best position the business for our key stakeholders. We have taken and continue to take various actions to preserve liquidity and manage cash flows, including, but not limited to:

Partnering with ~~net sales up slightly despite~~merchandise and non-merchandise vendors in regards to payment terms;

Reducing and recadencing inventory receipts to better align inventory with expected market demand;

Reducing expenses to better align operating costs with sales;

Implementing various compensation actions related to our store and corporate associates, as well as our non-associate directors;

Borrowing $210.0 million under our Amended ABL Facility in March 2020 to improve our cash position;

Withdrawing $50.0 million from the overfunded Rabbi Trust assets in March 2020, which represented the majority of excess funds; and

Suspending our share repurchase program in March 2020 and suspending the dividend program in May 2020. We believe these suspensions to be temporary and plan to review throughout the year to determine, in light of facts and circumstances at that time, whether and when to reinstate these programs.

As of May 2, 2020 we had liquidity of $763.4 million as compared to $913.8 million as of February 1, 2020.

We have seen, and may continue to see, material adverse impacts from changes in foreign currency exchange rates. We delivered our seventh consecutive quarter of positive comparable sales, with growth in both Hollister and Abercrombie. During the first quarter, we saw operating loss margin improvement and a net loss reduction compared to last year, driven by top-line growth and operating expense leverage.

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

~~Net sales to be up in the range of 2% to 4%, driven by positive comparable sales and net new store contribution, partially offset by an adverse impact from changes in foreign currency exchange rates;~~

~~Comparable sales to be up low-single digits, on top of 3% last year;~~

~~Gross profit rate to be up slightly from the Fiscal 2018 rate of 60.2%, assuming no changes from the tariffs in place~~ as ~~of May 4, 2019;~~

Operating expense, excluding other operating income, to be up in the range of 4% to 5% from Fiscal 2018 adjusted non-GAAP operating expense of $2.03 billion, including net lease-related charges related to the flagship store actions discussed below of approximately $45 million. If not for the $45 million resulting from these actions, we would have expected operating expense to be consistent with previously issued expectations of up approximately 2% from Fiscal 2018 adjusted non-GAAP operating expense;

~~The effective tax rate to be in the mid 20s;~~

~~A weighted average diluted share count of approximately 68 million shares, excluding the effect of potential share buybacks; and~~

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

~~We remain on track for our Fiscal 2020 targets, which were previously disclosed at our 2018 Investor Day, including doubling our Fiscal 2017 adjusted non-GAAP operating income margin of 2.9%.~~

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~~Global store network optimization~~

Reflecting our continued focus on global store network optimization, during the second quarter of Fiscal 2019 we determined that we will be ceasing operations of our SoHo Hollister flagship store in New York City, and we exercised an option to terminate our Fukuoka, Japan A&F flagship store lease. We also announced that we have exercised an option to terminate our Milan, Italy A&F flagship store lease. These actions build on the completed closures of the Pedder Street, Hong Kong and Copenhagen, Denmark A&F flagship locations and represent important ongoing steps in the our global store network optimization efforts as we continue to pivot away from large format stores to smaller, omnichannel focused brand experiences.

~~Details related to the timing of these store closures are as follows:~~

~~Pedder Street, Hong Kong A&F flagship store closure was completed in the first quarter of Fiscal 2017.~~

~~Copenhagen, Denmark A&F flagship store closure was completed in the first quarter of Fiscal 2019.~~

~~SoHo Hollister flagship store in New York City is expected to close in the second quarter of Fiscal 2019.~~

~~Milan, Italy A&F flagship store is expected to close by the end of Fiscal 2019.~~

~~Fukuoka, Japan A&F flagship store is expected to close in the second half of Fiscal 2020.~~

As a result of COVID-19. Current circumstances are dynamic and future impacts, including the ~~SoHo~~duration and ~~Fukuoka store closures, we expect to incur pre-tax net lease-related charges of approximately $45 million during~~impact on overall customer demand, are uncertain.

It is possible that our preparations for the second quarter of Fiscal 2019, primarily related to the present value of future lease payments associated with these stores that will be due subsequent to their closure. We expect future lease payments associated with these stores of approximately $105 million, which are expected to be paid subsequent to the dates of the respective actions through the fiscal year ending January 30, 2029 (“Fiscal 2028”). These future lease paymentsevents listed above are not ~~expected~~adequate to ~~exceed $15 million in any fiscal year. The Copenhagen~~mitigate their impact, and ~~Milan store closures are not expected to result in significant charges in Fiscal 2019.~~

We plan to continue our global store network optimization efforts and expect to deliver approximately 85 new store experiences in Fiscal 2019 across brands, including approximately 40 new stores, approximately 25 remodeled stores and approximately 20 right-sizes. We also expect to close up to 40 stores in Fiscal 2019, primarily in the U.S., primarily 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 its other leases, and~~these events could ~~incur charges related to these actions.~~

~~Certain risks and challenges~~

There has been greater 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.

In May 2019, tariffs on certain imported merchandise from China to the U.S. increased from 10% to 25%. Our products affected by this increase include fashion accessories, handbags and hats, and we do not expect this increase to have a material impact onfurther adversely affect our business and results of ~~operations~~operations. For 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.

United Kingdom’s withdrawal from the European Union (“Brexit”)

In ~~addition, additional tariffs~~June 2016, the United Kingdom passed a referendum to recommend withdrawing from the European Union. Although the United Kingdom left the European Union in January 2020, the final terms of ~~up to 25% were proposed on certain other imported merchandise from China~~the United Kingdom’s withdrawal remain unclear. We believe 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.~~, including apparel and footwear. The imposition of these additional tariffs or retaliatory trade measures~~ Dollar over Fiscal 2018.

Upon withdrawal from the Europe Union in response to existing or future tariffs imposed, may have a material adverse effect on our business and results of operations, including an adverse effect on economic growth in both our domestic and international markets.

To mitigate this risk, 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. We believe we have a number of tools available to help further mitigate this risk and we continue to focus on the diversification of our global supply chain. For context, in Fiscal 2018, approximately 25% of our merchandise receipts were imported from China to the U.S. We continue to believe we have the ability to reduce this percentage to under 20% in Fiscal 2019.

~~In addition, the June 2016 decision by~~January 2020, the United Kingdom ~~to leave~~entered a 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 ~~continues~~will remain in place and it will continue to ~~result in~~follow the European Union's rules. It is not clear at this time what, if any, agreements will

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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 ~~consumer behavior, economic conditions and foreign currency exchange rates.~~during this time of transition. The ~~potential impacts of~~ United Kingdom’s withdrawal from the European Union ~~remain unclear and~~ could also adversely impact ~~certain~~other areas of our business, including, but not limited to, an increase in duties and delays in the delivery of merchandise from our Netherlands DCdistribution center to our ~~stores and direct-to-consumer~~ customers in the United Kingdom if trade barriers ~~materialize at ports of entry and departure.~~materialize. The ~~potential impacts of~~ United Kingdom’s withdrawal from the European Union could also adversely impact the operations of our ~~vendors.~~vendors and of our other third-party partners.

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ToIn order to mitigate ~~this risk,~~the risks associated with the United Kingdom’s withdrawal from the European Union, our team ~~has begun to proactively prepare for potential adverse impacts by~~is: collaborating across the organization ~~as well as~~and testing our systems; working with external partners to develop ~~the necessary~~ contingency ~~plans. We have also taken~~plans for potential adverse impacts; and taking actions to reduce, to the extent possible, the potential ~~material~~ impact of any incremental duty exposure.

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 business and results of operations. For ~~further~~ discussion of significant ~~risk factors~~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,” included in~~FACTORS” of A&F’s Annual Report on Form 10-K for Fiscal ~~2018.~~2019.

~~SUMMARY OF RESULTS~~Global Store Network Optimization

~~The table below summarizes~~A component of optimizing our ~~results~~global store fleet is pivoting away from large format flagship stores as we strive to open smaller, more productive omnichannel focused brand experiences. As a result, we have closed certain of ~~operations determined in accordance with GAAP~~our flagship stores and ~~non-GAAP financial measures,~~may have additional closures as we execute against this strategy. Although some of these closures may be completed through natural lease expirations, certain other of our leases include early termination options that can be exercised under specific conditions. We may also elect to exit or modify our other leases, and ~~other financial data for~~could incur charges related to these actions.

