UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)



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

For the quarterly period ended ~~May 2,~~August 1, 2020



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

For the transition period from to

Commission File Number 001-12107

Abercrombie & Fitch Co.

(Exact name of Registrant as specified in its charter)



Delaware			31-1469076
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

6301 Fitch Path,	New Albany,	Ohio	43054
(Address of principal executive offices)			(Zip Code)

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

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.01 Par Value	ANF	New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). x Yes ¨ No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



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

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes x No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class A Common Stock		Shares outstanding as of ~~June 5,~~September 3, 2020
$0.01 Par Value		~~62,375,867~~62,373,175

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Abercrombie & Fitch Co.

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

(Thousands, except per share amounts)

(Unaudited)


	Thirteen Weeks Ended						Thirteen Weeks Ended						Twenty-six Weeks Ended
	May 2, 2020			May 4, 2019			August 1, 2020			August 3, 2019			August 1, 2020			August 3, 2019
Net sales	$	485,359		$	733,972		$	698,328		$	841,078		$	1,183,687		$	1,575,050
Cost of sales, exclusive of depreciation and amortization	221,214			289,882			274,720			342,445			495,934			632,327
Gross profit	264,145			444,090			423,608			498,633			687,753			942,723
Stores and distribution expense	322,124			356,612			310,370			376,347			632,494			732,959
Marketing, general and administrative expense	108,257			111,947			97,252			115,694			205,509			227,641
Flagship store exit (benefits) charges	(543		)	1,744			(3,884		)	44,994			(4,427		)	46,738
Asset impairment, exclusive of flagship store exit charges	42,928			1,662			8,083			715			51,011			2,377
Other operating loss (income), net	506			(617		)
Operating loss	(209,127		)	(27,258		)
Other operating (income) loss, net							(2,356		)	367			(1,850		)	(250		)
Operating income (loss)							14,143			(39,484		)	(194,984		)	(66,742		)
Interest expense, net	3,371			616			7,098			1,370			10,469			1,986
Loss before income taxes	(212,498		)	(27,874		)
Income (loss) before income taxes							7,045			(40,854		)	(205,453		)	(68,728		)
Income tax expense (benefit)	31,533			(9,588		)	1,253			(11,330		)	32,786			(20,918		)
Net loss	(244,031		)	(18,286		)
Net income (loss)							5,792			(29,524		)	(238,239		)	(47,810		)
Less: Net income attributable to noncontrolling interests	117			869			328			1,618			445			2,487
Net loss attributable to A&F	$	(244,148	)	$	(19,155	)
Net income (loss) attributable to A&F							$	5,464		$	(31,142	)	$	(238,684	)	$	(50,297	)

Net loss per share attributable to A&F
Net income (loss) per share attributable to A&F
Basic	$	(3.90	)	$	(0.29	)	$	0.09		$	(0.48	)	$	(3.82	)	$	(0.76	)
Diluted	$	(3.90	)	$	(0.29	)	$	0.09		$	(0.48	)	$	(3.82	)	$	(0.76	)

Weighted-average shares outstanding
Basic	62,541			66,540			62,527			65,156			62,543			65,848
Diluted	62,541			66,540			63,286			65,156			62,543			65,848

Other comprehensive income (loss)
Foreign currency translation, net of tax	$	(5,399	)	$	(2,786	)	$	8,734		$	(3,788	)	$	3,335		$	(6,574	)
Derivative financial instruments, net of tax	8,865			(53		)	(2,407		)	3,133			6,458			3,080
Other comprehensive income (loss)	3,466			(2,839		)	6,327			(655		)	9,793			(3,494		)
Comprehensive loss	(240,565		)	(21,125		)
Comprehensive income (loss)							12,119			(30,179		)	(228,446		)	(51,304		)
Less: Comprehensive income attributable to noncontrolling interests	117			869			328			1,618			445			2,487
Comprehensive loss attributable to A&F	$	(240,682	)	$	(21,994	)
Comprehensive income (loss) attributable to A&F							$	11,791		$	(31,797	)	$	(228,891	)	$	(53,791	)

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

Abercrombie & Fitch Co.

Condensed Consolidated Balance Sheets

(Thousands, except par value amounts)

(Unaudited)


	May 2, 2020			February 1, 2020			August 1, 2020			February 1, 2020
Assets
Current assets:
Cash and equivalents	$	703,989		$	671,267		$	766,721		$	671,267
Receivables	88,639			80,251			88,323			80,251
Inventories	426,594			434,326			453,239			434,326
Other current assets	67,412			78,905			75,160			78,905
Total current assets	1,286,634			1,264,749			1,383,443			1,264,749
Property and equipment, net	654,784			665,290			635,703			665,290
Operating lease right-of-use assets	1,133,618			1,230,954			1,073,464			1,230,954
Other assets	216,795			388,672			216,204			388,672
Total assets	$	3,291,831		$	3,549,665		$	3,308,814		$	3,549,665
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	162,747		$	219,919		$	284,221		$	219,919
Accrued expenses	285,799			302,214			351,849			302,214
Short-term portion of operating lease liabilities	307,173			282,829			278,495			282,829
Short-term portion of borrowings	210,000			—
Income taxes payable	8,232			10,392			6,425			10,392
Total current liabilities	973,951			815,354			920,990			815,354
Long-term liabilities:
Long-term portion of operating lease liabilities	1,184,448			1,252,634			1,122,853			1,252,634
Long-term portion of borrowings, net	232,178			231,963
Long-term borrowings, net							343,250			231,963
Other liabilities	103,188			178,536			108,111			178,536
Total long-term liabilities	1,519,814			1,663,133			1,574,214			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			1,033			1,033
Paid-in capital	389,904			404,983			392,272			404,983
Retained earnings	2,022,366			2,313,745			2,025,911			2,313,745
Accumulated other comprehensive loss, net of tax (“AOCL”)	(105,420		)	(108,886		)	(99,093		)	(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		)
Treasury stock, at average cost: 40,935 and 40,514 shares as of August 1, 2020 and February 1, 2020, respectively							(1,514,442		)	(1,552,065		)
Total Abercrombie & Fitch Co. stockholders’ equity	790,239			1,058,810			805,681			1,058,810
Noncontrolling interests	7,827			12,368			7,929			12,368
Total stockholders’ equity	798,066			1,071,178			813,610			1,071,178
Total liabilities and stockholders’ equity	$	3,291,831		$	3,549,665		$	3,308,814		$	3,549,665

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

Abercrombie & Fitch Co.

Condensed Consolidated Statements of Stockholders’ Equity

(Thousands, except per share amounts)

(Unaudited)


	Thirteen Weeks Ended May 2, 2020																								Thirteen Weeks Ended August 1, 2020
	Common Stock				Paid-in capital			Non-controlling interests			Retained earnings			AOCL			Treasury stock					Total stockholders’ equity			Common Stock				Paid-in capital			Non-controlling interests			Retained earnings			AOCL			Treasury stock					Total stockholders’ equity
	Shares outstanding		Par value														Shares		At average cost						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
Balance, May 2, 2020																									62,284		$	1,033	$	389,904		$	7,827		$	2,022,366		$	(105,420	)	41,016		$	(1,517,644	)	$	798,066
Net income																									—		—		—			328			5,464			—			—		—			5,792
Share-based compensation issuances and exercises																									81		—		(1,376		)	—			(1,919		)	—			(81	)	3,202			(93		)
Share-based compensation expense																									—		—		3,744			—			—			—			—		—			3,744
Derivative financial instruments, net of tax																									—		—		—			—			—			(2,407		)	—		—			(2,407		)
Foreign currency translation adjustments, net of tax																									—		—		—			—			—			8,734			—		—			8,734
Distributions to noncontrolling interests, net																									—		—		—			(226		)	—			—			—		—			(226		)
Ending balance at August 1, 2020																									62,365		$	1,033	$	392,272		$	7,929		$	2,025,911		$	(99,093	)	40,935		$	(1,514,442	)	$	813,610

																									Thirteen Weeks Ended August 3, 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, May 4, 2019																									66,637		$	1,033	$	395,974		$	10,124		$	2,296,347		$	(105,291	)	36,663		$	(1,493,224	)	$	1,104,963
Net loss	—		—		—			117			(244,148		)	—			—		—			(244,031		)	—		—		—			1,618			(31,142		)	—			—		—			(29,524		)
Purchase of Common Stock	(1,397	)	—		—			—			—			—			1,397		(15,172		)	(15,172		)	(3,545	)	—		—			—			—			—			3,545		(57,812		)	(57,812		)
Dividends ($0.20 per share)	—		—		—			—			(12,556		)	—			—		—			(12,556		)	—		—		—			—			(13,139		)	—			—		—			(13,139		)
Share-based compensation issuances and exercises	895		—		(20,241		)	—			(34,675		)	—			(895	)	49,593			(5,323		)	54		—		(1,316		)	—			(1,034		)	—			(54	)	2,200			(150		)
Share-based compensation expense	—		—		5,162			—			—			—			—		—			5,162			—		—		36			—			—			—			—		—			36
Derivative financial instruments, net of tax	—		—		—			—			—			8,865			—		—			8,865			—		—		—			—			—			3,133			—		—			3,133
Foreign currency translation adjustments, net of tax	—		—		—			—			—			(5,399		)	—		—			(5,399		)	—		—		—			—			—			(3,788		)	—		—			(3,788		)
Distributions to noncontrolling interests, net	—		—		—			(4,658		)	—			—			—		—			(4,658		)	—		—		—			(424		)	—			—			—		—			(424		)
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
Ending balance at August 3, 2019																									63,146		$	1,033	$	394,694		$	11,318		$	2,251,032		$	(105,946	)	40,154		$	(1,548,836	)	$	1,003,295

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

Abercrombie & Fitch Co.

Condensed Consolidated Statements of Stockholders’ Equity

(Thousands, except per share amounts)

(Unaudited)



	Twenty-six Weeks Ended August 1, 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	—		—		—			445			(238,684		)	—			—		—			(238,239		)
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	976		—		(21,617		)	—			(36,594		)	—			(976	)	52,795			(5,416		)
Share-based compensation expense	—		—		8,906			—			—			—			—		—			8,906
Derivative financial instruments, net of tax	—		—		—			—			—			6,458			—		—			6,458
Foreign currency translation adjustments, net of tax	—		—		—			—			—			3,335			—		—			3,335
Distributions to noncontrolling interests, net	—		—		—			(4,884		)	—			—			—		—			(4,884		)
Ending balance at August 1, 2020	62,365		$	1,033	$	392,272		$	7,929		$	2,025,911		$	(99,093	)	40,935		$	(1,514,442	)	$	813,610

	Twenty-six Weeks Ended August 3, 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	—		—		—			2,487			(50,297		)	—			—		—			(47,810		)
Purchase of Common Stock	(3,545	)	—		—			—			—			—			3,545		(57,812		)	(57,812		)
Dividends ($0.40 per share)	—		—		—			—			(26,385		)	—			—		—			(26,385		)
Share-based compensation issuances and exercises	464		—		(13,353		)	—			(15,665		)	—			(464	)	22,580			(6,438		)
Share-based compensation expense	—		—		2,668			—			—			—			—		—			2,668
Derivative financial instruments, net of tax	—		—		—			—			—			3,080			—		—			3,080
Foreign currency translation adjustments, net of tax	—		—		—			—			—			(6,574		)	—		—			(6,574		)
Distributions to noncontrolling interests, net	—		—		—			(890		)	—			—			—		—			(890		)
Ending balance at August 3, 2019	63,146		$	1,033	$	394,694		$	11,318		$	2,251,032		$	(105,946	)	40,154		$	(1,548,836	)	$	1,003,295

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

Abercrombie & Fitch Co.

Condensed Consolidated Statements of Cash Flows

(Thousands)

(Unaudited)


	Thirteen Weeks Ended						Twenty-six Weeks Ended
	May 2, 2020			May 4, 2019			August 1, 2020			August 3, 2019
Operating activities
Net loss	$	(244,031	)	$	(18,286	)	$	(238,239	)	$	(47,810	)
Adjustments to reconcile net loss to net cash used for operating activities:
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Depreciation and amortization	44,037			41,042			82,753			81,541
Asset impairment	42,928			1,662			51,011			5,606
Loss on disposal	6,283			1,991			7,617			3,720
Provision for (benefit from) deferred income taxes	23,353			(9,895		)	23,037			(22,589		)
Share-based compensation	5,162			2,632			8,906			2,668
Changes in assets and liabilities:
Inventories	6,320			4,962			(18,378		)	(51,297		)
Accounts payable and accrued expenses	(72,533		)	(74,199		)	122,004			4,201
Operating lease right-of-use assets and liabilities	20,029			(10,862		)	(20,266		)	39,351
Income taxes	(3,982		)	855			(7,379		)	(5,011		)
Other assets	32,213			(10,287		)	29,940			(46,638		)
Withdrawal of funds from Rabbi Trust assets	50,000			—			50,000			0
Other liabilities	(555		)	(931		)	5,227			203
Net cash used for operating activities	(90,776		)	(71,316		)
Net cash provided by (used for) operating activities							96,233			(36,055		)
Investing activities
Purchases of property and equipment	(46,990		)	(43,872		)	(75,621		)	(94,224		)
Net cash used for investing activities	(46,990		)	(43,872		)	(75,621		)	(94,224		)
Financing activities
Proceeds from borrowings under the asset-based senior secured credit facility	210,000			—
Proceeds from issuance of senior secured notes							350,000			0
Proceeds from borrowings under the senior secured asset-based revolving credit facility							210,000			0
Repayment of borrowings under the term loan facility							(233,250		)	0
Repayment of borrowings under the senior secured asset-based revolving credit facility							(210,000		)	0
Payment of debt issuance costs and fees							(6,558		)	0
Purchases of Common Stock	(15,172		)	—			(15,172		)	(57,812		)
Dividends paid	(12,556		)	(13,246		)	(12,556		)	(26,385		)
Other financing activities	(10,604		)	(7,076		)	(11,135		)	(7,727		)
Net cash provided by (used for) financing activities	171,668			(20,322		)	71,329			(91,924		)
Effect of foreign currency exchange rates on cash	(3,891		)	(2,638		)	1,785			(2,455		)
Net increase (decrease) in cash and equivalents, and restricted cash and equivalents	30,011			(138,148		)	93,726			(224,658		)
Cash and equivalents, and restricted cash and equivalents, beginning of period	692,264			745,829			692,264			745,829
Cash and equivalents, and restricted cash and equivalents, end of period	$	722,275		$	607,681		$	785,990		$	521,171
Supplemental information related to non-cash activities
Purchases of property and equipment not yet paid at end of period	$	46,174		$	22,771		$	34,865		$	33,826
Operating lease right-of-use assets obtained in exchange for operating lease liabilities	$	35,182		$	117,829		$	23,119		$	204,499
Supplemental information related to cash activities
Cash paid for interest	$	4,387		$	3,881		$	8,127		$	7,688
Cash paid for income taxes	$	3,714		$	2,872		$	8,460		$	16,434
Cash received from income tax refunds	$	568		$	7,049		$	1,426		$	8,565
Cash paid for operating lease liabilities	$	66,510		$	94,245
Cash paid for amounts included in measurement of operating lease liabilities							$	122,128		$	200,457

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

Abercrombie & Fitch Co.