For context, at the ~~thirteen week periods ended May 4,~~beginning of Fiscal 2019, we had 19 flagship stores, and ~~May 5, 2018. Discussion on why~~as of the ~~Company believes that these non-GAAP financial measures~~end of the first quarter of Fiscal 2020, we had 15 flagship stores. Details related to recently closed flagship stores are ~~useful to investors is provided below under “NON-GAAP FINANCIAL MEASURES.”~~as follows:

Thirteen Weeks Ended
May 4, 2019 May 5, 2018
(in thousands, except change in net sales, comparable sales, gross profit rate, operating loss margin and per share amounts) GAAP
Non-GAAP ⁽¹⁾
GAAP
Non-GAAP ⁽¹⁾
Statements of operations data
Net sales $ 733,972

$ 730,899

Change in net sales 0 % 11 %
Comparable sales ⁽²⁾
1 % 5 %
Gross profit rate 60.5 % 60.5 %
Operating loss $ (27,258 ) $ (27,258 ) $ (42,203 ) $ (36,603 )
Operating loss margin (3.7 )% (3.7 )% (5.8 )% (5.0 )%
Net loss attributable to A&F $ (19,155 ) $ (19,155 ) $ (42,461 ) $ (38,402 )
Net loss per diluted share attributable to A&F $ (0.29 ) $ (0.29 ) $ (0.62 ) $ (0.56 )
Statements of cash flows data
Net cash used for operating activities $ (71,316 ) $ (16,171 )
Purchases of property and equipment $ (43,872 ) $ (23,700 )
Dividends paid $ (13,246 ) $ (13,642 )
Purchase of treasury stock $ —
$ (18,670 )



Brand ⁽¹⁾	Flagship location	Timing of store closure
Abercrombie & Fitch	Pedder Street, Hong Kong Special Administrative Region, China	First quarter of Fiscal 2017
Abercrombie & Fitch	Copenhagen, Denmark	First quarter of Fiscal 2019
Hollister	SoHo, New York City, U.S.	Second quarter of Fiscal 2019
Abercrombie	Milan, Italy	Fourth quarter of Fiscal 2019
abercrombie kids ⁽²⁾	London, United Kingdom	Fourth quarter of Fiscal 2019


⁽¹⁾	~~Refer to~~ “~~RESULTS OF OPERATIONS~~” ~~for details on excluded items.~~ 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.


⁽²⁾	~~Comparable sales are calculated on a constant currency basis~~The abercrombie kids store in London will be converted to corporate office space 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.~~ location will be utilized as our EMEA regional headquarters.

~~The table below provides certain components of the Company’s Condensed Consolidated Balance Sheets as of May 4, 2019 and February 2, 2019.~~

(in thousands) May 4, 2019 February 2, 2019
Cash and equivalents $ 586,133
$ 723,135
Borrowings, gross at carrying amount $ 253,250
$ 253,250
Inventories $ 432,350
$ 437,879

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~~STORE ACTIVITY~~

~~Store~~Additional details related to store count and gross square footage ~~by brand and geography for the thirteen weeks ended May 4, 2019 and May 5, 2018, respectively, were~~are as follows:

Hollister ⁽¹⁾

Abercrombie ⁽²⁾
Total Company
United States International United States International United States International Total
February 2, 2019 393
149
270
49
663
198
861
New 1
—
— —
1
—
1
Closed (1 ) —
(3 ) (1 ) (4 ) (1 ) (5 )
May 4, 2019 393
149
267
48
660
197
857
Gross square footage (in thousands):
May 4, 2019 2,656
1,231
1,991
625
4,647
1,856
6,503

Hollister ⁽¹⁾

Abercrombie ⁽²⁾
Total Company
United States International United States International United States International Total
February 3, 2018 394
144
285
45
679
189
868
New 1
—
—
—
1
—
1
Closed —
—
—
—
—
—
—
May 5, 2018 395
144
285
45
680
189
869
Gross square footage (in thousands):
May 5, 2018 2,685
1,200
2,206
619
4,891
1,819
6,710



	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	—	—	1	1	1	1	2
Permanently closed	(1)	(2)	(4)	—	(5)	(2)	(7)
May 2, 2020	390	153	253	53	643	206	849
New	1	1	—	2	1	3	4
Permanently closed	(5)	—	(1)	—	(6)	—	(6)
June 5, 2020	386	154	252	55	638	209	847
Number of stores currently open ⁽³⁾	215	103	137	39	352	142	494
Percent of stores currently open ⁽³⁾	56%	67%	54%	71%	55%	68%	58%
Gross square footage (in thousands):
May 2, 2020	2,594	1,244	1,812	615	4,406	1,859	6,265

⁽¹⁾

Locations with Gilly Hicks carveouts within Hollister stores are represented as a single store count. Excludes ~~nine~~10 international franchise stores as of May ~~4, 2019, eight international franchise stores~~2, 2020 and nine as of February ~~2, 2019, six international franchise~~1, 2020. Excludes 14 Company-operated temporary stores as of May ~~5, 2018,~~2, 2020 and ~~five international franchise stores~~16 as of February ~~3, 2018.~~1, 2020.

⁽²⁾

Abercrombie includes the ~~Company’s~~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~~eight international franchise stores as of May ~~4, 2019,~~2, 2020 and seven ~~international franchise stores~~ as of February ~~2, 2019, six international franchise~~1, 2020. Excludes four Company-operated temporary stores as of May ~~5, 2018,~~2, 2020 and ~~four international franchise stores~~eight as of February ~~3, 2018.~~

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~~RESULTS OF OPERATIONS~~

~~THIRTEEN WEEKS ENDED MAY 4, 2019 VERSUS MAY 5, 2018~~

~~Net sales~~

Thirteen Weeks Ended
May 4, 2019 May 5, 2018
(in thousands) Net Sales Net Sales $ Change % Change
Comparable
Sales ⁽¹⁾
Hollister $ 428,448
$ 423,628
$ 4,820
1% 2%
Abercrombie⁽²⁾
305,524
307,271
(1,747 ) (1)% 1%
Total company $ 733,972
$ 730,899
$ 3,073
0% 1%

United States $ 469,658
$ 449,126
$ 20,532
5% 4%
International 264,314
281,773
(17,459 ) (6)% (4)%
Total company $ 733,972
$ 730,899
$ 3,073
0% 1%


⁽¹⁾	~~Comparable sales are calculated on a constant currency basis. Refer to~~ “~~NON-GAAP FINANCIAL MEASURES,~~” ~~for further details on the comparable sales calculation.~~ 1, 2020.


⁽²⁾⁽³⁾	In response to COVID-19, the Company temporarily closed certain of its Company-operated stores. These figures relate to the number of stores open as of June 5, 2020. Stores that have reopened after being temporarily closed as a result of the COVID-19 pandemic may reflect modified operating hours.

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Summary of results

A summary of results for the thirteen weeks ended May 2, 2020 and May 4, 2019 follows:



	GAAP						Non-GAAP ⁽¹⁾
(in thousands, except change in net sales, gross profit rate, operating margin and per share amounts)	May 2, 2020			May 4, 2019			May 2, 2020			May 4, 2019
Thirteen Weeks Ended
Net sales	$	485,359		$	733,972
Change in net sales	(33.9		)%	0.4		%
Gross profit rate	54.4		%	60.5		%
Operating loss	$	(209,127	)	$	(27,258	)	$	(166,199	)	$	(27,258	)
Operating loss margin	(43.1		)%	(3.7		)%	(34.2		)%	(3.7		)%
Net loss attributable to A&F	$	(244,148	)	$	(19,155	)	$	(205,652	)	$	(19,155	)
Net loss per diluted share attributable to A&F	$	(3.90	)	$	(0.29	)	$	(3.29	)	$	(0.29	)


⁽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.”

Certain components of the Company’s Condensed Consolidated Balance Sheets as of May 2, 2020 and February 1, 2020 were as follows:



(in thousands)	May 2, 2020		February 1, 2020
Cash and equivalents	$	703,989	$	671,267
Gross short-term borrowings outstanding, carrying amount	$	210,000	$	—
Gross long-term borrowings outstanding, carrying amount	$	233,250	$	233,250
Inventories	$	426,594	$	434,326

Certain components of the Company’s Condensed Consolidated Statements of Cash Flows for the thirteen week periods ended May 2, 2020 and May 4, 2019 were as follows:



(in thousands)	May 2, 2020			May 4, 2019
Net cash used for operating activities	$	(90,776	)	$	(71,316	)
Purchases of property and equipment	$	(46,990	)	$	(43,872	)
Purchases of Common Stock	$	(15,172	)	$	—
Dividends paid	$	(12,556	)	$	(13,246	)
Proceeds from Amended ABL Facility borrowings	$	210,000		$	—

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RESULTS OF OPERATIONS

Net sales

The Company’s net sales by operating segment for the thirteen weeks ended May 2, 2020 and May 4, 2019 were as follows:



	Thirteen Weeks Ended
(in thousands)	May 2, 2020		May 4, 2019		$ Change			% Change
Hollister	$	273,012	$	428,448	$	(155,436	)	(36)%
Abercrombie⁽¹⁾	212,347		305,524		(93,177		)	(30)%
Total	$	485,359	$	733,972	$	(248,613	)	(34)%


⁽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 weeks ended May 2, 2020 and May 4, 2019 were as follows:



	Thirteen Weeks Ended
(in thousands)	May 2, 2020		May 4, 2019		$ Change			% Change
U.S.	$	322,862	$	469,658	$	(146,796	)	(31)%
EMEA	112,654		173,944		(61,290		)	(35)%
APAC	32,335		65,576		(33,241		)	(51)%
Other	17,508		24,794		(7,286		)	(29)%
International	$	162,497	$	264,314	$	(101,817	)	(39)%
Total	$	485,359	$	733,972	$	(248,613	)	(34)%

For the first quarter of Fiscal ~~2019,~~2020, net sales ~~increased slightly~~decreased 34% as compared to the first quarter of Fiscal ~~2018, with an increase~~2019, primarily due to a decrease in units sold driven by temporary store closures across brands in response to COVID-19. Lost sales from temporary store closures were partially offset by ~~a decrease~~approximately 25% digital sales growth.

Average unit retail decreased year-over-year, driven by strategic and targeted promotions in ~~average unit retail. The year-over-year change in net sales reflects:~~

~~Changes~~response to the current retail environment, with changes in foreign currency exchange rates ~~which~~ adversely ~~impacted~~impacting net sales by ~~approximately $16~~$7 million, or ~~2%; and~~1%. Excluding the adverse impact of changes in foreign currency exchange rates, net sales for the first quarter of Fiscal 2020 decreased 33% as compared to the first quarter of Fiscal 2019.

~~Positive comparable sales of 1%.~~

Cost of sales, exclusive of depreciation and amortization


	Thirteen Weeks Ended						Thirteen Weeks Ended
	May 4, 2019			May 5, 2018			May 2, 2020			May 4, 2019
(in thousands)			% of Net Sales			% of Net Sales			% of Net sales			% of Net sales	BPS Change ⁽¹⁾
Cost of sales, exclusive of depreciation and amortization	$	289,882	39.5%	$	288,554	39.5%	$	221,214	45.6%	$	289,882	39.5%	610

Gross profit	$	444,090	60.5%	$	442,345	60.5%


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

For the first quarter of Fiscal ~~2019,~~2020, cost of sales, exclusive of depreciation and amortization, as a percentage of net sales ~~was~~increased by approximately ~~flat~~610 basis points as compared to the first quarter of Fiscal ~~2018.~~2019. Current year results reflect the adverse impacts of approximately $15 million, or 300 basis points, of charges to reduce the carrying value of inventory, primarily as a result of the continued effects of COVID-19. The remainder of the year-over-year decline is primarily attributable to decreased average unit retail due to strategic and targeted promotions in response to the current retail environment without a corresponding decrease in average unit cost and an adverse impact from changes in foreign currency exchange rates of approximately 30 basis points.

Table of Contents

Gross profit



	Thirteen Weeks Ended
	May 2, 2020			May 4, 2019
(in thousands)			% of Net sales			% of Net sales	BPS Change ⁽¹⁾
Gross profit	$	264,145	54.4%	$	444,090	60.5%	(610)


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

Gross profit is derived from net sales less cost of sales, exclusive of depreciation and amortization.

Stores and distribution expense


	Thirteen Weeks Ended						Thirteen Weeks Ended
	May 4, 2019			May 5, 2018			May 2, 2020			May 4, 2019
(in thousands)			% of Net Sales			% of Net Sales			% of Net sales			% of Net sales	BPS Change ⁽¹⁾
Stores and distribution expense	$	358,356	48.8%	$	361,155	49.4%	$	322,124	66.4%	$	356,612	48.6%	1,780


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

For the first quarter of Fiscal 2020, stores and distribution expense decreased 10% as compared to the first quarter of Fiscal 2019, primarily driven by a $28 million reduction in payroll expense driven by temporary store closures in response to COVID-19, net of a benefit of $9 million related to expected government subsidies in certain jurisdictions where the Company qualifies. The Company also experienced a $14 million reduction in store occupancy expense driven by temporary store closures in response to COVID-19. These reductions in expense were partially offset by a $9 million increase in shipping and handling expense related to 25% growth in digital sales year-over-year.

For the first quarter of Fiscal ~~2019,~~2020, stores and distribution expense as a percentage of net sales ~~decreased~~increased by approximately 601,780 basis points as compared to the first quarter of Fiscal ~~2018,~~2019, primarily due to ~~decreased~~the deleverage associated with lost sales from temporary store ~~occupancy expense as a percentage of net sales resulting~~closures in approximately 120 basis points of leverage, partially offset by increased direct-to-consumer expense as a percentage of total net sales. The year-over-year decrease in store occupancy expense as a percentage of net sales was primarily driven by reductions in depreciation expense and rent expense, the latter of which was driven by the impact of the $3.9 million of lease termination charges relatedresponse to ~~the Copenhagen A&F flagship store on last year’s results.~~COVID-19.

~~Table of Contents~~

Marketing, general and administrative expense

Thirteen Weeks Ended
May 4, 2019 May 5, 2018
(in thousands) % of Net Sales % of Net Sales
Marketing, general and administrative expense $ 111,947
15.3% $ 124,897
17.1%
Deduct:
Charges related to certain legal matters⁽¹⁾
—
0.0% (5,600 ) (0.8)%
Adjusted non-GAAP marketing, general and administrative expense $ 111,947
15.3% $ 119,297
16.3%



	Thirteen Weeks Ended
	May 2, 2020			May 4, 2019
(in thousands)			% of Net sales			% of Net sales	BPS Change ⁽¹⁾
Marketing, general and administrative expense	$	108,257	22.3%	$	111,947	15.3%	700


⁽¹⁾	~~Includes legal charges in connection with a then proposed settlement of a class action claim, which received final court approval and was paid~~The estimated basis point change has been rounded based on the change in the ~~fourth quarter~~percentage of ~~Fiscal 2018.~~ net sales.

For the first quarter of Fiscal 2020, marketing, general and administrative expense decreased 3% as compared to the first quarter of Fiscal 2019, primarily driven by reductions in certain expenses related to the Company’s transformation initiatives and a decrease in marketing expense.

For the first quarter of Fiscal 2020, marketing, general and administrative expense as a percentage of net sales ~~decreased~~increased by approximately ~~180~~700 basis points as compared to the first quarter of Fiscal ~~2018,~~2019 primarily due to the ~~impact~~deleverage associated with lost sales from temporary store closures in response to COVID-19.