Index for Notes to Condensed Consolidated Financial Statements (Unaudited)



		Page No.
Note 1.	NATURE OF BUSINESS	89
Note 2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	89
Note 3.	IMPACT OF COVID-19	910
Note 4.	REVENUE RECOGNITION	1112
Note 5.	NET ~~LOSS~~INCOME (LOSS) PER SHARE	1112
Note 6.	FAIR VALUE	1213
Note 7.	PROPERTY AND EQUIPMENT, NET	1314
Note 8.	LEASES	1314
Note 9.	ASSET IMPAIRMENT	1314
Note 10.	RABBI TRUST ASSETS	1415
Note 11.	INCOME TAXES	1415
Note 12.	BORROWINGS	1516
Note 13.	SHARE-BASED COMPENSATION	1617
Note 14.	DERIVATIVE INSTRUMENTS	1819
Note 15.	ACCUMULATED OTHER COMPREHENSIVE LOSS	2021
Note 16.	SEGMENT REPORTING	2122
Note 17.	FLAGSHIP STORE EXIT (BENEFITS) CHARGES	2223

Abercrombie & Fitch Co.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. NATURE OF BUSINESS

Abercrombie & Fitch Co. (“A&F”), a company incorporated in Delaware in 1996, through its subsidiaries (collectively, A&F and its subsidiaries are referred to as “Abercrombie & Fitch” or the “Company”), is a global multi-brand omnichannel specialty retailer, whose products are sold primarily through its Company-owned store and digital channels, as well as through various third-party wholesale, franchise and licensing arrangements. The Company offers a broad assortment of apparel, personal care products and accessories for men, women and kids under the Hollister, Abercrombie & Fitch and abercrombie kids brands. The brands share a commitment to offering unique products of enduring quality and exceptional comfort that allow customers around the world to express their own individuality and style. The Company primarily has operations in North America, Europe and Asia, among other regions.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The accompanying Condensed Consolidated Financial Statements include historical financial statements of, and transactions applicable to, the Company and reflect its financial position, results of operations and cash flows.

The Company has interests in an Emirati business venture and in a Kuwaiti business venture with Majid al Futtaim Fashion L.L.C. (“MAF”), each of which meets the definition of a variable interest entity (“VIE”). The Company is deemed to be the primary beneficiary of these VIEs; therefore, the Company has consolidated the operating results, assets and liabilities of these VIEs, with MAF’s portion of net income presented as net income attributable to noncontrolling interests (“NCI”) on the Condensed Consolidated Statements of Operations and Comprehensive ~~Loss~~Income (Loss) and MAF’s portion of equity presented as NCI on the Condensed Consolidated Balance Sheets.

Fiscal year

The Company’s fiscal year ends on the Saturday closest to January 31. This typically results in a fifty-two week year, but occasionally gives rise to an additional week, resulting in a fifty-three week year. Fiscal years are designated in the Condensed Consolidated Financial Statements and notes, as well as the remainder of this Quarterly Report on Form 10-Q, by the calendar year in which the fiscal year commences. All references herein to the Company’s fiscal years are as follows:



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

Interim financial statements

The Condensed Consolidated Financial Statements as of ~~May 2,~~August 1, 2020, and for the thirteen and twenty-six week periods ended ~~May 2,~~August 1, 2020 and ~~May 4,~~August 3, 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 2019 filed with the SEC on March 31, 2020. The February 1, 2020 consolidated balance sheet data, included herein, were derived from audited consolidated financial statements, but do not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).

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

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 impact management's estimates and result in material impacts to the Company’s consolidated financial statements in future reporting periods.

Recent accounting pronouncements

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

Condensed Consolidated Statements of Cash Flows reconciliation

The following table provides a reconciliation of cash and equivalents and restricted cash and equivalents to the amounts shown on the Condensed Consolidated Statements of Cash Flows:


(in thousands)	Location	May 2, 2020		February 1, 2020		May 4, 2019		February 2, 2019		Location	August 1, 2020		February 1, 2020		August 3, 2019		February 2, 2019
Cash and equivalents	Cash and equivalents	$	703,989	$	671,267	$	586,133	$	723,135	Cash and equivalents	$	766,721	$	671,267	$	499,757	$	723,135
Long-term restricted cash and equivalents	Other assets	18,286		18,696		21,548		22,694		Other assets	19,269		18,696		18,877		22,694
Short-term restricted cash and equivalents	Other current assets	—		2,301		—		—		Other current assets	0		2,301		2,537		0
Cash and equivalents and restricted cash and equivalents		$	722,275	$	692,264	$	607,681	$	745,829		$	785,990	$	692,264	$	521,171	$	745,829

3. IMPACT OF COVID-19

Recent developments

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

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

~~In mid-March 2020,~~ The Company is reacting to COVID-19 on a daily basis, including by conforming to local government guidance and monitoring developments in government legislation or other government actions in response to the COVID-19 outbreak. The Company has also implemented a range of precautionary health and safety measures with the well-being of the Company’s customers, associates and business partners in ~~mind,~~mind.

As a result of COVID-19, in January 2020, the Company temporarily closed the majority of its ~~Company-operated~~stores in the APAC region and in March 2020, the Company temporarily closed its stores across brands in North America and the EMEA region. The majority of APAC stores were reopened during March 2020, and the Company began to reopen ~~these~~ stores in North America and the EMEA region on a rolling basis ~~beginning~~ in late April 2020. ~~The Company has experienced sales productivity~~As of August 1, 2020, approximately 90% of Company-operated stores had reopened 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,in-store service, although many with ~~temporarily reduced~~modified operating hours. The Company plans to follow the guidance of local governments to determine when it can reopen ~~remaining~~ stores that have been closed due to COVID-19 and to evaluate whether further store closures will be necessary. ~~As of June 5, 2020, approximately 58% of Company-operated stores were open.~~

The 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~~closures as the ~~first quarter of Fiscal 2020 as compared~~Company’s distribution centers implemented enhanced cleaning and social distancing measures in order 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.remain operational.

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.

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 decreased approximately 17% and 25% for the ~~first quarter of Fiscal~~thirteen and twenty-six weeks ended August 1, 2020 ~~decreased approximately 34%~~ as compared to the ~~first quarter of Fiscal 2019.~~comparable periods ended August 3, 2019, respectively. The year-over-year ~~decline~~decrease in total net sales was primarily driven by temporary widespread store closures and a decline in ~~response~~traffic as compared to ~~COVID-19,~~the previous year as a result of COVID-19. The year-over-year decline in store sales was partially offset by digital sales growth of approximately ~~25%~~56% and 41% for the thirteen and twenty-six weeks ended August 1, 2020 as compared to ~~more than $275 million.~~the comparable periods ended August 3, 2019, respectively.

Primarily 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~~Income (Loss) during the ~~first quarter of Fiscal~~thirteen weeks ended May 2, 2020.

During the ~~first quarter of Fiscal~~thirteen and twenty-six weeks ended August 1, 2020, reductions in revenue have not been offset by proportional decreases in expense, as the Company continued to incur store occupancy costs such as operating lease costs, ~~and~~net of rent abatements agreed upon during the period, 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 2, 2020,~~this period, the Company suspended rent payments for a significant number of stores that were closed, and continues to engage with its ~~landlords. In~~landlords to find a mutually beneficial and agreeable path forward. To the ~~period during which~~extent that the Company is successful in negotiating further rent ~~was due,~~abatements, these benefits will be recognized as a component of variable lease cost. For stores where the Company suspended payments, the Company reclassified related amounts from operating lease liability to accrued expenses in the period during which rent was due, while continuing to recognize operating lease cost in the Condensed Consolidated Statement of Operations and Comprehensive ~~Loss.~~Income (Loss).

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which among other things, provides refundable employee retention tax credits for wages paid to employees who are unable to work during the COVID–19 outbreak and the deferral of the employer–paid portion of social security taxes. Similar relief programs have also been established throughout the EMEA and APAC regions. Based on the Company's ~~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~~thirteen and twenty-six weeks ended August 1, 2020, the Company recognized qualified payroll tax credits ~~reduced~~reducing payroll expenses by approximately ~~$8.8~~$3.1 million and $11.8 million, respectively, on the Condensed Consolidated Statements of Operations and Comprehensive ~~Loss,~~Income (Loss), with ~~$7.9~~$3.6 million of expected relief classified in receivables on the Condensed Consolidated Balance Sheet as of ~~May 2,~~August 1, 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 asset impairment charges related to the Company’s right-of-use assets and property and equipment of ~~$42.9~~$8.1 million and $51.0 million during the ~~first quarter of Fiscal~~thirteen and twenty-six weeks ended August 1, 2020, respectively, which were principally the result of the impact of COVID-19 on store cash flows. Refer to Note 9, “ASSET IMPAIRMENT,” for additional information.

In addition, the Company has also experienced other material impacts as a result of COVID-19, such as ~~the establishment of~~ deferred tax valuation allowances and other tax charges during the twenty-six weeks ended August 1, 2020, adversely impacting results ~~in the first quarter of Fiscal 2020~~ by ~~approximately $90.9~~$84.1 million. Refer to Note 11, “INCOME TAXES,” for additional information.

Balance sheet, cash flow and liquidity

~~Throughout~~During the ~~first quarter of Fiscal~~twenty-six weeks ended August 1, 2020, the Company ~~took~~has taken various actions to preserve liquidity and manage cash flows in order to best position the business for key stakeholders, including (i) partnering with merchandise and non-merchandise vendors in regards to payment terms; (ii) 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~~temporarily suspending its share repurchase program in March 2020 and its dividend program in May 2020. In addition, despite the Company’s ~~store and corporate associates, as well as A&F’s non-associate directors.~~recent history of partnering with its vendors regarding payment terms, there can be no assurance that the Company will be able to maintain extended payment terms or continue to defer payments, which may result in incremental operating cash outflows in future periods.

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

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,~~August 1, 2020, the Company had liquidity of ~~$763.4 million~~$1.061 billion 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.

4. REVENUE RECOGNITION

Disaggregation of revenue

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

Contract liabilities

The following table details certain contract liabilities representing unearned revenue as of ~~May 2,~~August 1, 2020, February 1, 2020, ~~May 4,~~August 3, 2019 and February 2, 2019:


(in thousands)	May 2, 2020		February 1, 2020		May 4, 2019		February 2, 2019		August 1, 2020		February 1, 2020		August 3, 2019		February 2, 2019
Gift card liability	$	24,671	$	28,844	$	22,067	$	26,062	$	22,461	$	28,844	$	20,056	$	26,062
Loyalty program liability	$	18,814	$	23,051	$	19,830	$	19,904	$	19,674	$	23,051	$	21,073	$	19,904

The following table details recognized revenue associated with the Company’s gift card program and loyalty programs for the thirteen and twenty-six weeks ended ~~May 2,~~August 1, 2020 and ~~May 4,~~August 3, 2019:


	Thirteen Weeks Ended				Thirteen Weeks Ended				Twenty-six Weeks Ended
(in thousands)	May 2, 2020		May 4, 2019		August 1, 2020		August 3, 2019		August 1, 2020		August 3, 2019
Revenue associated with gift card redemptions and gift card breakage	$	11,009	$	15,284	$	10,066	$	12,792	$	21,075	$	28,076
Revenue associated with reward redemptions and breakage related to the Company’s loyalty programs	$	5,709	$	6,518	$	7,982	$	8,028	$	13,691	$	14,546

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

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


	Thirteen Weeks Ended				Thirteen Weeks Ended				Twenty-six Weeks Ended
(in thousands)	May 2, 2020		May 4, 2019		August 1, 2020		August 3, 2019		August 1, 2020		August 3, 2019
Shares of Common Stock issued	103,300		103,300		103,300		103,300		103,300		103,300
Weighted-average treasury shares	(40,759	)	(36,760	)	(40,773	)	(38,144	)	(40,757	)	(37,452	)
Weighted-average — basic shares	62,541		66,540		62,527		65,156		62,543		65,848
Dilutive effect of share-based compensation awards	—		—		759		0		0		0
Weighted-average — diluted shares	62,541		66,540		63,286		65,156		62,543		65,848
Anti-dilutive shares ⁽¹⁾	2,195		2,812		2,026		3,318		2,123		3,065

⁽¹⁾

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

6. FAIR VALUE

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The inputs used to measure fair value are prioritized based on a three-level hierarchy. The three levels of inputs to measure fair value are as follows:

Level 1—inputs are unadjusted quoted prices for identical assets or liabilities that are available in active markets that the Company can access at the measurement date.

Level 2—inputs are other than quoted market prices included within Level 1 that are observable for assets or liabilities, directly or indirectly.

Level 3—inputs to the valuation methodology are unobservable.

The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy. The three levels of the hierarchy and the distribution of the Company’s assets and liabilities that are measured at fair value on a recurring basis, as of August 1, 2020 and February 1, 2020 were as follows:


	Assets at Fair Value as of May 2, 2020								Assets at Fair Value as of August 1, 2020
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents ⁽¹⁾	$	265	$	23,571	$	—	$	23,836	$	10,267	$	29,340	$	0	$	39,607
Rabbi Trust assets ⁽²⁾	1		59,638		—		59,639		1		60,027		0		60,028
Restricted cash equivalents ⁽³⁾	6,298		8,050		—		14,348		6,751		5,895		0		12,646
Total assets	$	6,564	$	91,259	$	—	$	97,823	$	17,019	$	95,262	$	0	$	112,281


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

Liabilities:
Derivative instruments ⁽⁴⁾	$	—	$	1,460	$	—	$	1,460	$	0	$	1,460	$	0	$	1,460
Total liabilities	$	—	$	1,460	$	—	$	1,460	$	0	$	1,460	$	0	$	1,460


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


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


⁽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.

Fair value of long-term borrowings

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


(in thousands)	May 2, 2020		February 1, 2020		August 1, 2020		February 1, 2020
Gross borrowings outstanding, carrying amount	$	233,250	$	233,250	$	350,000	$	233,250
Gross borrowings outstanding, fair value	$	219,255	$	233,979	$	350,875	$	233,979

7. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of:


(in thousands)	May 2, 2020			February 1, 2020			August 1, 2020			February 1, 2020
Property and equipment, at cost	$	2,751,471		$	2,744,967		$	2,780,621		$	2,744,967
Less: Accumulated depreciation and amortization	(2,096,687		)	(2,079,677		)	(2,144,918		)	(2,079,677		)
Property and equipment, net	$	654,784		$	665,290		$	635,703		$	665,290

Refer to Note 9, “ASSET IMPAIRMENT,” for details related to property and equipment impairment charges incurred during the thirteen and twenty-six weeks ended ~~May 2,~~August 1, 2020 and ~~May 4,~~August 3, 2019.

8. LEASES

The Company ~~has~~is a party to leases related to its Company-operated retail stores as well as for certain of its distribution centers, office space, information technology and equipment.

During the thirteen and twenty-six weeks ended ~~May 2,~~August 1, 2020, the Company suspended rent payments for a significant number of stores that were closed as a result of COVID-19, and continues to engage with its ~~landlords. In~~landlords to find a mutually beneficial and agreeable path forward. To the ~~period during which~~extent that the Company is successful in negotiating further rent ~~was due,~~abatements, these benefits will be recognized as a component of variable lease cost. For stores where the Company suspended payments, the Company reclassified related amounts from operating lease liability to accrued expenses in the period during which rent was due, while continuing to recognize operating lease cost in the Condensed Consolidated Statement of Operations and Comprehensive ~~Loss.~~Income (Loss).

The following table provides a summary of the Company’s operating lease costs for the thirteen and twenty-six weeks ended ~~May 2,~~August 1, 2020 and ~~May 4,~~August 3, 2019:


	Thirteen Weeks Ended				Thirteen Weeks Ended				Twenty-six Weeks Ended
(in thousands)	May 2, 2020		May 4, 2019		August 1, 2020		August 3, 2019		August 1, 2020		August 3, 2019
Single lease cost ⁽¹⁾	$	93,492	$	92,274	$	87,698	$	121,270	$	181,189	$	213,544
Variable lease cost ⁽²⁾	27,901		42,845		19,433		60,238		47,335		103,083
Operating lease right-of-use asset impairment ⁽³⁾	35,008		—		5,410		3,589		40,418		3,589
Total operating lease cost	$	156,401	$	135,119	$	112,541	$	185,097	$	268,942	$	320,216


⁽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.~~costs, as well as rent abatements agreed upon during the period.