Flagship store exit (benefits) charges



	Thirteen Weeks Ended
	May 2, 2020				May 4, 2019
(in thousands)				% of Net sales			% of Net sales	BPS Change ⁽¹⁾
Flagship store exit (benefits) charges	$	(543	)	(0.1)%	$	1,744	0.2%	(30)


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

Refer to Note 17, “FLAGSHIP STORE EXIT (BENEFITS) CHARGES.”

Table of ~~the $5.6 million~~Contents

Asset impairment, exclusive of flagship store exit charges ~~related~~



	Thirteen Weeks Ended
	May 2, 2020				May 4, 2019
(in thousands)				% of Net sales			% of Net sales	BPS Change ⁽¹⁾
Asset impairment, exclusive of flagship store exit charges	$	42,928		8.8%	$	1,662	0.2%	860
Excluded items:
Asset impairment charges ⁽²⁾	(42,928		)	(8.8)%	—		0.0%	(890)
Adjusted non-GAAP asset impairment, exclusive of flagship store exit charges	$	—		0.0%	$	1,662	0.2%	(30)


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


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

Refer to ~~certain legal matters on last year’s results, decreased compensation costs, and a reduction in depreciation~~Note 9, “ASSET IMPAIRMENT.”

Other operating loss (income), net



	Thirteen Weeks Ended
	May 2, 2020				May 4, 2019
(in thousands)				% of Net sales			% of Net sales	BPS Change⁽¹⁾
Other operating (loss) income, net	$	(506	)	(0.1)%	$	617	0.1%	20


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

Operating loss



	Thirteen Weeks Ended
	May 2, 2020				May 4, 2019
(in thousands)				% of Net sales				% of Net sales	BPS Change ⁽¹⁾
Operating loss	$	(209,127	)	(43.1)%	$	(27,258	)	(3.7)%	(3,940)
Excluded items:
Asset impairment charges ⁽²⁾	42,928			8.8%	—			0.0%	890
Adjusted non-GAAP operating loss	$	(166,199	)	(34.2)%	$	(27,258	)	(3.7)%	(3,050)
Adverse impact from changes in foreign currency exchange rates	—			0.0%	(3,115		)	(0.4)%	50
Adjusted non-GAAP operating loss on a constant currency basis ⁽²⁾	$	(166,199	)	(34.2)%	$	(30,373	)	(4.2)%	(3,000)


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


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

Interest expense, ~~on information technology assets. Excluding~~net



	Thirteen Weeks Ended
	May 2, 2020				May 4, 2019
(in thousands)				% of Net sales				% of Net sales	BPS Change ⁽¹⁾
Interest expense	$	5,073		1.0%	$	4,532		0.6%	40
Interest income	(1,702		)	(0.4)%	(3,916		)	(0.5)%	10
Interest expense, net	$	3,371		0.7%	$	616		0.1%	60


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

For the ~~$5.6 million of charges related to certain legal matters presented above,~~ first quarter of Fiscal ~~2019 adjusted non-GAAP marketing, general and administrative~~2020, interest expense, ~~as a percentage of~~ net ~~sales decreased by approximately 100 basis points~~increased $2.8 million as compared to the first quarter of Fiscal ~~2018.~~

~~Asset impairment~~

Thirteen Weeks Ended
May 4, 2019 May 5, 2018
(in thousands) % of Net Sales % of Net Sales
Asset impairment $ 1,662
0.2% $ 1,056
0.1%

2019. The ~~Company incurred store asset impairment charges of $1.7 million and $1.1 million for the first quarter of Fiscal 2019 and Fiscal 2018, respectively.~~

~~Other operating income,~~year-over-year increase in interest expense, net,

Thirteen Weeks Ended
May 4, 2019 May 5, 2018
(in thousands) % of Net Sales % of Net Sales
Other operating income, net $ 617
0.1% $ 2,560
0.4%

~~For the first quarter of Fiscal 2019, other operating income, net as a percentage of net sales decreased by approximately 30 basis points as compared to the first quarter of Fiscal 2018,~~ is primarily due to lower ~~foreign currency exchange rate related gains, including the impact resulting from the adoption of the new derivative accounting standard. Refer to Note 2, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” for further discussion of the new derivative accounting standard.~~

~~Table of Contents~~

~~Operating loss~~

Thirteen Weeks Ended
May 4, 2019 May 5, 2018
(in thousands) % of Net Sales % of Net Sales
Operating loss $ (27,258 ) (3.7)% $ (42,203 ) (5.8)%
Deduct:
Charges related to certain legal matters ⁽¹⁾
—
0.0% 5,600
0.8%
Adjusted non-GAAP operating loss $ (27,258 ) (3.7)% $ (36,603 ) (5.0)%


⁽¹⁾	~~Includes legal charges 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 first quarter of Fiscal 2019, operating loss as a percentage of net sales improved 210 basis points as compared to the first quarter of Fiscal 2018. Excluding items presented above, first quarter of Fiscal 2019 adjusted non-GAAP operating loss as a percentage of net sales improved 130 basis points as compared to the first quarter of Fiscal 2018. The year-over-year change in operating income reflects changes in foreign currency exchange rates, which adversely impacted operating loss by approximately $2 million, net of hedging.

~~Interest expense, net~~

Thirteen Weeks Ended
May 4, 2019 May 5, 2018
(in thousands) % of Net Sales % of Net Sales
Interest expense $ 4,532
0.6% $ 5,662
0.8%
Interest income (3,916 ) (0.5)% (2,644 ) (0.4)%
Interest expense, net $ 616
0.1% $ 3,018
0.4%

For the first quarter of Fiscal 2019, interest expense, net as a percentage of net sales decreased as compared to the first quarter of Fiscal 2018 by approximately 30 basis points. This decrease is primarily due to the elimination of leasehold financing obligations and corresponding interest expense related to these obligations upon adoption of the new lease accounting standard. In addition, higher interest income earned on the Company’s investments and cash holdings ~~contributed to the decrease~~and an increase in interest expense ~~net as a percentage~~related to certain of ~~net sales.~~the Company’s long-term obligations.

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Income tax ~~benefit~~expense (benefit)

Thirteen Weeks Ended
May 4, 2019 May 5, 2018
(in thousands, except ratios) Effective Tax Rate Effective Tax Rate
Income tax benefit $ (9,588 ) 34.4% $ (3,713 ) 8.2%
Deduct:
Tax effect of excluded items ⁽¹⁾
—

1,541

Adjusted non-GAAP income tax benefit $ (9,588 ) 34.4% $ (2,172 ) 5.5%



	Thirteen Weeks Ended
	May 2, 2020			May 4, 2019
(in thousands, except ratios)			Effective Tax Rate				Effective Tax Rate
Income tax expense (benefit)	$	31,533	(14.8)%	$	(9,588	)	34.4%
Excluded items:
Tax effect of pre-tax excluded items ⁽¹⁾	4,432			—
Adjusted non-GAAP income tax expense (benefit)	$	35,965	(21.2)%	$	(9,588	)	34.4%


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

~~For~~The Company’s effective tax rate for the first quarter of Fiscal ~~2019, the year-over-year change in the effective~~2020 was adversely impacted by $90.9 million of adverse tax ~~rate as compared~~impacts, ultimately giving rise to ~~the~~income tax expense on a consolidated pre-tax loss and adversely impacting first quarter of Fiscal ~~2018, which is highly sensitive at lower levels of pre-tax earnings, was primarily driven~~2020 net loss per diluted share by ~~changes in the level and mix of consolidated pre-tax earnings between operating and valuation allowance jurisdictions. In the first quarter of Fiscal 2019, the effective~~$1.45. These adverse tax ~~rate was impacted by discrete~~impacts are as follows:

The Company did not recognize income tax benefits on $212.0 million of ~~$1.1 million as compared to discrete non-cash income tax charges of $8.2 million~~pre-tax losses generated in the first quarter of Fiscal ~~2018,~~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 $56.6 million.

The Company recognized discrete charges of $34.3 million related to the ~~exercise~~establishment of valuation allowances and ~~expiration~~other tax charges in certain jurisdictions, including, but not limited to Switzerland, Germany and the U.S. principally as a result of ~~certain share-based compensation awards.~~the significant adverse impacts of COVID-19.

Refer to Note 11, “INCOME TAXES.”

~~Table of Contents~~

Net loss attributable to A&F



	Thirteen Weeks Ended
	May 2, 2020 ⁽¹⁾				May 4, 2019
(in thousands)				% of Net sales				% of Net sales	BPS Change ⁽²⁾
Net loss attributable to A&F	$	(244,148	)	(50.3)%	$	(19,155	)	(2.6)%	(4,770)
Excluded items, net of tax ⁽³⁾	38,496			7.9%	—			0.0%	790
Adjusted non-GAAP net loss attributable to A&F	$	(205,652	)	(42.4)%	$	(19,155	)	(2.6)%	(3,980)


⁽¹⁾	Results for the first quarter of Fiscal 2020 reflect adverse tax impacts of $90.9 million, or $1.45 per diluted share, related to valuation allowances on deferred tax assets and other tax charges.


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


⁽³⁾	Excluded items presented above under “Operating loss,” and “Income tax expense (benefit).”

Net loss per diluted share attributable to A&F

Thirteen Weeks Ended
May 4, 2019 May 5, 2018
(in thousands) % of Net Sales % of Net Sales
Net loss attributable to A&F $ (19,155 ) (2.6)% $ (42,461 ) (5.8)%
Adjusted non-GAAP net loss attributable to A&F ⁽¹⁾
$ (19,155 ) (2.6)% $ (38,402 ) (5.3)%

Net loss per diluted share attributable to A&F $ (0.29 )
$ (0.62 )
Adjusted non-GAAP net loss per diluted share attributable to A&F⁽¹⁾
$ (0.29 ) $ (0.56 )



	Thirteen Weeks Ended
	May 2, 2020 ⁽¹⁾			May 4, 2019			$ Change
Net loss per diluted share attributable to A&F	$	(3.90	)	$	(0.29	)	$(3.61)
Excluded items, net of tax ⁽²⁾	0.62			—			0.62
Adjusted non-GAAP net loss per diluted share attributable to A&F	$	(3.29	)	$	(0.29	)	$(3.00)
Adverse impact from changes in foreign currency exchange rates	—			(0.03		)	0.03
Adjusted non-GAAP net loss per diluted share attributable to A&F on a constant currency basis	$	(3.29	)	$	(0.32	)	$(2.97)


⁽¹⁾	Results for the first quarter of Fiscal 2020 reflect adverse tax impacts of $90.9 million, or $1.45 per diluted share, related to valuation allowances on deferred tax assets and other tax charges.


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

~~For the first quarter of Fiscal 2019, net loss per diluted share attributable to A&F was $0.29 as compared to $0.62 for the first quarter of Fiscal 2018. Excluding items presented above under “Operating loss~~,~~” and “Income tax benefit~~,” first quarter of Fiscal 2018 adjusted non-GAAP net loss per diluted share attributable to A&F was $0.56. The year-over-year change in net loss per diluted share attributable to A&F reflects changes in foreign currency exchange rates, which adversely impacted net loss per diluted share attributable to A&F by approximately $0.02, net of hedging.

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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 the Company’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.

The Company had cash and equivalents of $704.0 million and $671.3 million as of May 2, 2020 and February 1, 2020, respectively. As of May 30, 2020, subsequent to the end of the first quarter of Fiscal 2020, the Company had cash and equivalents of approximately $730 million.

Primary sources 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 aan asset-based senior secured revolving credit facility available as a source of additional funding.

~~Credit Facilities~~

On August 7, 2014, A&F, through its subsidiary Abercrombie & Fitch Management Co. (“A&F Management”) as 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,~~As a precautionary measure in response to COVID-19, in March 2020, the Company ~~through its subsidiary A&F Management, entered into the Second Amendment to Credit Agreement (the “ABL Second Amendment”), amending and extending the maturity date of~~borrowed $210 million under the asset-based revolving credit ~~agreement~~facility to ~~October 19, 2022. As amended,~~improve its cash position and withdrew the ~~asset-based revolving credit agreement continues to provide for a senior secured credit facility~~majority of ~~up to $400~~excess funds from the overfunded Rabbi Trust assets, providing the Company with $50 million ~~(the “Amended ABL Facility”).~~of additional cash.

As of May ~~4, 2019, the borrowing base on the Amended ABL Facility was $277.0 million.~~

~~The Company uses, in the ordinary course of business, stand-by letters of credit under the existing Amended ABL Facility. As of both May 4, 2019 and February~~ 2, ~~2019,~~2020, 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.~~

A&F, through its subsidiary A&F Management as the borrower (with A&F and certain other subsidiaries as guarantors), also entered into a term loan agreement on August 7, 2014, which provides for a term loan facility of $300 million (the “Term Loan Facility” and, together with the Amended ABL Facility, the “Credit Facilities”).

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

~~The interest rate on borrowings under the Term Loan Facility was 5.99% as of May 4, 2019.~~

~~Table of Contents~~

The Company’s Term Loan debt is presented in the Condensed Consolidated Balance Sheets, net of the unamortized discount and fees. Net borrowings as of May 4, 2019 and February 2, 2019 were as follows:

(in thousands) May 4, 2019 February 2, 2019
Borrowings, gross at carrying amount $ 253,250
$ 253,250
Unamortized discount (761 ) (845 )
Unamortized fees (1,753 ) (1,966 )
Borrowings, net 250,736
250,439
Less: short-term portion of borrowings, net —
—
Long-term portion of borrowings, net $ 250,736
$ 250,439

~~The material provisions of the Credit Facilities 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.~~

~~Operating activities~~

For the thirteen weeks ended May 4, 2019, net cash used for operating activities was $71.3 million as compared to net cash used for operating activities of $16.2 million for the thirteen weeks ended May 5, 2018. The year-over-year change in cash flow associated with operating activities was primarily driven by increased payments to vendors in the first quarter of Fiscal 2019 as compared to the prior year, partially offset by decreased incentive compensation payments in Fiscal 2019 as compared to the prior year.

~~Investing activities~~

For the thirteen weeks ended May 4, 2019 and May 5, 2018, net cash outflows for investing activities were used primarily for purchases of property and equipment of $43.9 million and $23.7 million, respectively.

~~Financing activities~~

For the thirteen weeks ended May 4, 2019, net cash used for financing activities primarily consisted of dividend payments of $13.2 million. For the thirteen weeks ended May 5, 2018, cash used for financing activities consisted primarily of the repurchase of approximately 0.8 million shares of A&F’s Common Stock in the open market with a market value of approximately $18.7 million and dividend payments of $13.6 million.

~~FUTURE CASH REQUIREMENTS AND SOURCES OF CASH~~

The Company’s capital allocation strategy remains to prioritize investments in the business to build on the foundation for sustainable long-term growth and seeks 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 include store remodels and right-sizes, new store openings, and acceleration of our transformation efforts. The Company also evaluates store closures, including flagship lease buyouts and options to early terminate its store leases. In addition, the Company returns cash to stockholders through dividends and completes share repurchases as deemed appropriate. Dividends are declared at the discretion of A&F’s Board of Directors. A&F’s Board of Directors reviews the dividend on a quarterly basis and establishes the dividend rate based on A&F’s financial condition, results of operations, capital requirements, current and projected cash flows, business prospects and other factors which the Board of Directors deems relevant. Capital allocation priorities and investments are reviewed by the Company’s Board of Directors considering both liquidity and valuation factors.

To execute its capital allocation strategy, the Company relies on excess operating cash flows, which are largely generated in the Fall season, to fund operations throughout the fiscal year and to reinvest in the business to support future growth. The Company also hasremaining availability under the Amended ABL Facility of $89.4 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 Amended ABL Facility, actual incremental borrowing available to the Company under the Amended ABL Facility was approximately $59.4 million as ~~a source~~ of ~~additional funding.~~ May 2, 2020.