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

During the twenty-six weeks ended August 1, 2020 and August 3, 2019, the Company paid $122.1 million and $200.5 million, respectively, for amounts included in measurement of operating lease liabilities, net of rent abatements agreed upon during the period which are classified as a component variable lease cost as noted in the above table. These payments are included within operating activities on the Condensed Consolidated Statements of Cash Flows.

During the twenty-six weeks ended August 1, 2020 and August 3, 2019, the Company obtained operating lease right-of-use assets of $23.1 million and $204.5 million, respectively, in exchange for operating lease liabilities.

As of ~~May 2,~~August 1, 2020, the Company had minimum commitments related to additional operating lease contracts ~~that~~the terms of which have not yet commenced, primarily for its Company-operated retail stores, of approximately ~~$2.6~~$2.8 million.

9. ASSET IMPAIRMENT

Asset impairment charges for the thirteen and twenty-six weeks ended ~~May 2,~~August 1, 2020 and ~~May 4,~~August 3, 2019 were as follows:


	Thirteen Weeks Ended				Thirteen Weeks Ended				Twenty-six Weeks Ended
(in thousands)	May 2, 2020		May 4, 2019		August 1, 2020		August 3, 2019		August 1, 2020		August 3, 2019
Operating lease right-of-use asset impairment(1)	$	35,008	$	—	$	5,410	$	3,589	$	40,418	$	3,589
Property and equipment asset impairment	7,920		1,662		2,673		355		10,593		2,017
Total asset impairment	$	42,928	$	1,662	$	8,083	$	3,944	$	51,011	$	5,606


⁽¹⁾	Includes $3.2 million of operating lease right-of-use asset impairment related to flagship store exit charges for each of the thirteen and twenty-six weeks ended August 3, 2019. Refer to Note 17, “FLAGSHIP STORE EXIT (BENEFITS) CHARGES.”

Asset impairment charges for the thirteen weeks and twenty-six weeks ended ~~May 2,~~August 1, 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~~charges for the twenty-six weeks ended August 1, 2020 reduced the then carrying ~~value~~amount of ~~these~~the impaired stores’ assets to their ~~estimated~~ fair value of approximately ~~$127.9~~$135.5 million, including ~~$118.8~~$124.6 million related to operating lease right-of-use assets.

Asset impairment charges for the thirteen weeks and twenty-six weeks ended ~~May 4,~~August 3, 2019, primarily related to ~~certain~~the Company’s SoHo, New York City Hollister flagship. The impairment charges for the twenty-six weeks ended August 3, 2019 reduced the then carrying amount of the ~~Company’s mall-based stores. The impairment charge reduced the carrying value of these~~impaired stores’ assets to their ~~estimated~~ fair value of approximately ~~$2.8~~$8.2 million, ~~all of which~~including $7.0 million related to operating lease right-of-use assets.

10. RABBI TRUST ASSETS

As a precautionary measure and to preserve liquidity in light of the circumstances surrounding COVID-19, during the ~~thirteen~~twenty-six weeks ended ~~May 2,~~August 1, 2020, the Company withdrew the majority of excess funds from the overfunded Rabbi Trust assets, providing the Company with $50.0 million of additional cash.

Investments of Rabbi Trust assets consisted of the following as of ~~May 2,~~August 1, 2020 and February 1, 2020:


(in thousands)	May 2, 2020		February 1, 2020		August 1, 2020		February 1, 2020
Trust-owned life insurance policies (at cash surrender value)	$	59,638	$	109,048	$	60,027	$	109,048
Money market funds	1		1		1		1
Rabbi Trust assets	$	59,639	$	109,049	$	60,028	$	109,049

Realized gains resulting from the change in cash surrender value of the Rabbi Trust assets for the thirteen and twenty-six weeks ended ~~May 2,~~August 1, 2020 and ~~May 4,~~August 3, 2019 were as follows:


	Thirteen Weeks Ended				Thirteen Weeks Ended				Twenty-six Weeks Ended
(in thousands)	May 2, 2020		May 4, 2019		August 1, 2020		August 3, 2019		August 1, 2020		August 3, 2019
Realized gains related to Rabbi Trust assets	$	590	$	791	$	388	$	798	$	978	$	1,589

11. INCOME TAXES

The quarterly provision for income taxes is based on the current estimate of the annual effective income tax rate and is adjusted as necessary for discrete quarterly events. The Company’s quarterly provision and the estimate of the annual effective tax rate are subject to significant variation due to several factors. These factors include variability in the pre-tax jurisdictional mix of earnings, changes in how the Company does business including entering into new businesses or geographies, changes in foreign currency exchange rates, changes in laws, regulations, interpretations and administrative practices, relative changes in expenses or losses for which tax benefits are not recognized and the impact of discrete items. In addition, jurisdictions where the Company anticipates an ordinary loss for the fiscal year for which the Company does not anticipate future benefits are excluded from the overall computation of estimated annual effective tax rate and no tax ~~benefit~~benefits are recognized in the period related to losses in such jurisdictions. The impact of these items on the effective tax rate will be greater at lower levels of pre-tax earnings.

Impact of valuation allowances and other tax charges during ~~the first quarter of~~ Fiscal 2020

The Company’s effective tax rate for the ~~first quarter of Fiscal~~twenty-six weeks ended August 1, 2020 was impacted by ~~$90.9~~$84.1 million of adverse tax impacts, ultimately giving rise to income tax expense on a consolidated pre-tax year-to-date loss. Further details regarding these adverse tax impacts are as follows:

The Company anticipates pre-tax losses for the full fiscal year in certain jurisdictions, based on information currently available, primarily due to the significant adverse impacts of COVID-19. The Company did not recognize income tax benefits on ~~$212.0~~$204.1 million of pre-tax losses during the ~~first quarter of Fiscal~~twenty-six weeks ended August 1, 2020, resulting in an adverse tax impact of ~~$56.6~~$47.6 million.

The Company recognized ~~discrete~~ charges of ~~$34.3~~$36.5 million related to the establishment of valuation allowances and other tax charges in certain jurisdictions during the ~~thirteen~~twenty-six weeks ended ~~May 2,~~August 1, 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~~$10.6 million and $6.0 million related to the U.S. and Germany, respectively, as well as valuation allowances and other tax charges in certain other jurisdictions against underlying tax asset balances that existed as of February 1, 2020. The Company also recognized valuation allowances of $78.9 million related to Switzerland with a U.S. branch equally offsetting amount, which in net, did not have an impact on the Condensed Consolidated Statement of Operations and Comprehensive ~~Loss.~~Income (Loss). Changes in assumptions may occur based on new information that becomes available resulting in adjustments in the period in which a determination is made.

Global legislation in response to COVID-19

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

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

Share-based compensation

Refer to Note 13, “SHARE-BASED COMPENSATION,” for details on ~~discrete~~ income tax benefits and charges related to share-based compensation awards during the thirteen and twenty-six weeks ended ~~May 4,~~August 3, 2019.

12. BORROWINGS

~~Asset-based revolving credit facility~~Details on the Company’s long-term borrowings, net, as of August 1, 2020 and February 1, 2020 are as follows:



(in thousands)	August 1, 2020			February 1, 2020
Long-term portion of borrowings, gross at carrying amount	$	350,000		$	233,250
Unamortized fees	(6,750		)	(355		)
Unamortized discount	0			(932		)
Long-term borrowings, net	$	343,250		$	231,963

Senior Secured Notes

On ~~August 7, 2014, the Company, through its subsidiary~~July 2, 2020, Abercrombie & Fitch Management Co. (“A&F Management”), a wholly-owned indirect subsidiary of the Company, completed the private offering of the Senior Secured Notes, with a $350 million aggregate principal amount due in 2025 at an offering price of 100% of the principal amount thereof. The Senior Secured Notes were issued pursuant to an indenture, dated as of July 2, 2020, by and among A&F Management, A&F and certain of its wholly-owned subsidiaries, as guarantors, and U.S. Bank National Association, as trustee, and as collateral agent.

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

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

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

ABL Facility

The ABL Facility, which was entered into on August 7, 2014 through A&F Management as the lead borrower (with A&F and certain other subsidiaries as borrowers or guarantors)~~, entered into an asset-based revolving credit agreement.~~

On and later amended 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 provideprovides for a senior secured asset-based revolving credit facility of up to $400 million (the ~~“Amended~~“ABL Facility”).

The ABL ~~Facility”)~~Facility will mature on October 19, 2022.

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~~During the thirteen weeks ended August 1, 2020, the Company used net proceeds from the offering of the Senior Secured Notes and cash on hand to repay all outstanding borrowings under the ~~Amended~~ABL Facility.

The Company did not have any borrowings outstanding under the ABL Facility as of ~~May 2,~~August 1, 2020 ~~and~~or as of 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~~.2020.

As of ~~May 2,~~August 1, 2020, the Company had availability under the ~~Amended~~ ABL Facility of ~~$89.4~~$327.5 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~~$294.6 million as of ~~May 2,~~August 1, 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~~Loan Facility

OnThe Term Loan Facility, which was entered into on August 7, 2014 ~~the Company,~~ through ~~its subsidiary~~ A&F Management as the lead borrower (with A&F and certain other subsidiaries as borrowers or guarantors)~~, entered into a term loan agreement, which provides~~ and later amended on June 22, 2018, provided for a term loan facility of $300 ~~million (the “Term Loan Facility” and, together with the Amended ABL Facility, the “Credit Facilities”).~~million.

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 thenThe Company had gross borrowings outstanding under the Term Loan Facility ~~which resulted in~~of $233.3 million as of February 1, 2020. During the ~~reduction~~thirteen weeks ended August 1, 2020, the Company used a portion of the ~~applicable margins for term loans by 0.25%.~~

~~Additional details on~~proceeds from the issuance of the Senior Secured Notes to repay all outstanding 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~~upon repayment the Term Loan Facility was ~~4.50%~~terminated effective as of ~~May~~July 2, 2020.

The Term Loan Facility ~~will~~was previously scheduled to 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.

Representations, warranties and covenants

The ~~Credit Facilities~~aforementioned agreements contain various representations, warranties and restrictive covenants that, among other things and subject to specified exceptions, restrict the ability of ~~A&F~~the Company and its subsidiaries toto: grant or incur ~~indebtedness (including guarantees), grant liens,~~liens; incur, assume or guarantee additional indebtedness; sell or otherwise dispose of assets, including capital stock of subsidiaries; make investments in certain subsidiaries; pay dividends, make distributions or ~~distributions with respect to~~redeem or repurchase capital ~~stock, make prepayments on other indebtedness, engage in mergers, dispose of certain assets or~~stock; change the nature of their ~~business. In addition, excess availability equal to the greater of 10%~~business; and consolidate or merge with or into, or sell substantially all of the ~~loan cap~~Company’s or ~~$30 million must be maintained under the Amended ABL Facility. The Credit Facilities do not otherwise contain financial maintenance covenants.~~A&F Management’s assets to, another entity.

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

Certain of these agreements also contain certain affirmative covenants, including reporting requirements such as delivery of financial statements, certificates and notices of certain events, maintaining insurance and providing additional guarantees and collateral in certain circumstances.

The Company was in compliance with ~~the~~all debt covenants under the ~~Credit Facilities~~aforementioned agreements as of ~~May 2,~~August 1, 2020.

13. SHARE-BASED COMPENSATION

Financial statement impact

The following table details share-based compensation expense and the related income tax ~~benefit~~impacts for the thirteen and twenty-six weeks ended ~~May 2,~~August 1, 2020 and ~~May 4,~~August 3, 2019:


	Thirteen Weeks Ended				Thirteen Weeks Ended					Twenty-six Weeks Ended
(in thousands)	May 2, 2020		May 4, 2019		August 1, 2020		August 3, 2019			August 1, 2020		August 3, 2019
Share-based compensation expense	$	5,162	$	2,632	$	3,744	$	36		$	8,906	$	2,668
Income tax benefit associated with share-based compensation expense recognized ⁽¹⁾	$	—	$	550
Income tax (expense) benefit associated with share-based compensation expense recognized ⁽¹⁾					$	0	$	(195	)	$	0	$	355


⁽¹⁾	No income tax benefit was recognized related to share-based compensation expense during the thirteen and twenty-six weeks ended ~~May 2,~~August 1, 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 and twenty-six weeks ended ~~May 2,~~August 1, 2020 and ~~May 4,~~August 3, 2019:


	Thirteen Weeks Ended					Thirteen Weeks Ended					Twenty-six Weeks Ended
(in thousands)	May 2, 2020		May 4, 2019			August 1, 2020		August 3, 2019			August 1, 2020		August 3, 2019
Income tax discrete benefits realized for tax deductions related to the issuance of shares ⁽¹⁾	$	—	$	1,239
Income tax discrete (charges) benefits realized for tax deductions related to the issuance of shares ⁽¹⁾						$	0	$	(70	)	$	0	$	1,169
Income tax discrete charges realized upon cancellation of stock appreciation rights ⁽¹⁾	—		(165		)	0		0			0		(165		)
Total income tax discrete benefits related to share-based compensation awards	$	—	$	1,074
Total income tax discrete (charges) benefits related to share-based compensation awards						$	0	$	(70	)	$	0	$	1,004


⁽¹⁾	No income tax benefits or charges related to these items were recognized during the thirteen and twenty-six weeks ended ~~May 2,~~August 1, 2020 due to the U.S. being a loss jurisdiction.

The following table details the amount of employee tax withheld by the Company upon the issuance of shares associated with restricted stock units vesting and the exercise of stock appreciation rights for the thirteen and twenty-six weeks ended ~~May 2,~~August 1, 2020 and ~~May 4,~~August 3, 2019:

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



	Thirteen Weeks Ended				Twenty-six Weeks Ended
(in thousands)	August 1, 2020		August 3, 2019		August 1, 2020		August 3, 2019
Employee tax withheld upon issuance of shares ⁽¹⁾	$	93	$	150	$	5,416	$	6,438


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

Restricted stock units

The following table summarizes activity for restricted stock units for the ~~thirteen~~twenty-six weeks ended ~~May 2,~~August 1, 2020:


	Service-based Restricted Stock Units				Performance-based Restricted Stock Units				Market-based Restricted Stock Units				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		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	1,676,831		$	18.68	747,056		$	15.11	421,784		$	23.05
Granted	1,646,771		7.29		—		—		—		—		1,814,294		7.58		0		0		0		0
Adjustments for performance achievement	—		—		38,381		11.37		134,122		11.79		0		0		38,381		11.37		134,122		11.79
Vested	(639,921	)	18.00		(478,728	)	9.58		(350,447	)	11.79		(726,341	)	17.67		(481,304	)	9.63		(350,447	)	11.79
Forfeited	(12,881	)	19.99		(817	)	17.56		—		—		(41,100	)	15.73		(6,917	)	22.80		(3,485	)	35.61
Unvested at May 2, 2020 ⁽²⁾	2,670,800		$	11.81	305,892		$	22.39	205,459		$	34.90
Unvested at August 1, 2020 ⁽²⁾													2,723,684		$	11.59	297,216		$	22.43	201,974		$	34.89

⁽¹⁾

Includes 79,028 unvested restricted stock units as of ~~May 2,~~August 1, 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 are reflected at 100% of their target vesting amount in the table above. Certain unvested shares related to restricted stock units with performance-based vesting conditions can be achieved at up to 200% of their target vesting amount.