Primary uses of cash

Over the next twelve months, the ~~Company’s~~Company expects its primary cash requirements ~~will~~to be ~~to fund~~towards funding operating activities, including the acquisition of inventory, and obligations related to compensation, leases and any lease buyouts or ~~options to terminate store leases the Company~~modifications it may exercise, taxes and other operating ~~activities,~~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 also evaluates opportunities for investments in line with its key transformation initiatives that have positioned the business to quickly respond to the COVID-19 pandemic and strives to invest in projects that have high expected returns. These improvements may include new store experiences or investments in its omnichannel initiatives or loyalty programs. In addition, the Company evaluates store closures, including flagship lease buyouts and options to early terminate store leases. Historically, the Company has utilized free cash flow generated from operations to fund any discretionary capital expenditures, which have been prioritized towards new store experiences, as well as ~~to fund~~digital and omnichannel investments, information technology, and other projects. Total capital expenditures ~~marketing initiatives, quarterly dividends~~for Fiscal 2020 are expected to ~~stockholders subject to approval by A&F’s Board~~be approximately $100 million, of ~~Directors and~~which approximately $47 million occurred during the first quarter of Fiscal 2020.

At times, the Company may utilize excess liquidity, towards debt service requirements, including voluntary debt prepayments, or required repayments, if any, based on annual excess cash flows, as defined in the term loan credit agreement applicable to the Term Loan Facility.

Share repurchases and dividends

In response to COVID-19, in March 2020, the Company announced that it has temporarily suspended its share repurchase program and in May 2020, the Company announced that it has temporarily suspended its dividend program, in order to preserve liquidity and maintain financial flexibility. 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 amount based on A&F’s financial condition, results of operations, capital requirements, current and projected cash flows, business prospects and other factors, including the potential severity of impacts to the business resulting from COVID-19 and any restrictions related to the Company’s Credit

Table of Contents

~~The~~Facilities. There can be no assurance that the Company ~~may repurchase~~will reinstate its dividend program in the future or, if dividends are paid, that they will be in amounts similar to past dividends.

Historically, the Company 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 rights and the vesting of restricted stock units. Shares repurchased 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~~Refer to “ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS” for additional information regarding the Company’s share repurchases during the first quarter of Fiscal 2020 made prior to the temporary suspension of the share repurchase program, as well as for the number of shares remaining available for purchase under the Company’s June 2019 publicly announced stock repurchase authorization.

Credit facilities

On August 7, 2014, the Company, ~~would anticipate funding such repurchases by utilizing free cash flow generated from operations~~through its subsidiary Abercrombie & Fitch Management Co. (“A&F Management”) as the lead borrower (with A&F and certain other subsidiaries as borrowers or ~~proceeds from~~guarantors), entered into an asset-based senior secured revolving credit agreement. On October 19, 2017, the Company, through its subsidiary A&F Management, entered into a Second Amendment to Credit Agreement (the “ABL Second Amendment”), amending and extending the maturity date of the asset-based revolving credit agreement. As amended, the asset-based senior secured revolving credit agreement continues to provide for a senior secured credit facility of up to$400 million (the “Amended ABL Facility”).

On August 7, 2014, the Company, through its subsidiary A&F Management as the borrower (with A&F 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.~~Facility, the “Credit Facilities”). 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%.

As of May ~~4, 2019,~~2, 2020, the Company had approximately $210.0 million in gross borrowings outstanding under the ~~authority~~Amended ABL Facility at an interest rate of 1.82%. The Amended ABL Facility matures on October 19, 2022. As of May 2, 2020, the Company had remaining availability under the Amended ABL Facility of $89.4 million, net of $0.8 million in outstanding stand-by letters of credit. As the Company must maintain excess availability equal to ~~repurchase approximately 3.6 million shares as part~~the greater of 10% of the ~~A&F Board of Directors’ previously approved authorization. On June 12, 2019,~~loan cap or $30 million under the ~~A&F Board of Directors authorized~~Amended ABL Facility, actual incremental borrowing available to the ~~repurchase of an additional 5.0~~Company under the Amended ABL Facility was approximately $59.4 million ~~shares, bringing the shares available for purchase~~ as of ~~June~~May 2, 2020.

As of May 2, 2020, the Company had approximately $233.3 million in gross borrowings outstanding under the Term Loan Facility at an interest rate of 4.50%. The Term Loan Facility matures on August 7, 2021.

The Credit Facilities are further described in Note 12, ~~2019 under its publicly announced share repurchase authorizations to approximately 7.6 million shares.~~“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 ~~that~~if these ~~earnings and profits could be repatriated without incurring additional federal income tax. If additional~~ funds were to be repatriated to the U.S., the Company ~~could~~would expect to incur an insignificant amount of state income taxes and foreign withholding taxes. The Company accrues for both state income taxes and foreign withholding taxes with respect to earnings and profits earned after February 2, 2019, in such a manner that these funds could be repatriated without incurring additional taxes.

As of May ~~4, 2019, $247.7~~2, 2020, $285.1 million of the Company’s ~~$586.1~~$704.0 million of cash and equivalents was 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.

~~Capital investments~~The Company’s income taxes are further described in Note 11, “INCOME TAXES.”

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Analysis of cash flows

The table below provides certain components of the Company’s Condensed Consolidated Statements of Cash Flows for the thirteen weeks ended May 2, 2020 and May 4, 2019:



	Thirteen Weeks Ended
	May 2, 2020			May 4, 2019
(in thousands)
Cash and equivalents, and restricted cash and equivalents, beginning of period	$	692,264		$	745,829
Net cash used for operating activities	(90,776		)	(71,316		)
Net cash used for investing activities	(46,990		)	(43,872		)
Net cash provided by (used) for financing activities	171,668			(20,322		)
Effect of foreign currency exchange rates on cash	(3,891		)	(2,638		)
Net increase (decrease) in cash and equivalents, and restricted cash and equivalents	30,011			(138,148		)
Cash and equivalents, and restricted cash and equivalents, end of period	$	722,275		$	607,681

Operating activities - The year-over-year change in cash flow associated with operating activities was primarily due to lower cash receipts as a result of a 34% decrease in net sales from last year driven by temporary store closures in response to COVID-19 during the first quarter of Fiscal 2020. This decrease in cash receipts was partially mitigated by actions taken by the Company during the first quarter of Fiscal 2020 to preserve liquidity and manage cash flows including (i) partnering with merchandise and non-merchandise vendors in regards to payment terms; (ii) reducing and recadencing inventory receipts to better align inventory with expected market demand; (iii) significantly reducing expenses to better align operating costs with sales; and (iv) implementing various compensation actions related to the Company’s store and corporate associates, as well as A&F’s non-associate directors. In addition, during the first quarter of Fiscal 2020, the Company withdrew the majority of excess funds from the overfunded Rabbi Trust assets as a precautionary measure in response to COVID-19, providing the Company with $50 million of additional cash.

Investing activities - For ~~Fiscal 2019,~~the thirteen weeks ended May 2, 2020, net cash outflows for investing activities were used for capital expenditures of $47.0 million as compared to $43.9 million for the thirteen weeks ended May 4, 2019. Based on actions taken to preserve liquidity and manage cash flows in light of the COVID-19 pandemic, the Company expects capital ~~investments~~expenditures for Fiscal 2020 to be approximately ~~$200~~$100 million ~~prioritized towards new store experiences,~~ as ~~well as direct-to-consumer and omnichannel investments, information technology, and other projects.~~compared to $203 million of capital expenditures in Fiscal 2019.

~~OFF-BALANCE SHEET ARRANGEMENTS~~

~~The Company uses,~~Financing activities - For the thirteen weeks ended May 2, 2020, net cash provided by financing activities primarily consisted of $210.0 million in ~~the ordinary course of business, stand-by letters of credit under~~proceeds from the Amended ABL ~~Facility. The~~Facility, partially offset by share repurchases made and dividends declared prior to the Company’s decision to temporarily suspend its share repurchase and dividend programs to increase financial flexibility in light of COVID-19 of approximately $27.7 million in aggregate. For the thirteen weeks ended May 4, 2019, net cash used for financing activities consisted primarily of dividend payments of $13.2 million.

Off-balance sheet arrangements

As of May 2, 2020, the Company ~~has no other~~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~~

Other than the Company’s short-term draw on the Amended ABL Facility of $210 million in March 2020 to increase its cash position and enhance liquidity in light of the uncertainty surrounding the impact of COVID-19, there have been no material changes during the thirteen weeks ended May ~~4, 2019, there were no material changes~~2, 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).

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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 ~~including~~on a quarterly basis and has excluded discussion of those not applicable to the ~~dates of adoption~~Company 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 1, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Recent accounting pronouncements” of the Notes to Condensed Consolidated Financial Statements included in “ITEM 1. FINANCIAL STATEMENTS (UNAUDITED),” of this Quarterly Report on Form 10-Q.~~2019.



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 right to use leased 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 ~~and not impaired~~ as of May ~~4, 2019,~~2, 2020 and not impaired, had long-lived assets with a net book value of ~~$115.0~~$121.8 million, which included ~~$99.0~~$110.0 million of operating lease right-of-use assets ~~under the new lease accounting standard. These stores had undiscounted cash flows which were in the range~~as of ~~100% to 150% of their respective net asset values.~~May 2, 2020. Store assets that were ~~impaired~~previously-impaired as of May ~~4, 2019~~2, 2020, had a remaining net book value of ~~$140.3~~$164.4 million, which included ~~$139.0~~$151.3 million of operating lease right-of-use assets, ~~under the new lease accounting standard.~~
~~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. At the lease commencement date, the Company’s lease right-of-use assets and liabilities are recognized on the Condensed Consolidated Balance Sheets, based on the present value of remaining lease payments over the lease term. In measuring the Company’s lease liabilities, the remaining lease payments are discounted to present value using a discount rate. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the remaining lease term as of the date of adoption. 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 May ~~4, 2019. However, actual results could vary from estimates and could result in material gains or losses.~~2, 2020. An increase or decrease of 10% in the Company’s weighted-average discount rate as of May 4, 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.

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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 asset impairment charges related to the Company’s flagship stores and ~~thereby~~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.

~~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. 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 for the thirteen weeks ended May 4, 2019 and May 5, 2018 is calculated using a 27% effective tax rate.

Comparable sales

~~In addition,~~At times, the Company provides comparable sales, defined as the year-over-year percentage ~~year-over-year~~ 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) ~~direct-to-consumer~~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 ~~direct-to-consumer~~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 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 the first quarter of 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~~Asset impairment, exclusive of flagship store exit charges		Certain ~~legal~~asset impairment charges
Operating loss		Certain ~~legal~~asset impairment charges
Income tax expense (benefit) ⁽²⁾		Tax effect of pre-tax excluded items
Net loss and net loss per share attributable to A&F ⁽²⁾		~~Certain legal charges;~~Pre-tax excluded items and the tax effect of pre-tax excluded items


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


⁽²⁾	The Company also presents income tax benefit and the effective tax rate on both a GAAP and on an adjusted non-GAAP basis excluding the items listed under “Operating loss,” as applicable, in the table above. 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 weeks ended May 2, 2020 and May 4, 2019 follows:



(in thousands, except change in net sales, gross profit rate, operating margin and per share data)	Thirteen Weeks Ended
Net sales	May 2, 2020				May 4, 2019			% Change
GAAP	$	485,359			$	733,972		(34)%
Adverse impact from changes in foreign currency exchange rates	—				(6,824		)	1%
Non-GAAP on a constant currency basis	$	485,359			$	727,148		(33)%
Gross profit	May 2, 2020				May 4, 2019			BPS Change ⁽¹⁾
GAAP	$	264,145			$	444,090		(610)
Adverse impact from changes in foreign currency exchange rates	—				(6,048		)	30
Non-GAAP on a constant currency basis	$	264,145			$	438,042		(580)
Operating loss	May 2, 2020			��	May 4, 2019			BPS Change ⁽¹⁾
GAAP	$	(209,127	)		$	(27,258	)	(3,940)
Excluded items ⁽²⁾	(42,928		)		—			(890)
Adjusted non-GAAP	$	(166,199	)		$	(27,258	)	(3,050)
Adverse impact from changes in foreign currency exchange rates	—				(3,115		)	50
Adjusted non-GAAP on a constant currency basis	$	(166,199	)		$	(30,373	)	(3,000)
Net loss per diluted share attributable to A&F ⁽³⁾	May 2, 2020				May 4, 2019			$ Change
GAAP	$	(3.90	)		$	(0.29	)	$(3.61)
Excluded items, net of tax ⁽²⁾	(0.62		)		—			(0.62)
Adjusted non-GAAP	$	(3.29	)		$	(0.29	)	$(3.00)
Adverse impact from changes in foreign currency exchange rates	—				(0.03		)	0.03
Adjusted non-GAAP on a constant currency basis	$	(3.29	)		$	(0.32	)	$(2.97)


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


⁽²⁾	Excluded items this year consist of pre-tax store asset impairment charges of $42.9 million and the tax effect of pre-tax excluded items.


⁽³⁾	Net loss per diluted share for the thirteen weeks ended May 2, 2020 reflects adverse tax impacts of $90.9 million, or $1.45 per diluted share, related to valuation allowances on deferred tax assets and other tax charges.

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

~~Investment securities~~

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 $0.6 million for the thirteen weeks ended May 2, 2020 and $0.8 million for ~~each of~~ the thirteen weeks ended May 4, 2019, ~~and May 5, 2018, respectively,~~ which are recorded in interest expense, net on the Condensed Consolidated Statements of Operations and Comprehensive Loss.

The Rabbi Trust assets are included in other assets on the Condensed Consolidated Balance Sheets as of May ~~4, 2019~~2, 2020 and February ~~2, 2019,~~1, 2020, and are restricted in their use as noted above.

~~Interest rate risks~~INTEREST RATE RISK

As of May ~~4, 2019,~~2, 2020, the Company ~~has~~had approximately ~~$253.3~~$233.3 million in long-term gross borrowings outstanding under ~~its~~the Term Loan Facility and noapproximately $210.0 million in short-term gross borrowings outstanding under ~~its~~the Amended ABL Facility.

The Credit Facilities carry interest rates that are tied to the LIBO rate, or an alternate base rate, plus a margin. The interest rate on the Term Loan Facility has a 100 basis point LIBO rate floor ~~and assuming no changes in~~which was applicable as of May 2, 2020. An increase of 100 basis points to the ~~Company’s financial structure~~underlying LIBO rate as ~~it stands, an~~of May 2, 2020 would increase in the Fiscal 2020 annual interest ~~rate~~expense on borrowings under the Term Loan Facility ~~as of May 4, 2019 of 100 basis points would increase Fiscal 2019 annual interest expense~~and Amended ABL Facility by approximately ~~$2.6~~$3.7 million.

This hypothetical analysis for Fiscal ~~2019~~2020 may differ from the actual change in interest expense due to actual interest rate terms and limitations described within the Credit Facility agreements and potential changes in interest rates orand gross borrowings outstanding under the Company’s Credit Facilities. 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.

~~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.

The fair value of outstanding foreign currency exchange forward contracts included in other current assets was $2.5 million as of May 4, 2019 and was $2.2 million as of February 2, 2019. The fair value of outstanding foreign currency exchange forward contracts included in accrued expenses was $0.3 million as of each of May 4, 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 $12.8 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.

The Company has no outstanding foreign currency exchange contracts as of May 2, 2020. 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 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 May ~~4, 2019.~~2, 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 May ~~4, 2019,~~2, 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 ~~during A&F’s fiscal quarter ended May 4, 2019 that materially affected, or are reasonably likely to materially affect,~~in A&F’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) ~~except for those described below:~~that occurred during A&F’s fiscal quarter ended May 2, 2020 that materially affected, or are reasonably likely to materially affect, A&F’s internal control over financial reporting.