The following table details unrecognized compensation cost and the remaining weighted-average period these costs are expected to be recognized for restricted stock units as of ~~May 2,~~August 1, 2020:


(in thousands)	Service-based Restricted Stock Units		Performance-based Restricted Stock Units		Market-based Restricted Stock Units		Service-based Restricted Stock Units		Performance-based Restricted Stock Units		Market-based Restricted Stock Units
Unrecognized compensation cost	$	28,275	$	161	$	3,308	$	26,520	$	0	$	2,567
Remaining weighted-average period cost is expected to be recognized (years)	1.4		0.1		0.9		1.3		0.0		0.8

Additional information pertaining to restricted stock units for the ~~thirteen~~twenty-six weeks ended ~~May 2,~~August 1, 2020 and ~~May 4,~~August 3, 2019 follows:


(in thousands)	May 2, 2020		May 4, 2019		August 1, 2020		August 3, 2019
Service-based restricted stock units:
Total grant date fair value of awards granted	$	12,005	$	14,473	$	13,752	$	16,052
Total grant date fair value of awards vested	$	11,519	$	10,971	$	12,834	$	12,576

Performance-based restricted stock units:
Total grant date fair value of awards granted	$	—	$	5,312	$	0	$	5,379
Total grant date fair value of awards vested	$	4,586	$	—	$	4,635	$	0

Market-based restricted stock units:
Total grant date fair value of awards granted	$	—	$	4,176	$	0	$	4,176
Total grant date fair value of awards vested	$	4,132	$	511	$	4,132	$	511

No market-based restricted stock units were granted during the ~~thirteen~~twenty-six weeks ended ~~May 2,~~August 1, 2020. The weighted-average assumptions used for market-based restricted stock units in the Monte Carlo simulation during the ~~thirteen~~twenty-six weeks ended ~~May 4,~~August 3, 2019 were as follows:


	May 4, 2019			August 3, 2019
Grant date market price	$	25.34		$	25.34
Fair value	$	36.24		$	36.24
Assumptions:
Price volatility	57		%	57		%
Expected term (years)	2.9			2.9
Risk-free interest rate	2.2		%	2.2		%
Dividend yield	3.2		%	3.2		%
Average volatility of peer companies	40.0		%	40.0		%
Average correlation coefficient of peer companies	0.2407			0.2407

Stock appreciation rights

The following table summarizes stock appreciation rights activity for the ~~thirteen~~twenty-six weeks ended ~~May 2,~~August 1, 2020:


	Number of Underlying Shares		Weighted-Average Exercise Price		Aggregate Intrinsic Value		Weighted-Average Remaining Contractual Life (years)	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				796,725		$	40.06
Granted	—		—					0		0
Exercised	—		—					0		0
Forfeited or expired	(162,475	)	44.86					(382,225	)	47.87
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
Outstanding at August 1, 2020								414,500		$	32.86	$	0	3.7
Stock appreciation rights exercisable at August 1, 2020								414,500		$	32.86	$	0	3.7
Stock appreciation rights expected to become exercisable in the future as of August 1, 2020								0		$	0	$	0	0.0

No stock appreciation rights were exercised during the ~~thirteen~~twenty-six weeks ended ~~May 2,~~August 1, 2020. Additional information pertaining to stock appreciation rights for the ~~thirteen~~twenty-six weeks ended ~~May 4,~~August 3, 2019 follows:


(in thousands)	May 4, 2019		August 3, 2019
Total grant date fair value of awards exercised	$	2,379	$	586

14. DERIVATIVE INSTRUMENTS

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

The Company uses derivative instruments, primarily foreign currency exchange forward contracts designated as cash flow hedges, to hedge the foreign currency exchange rate exposure associated with forecasted foreign currency denominated intercompany inventory sales to foreign subsidiaries and the related settlement of the foreign currency denominated intercompany receivables. Fluctuations in foreign currency exchange rates will either increase or decrease the Company’s intercompany equivalent cash flows and affect the Company’s U.S. Dollar earnings. Gains or losses on the foreign currency exchange forward contracts that are used to hedge these exposures are expected to partially offset this variability. Foreign currency exchange forward contracts represent agreements to exchange the currency of one country for the currency of another country at an agreed upon settlement date. These foreign currency exchange forward contracts typically have a maximum term of twelve months. The sale of the inventory to the Company’s customers will result in the reclassification of related derivative gains and losses that are reported in 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/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 be remeasured at the spot exchange rate at quarter–end or upon settlement. The Company has chosen not to

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.~~August 1, 2020, although the Company may enter into these contracts in future periods. The location and amounts of derivative fair values of foreign currency exchange forward contracts on the Condensed Consolidated Balance Sheet as of February 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

The fair value of derivative instruments is valued using quoted market prices of the same or similar instruments, adjusted for counterparty risk.

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 amortization when the originally forecasted transactions occur and the hedged items affect earnings. During the ~~thirteen~~twenty-six weeks ended ~~May 2,~~August 1, 2020 and subsequent to the dedesignation of these hedges, these hedge contracts were settled.

Information pertaining to derivative gains or losses from foreign currency exchange forward contracts designated as cash flow hedging instruments for the thirteen and twenty-six weeks ended ~~May 2,~~August 1, 2020 and ~~May 4,~~August 3, 2019 follows:

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



	Thirteen Weeks Ended				Twenty-six Weeks Ended
(in thousands)	August 1, 2020		August 3, 2019		August 1, 2020		August 3, 2019
Gain recognized in AOCL ⁽¹⁾	$	0	$	4,791	$	12,235	$	7,053
Gain reclassified from AOCL into cost of sales, exclusive of depreciation and amortization ⁽²⁾	$	2,407	$	1,763	$	5,777	$	4,303


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


⁽²⁾	Amount represents gain reclassified from ~~accumulated other comprehensive loss~~AOCL to cost of sales, exclusive of depreciation and amortization, on the Condensed Consolidated Statements of Operations and Comprehensive ~~Loss~~Income (Loss) when the hedged item affects earnings, which is when merchandise is converted to cost of sales, exclusive of depreciation and amortization.

Substantially all of the unrealized gain will be recognized in costs of sales, exclusive of depreciation and amortization, on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) over the next twelve months.

Additional information pertaining to derivative gains or losses from foreign currency exchange forward contracts not designated as hedging instruments for the thirteen and twenty-six weeks ended ~~May 2,~~August 1, 2020 and ~~May 4,~~August 3, 2019 follows:


	Thirteen Weeks Ended				Thirteen Weeks Ended				Twenty-six Weeks Ended
(in thousands)	May 2, 2020		May 4, 2019		August 1, 2020		August 3, 2019		August 1, 2020		August 3, 2019
Gain recognized in other operating loss (income), net	$	742	$	275
Gain recognized in other operating (income) loss, net					$	0	$	906	$	742	$	1,181

15. ACCUMULATED OTHER COMPREHENSIVE LOSS

For the thirteen and twenty-six weeks ended ~~May 2,~~August 1, 2020, the activity in accumulated other comprehensive loss was as follows:


	Thirteen Weeks Ended May 2, 2020									Thirteen Weeks Ended August 1, 2020
(in thousands)	Foreign Currency Translation Adjustment			Unrealized Gain (Loss) on Derivative Financial Instruments			Total			Foreign Currency Translation Adjustment			Unrealized Gain (Loss) on Derivative Financial Instruments			Total
Beginning balance at May 2, 2020										$	(115,366	)	$	9,946		$	(105,420	)
Other comprehensive income before reclassifications										8,734			0			8,734
Reclassified gain from accumulated other comprehensive loss ⁽¹⁾										0			(2,407		)	(2,407		)
Other comprehensive income (loss) after reclassifications ⁽²⁾										8,734			(2,407		)	6,327
Ending balance at August 1, 2020										$	(106,632	)	$	7,539		$	(99,093	)

										Twenty-six Weeks Ended August 1, 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	)	$	(109,967	)	$	1,081		$	(108,886	)
Other comprehensive (loss) income before reclassifications	(5,399		)	12,235			6,836
Other comprehensive income before reclassifications										3,335			12,235			15,570
Reclassified gain from accumulated other comprehensive loss ⁽¹⁾	—			(3,370		)	(3,370		)	0			(5,777		)	(5,777		)
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	)
Other comprehensive income after reclassifications ⁽²⁾										3,335			6,458			9,793
Ending balance at August 1, 2020										$	(106,632	)	$	7,539		$	(99,093	)


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


⁽²⁾	No tax effect was recognized during the thirteen and twenty-six weeks ended ~~May 2,~~August 1, 2020 due to the U.S. being a loss jurisdiction.

For the thirteen and twenty-six weeks ended ~~May 4,~~August 3, 2019, the activity in accumulated other comprehensive loss was as follows:


										Thirteen Weeks Ended August 3, 2019
(in thousands)										Foreign Currency Translation Adjustment			Unrealized Gain (Loss) on Derivative Financial Instruments			Total
Beginning balance at May 4, 2019										$	(107,673	)	$	2,382		$	(105,291	)
Other comprehensive (loss) income before reclassifications										(3,788		)	4,791			1,003
Reclassified gain from accumulated other comprehensive loss⁽¹⁾										0			(1,763		)	(1,763		)
Tax effect										0			105			105
Other comprehensive (loss) income after reclassifications										(3,788		)	3,133			(655		)
Ending balance at August 3, 2019										$	(111,461	)	$	5,515		$	(105,946	)

	Thirteen Weeks Ended May 4, 2019									Twenty-six Weeks Ended August 3, 2019
(in thousands)	Foreign Currency Translation Adjustment			Unrealized Gain (Loss) on Derivative Financial Instruments			Total			Foreign Currency Translation Adjustment			Unrealized Gain (Loss) on Derivative Financial Instruments			Total
Beginning balance at February 2, 2019	$	(104,887	)	$	2,435		$	(102,452	)	$	(104,887	)	$	2,435		$	(102,452	)
Other comprehensive (loss) income before reclassifications	(2,786		)	2,263			(523		)	(6,574		)	7,053			479
Reclassified gain from accumulated other comprehensive loss⁽¹⁾	—			(2,541		)	(2,541		)	0			(4,303		)	(4,303		)
Tax effect	—			225			225			0			330			330
Other comprehensive loss after reclassifications	(2,786		)	(53		)	(2,839		)
Ending balance at May 4, 2019	$	(107,673	)	$	2,382		$	(105,291	)
Other comprehensive (loss) income after reclassifications										(6,574		)	3,080			(3,494		)
Ending balance at August 3, 2019										$	(111,461	)	$	5,515		$	(105,946	)


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

16. SEGMENT REPORTING

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

The Company’s net sales by operating segment for the thirteen and twenty-six weeks ended ~~May 2,~~August 1, 2020 and ~~May 4,~~August 3, 2019 were as follows:


	Thirteen Weeks Ended				Thirteen Weeks Ended				Twenty-six Weeks Ended
(in thousands)	May 2, 2020		May 4, 2019		August 1, 2020		August 3, 2019		August 1, 2020		August 3, 2019
Hollister	$	273,012	$	428,448	$	429,248	$	504,758	$	702,260	$	933,203
Abercrombie	212,347		305,524		269,080		336,320		481,427		641,847
Total	$	485,359	$	733,972	$	698,328	$	841,078	$	1,183,687	$	1,575,050

Net sales by geographic area are presented by attributing revenues to an individual country on the basis of the country in which the merchandise was sold for in-store purchases and on the basis of the shipping location provided by customers for digital orders. The Company’s net sales by geographic area for the thirteen and twenty-six weeks ended ~~May 2,~~August 1, 2020 and ~~May 4,~~August 3, 2019 were as follows:


	Thirteen Weeks Ended				Thirteen Weeks Ended				Twenty-six Weeks Ended
(in thousands)	May 2, 2020		May 4, 2019		August 1, 2020		August 3, 2019		August 1, 2020		August 3, 2019
U.S.	$	322,862	$	469,658	$	458,671	$	543,472	$	781,533	$	1,013,130
EMEA	112,654		173,944		171,297		200,642		283,951		374,586
APAC	32,335		65,576		41,814		67,350		74,150		132,926
Other	17,508		24,794		26,546		29,614		44,053		54,408
International	$	162,497	$	264,314	$	239,657	$	297,606	$	402,154	$	561,920
Total	$	485,359	$	733,972	$	698,328	$	841,078	$	1,183,687	$	1,575,050

17. FLAGSHIP STORE EXIT (BENEFITS) CHARGES

~~Global Store Network Optimization~~

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

The Company recognizes impacts related to the exit of its flagship stores in flagship store exit (benefits) charges on the Consolidated Statements of Operations and Comprehensive ~~Loss.~~Income (Loss). Details of the (benefits) charges incurred during the thirteen and twenty-six weeks ended ~~May 2,~~August 1, 2020 and ~~May 4,~~August 3, 2019 related to this initiative were as follows:



	Thirteen Weeks Ended						Twenty-six Weeks Ended
(in thousands)	August 1, 2020			August 3, 2019			August 1, 2020			August 3, 2019
Single lease cost ⁽¹⁾	$	(5,230	)	$	23,269		$	(5,230	)	$	23,269
Variable lease cost ⁽²⁾	0			20,218			0			20,218
Operating lease right-of-use asset impairment	0			3,229			0			3,229
Operating lease cost	(5,230		)	46,716			(5,230		)	46,716
Asset disposals and other store-closure costs ⁽³⁾	(3,205		)	(1,675		)	(3,205		)	(1,687		)
Employee severance and other employee transition costs	4,551			(47		)	4,008			1,709
Total flagship store exit (benefits) charges	$	(3,884	)	$	44,994		$	(4,427	)	$	46,738

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 accelerated amortization associated with the operating lease right-of-use assets and the impact from remeasurement of operating lease liabilities.


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


⁽³⁾	Amounts represent costs incurred inor benefits associated with returning the store to its original condition, including ~~updates~~updated estimates to ~~previous~~previously established accruals for asset retirement obligations and costs to remove inventory and store assets.

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

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

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read together with the Company’s Condensed Consolidated Financial Statements and notes thereto included in this Quarterly Report on Form 10-Q in “ITEM 1. FINANCIAL STATEMENTS (UNAUDITED),” to which all references to Notes in MD&A are made.

INTRODUCTION

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


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


•	Current Trends and Outlook. This section provides a discussion related to COVID-19’s impact on the Company’s business and other certain risks and challenges, as well as a summary of the Company’s performance for the thirteen and twenty-six weeks ended ~~May 2,~~August 1, 2020 and ~~May 4,~~August 3, 2019.


•	Results of Operations. This section provides an analysis of certain components of the Company’s Condensed Consolidated Statements of Operations and Comprehensive ~~Loss~~Income (Loss) for the thirteen and twenty-six weeks ended ~~May 2,~~August 1, 2020 and ~~May 4,~~August 3, 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 2,~~August 1, 2020, which includes (i) an analysis of financial condition as compared to February 1, 2020; (ii) an analysis of changes in cash flows for the ~~thirteen~~twenty-six weeks ended ~~May 2,~~August 1, 2020 as compared to the ~~thirteen~~twenty-six weeks ended ~~May 4,~~August 3, 2019; and (iii) an analysis of liquidity, including a discussion related to preserving liquidity during COVID-19, ~~the~~remaining availability under ~~credit facilities,~~the ABL Facility, the Company’s share repurchase and dividend programs, and outstanding debt and covenant compliance.


•	Recent Accounting Pronouncements. The recent accounting pronouncements the Company has adopted or is currently evaluating, including the dates of adoption and/or expected dates of adoption, and anticipated effects on the Company’s Condensed Consolidated Financial Statements, are discussed, as applicable.


•	Critical Accounting Policies and Estimates. This section discusses accounting policies considered to be important to the Company’s results of operations and financial condition, which typically require significant judgment and estimation on the part of management in their application.

•

Non-GAAP Financial Measures. MD&A provides a discussion of certain financial measures that have been determined to not be in accordance with GAAP. This section includes certain reconciliations for non-GAAP financial measures and additional details on these financial measures, including information as to why the Company believes the non-GAAP financial measures provided within MD&A are useful to investors.

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

Macroeconomic and industry risks include:

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

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

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

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

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.~~business; and

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

Strategic risks include:

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

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

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

Operational risks include:

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

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

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

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

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

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

The factors listed above are not our only risks. Additional risks may arise, and current evaluations of 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.

OVERVIEW

Business summary

The Company is a global multi-brand omnichannel specialty retailer, whose products are sold primarily through its Company-owned store and digital channels, as well as through various third-party wholesale, franchise and licensing arrangements. The Company offers a broad assortment of apparel, personal care products and accessories for men, women and kids under the Hollister, Abercrombie & Fitch and abercrombie kids brands. The brands share a commitment to offering unique products of enduring quality and exceptional comfort that allow customers around the world to express their own individuality and style. The Company primarily has operations in North America, Europe and Asia, among other regions.

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.

The Company’s fiscal year ends on the Saturday closest to January 31. All references herein to the Company’s fiscal years are as follows:



Fiscal year	Year ended	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 and the Company could have significant fluctuations in certain asset and liability accounts. The Company historically experiences its greatest sales activity during the fall season, the third and fourth fiscal quarters, due to ~~Back-to-School~~back-to-school and ~~Holiday~~holiday sales periods, respectively.

CURRENT TRENDS AND OUTLOOK

COVID-19

~~As a result of COVID 19, in~~In January 2020, wethe Company began to experience business disruptions in the ~~APAC~~Asia-Pacific (“APAC”) region ~~including the temporary closure~~as a result of ~~stores in China and the surrounding area, modified operating hours in certain stores that remained open, and a decline in traffic.~~COVID-19. In ~~late~~ February 2020, the situation escalated as the scope of COVID-19 worsened beyond the APAC region, with the ~~U.S.~~United States (the “U.S.”) and the ~~EMEA~~Europe, Middle East and Africa (“EMEA”) region experiencing significant outbreaks. In March 2020, the COVID-19 outbreak was declared to be a global pandemic by the World Health Organization. In response to COVID-19, certain governments have imposed travel restrictions and local statutory quarantines and ~~we have~~the Company has recommended associates who are able to perform their role remotely to do so. ~~We are~~The Company is 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~~As a result of COVID-19, in January 2020, ~~with~~ the ~~well-being of our customers, associates and business partners in mind, we~~Company temporarily closed ~~our Company-operated~~the majority of its stores in the APAC region and in March 2020, the Company temporarily closed its stores across brands in North America and the EMEA region. WeThe majority of APAC stores were reopened during March 2020, and the Company began to reopen ~~these~~ stores in North America and the EMEA region on a rolling basis ~~beginning~~ in late April 2020. ~~We have experienced sales productivity~~The Company had reopened approximately 90% of Company-operated stores for ~~reopened~~in-store service as of August 1, 2020, which has since increased to approximately 95% as of September 3, 2020, representing 100% of international 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~~U.S. stores, ~~in the APAC region have reopened,~~ although many with ~~temporarily reduced~~modified operating hours. ~~We plan~~The Company plans to follow the guidance of local governments to determine when weit 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~~The Company has also implemented a range of precautionary health and safety measures with the well-being of the Company’s customers, associates and business partners in ~~place,~~mind, including:

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

Encouraging or requiring customers to use face coverings, ~~in accordance with local government direction;~~depending on geographic region;

Conducting associate wellness checks in accordance with local government direction;

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

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;~~procedures for clothing that has been tried on;

Removing returned merchandise from the sales floor for a period of ~~time; and~~time where mandated by local government;

Reducing store hours in select locations;

Continuing to offer ~~in-store pickups~~Purchase-Online-Pickup-in-Store, including curbside pick-up at a majority of U.S. locations;

Following recommended cleaning and distancing measures in the Company's distribution centers; and

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

The Company has seen, and may continue to see material reductions in sales across brands and regions as a result of COVID-19. Total net sales decreased approximately 17% and 25% for ~~online orders at certain locations when selected~~the thirteen and twenty-six weeks ended August 1, 2020 as compared to the comparable periods ended August 3, 2019, respectively, primarily driven by temporary store closures and a decline in traffic as compared to the previous year as a result of COVID-19. For the U.S. and the EMEA region, which collectively accounted for 89% of total net sales in Fiscal 2019, the Company experienced sales productivity for reopened stores of approximately 75% and 60% , respectively, as compared to last year’s levels during the ~~online checkout.~~thirteen weeks ended August 1, 2020.

~~Our robust~~The Company’s digital operations across brands have continued to serve ~~our~~the Company’s customers during this unprecedented period of temporary store closures as ~~our~~the Company’s distribution centers implemented enhanced cleaning and social distancing measures in order to remain operational. ~~We experienced 25% digital~~Digital sales ~~growth~~increased approximately 56% and 41% for the ~~first quarter of Fiscal~~thirteen and twenty-six weeks ended August 1, 2020 as compared to the ~~first quarter of Fiscal~~comparable periods ended August 3, 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.~~respectively. Despite the recent strength in digital sales, ~~we have~~the Company has historically generated the majority of ~~our revenue~~its annual net sales through stores and there can be no assurance that the current performance in the digital channel will continue.

WeThe Company has seen, and expects to continue to see, material adverse impacts as a result of COVID-19. As a result, for the third quarter of Fiscal 2020, the Company expects net sales to be down in the range of 15% to 20% as compared to last year. The current circumstances and the impacts of COVID-19 on the Company’s operations, including the duration and impact on overall customer demand, are dynamic, and this sales expectation assumes that the back-to-school selling season, which generally occurs in August, will extend through September and potentially October as school resumes throughout the U.S. and the weather becomes more seasonal.

The Company is also focused on managing inventories and the impacts COVID-19 has had, and continues to have, on ~~our~~its global supply chain, including potential disruptions of product deliveries. ~~We source~~The Company sources the majority of ~~our~~its merchandise outside of the U.S. through arrangements with vendors primarily located in southeast ~~Asia.~~Asia and, as of August 1, 2020, the vast majority of the factories the Company partners with were operating at full capacity. 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~~The Company continues to collaborate with ~~our~~its third-party partners to mitigate significant delays in delivery of ~~merchandise as certain factories are operating at a limited capacity.~~merchandise. During ~~the first quarter of~~ Fiscal 2020, wethe Company has 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.~~locations.

~~We remain~~Despite these near-term challenges presented by COVID-19, the Company remains committed to, and confident in, ~~our~~its long-term ~~vision and continue~~vision. The Company continues to evaluate opportunities to make progress against ~~our~~its key transformation initiatives while balancing the near-term challenges and unprecedented uncertainty presented by COVID-19. ~~Our~~The Company’s progress executing against the following key transformation initiatives has created the foundation to allow usthe Company to respond quickly ~~respond~~ to COVID-19:

Optimizing ~~our~~the global store network;

Enhancing digital and omnichannel capabilities;

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

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

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

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

~~Reducing and recadencing~~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~~the ABL Facility in March 2020 ~~to improve our~~which was then repaid in July 2020 along with the Term Loan Facility, using proceeds from the issuance of the Senior Secured Notes and existing cash ~~position;~~on hand;

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

Temporarily suspending the Company's share repurchase and dividend programs; and

~~Suspending our share repurchase program~~Assessing government policy and economic stimulus responses to COVID-19 for both business and individuals.

In addition, despite the Company’s recent history of partnering with its vendors regarding payment terms, there can be no assurance that the Company will be able to maintain extended payment terms or continue to defer payments, which may result in ~~March 2020 and suspending the dividend program~~incremental operating cash outflows 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. future periods.

As of ~~May 2,~~August 1, 2020, wethe Company had liquidity of ~~$763.4 million~~$1.061 billion as compared to $913.8 million as of February 1, ~~2020.~~

~~We have seen,~~2020, comprising cash and ~~may continue~~equivalents and actual incremental borrowing available 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.~~Company under the ABL Facility.

It is possible that our preparations for the events listed above are not adequate to mitigate their impact, and that these events could further adversely affect our business and results of operations. For a discussion of significant risks that have the potential to cause our actual results to differ materially from our expectations, refer to the disclosures under the heading “FORWARD-LOOKING STATEMENTS AND RISK FACTORS” in “ITEM 1A. RISK FACTORS” of A&F’s Annual Report on Form 10-K for Fiscal 2019.

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

In 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 the United Kingdom’s withdrawal remain unclear. ~~We believe~~The Company believes that this referendum and the uncertainty surrounding the terms of the United Kingdom’s withdrawal adversely impacted international sales results in Fiscal 2019, with decreased traffic and declining values of the Euro and British Pound as compared to the U.S. Dollar over Fiscal 2018.

Upon withdrawal from the ~~Europe~~European Union in January 2020, the United Kingdom 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 will remain in place and it will continue to follow the European Union's rules. It is not clear at this time what, if any, agreements will

be reached by the current December 31, 2020 transition period deadline, or the impact that COVID-19 may have on the negotiation timeline.

There is continued uncertainty related to the impact on consumer behavior, trade relations, economic conditions, foreign currency exchange rates and the free movement of goods, services, people and capital between the United Kingdom and the European Union during this time of transition. The United Kingdom’s withdrawal from the European Union could also adversely impact other areas of ~~our~~the business, including, but not limited to, an increase in duties and delays in the delivery of merchandise from ~~our~~the Company’s Netherlands distribution center to ~~our~~its customers in the United Kingdom if trade barriers materialize. The United Kingdom’s withdrawal from the European Union could also adversely impact the operations of ~~our~~the Company’s vendors and of our other third-party partners.

In order to mitigate the risks associated with the United Kingdom’s withdrawal from the European Union, ~~our team~~the Company is: collaborating across the organization and testing ~~our~~ systems; working with external partners to develop contingency plans for potential adverse impacts; and taking actions to reduce, to the extent possible, the potential impact of any incremental duty exposure. It is possible that ~~our~~ preparations for the events listed above are not adequate to mitigate their impact, and that these events could further adversely affect ~~our~~the business and results of 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.

Global Store Network Optimization

A component of optimizing ~~our~~the Company’s global store fleet is pivoting away from large format flagship stores ~~as we strive to open~~and striving towards opening smaller, more productive omnichannel focused brand experiences. As a result, ~~we have~~the Company has closed certain of ~~our~~its flagship stores and may have additional closures as ~~we execute~~the Company executes against this strategy. Although some of these closures may be completed through natural lease expirations, certain other of ~~our~~the Company’s leases include early termination options that can be exercised under specific conditions. WeThe Company may also elect to exit or modify ~~our~~ other leases, and could incur charges or realize benefits related to these actions.

For context, at the beginning of Fiscal 2019, wethe Company had 19 flagship stores, and as of the end of the ~~first~~second quarter of Fiscal 2020, wethe Company had 15 flagship stores. Details related to recently closed flagship stores ~~are as follows:~~follow:



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⁾	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⁾	The abercrombie kids store in London will be converted to corporate office space and the location will be utilized as ~~our~~the Company’s EMEA regional headquarters.

Additional details related to store count and gross square footage ~~are as follows:~~follow:


	Hollister ⁽¹⁾		Abercrombie ⁽²⁾		Total Company			Hollister ⁽¹⁾		Abercrombie ⁽²⁾		Total Company
	U.S.	International	U.S.	International	U.S.	International	Total	U.S.	International	U.S.	International	U.S.	International	Total
Number of stores:
February 1, 2020	391	155	256	52	647	207	854	391	155	256	52	647	207	854
New	—	—	1	1	1	1	2	1	2	2	4	3	6	9
Permanently closed	(1)	(2)	(4)	—	(5)	(2)	(7)	(6)	(2)	(5)	—	(11)	(2)	(13)
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%
August 1, 2020								386	155	253	56	639	211	850
Gross square footage (in thousands):
May 2, 2020	2,594	1,244	1,812	615	4,406	1,859	6,265
August 1, 2020								2,568	1,265	1,811	633	4,379	1,898	6,277


⁽¹⁾	Locations with Gilly Hicks carveouts within Hollister stores are represented as a single store count. Excludes 10nine international franchise stores as of ~~May 2,~~each of August 1, 2020 and ~~nine as of~~ February 1, 2020. Excludes 1415 Company-operated temporary stores as of ~~May 2,~~August 1, 2020 and 16 as of February 1, 2020.

⁽²⁾

Abercrombie includes the Company's Abercrombie & Fitch and abercrombie kids brands. Locations with abercrombie kids carveouts within Abercrombie & Fitch stores are represented as a single store count. Excludes eight international franchise stores as of ~~May 2,~~each of August 1, 2020 and seven as of February 1, 2020. Excludes ~~four~~six Company-operated temporary stores as of ~~May 2,~~August 1, 2020 and eight as of February 1, 2020.


⁽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.

Summary of results

A summary of results for the thirteen and twenty-six weeks ended ~~May 2,~~August 1, 2020 and ~~May 4,~~August 3, 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 )



	GAAP						Non-GAAP ⁽¹⁾
(in thousands, except change in net sales, gross profit rate, operating margin and per share amounts)	August 1, 2020 ⁽²⁾			August 3, 2019 ⁽³⁾			August 1, 2020 ⁽²⁾			August 3, 2019 ⁽³⁾
Thirteen Weeks Ended
Net sales	$	698,328		$	841,078
Change in net sales	(17.0		)%	(0.2		)%
Gross profit rate	60.7		%	59.3		%
Operating income (loss)	$	14,143		$	(39,484	)	$	22,226		$	(39,484	)
Operating income (loss) margin	2.0		%	(4.7		)%	3.2		%	(4.7		)%
Net income (loss) attributable to A&F	$	5,464		$	(31,142	)	$	14,713		$	(31,142	)
Net income (loss) per diluted share attributable to A&F	$	0.09		$	(0.48	)	$	0.23		$	(0.48	)
Twenty-six Weeks Ended
Net sales	$	1,183,687		$	1,575,050
Change in net sales	(24.8		)%	0.1		%
Gross profit rate	58.1		%	59.9		%
Operating loss	$	(194,984	)	$	(66,742	)	$	(143,973	)	$	(66,742	)
Operating loss margin	(16.5		)%	(4.2		)%	(12.2		)%	(4.2		)%
Net loss attributable to A&F	$	(238,684	)	$	(50,297	)	$	(190,939	)	$	(50,297	)
Net loss per diluted share attributable to A&F	$	(3.82	)	$	(0.76	)	$	(3.05	)	$	(0.76	)


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


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


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

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


(in thousands)	May 2, 2020		February 1, 2020		August 1, 2020		February 1, 2020
Cash and equivalents	$	703,989	$	671,267	$	766,721	$	671,267
Gross short-term borrowings outstanding, carrying amount	$	210,000	$	—
Gross long-term borrowings outstanding, carrying amount	$	233,250	$	233,250	$	350,000	$	233,250
Inventories	$	426,594	$	434,326	$	453,239	$	434,326

Certain components of the Company’s Condensed Consolidated Statements of Cash Flows for the ~~thirteen~~twenty-six week periods ended ~~May 2,~~August 1, 2020 and ~~May 4,~~August 3, 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
$ —



(in thousands)	August 1, 2020			August 3, 2019
Net cash provided by (used) for operating activities	$	96,233		$	(36,055	)
Net cash used for investing activities	$	(75,621	)	$	(94,224	)
Net cash provided by (used) for financing activities	$	71,329		$	(91,924	)

RESULTS OF OPERATIONS

Net sales

The Company’s net sales by operating segment for the thirteen and twenty-six weeks ended ~~May 2,~~August 1, 2020 and ~~May 4,~~August 3, 2019 were as follows:


	Thirteen Weeks Ended								Thirteen Weeks Ended
(in thousands)	May 2, 2020		May 4, 2019		$ Change			% Change	August 1, 2020		August 3, 2019		$ Change			% Change
Hollister	$	273,012	$	428,448	$	(155,436	)	(36)%	$	429,248	$	504,758	$	(75,510	)	(15)%
Abercrombie⁽¹⁾	212,347		305,524		(93,177		)	(30)%	269,080		336,320		(67,240		)	(20)%
Total	$	485,359	$	733,972	$	(248,613	)	(34)%	$	698,328	$	841,078	$	(142,750	)	(17)%

									Twenty-six Weeks Ended
(in thousands)									August 1, 2020		August 3, 2019		$ Change			% Change
Hollister									$	702,260	$	933,203	$	(230,943	)	(25)%
Abercrombie ⁽¹⁾									481,427		641,847		(160,420		)	(25)%
Total									$	1,183,687	$	1,575,050	$	(391,363	)	(25)%


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

Net sales by geographic area are presented by attributing revenues to an individual country on the basis of the country in which the merchandise was sold for in-store purchases and the shipping location provided by customers for digital orders. The Company’s net sales by geographic area for the thirteen and twenty-six weeks ended ~~May 2,~~August 1, 2020 and ~~May 4,~~August 3, 2019 were as follows:


	Thirteen Weeks Ended								Thirteen Weeks Ended
(in thousands)	May 2, 2020		May 4, 2019		$ Change			% Change	August 1, 2020		August 3, 2019		$ Change			% Change
U.S.	$	322,862	$	469,658	$	(146,796	)	(31)%	$	458,671	$	543,472	$	(84,801	)	(16)%
EMEA	112,654		173,944		(61,290		)	(35)%	171,297		200,642		(29,345		)	(15)%
APAC	32,335		65,576		(33,241		)	(51)%	41,814		67,350		(25,536		)	(38)%
Other	17,508		24,794		(7,286		)	(29)%	26,546		29,614		(3,068		)	(10)%
International	$	162,497	$	264,314	$	(101,817	)	(39)%	$	239,657	$	297,606	$	(57,949	)	(19)%
Total	$	485,359	$	733,972	$	(248,613	)	(34)%	$	698,328	$	841,078	$	(142,750	)	(17)%

									Twenty-six Weeks Ended
(in thousands)									August 1, 2020		August 3, 2019		$ Change			% Change
U.S.									$	781,533	$	1,013,130	$	(231,597	)	(23)%
EMEA									283,951		374,586		(90,635		)	(24)%
APAC									74,150		132,926		(58,776		)	(44)%
Other									44,053		54,408		(10,355		)	(19)%
International									$	402,154	$	561,920	$	(159,766	)	(28)%
Total									$	1,183,687	$	1,575,050	$	(391,363	)	(25)%

For the ~~first~~second quarter of Fiscal 2020, net sales decreased ~~34%~~17% as compared to the ~~first~~second quarter of Fiscal 2019, primarily due to a decrease in units sold driven by temporary store closures and a decline in store traffic across brands as a result of COVID-19, partially offset by 56% digital sales growth. Average unit retail increased year-over-year, driven by less promotions and lower clearance levels, with changes in ~~response~~foreign currency exchange rates adversely impacted net sales by $2 million.

For the year-to-date period of Fiscal 2020, net sales decreased 25% as compared to ~~COVID-19. Lost sales from~~the year-to-date period of Fiscal 2019, primarily due to a decrease in units sold driven by temporary store closures ~~were~~and a decline in store traffic across brands as a result of COVID-19, partially offset by ~~approximately 25%~~41% digital sales growth.

Average unit retail decreased year-over-year, driven by strategic and targeted promotions in response to the ~~current~~ retail environment, with changes in foreign currency exchange rates adversely impacting net sales by ~~$7 million, or 1%.~~$9 million. Excluding the adverse impact of changes in foreign currency exchange rates, net sales for the ~~first quarter~~year-to-date period of Fiscal 2020 decreased ~~33%~~24% as compared to the ~~first quarter~~year-to-date period of Fiscal 2019.

Cost of sales, exclusive of depreciation and amortization

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



	Thirteen Weeks Ended
	August 1, 2020			August 3, 2019
(in thousands)			% of Net sales			% of Net sales	BPS Change ⁽¹⁾
Cost of sales, exclusive of depreciation and amortization	$	274,720	39.3%	$	342,445	40.7%	(140)

	Twenty-six Weeks Ended
	August 1, 2020			August 3, 2019
(in thousands)			% of Net Sales			% of Net Sales	BPS Change ⁽¹⁾
Cost of sales, exclusive of depreciation and amortization	$	495,934	41.9%	$	632,327	40.1%	180


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

For the ~~first~~second quarter of Fiscal 2020, cost of sales, exclusive of depreciation and amortization, as a percentage of net sales decreased by approximately 140 basis points as compared to the second quarter of Fiscal 2019. The year-over-year decline was primarily attributable to increased average unit retail without a corresponding increase in average unit cost, which was flat year-over-year.

For the year-to-date period of Fiscal 2020, cost of sales, exclusive of depreciation and amortization, as a percentage of net sales increased by approximately ~~610~~180 basis points as compared to the ~~first quarter~~year-to-date period of Fiscal ~~2019. Current year results reflect the~~2019, primarily driven by adverse impacts of approximately $15 million ~~or 300 basis points, of~~related to charges ~~to reduce~~reducing the carrying value of inventory ~~primarily as a result~~during the first quarter 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.Fiscal 2020.

Gross profit, exclusive of depreciation and amortization


	Thirteen Weeks Ended							Thirteen Weeks Ended
	May 2, 2020			May 4, 2019				August 1, 2020			August 3, 2019
(in thousands)			% of Net sales			% of Net sales	BPS Change ⁽¹⁾			% of Net sales			% of Net sales	BPS Change ⁽¹⁾
Gross profit	$	264,145	54.4%	$	444,090	60.5%	(610)
Gross profit, exclusive of depreciation and amortization								$	423,608	60.7%	$	498,633	59.3%	140

								Twenty-six Weeks Ended
								August 1, 2020			August 3, 2019
(in thousands)										% of Net Sales			% of Net Sales	BPS Change ⁽¹⁾
Gross profit, exclusive of depreciation and amortization								$	687,753	58.1%	$	942,723	59.9%	(180)


⁽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
May 2, 2020 May 4, 2019
(in thousands) % of Net sales % of Net sales
BPS Change ⁽¹⁾
Stores and distribution expense $ 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 2020, stores and distribution expense as a percentage of net sales increased by approximately 1,780 basis points as compared to the first quarter of Fiscal 2019, primarily due to the deleverage associated with lost sales from temporary store closures in response to COVID-19.

~~Marketing, general and administrative expense~~


	Thirteen Weeks Ended							Thirteen Weeks Ended
	May 2, 2020			May 4, 2019				August 1, 2020			August 3, 2019
(in thousands)			% of Net sales			% of Net sales	BPS Change ⁽¹⁾			% of Net sales			% of Net sales	BPS Change ⁽¹⁾
Marketing, general and administrative expense	$	108,257	22.3%	$	111,947	15.3%	700
Stores and distribution expense								$	310,370	44.4%	$	376,347	44.7%	(30)

								Twenty-six Weeks Ended
								November 2, 2019			November 3, 2018
(in thousands)										% of Net Sales			% of Net Sales	BPS Change ⁽¹⁾
Stores and distribution expense								$	632,494	53.4%	$	732,959	46.5%	690


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

For the ~~first~~second quarter of Fiscal 2020, ~~marketing, general~~stores and ~~administrative~~distribution expense decreased 3%18% as compared to the ~~first~~second quarter of Fiscal 2019, primarily driven by a $38 million reduction in payroll expense driven by temporary store closures in response to COVID-19, net of a benefit of $3 million related to expected government subsidies in certain jurisdictions where the Company qualifies. The Company also experienced a $26 million reduction in store occupancy expense driven by temporary store closures in response to COVID-19. These reductions in ~~certain expenses~~expense were partially offset by a $10 million increase in shipping and handling expense related to ~~the Company’s transformation initiatives and a decrease in marketing expense.~~56% year-over-year digital sales growth.

For the ~~first~~second quarter of Fiscal 2020, ~~marketing, general~~stores and ~~administrative~~distribution expense as a percentage of net sales decreased by approximately 30 basis points as compared to the second quarter of Fiscal 2019.

For the year-to-date period of Fiscal 2020, stores and distribution expense decreased 14% as compared to the year-to-date period of Fiscal 2019, primarily driven by a $66 million reduction in payroll expense driven by temporary store closures in response to COVID-19, net of a benefit of $12 million related to expected government subsidies in certain jurisdictions where the Company qualifies. The Company also experienced a $40 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 $19 million increase in shipping and handling expense related to 41% year-over-year digital sales growth.

For the year-to-date period of Fiscal 2020, stores and distribution expense as a percentage of net sales increased by approximately ~~700~~690 basis points as compared to the ~~first quarter~~year-to-date period of Fiscal 2019, primarily due to the deleverage associated with lost sales from temporary store closures in response to COVID-19.

Marketing, general and administrative expense



	Thirteen Weeks Ended
	August 1, 2020			August 3, 2019
(in thousands)			% of Net sales			% of Net sales	BPS Change ⁽¹⁾
Marketing, general and administrative expense	$	97,252	13.9%	$	115,694	13.8%	10

	Twenty-six Weeks Ended
	August 1, 2020			August 3, 2019
(in thousands)			% of Net Sales			% of Net Sales	BPS Change ⁽¹⁾
Marketing, general and administrative expense	$	205,509	17.4%	$	227,641	14.5%	290


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

For the second quarter of Fiscal 2020, marketing, general and administrative expense decreased 16% as compared to the second quarter of Fiscal 2019, primarily driven by reductions in marketing, payroll and other controllable expenses.

For the year-to-date period of Fiscal 2020, marketing, general and administrative expense decreased 10% as compared to the year-to-date period of Fiscal 2019, primarily driven by marketing and other controllable expenses. For the year-to-date period of Fiscal 2020, marketing, general and administrative expense as a percentage of net sales increased by approximately 290 basis points as compared to the year-to-date period of Fiscal 2019, primarily due to the 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)



	Thirteen Weeks Ended
	August 1, 2020				August 3, 2019
(in thousands)				% of Net sales			% of Net sales	BPS Change ⁽¹⁾
Flagship store exit (benefits) charges	$	(3,884	)	(0.6)%	$	44,994	5.3%	(590)

	Twenty-six Weeks Ended
	August 1, 2020				August 3, 2019
(in thousands)				% of Net Sales			% of Net Sales	BPS Change ⁽¹⁾
Flagship store exit (benefits) charges	$	(4,427	)	(0.4)%	$	46,738	3.0%	(340)


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

Flagship store exit charges for the second quarter and year-to-date period of Fiscal 2019, primarily relate to the closure of the Company’s SoHo, New York City Hollister flagship store. Refer to Note 17, “FLAGSHIP STORE EXIT (BENEFITS) CHARGES.”

Asset impairment, exclusive of flagship store exit charges


	Thirteen Weeks Ended								Thirteen Weeks Ended
	May 2, 2020				May 4, 2019				August 1, 2020				August 3, 2019
(in thousands)				% of Net sales			% of Net sales	BPS Change ⁽¹⁾				% 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	$	8,083		1.2%	$	715	0.1%	110
Excluded items:
Asset impairment charges ⁽²⁾	(42,928		)	(8.8)%	—		0.0%	(890)	(8,083		)	(1.2)%	—		0.0%	(120)
Adjusted non-GAAP asset impairment, exclusive of flagship store exit charges	$	—		0.0%	$	1,662	0.2%	(30)	$	—		0.0%	$	715	0.1%	(10)

									Twenty-six Weeks Ended
									August 1, 2020				August 3, 2019
(in thousands)												% of Net Sales			% of Net Sales	BPS Change ⁽¹⁾
Asset impairment, exclusive of flagship store exit charges									$	51,011		4.3%	$	2,377	0.2%	410
Excluded items:
Asset impairment charges ⁽²⁾									(51,011		)	(4.3)%	—		0.0%	(430)
Adjusted non-GAAP asset impairment, exclusive of flagship store exit charges									$	—		0.0%	$	2,377	0.2%	(20)


⁽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 Note 9, “ASSET IMPAIRMENT.”

Other operating ~~loss (income)~~income (loss), net


	Thirteen Weeks Ended								Thirteen Weeks Ended
	May 2, 2020				May 4, 2019				August 1, 2020			August 3, 2019
(in thousands)				% of Net sales			% of Net sales	BPS Change⁽¹⁾			% of Net sales				% of Net sales	BPS Change⁽¹⁾
Other operating (loss) income, net	$	(506	)	(0.1)%	$	617	0.1%	20
Other operating income (loss), net									$	2,356	0.3%	$	(367	)	—%	(30)

									Twenty-six Weeks Ended
									August 1, 2020			August 3, 2019
(in thousands)											% of Net Sales				% of Net Sales	BPS Change ⁽¹⁾
Other operating income, net									$	1,850	0.2%	$	250		—%	(20)


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

Operating ~~loss~~income (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)



	Thirteen Weeks Ended
	August 1, 2020				August 3, 2019 ⁽¹⁾
(in thousands)				% of Net sales				% of Net sales	BPS Change ⁽²⁾
Operating income (loss)	$	14,143		2.0%	$	(39,484	)	(4.7)%	670
Excluded items:
Asset impairment charges ⁽³⁾	8,083			1.2%	—			0.0%	120
Adjusted non-GAAP operating income (loss)	$	22,226		3.2%	$	(39,484	)	(4.7)%	790
Impact from changes in foreign currency exchange rates	—			0.0%	926			0.1%	(10)
Adjusted non-GAAP operating income (loss) on a constant currency basis ⁽³⁾	$	22,226		3.2%	$	(38,558	)	(4.6)%	780

	Twenty-six Weeks Ended
	August 1, 2020				August 3, 2019
(in thousands)				% of Net Sales				% of Net Sales	BPS Change ⁽²⁾
Operating loss	$	(194,984	)	(16.5)%	$	(66,742	)	(4.2)%	(1,230)
Excluded items:
Asset impairment charges ⁽³⁾	51,011			4.3%	—			0.0%	430
Adjusted non-GAAP operating loss	$	(143,973	)	(12.2)%	$	(66,742	)	(4.2)%	(800)
Impact from changes in foreign currency exchange rates	—			0.0%	(2,189		)	(0.1)%	10
Adjusted non-GAAP operating loss on a constant currency basis ⁽³⁾	$	(143,973	)	(12.2)%	$	(68,931	)	(4.4)%	(780)


⁽¹⁾	Fiscal 2019 results include $45.0 million of flagship store exit charges for the thirteen weeks ended August 3, 2019. Refer to Note 17, “FLAGSHIP STORE EXIT (BENEFITS) CHARGES.”


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


⁽²⁾⁽³⁾	Refer to “NON-GAAP FINANCIAL MEASURES,” for further details.

Interest expense, net


	Thirteen Weeks Ended									Thirteen Weeks Ended
	May 2, 2020				May 4, 2019					August 1, 2020				August 3, 2019
(in thousands)				% of Net sales				% of Net sales	BPS Change ⁽¹⁾				% of Net sales				% of Net sales	BPS Change ⁽¹⁾
Interest expense	$	5,073		1.0%	$	4,532		0.6%	40	$	7,761		1.1%	$	4,479		0.5%	60
Interest income	(1,702		)	(0.4)%	(3,916		)	(0.5)%	10	(663		)	(0.1)%	(3,109		)	(0.4)%	30
Interest expense, net	$	3,371		0.7%	$	616		0.1%	60	$	7,098		1.0%	$	1,370		0.2%	80

										Twenty-six Weeks Ended
										August 1, 2020				August 3, 2019
(in thousands)													% of Net Sales				% of Net Sales	BPS Change ⁽¹⁾
Interest expense										$	12,834		1.1%	$	9,011		0.6%	50
Interest income										(2,365		)	(0.2)%	(7,025		)	(0.4)%	20
Interest expense, net										$	10,469		0.9%	$	1,986		0.1%	80


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

For the ~~first~~second quarter of Fiscal 2020, interest expense, net increased ~~$2.8~~$5.7 million as compared to the ~~first~~second quarter of Fiscal 2019. For the year-to-date period of Fiscal 2020, interest expense, net increased $8.5 million as compared to the year-to-date period of Fiscal 2019.