~~On February 3, 2019,~~As the COVID-19 pandemic evolves, the Company ~~adopted~~will continue to monitor and assess any potential impacts COVID-19 may have on the ~~new lease accounting standard, ASU 2016-02,~~ ~~Leases. As part~~design and operating effectiveness of the ~~adoption of the new lease accounting standard, the Company completed upgrades to its lease administration software, modified certain existing~~Company’s internal ~~controls and processes and implemented new internal controls and processes.~~

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 ~~Sheet~~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 May ~~4, 2019~~2, 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. The COVID-19 pandemic may exacerbate the risks discussed within the aforementioned Annual Report on Form 10-K, certain of which have had and could continue to have a material effect on the Company.


~~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 first 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 May ~~4, 2019:~~2, 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⁾
February 3, 2019 through March 2, 2019 3,125
$ 20.75
—
3,571,938
March 3, 2019 through April 6, 2019 238,473
$ 25.86
—
3,571,938
April 7, 2019 through May 4, 2019 2,184
$ 27.34
—
3,571,938
Total 243,782
$ 25.80
—
3,571,938



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⁾
February 2, 2020 through February 29, 2020	2,005	$	16.88	—	4,615,446
March 1, 2020 through April 4, 2020	1,968,816	$	10.39	1,397,388	3,218,058
April 5, 2020 through May 2, 2020	708	$	10.57	—	3,218,058
Total	1,971,529	$	10.40	1,397,388	3,218,058


⁽¹⁾	~~243,782~~An aggregate of 574,141 shares of A&F’s Common Stock purchased during the thirteen weeks ended May ~~4, 2019 represented shares~~2, 2020 were withheld for tax payments due upon the vesting of employee restricted stock ~~units and the exercise of employee stock appreciation rights.~~units.

⁽²⁾

NoAmounts represent shares of A&F’s Common Stock ~~were~~ repurchased during the thirteen weeks ended May ~~4, 2019~~2, 2020 prior to the temporary suspension of the Company’s share repurchase program, pursuant to A&F’s publicly announced stock repurchase authorization. On ~~August 14, 2012,~~June 12, 2019, A&F’s Board of Directors authorized the repurchase of ~~10.0~~5.0 million shares of A&F’s Common Stock, which was announced on ~~August 15, 2012.~~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 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.

3941

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



Exhibit ~~No.~~		Document
~~10.1~~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.]
10.1		Form of ~~Performance Share~~Restricted Stock Unit Award Agreement used to evidence the grant of ~~performance shares~~restricted stock units to associates (employees) of Abercrombie & Fitch Co. and its subsidiaries under the Abercrombie & Fitch Co. 2016 Long-Term Incentive Plan for Associates on orand after March 26, 2019.2019
10.2		Abercrombie & Fitch Co. 2016 Long-Term Incentive Plan for Directors (as amended effective May 20, 2020), incorporated herein by reference to Exhibit 10.1 to A&F’s Current Report on Form 8-K dated and filed on May 21, 2020 (File No. 001-12107).
10.3		Abercrombie & Fitch Co. 2016 Long-Term Incentive Plan for Associates (as amended effective May 20, 2020), incorporated herein by reference to Exhibit 10.2 to A&F’s Current Report on Form 8-K dated and filed on May 21, 2020 (File No. 001-12107).
10.4		Summary of Compensation Structure for Non-Associate Directors of Abercrombie & Fitch Co. for Fiscal ~~2019.~~2020.*
~~10.3~~10.5		Summary of Terms of the Annual Restricted Stock Unit Grants made and to be made to the Non-Associate Directors of Abercrombie & Fitch Co. under the Abercrombie & Fitch Co. 2016 Long-Term Incentive Plan for Directors in Fiscal ~~2019.~~2020.*
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 ~~(Principal~~(who serves as Principal Executive Officer) and Senior Vice President and Chief Financial Officer ~~(Principal~~(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~~101.INS	~~The following materials from Abercrombie & Fitch Co.’s Quarterly Report on Form 10-Q for~~	Inline XBRL Instance Document - the ~~quarterly period ended May 4, 2019, formatted~~instance document does not appear in the Interactive Data File because its Inline XBRL ~~(eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations and Comprehensive Loss for~~tags are embedded within the Thirteen Weeks Ended May 4, 2019 and May 5, 2018; (ii) Condensed Consolidated Balance Sheets at May 4, 2019 and February 2, 2019; (iii) Condensed Consolidated Statements of Stockholders’ Equity for the Thirteen Weeks Ended May 4, 2019 and May 5, 2018 (iv) Condensed Consolidated Statements of Cash Flows for the Thirteen Weeks Ended May 4, 2019 and May 5, 2018; and (v) Notes to Condensed Consolidated Financial Statements.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.

4042

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

Date: June ~~12, 2019~~10, 2020	ByBy:	/s/ Scott Lipesky
		Scott Lipesky
		Senior Vice President and Chief Financial Officer (Principal Financial Officer, Principal Accounting Officer and Authorized Officer)

4143



		Page No.
~~Part I~~

~~Item~~Note 1.	~~Financial Statements (Unaudited)~~

	~~Condensed Consolidated Statements of Operations and Comprehensive Loss~~	3

	~~Condensed Consolidated Balance Sheets~~	4

	~~Condensed Consolidated Statements of Stockholders’ Equity~~	5

	~~Condensed Consolidated Statements of Cash Flows~~	6

	~~Index for Notes to Condensed Consolidated Financial Statements~~	7

	~~Notes to Condensed Consolidated Financial Statements~~NATURE OF BUSINESS	8

~~Item~~Note 2.	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	22

~~Item 3.~~	~~Quantitative and Qualitative Disclosures About Market Risk~~	37

~~Item 4.~~	~~Controls and Procedures~~	38

~~Part II~~

~~Item 1.~~	~~Legal Proceedings~~	39

~~Item 1A.~~	~~Risk Factors~~	39

~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	39

~~Item 6.~~	~~Exhibits~~	40

	~~Signatures~~	41



PART I
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Operations and Comprehensive Loss	3
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Stockholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Index for Notes to Condensed Consolidated Financial Statements	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	40
PART II
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 6.	Exhibits	42
	Signatures	43



(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 thirteen weeks ended May 4, 2019)	$	265,232
Fiscal 2020	328,707
Fiscal 2021	281,713
Fiscal 2022	233,274
Fiscal 2023	189,987
Fiscal 2024 and thereafter	466,402
Total undiscounted operating lease payments	$	1,765,315
Less: Imputed interest	(279,820		)
Present value of operating lease liabilities	$	1,485,495



(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



(in thousands)	Notional Amount ⁽¹⁾
Euro	$	61,003
British pound	$	28,562
Canadian dollar	$	11,890
Japanese yen	$	6,654



(in thousands)	Notional Amount ⁽¹⁾
Chinese yuan	$	22,218
Japanese yen	$	896



(in thousands)	Location	May 4, 2019		February 2, 2019		Location	May 4, 2019		February 2, 2019
Derivatives designated as hedging instruments:
Foreign currency exchange forward contracts	Other current assets	$	2,508	$	2,162	Accrued expenses	$	258	$	15
Derivatives not designated as hedging instruments:
Foreign currency exchange forward contracts	Other current assets	$	—	$	—	Accrued expenses	$	58	$	317
Total		$	2,508	$	2,162		$	316	$	332



	Gain Recognized in AOCL on Derivative Contracts⁽¹⁾				Location	Gain (Loss) Reclassified from AOCL into Earnings ⁽²⁾
	Thirteen Weeks Ended
(in thousands)	May 4, 2019		May 5, 2018			May 4, 2019		May 5, 2018
Derivatives in cash flow hedging relationships:
Foreign currency exchange forward contracts	$	2,263	$	8,607	Cost of sales, exclusive of depreciation and amortization	$	2,541	$	(5,072	)



	Thirteen Weeks Ended May 5, 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	(8,339		)	8,607			268
Reclassified from accumulated other comprehensive loss ⁽¹⁾	—			5,072			5,072
Tax effect	—			(1,419		)	(1,419		)
Other comprehensive (loss) income	(8,339		)	12,260			3,921
Ending balance at May 5, 2018	$	(93,286	)	$	2,153		$	(91,133	)