The ~~year-over-year~~ increase in interest expense, net, for the aforementioned periods is primarily ~~due to~~driven by lower interest income earned on the ~~Company’s~~company’s investments and cash holdings and higher interest expense in the current year, reflecting an increase in interest expense related to certain of the Company’s long-term ~~obligations.~~

obligations and incremental expense in connection with the issuance of the Senior Secured Notes, the proceeds of which were primarily used to repay the then outstanding borrowings under the Company’s credit facilities.

Income tax expense (benefit)


	Thirteen Weeks Ended							Thirteen Weeks Ended
	May 2, 2020			May 4, 2019				August 1, 2020				August 3, 2019
(in thousands, except ratios)			Effective Tax Rate				Effective Tax Rate				Effective Tax Rate				Effective Tax Rate
Income tax expense (benefit)	$	31,533	(14.8)%	$	(9,588	)	34.4%	$	1,253		17.8%	$	(11,330	)	27.7%
Excluded items:
Tax effect of pre-tax excluded items ⁽¹⁾	4,432			—				(1,166		)		—
Adjusted non-GAAP income tax expense (benefit)	$	35,965	(21.2)%	$	(9,588	)	34.4%	$	87		0.6%	$	(11,330	)	27.7%

								Twenty-six Weeks Ended
								August 1, 2020				August 3, 2019
(in thousands, except ratios)											Effective Tax Rate				Effective Tax Rate
Income tax expense (benefit)								$	32,786		(16.0)%	$	(20,918	)	30.4%
Deduct:
Tax effect of pre-tax excluded items ⁽¹⁾								3,266
Adjusted non-GAAP income tax (benefit) expense								$	36,052		(23.3)%	$	(20,918	)	30.4%


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

The Company’s effective tax rate for the ~~first quarter~~year-to-date period of Fiscal 2020 was adversely impacted by ~~$90.9~~$84.1 million of adverse tax impacts, ultimately giving rise to income tax expense on a consolidated pre-tax ~~loss and adversely impacting first quarter of Fiscal 2020 net loss per diluted share by $1.45.~~loss. These adverse tax impacts are as follows:

The Company did not recognize income tax benefits on ~~$212.0~~$204.1 million of pre-tax losses generated in the ~~first quarter of Fiscal~~twenty-six weeks ended August 1, 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~~$47.6 million.

The Company recognized discrete charges of ~~$34.3~~$36.5 million related to the establishment of valuation allowances and other tax charges in certain jurisdictions, including, but not limited to Switzerland, Germany and the U.S. principally as a result of the significant adverse impacts of COVID-19.

Refer to Note 11, “INCOME TAXES.”

Net ~~loss~~income (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)



	Thirteen Weeks Ended
	August 1, 2020				August 3, 2019 ⁽¹⁾
(in thousands)				% of Net sales				% of Net sales	BPS Change ⁽²⁾
Net income (loss) attributable to A&F	$	5,464		0.8%	$	(31,142	)	(3.7)%	450
Excluded items, net of tax ⁽³⁾	9,249			1.3%	—			0.0%	130
Adjusted non-GAAP net income (loss) attributable to A&F	$	14,713		2.1%	$	(31,142	)	(3.7)%	580

	Twenty-six Weeks Ended
	August 1, 2020 ⁽⁴⁾				August 3, 2019 ⁽¹⁾
(in thousands)				% of Net Sales				% of Net Sales	BPS Change ⁽³⁾
Net loss attributable to A&F	$	(238,684	)	(20.2)%	$	(50,297	)	(3.2)%	(1,700)
Excluded items, net of tax ⁽³⁾	47,745			4.0%	—			0.0%	400
Adjusted non-GAAP net loss attributable to A&F	$	(190,939	)	(16.1)%	$	(50,297	)	(3.2)%	(1,290)


⁽¹⁾	Results for ~~the first quarter of~~ Fiscal ~~2020~~2019 reflect significant adverse ~~tax~~ impacts ~~of $90.9 million, or $1.45 per diluted share,~~ related to ~~valuation allowances on deferred tax assets and other tax~~flagship store exit charges. Refer to Note 17, “FLAGSHIP STORE EXIT (BENEFITS) 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~~income (loss),” and “Income tax expense (benefit).”

~~Net loss per diluted share attributable to A&F~~

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⁾⁽⁴⁾	Results for ~~the first quarter of~~ Fiscal 2020 reflect significant 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. Refer to Note 11, “INCOME TAXES.”

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



	Thirteen Weeks Ended
	August 1, 2020 ⁽¹⁾			August 3, 2019 ⁽²⁾			$ Change
Net income (loss) per diluted share attributable to A&F	$	0.09		$	(0.48	)	$0.57
Excluded items, net of tax ⁽³⁾	0.15			—			0.15
Adjusted non-GAAP net income (loss) per diluted share attributable to A&F	$	0.23		$	(0.48	)	$0.71
Impact from changes in foreign currency exchange rates	—			0.02			(0.02)
Adjusted non-GAAP net income (loss) per diluted share attributable to A&F on a constant currency basis	$	0.23		$	(0.46	)	$0.69

	Twenty-six Weeks Ended
	August 1, 2020 ⁽¹⁾			August 3, 2019 ⁽²⁾			$ Change
Net loss per diluted share attributable to A&F	$	(3.82	)	$	(0.76	)	(3.06)
Excluded items, net of tax ⁽³⁾	0.76			—			0.76
Adjusted non-GAAP net loss per diluted share attributable to A&F	$	(3.05	)	$	(0.76	)	(2.29)
Impact from changes in foreign currency exchange rates	—			(0.02		)	0.02
Adjusted non-GAAP net loss per diluted share attributable to A&F on a constant currency basis	$	(3.05	)	$	(0.79	)	(2.26)


⁽¹⁾	Results for Fiscal 2020 reflect significant adverse tax impacts related to valuation allowances on deferred tax assets and other tax charges. Refer to Note 11, “INCOME TAXES.”


⁽²⁾	Results for Fiscal 2019 reflect significant adverse impacts related to flagship store exit charges. Refer to Note 17, “FLAGSHIP STORE EXIT (BENEFITS) CHARGES.”


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

LIQUIDITY AND CAPITAL RESOURCES

Overview

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~~Primary sources 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~~uses of cash

The Company’s business has two principal selling seasons: the spring season, which includes the first and second fiscal quarters (“Spring”) and the fall season, which includes the third and fourth fiscal quarters (“Fall”). The Company generally experiences its greatest sales activity during the Fall season, due to the back-to-school and holiday sales periods. The Company relies on excess operating cash flows, which are largely generated in Fall, to fund operations throughout the year and to reinvest in the business to support future growth. The Company also has ~~an asset-based senior secured revolving credit facility~~the ABL Facility available as a source of additional ~~funding.~~funding, which is described further below under “Credit facilities and Senior Secured Notes”.

As a precautionary measure in response to COVID-19, in March 2020, the Company borrowed ~~$210~~$210.0 million under the ~~asset-based revolving credit facility~~ABL Facility to improve its near-term cash position and withdrew the majority of excess funds from the overfunded Rabbi Trust assets, providing the Company with ~~$50~~$50.0 million of additional cash.

~~As of May 2,~~ In July 2020, the Company ~~had remaining availability~~completed the issuance of the Senior Secured Notes and received gross proceeds of $350.0 million. The Company used the net proceeds from the offering of the Senior Secured Notes, along with existing cash on hand, to repay outstanding borrowings and accrued interest under the ~~Amended~~Term Loan Facility and the ABL Facility, ~~of $89.4 million,~~with the remaining net ~~of $0.8 million~~proceeds used towards fees and expenses in ~~outstanding stand-by letters of credit. As~~connection with such repayments and the ~~Company must maintain excess availability equal to the greater of 10%~~offering 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 of May 2, 2020.~~

~~Primary uses of cash~~Senior Secured Notes.

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

The Company 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 digital and omnichannel investments, information technology, and other projects. For the year-to-date period ended August 1, 2020, the Company used $75.6 million towards capital expenditures. Total capital expenditures for Fiscal 2020 are expected to be approximately $100 million, down from $202.8 million of ~~which approximately $47 million occurred during the first quarter of~~capital expenditures in 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.2019.

Share repurchases and dividends

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

Dividends are declared at the discretion of A&F’s Board of Directors. A quarterly dividend, of $0.20 per share outstanding, was declared in February for Fiscal 2020 and in each of February, May, August and November in Fiscal 2019 and Fiscal 2018. Dividends were paid in March for Fiscal 2020, and each of March, June, September and December in Fiscal 2019 and Fiscal 2018. A&F’s Board of Directors reviews the dividend on a quarterly basis and establishes the dividend 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~~

~~Facilities.~~company’s agreements related to the Senior Secured Notes and ABL Facility. There can be no assurance that the Company 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 in the open market, including pursuant to any trading plans established in accordance with Rule 10b5-1 of the Exchange Act, through privately negotiated transactions or other transactions or by a combination of such methods. 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 and Senior Secured Notes

~~On August 7, 2014,~~In July 2020, the Company ~~through its subsidiary Abercrombie & Fitch Management Co. (“A&F Management”) as~~completed the ~~lead borrower (with A&F~~private offering of the Senior Secured Notes, and ~~certain other subsidiaries as borrowers or guarantors), entered into an asset-based senior secured revolving credit agreement. On October 19, 2017,~~received gross proceeds of $350.0 million. The Senior Secured Notes will mature on July 15, 2025 and bear interest at a rate of 8.75% per annum, with semi-annual interest payments beginning in January 2021. The Company’s debt related to the Senior Secured Notes is presented on the Condensed Consolidated Balance Sheet, net of the unamortized fees. As of August 1, 2020, the Company ~~through its subsidiary A&F Management, entered into a Second Amendment to Credit Agreement (the “ABL Second Amendment”), amending and extending~~had $350.0 million of gross borrowings outstanding under the ~~maturity date of~~Senior Secured Notes.

In addition, the ~~asset-based revolving credit agreement. As amended, the asset-based senior secured revolving credit agreement continues to provide~~ABL Facility provides 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, 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%.

million. As of ~~May 2,~~August 1, 2020, the Company ~~had approximately $210.0 million in gross~~did not have any borrowings outstanding under the ~~Amended~~ ABL ~~Facility at an interest rate of 1.82%.~~Facility. The ~~Amended~~ ABL Facility matures on October 19, 2022. ~~As of May 2, 2020,~~

Details regarding the ~~Company had~~ remaining ~~availability~~borrowing capacity 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 of ~~May 2, 2020.~~August 1, 2020 are as follows:

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.



(in thousands)	August 1, 2020
Borrowing base	$	328,249
Less: Outstanding stand-by letters of credit	(789		)
Borrowing capacity	327,460
Less: Minimum excess availability ⁽¹⁾	(32,825		)
Actual incremental borrowing available	$	294,635


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

~~The Credit Facilities are further described in~~Refer to Note 12, “BORROWINGS.”

Income taxes

The Company’s earnings and profits from its foreign subsidiaries could be repatriated to the U.S., without incurring additional federal income tax. The Company has determined that the balance of the Company’s undistributed earnings and profits from its foreign subsidiaries as of February 2, 2019 are considered indefinitely reinvested outside of the U.S., and if these funds were to be repatriated to the U.S., the Company would expect to incur an insignificant amount of state income taxes and foreign withholding taxes. The Company accrues for both state income taxes and foreign withholding taxes with respect to earnings and profits earned after February 2, 2019, in such a manner that these funds could be repatriated without incurring additional taxes.

As of ~~May 2,~~August 1, 2020, ~~$285.1~~$350.3 million of the Company’s ~~$704.0~~$766.7 million of cash and equivalents ~~was~~were held by foreign affiliates. The Company is not dependent on dividends from its foreign affiliates to fund its U.S. operations or pay dividends, if any, to A&F’s stockholders.

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

Analysis of cash flows

The table below provides certain components of the Company’s Condensed Consolidated Statements of Cash Flows for the ~~thirteen~~twenty-six weeks ended ~~May 2,~~August 1, 2020 and ~~May 4,~~August 3, 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



	Twenty-six Weeks Ended
	August 1, 2020			August 3, 2019
(in thousands)
Cash and equivalents, and restricted cash and equivalents, beginning of period	$	692,264		$	745,829
Net cash provided by (used for) operating activities	96,233			(36,055		)
Net cash used for investing activities	(75,621		)	(94,224		)
Net cash provided by (used for) financing activities	71,329			(91,924		)
Effect of foreign currency exchange rates on cash	1,785			(2,455		)
Net increase (decrease) in cash and equivalents, and restricted cash and equivalents	93,726			(224,658		)
Cash and equivalents, and restricted cash and equivalents, end of period	$	785,990		$	521,171

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

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

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

Reducing expenses to better align operating costs with sales;

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

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

These benefits to operating cash flows were partially offset by lower cash receipts as a result of a ~~34%~~25% decrease in net sales from last year driven by temporary store closures and a decline in store traffic 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 continues to engage with its landlords to find a mutually beneficial and agreeable path forward. To the extent that the Company ~~during~~is successful in negotiating further rent abatements, these benefits will be recognized as a component of variable lease cost.In addition, despite the ~~first quarter~~Company’s recent history of ~~Fiscal 2020 to preserve liquidity and manage cash flows including (i)~~ partnering with ~~merchandise and non-merchandise~~its vendors ~~in regards to~~regarding 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,terms, there can be no assurance that the Company ~~withdrew the majority of excess funds from the overfunded Rabbi Trust assets as a precautionary measure~~will be able to maintain extended payment terms or continue to defer payments, which may result in ~~response to COVID-19, providing the Company with $50 million of additional cash.~~incremental operating cash outflows in future periods.

Investing activities - For the ~~thirteen~~twenty-six weeks ended ~~May 2,~~August 1, 2020, net cash outflows for investing activities were used for capital expenditures of ~~$47.0~~$75.6 million as compared to ~~$43.9~~$94.2 million for the ~~thirteen~~twenty-six weeks ended ~~May 4, 2019. Based on~~August 3, 2019, reflecting actions taken in Fiscal 2020 to preserve liquidity and manage cash flows in light of the COVID-19 ~~pandemic, the Company expects capital expenditures for Fiscal 2020 to be approximately $100 million as compared to $203 million of capital expenditures in Fiscal 2019.~~pandemic.

Financing activities - For the ~~thirteen~~twenty-six weeks ended ~~May 2,~~August 1, 2020, net cash provided by financing activities primarily consisted of the issuance of the Senior Secured Notes and receipt of related gross proceeds of $350.0 million and borrowings under the ABL Facility of $210.0 ~~million in~~million. The gross proceeds from the ~~Amended~~Senior Secured Notes offering were used along with existing cash on hand, to repay all then outstanding borrowings and accrued interest under the Term Loan Facility and ABL Facility, ~~partially offset by share repurchases made~~with the remaining net proceeds used towards fees and ~~dividends declared~~expenses in connection with such repayments and the offering. In addition, the Company returned $27.7 million to shareholders during the twenty-six weeks ended August 1, 2020, 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~~as compared to $84.2 million ~~in aggregate. For~~during the ~~thirteen~~twenty-six weeks ended ~~May 4, 2019, net cash used for financing activities consisted primarily of dividend payments of $13.2 million.~~August 3, 2019.

Off-balance sheet arrangements

As of ~~May 2,~~August 1, 2020, the Company did not have any material off-balance sheet arrangements.

Contractual obligations

The Company’s contractual obligations consist primarily of operating leases, purchase orders for merchandise inventory, unrecognized tax benefits, certain retirement obligations, lease deposits and other agreements to purchase goods and services that are legally binding and that require minimum quantities to be purchased. These contractual obligations impact the Company’s short-term and long-term liquidity and capital resource needs.

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



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

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,items described above, there have been no material changes during the thirteen weeks ended ~~May 2,~~August 1, 2020, in the contractual obligations as of February 1, 2020, with the exception of those obligations which occurred in the normal course of business (primarily changes in the Company’s merchandise inventory-related purchases and lease obligations, which fluctuate throughout the year as a result of the seasonal nature of the Company’s operations).

RECENT ACCOUNTING PRONOUNCEMENTS

The Company describes its significant accounting policies in Note 2, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,” of the Notes to Consolidated Financial Statements contained in “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of A&F’s Annual Report on Form 10-K for Fiscal 2019. The Company reviews recent accounting pronouncements on a quarterly basis and has excluded discussion of those not applicable to the Company and those that did not have, or are not expected to have, a material impact on the Company’s consolidated financial statements.

CRITICAL ACCOUNTING 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 2019. There have been no significant changes in critical accounting policies and estimates since the end of Fiscal 2019.



Policy		Effect if Actual Results Differ from Assumptions
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. Fair value of the Company’s store-related assets is determined at the individual store level based on the highest and best use of the asset group. The key assumptions used in the Company’s fair value analysis may include discounted future store cash flows and comparable market rents.		If actual results are not consistent with the estimates and assumptions used, there may be a material impact on the Company’s financial condition or results of operation. Store assets that were tested for impairment as of ~~May 2,~~August 1, 2020 and not impaired, had long-lived assets with a net book value of ~~$121.8~~$146.0 million, which included ~~$110.0~~$133.0 million of operating lease right-of-use assets, as of ~~May 2,~~August 1, 2020. Store assets that were previously-impaired as of ~~May 2,~~August 1, 2020, had a remaining net book value of ~~$164.4~~$162.2 million, which included ~~$151.3~~$146.9 million of operating lease right-of-use assets, as of ~~May 2,~~August 1, 2020.

NON-GAAP FINANCIAL MEASURES

This Quarterly Report on Form 10-Q includes discussion of certain financial measures on both a GAAP and a non-GAAP basis. The Company believes that each of the non-GAAP financial measures presented in this “ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” is useful to investors as it provides a meaningful basis to evaluate the Company’s operating performance excluding the effect of certain items that the Company believes do not reflect its future operating outlook, such as certain asset impairment charges related to the Company’s flagship stores and significant impairments primarily attributable to the COVID-19 pandemic, therefore supplementing investors’ understanding of comparability of operations across periods. Management used these non-GAAP financial measures during the periods presented to assess the Company’s performance and to develop expectations for future operating performance. These non-GAAP financial measures should be used as a supplement to, and not as an alternative to, the Company’s GAAP financial results, and may not be calculated in the same manner as similar measures presented by other companies.

Comparable sales

At times, the Company provides comparable sales, defined as the year-over-year percentage change in the aggregate of (1) sales for stores that have been open as the same brand at least one year and whose square footage has not been expanded or reduced by more than 20% within the past year, with the prior year’s net sales converted at the current year’s foreign currency exchange rates to remove the impact of foreign currency exchange rate fluctuations, and (2) digital sales with the prior year’s net sales converted at the current year’s foreign currency exchange rates to remove the impact of foreign currency exchange rate fluctuations. Comparable sales exclude revenue other than store and digital sales. Management uses comparable sales to understand the drivers of year-over-year changes in net sales ~~as well as a performance metric for certain performance-based restricted stock units. The Company~~and believes comparable sales is a useful metric as it can assist investors in distinguishing the portion of the Company’s revenue attributable to existing locations from the portion attributable to the opening or closing of stores. The most directly comparable GAAP financial measure is change in net sales. In light of store closures related to COVID-19, the Company has not disclosed comparable sales for ~~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
Asset impairment, exclusive of flagship store exit charges		Certain asset impairment charges
Operating ~~loss~~income (loss)		Certain asset impairment charges
Income tax expense (benefit) ⁽²⁾		Tax effect of pre-tax excluded items
Net ~~loss~~income (loss) and net ~~loss~~income (loss) per share attributable to A&F ⁽²⁾		Pre-tax excluded items and the tax effect of pre-tax excluded items


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


⁽²⁾	The tax effect of excluded items is the difference between the tax provision calculation on a GAAP basis and on an adjusted non-GAAP basis.

Financial information on a constant currency basis

The Company provides certain financial information on a constant currency basis to enhance investors’ understanding of underlying business trends and operating performance by removing the impact of foreign currency exchange rate fluctuations. Management also uses financial information on a constant currency basis to award employee performance-based compensation. The effect from foreign currency exchange rates, calculated on a constant currency basis, is determined by applying the current period’s foreign currency exchange rates to the prior year’s results and is net of the year-over-year impact from hedging. The per diluted share effect from foreign currency exchange rates is calculated using a 26% effective tax rate.

A reconciliation of financial metrics on a constant currency basis to GAAP for the thirteen and twenty-six weeks ended ~~May 2,~~August 1, 2020 and ~~May 4,~~August 3, 2019 follows:


(in thousands, except change in net sales, gross profit rate, operating margin and per share data)	Thirteen Weeks Ended								Thirteen Weeks Ended							Twenty-six Weeks Ended
Net sales	May 2, 2020				May 4, 2019			% Change	August 1, 2020			August 3, 2019			% Change	August 1, 2020			August 3, 2019			% Change
GAAP	$	485,359			$	733,972		(34)%	$	698,328		$	841,078		(17)%	$	1,183,687		$	1,575,050		(25)%
Adverse impact from changes in foreign currency exchange rates	—				(6,824		)	1%
Impact from changes in foreign currency exchange rates									—			(2,125		)	—%	—			(8,948		)	1%
Non-GAAP on a constant currency basis	$	485,359			$	727,148		(33)%	$	698,328		$	838,953		(17)%	$	1,183,687		$	1,566,102		(24)%
Gross profit	May 2, 2020				May 4, 2019			BPS Change ⁽¹⁾
Gross profit, exclusive of depreciation and amortization expense									August 1, 2020			August 3, 2019			BPS Change ⁽¹⁾	August 1, 2020			August 3, 2019			BPS Change ⁽¹⁾
GAAP	$	264,145			$	444,090		(610)	$	423,608		$	498,633		140	$	687,753		$	942,723		(180)
Adverse impact from changes in foreign currency exchange rates	—				(6,048		)	30
Impact from changes in foreign currency exchange rates									—			(1,408		)	—	—			(7,456		)	20
Non-GAAP on a constant currency basis	$	264,145			$	438,042		(580)	$	423,608		$	497,225		140	$	687,753		$	935,267		(160)
Operating loss	May 2, 2020			��	May 4, 2019			BPS Change ⁽¹⁾
Operating income (loss)									August 1, 2020			August 3, 2019			BPS Change ⁽¹⁾	August 1, 2020			August 3, 2019			BPS Change ⁽¹⁾
GAAP	$	(209,127	)		$	(27,258	)	(3,940)	$	14,143		$	(39,484	)	670	$	(194,984	)	$	(66,742	)	(1,230)
Excluded items ⁽²⁾	(42,928		)		—			(890)	(8,083		)	—			(120)	(51,011		)	—			(430)
Adjusted non-GAAP	$	(166,199	)		$	(27,258	)	(3,050)	$	22,226		$	(39,484	)	790	$	(143,973	)	$	(66,742	)	(800)
Adverse impact from changes in foreign currency exchange rates	—				(3,115		)	50
Impact from changes in foreign currency exchange rates									—			926			(10)	—			(2,189		)	10
Adjusted non-GAAP on a constant currency basis	$	(166,199	)		$	(30,373	)	(3,000)	$	22,226		$	(38,558	)	780	$	(143,973	)	$	(68,931	)	(780)
Net loss per diluted share attributable to A&F ⁽³⁾	May 2, 2020				May 4, 2019			$ Change
Net income (loss) per diluted share attributable to A&F ⁽³⁾									August 1, 2020			August 3, 2019			$ Change	August 1, 2020			August 3, 2019			$ Change
GAAP	$	(3.90	)		$	(0.29	)	$(3.61)	$	0.09		$	(0.48	)	$0.57	$	(3.82	)	$	(0.76	)	$(3.06)
Excluded items, net of tax ⁽²⁾	(0.62		)		—			(0.62)	(0.15		)	—			(0.15)	(0.76		)	—			(0.76)
Adjusted non-GAAP	$	(3.29	)		$	(0.29	)	$(3.00)	$	0.23		$	(0.48	)	$0.71	$	(3.05	)	$	(0.76	)	$(2.29)
Adverse impact from changes in foreign currency exchange rates	—				(0.03		)	0.03
Impact from changes in foreign currency exchange rates									—			0.02			(0.02)	—			(0.02		)	0.02
Adjusted non-GAAP on a constant currency basis	$	(3.29	)		$	(0.32	)	$(2.97)	$	0.23		$	(0.46	)	$0.69	$	(3.05	)	$	(0.79	)	$(2.26)


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


⁽²⁾	Excluded items ~~this year~~for the thirteen and twenty-six weeks ended August 1, 2020 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

INVESTMENT SECURITIES

The Company maintains its cash equivalents in financial instruments, primarily time deposits and money market funds, with original maturities of three months or less. 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~~$0.4 million and $1.0 million for the thirteen and twenty-six weeks ended ~~May 2,~~August 1, 2020, respectively, and $0.8 million and $1.6 million for the thirteen and twenty-six weeks ended ~~May 4,~~August 3, 2019, ~~which~~respectively. These gains are recorded in interest expense, net on the Condensed Consolidated Statements of Operations and Comprehensive ~~Loss.~~Income (Loss).

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

INTEREST RATE RISK

~~As of May~~Prior to July 2, 2020, ~~the Company had approximately $233.3 million~~our exposure to market risk due to changes in ~~long-term gross borrowings outstanding under the Term Loan Facility and approximately $210.0 million in short-term gross borrowings outstanding under the Amended ABL Facility.~~

~~The Credit Facilities carry~~ interest rates ~~that are tied~~related primarily to the increase or decrease in the amount of interest expense from fluctuations in the LIBO rate, or an alternate base rate ~~plus a margin. The interest rate on~~associated with the Term Loan Facility ~~has a 100 basis point LIBO rate floor which was applicable as of May 2, 2020. An increase of 100 basis points to the underlying LIBO rate as of May~~and ABL Facility. On July 2, 2020 ~~would increase~~ the ~~Fiscal 2020 annual~~Company issued the Senior Secured Notes due in 2025 with a 8.75% fixed interest ~~expense on~~rate per annum and repaid all outstanding borrowings under the Term Loan Facility and ~~Amended~~the ABL Facility, ~~by approximately $3.7 million.~~thereby eliminating any then existing market risk due to changes in interest rates. The Senior Secured Notes are exposed to interest rate risk that is limited to changes in fair value.

This ~~hypothetical~~ analysis for the remainder of Fiscal 2020 may differ from the actual ~~change in interest expense~~results due to ~~actual~~potential changes in gross borrowings outstanding under the ABL Facility and potential changes in interest rate terms and limitations described within the ~~Credit Facility agreements and potential changes in interest rates and gross borrowings outstanding under the Company’s Credit Facilities.~~credit agreement. The expected transition from the widespread use of LIBO rate to alternative rates over the next several years is not expected to have a material impact on ~~interest expense on borrowings outstanding under~~ the Company’s ~~Credit Facilities.~~interest expense.

FOREIGN CURRENCY EXCHANGE RATE RISK

A&F’s international subsidiaries generally operate with functional currencies other than the U.S. Dollar. Since the Company’s Condensed Consolidated Financial Statements are presented in U.S. Dollars, the Company must translate all components of these financial statements from functional currencies into U.S. Dollars at exchange rates in effect during or at the end of the reporting period. The fluctuation in the value of the U.S. Dollar against other currencies affects the reported amounts of revenues, expenses, assets and liabilities. The potential impact of foreign currency exchange rate fluctuations increases as international operations relative to domestic operations increase.

A&F and its subsidiaries have exposure to changes in foreign currency exchange rates associated with foreign currency transactions and forecasted foreign currency transactions, including the purchase of inventory between subsidiaries and foreign-currency-denominated assets and liabilities. The Company has established a program that primarily utilizes foreign currency exchange forward contracts to partially offset the risks associated with the effects of certain foreign currency transactions and forecasted transactions. Under this program, increases or decreases in foreign currency exchange rate exposures are partially offset by gains or losses on foreign currency exchange forward contracts, to mitigate the impact of foreign currency exchange gains or losses. The Company does not use forward contracts to engage in currency speculation. Outstanding foreign currency exchange forward contracts are recorded at fair value at the end of each fiscal period.

Foreign currency exchange forward contracts are sensitive to changes in foreign currency exchange rates. As the Company’s foreign currency exchange forward contracts are primarily designated as cash flow hedges of forecasted transactions, the hypothetical change in fair values would be expected to be largely offset by the net change in fair values of the underlying hedged items.

The Company has no outstanding foreign currency exchange contracts as of ~~May 2, 2020.~~August 1, 2020, although the Company may enter into these contracts in future periods. Refer to Note 14, “DERIVATIVE INSTRUMENTS,” for the fair value of then outstanding foreign currency exchange forward contracts included in other current assets and accrued expenses as of February 1, 2020.

Item 4. Controls and Procedures

DISCLOSURE CONTROLS AND PROCEDURES

A&F maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the 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 A&F’s principal executive officer and 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 2,~~August 1, 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 2,~~August 1, 2020, the end of the period covered by this Quarterly Report on Form 10-Q.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in A&F’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during A&F’s fiscal quarter ended ~~May 2,~~August 1, 2020 that materially affected, or are reasonably likely to materially affect, A&F’s internal control over financial reporting.

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is a defendant in lawsuits and other adversary proceedings arising in the ordinary course of business. The Company’s legal costs incurred in connection with the resolution of claims and lawsuits are generally expensed as incurred, and the Company establishes estimated liabilities for the outcome of litigation where losses are deemed probable and the amount of loss, or range of loss, is reasonably estimable. The Company also determines estimates of reasonably possible losses or ranges of reasonably possible losses in excess of related accrued liabilities, if any, when it has determined that a loss is reasonably possible and it is able to determine such estimates. The Company’s accrued charges for certain legal contingencies are classified within accrued expenses on the Condensed Consolidated Balance Sheets included in “ITEM 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.

The Company’s risk factors as of ~~May 2,~~August 1, 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 ~~2019.~~2019 and those furnished under “Item 7.01, Regulation FD Disclosure” of A&F’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 17, 2020, other than those disclosed below due to the issuance of the Senior Secured Notes and termination of the Term Loan Facility during the thirteen weeks ended August 1, 2020. The COVID-19 pandemic may exacerbate the risks discussed within the aforementioned Annual Report on Form 10-K and Current Report on Form 8-K, certain of which have had and could continue to have a material effect on the Company.

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

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

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

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

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

the future. The inability to obtain credit on commercially reasonable terms in the future could adversely impact our liquidity and results of operations.

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

There were no sales of equity securities during the ~~first~~second quarter of Fiscal 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 2,~~August 1, 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 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



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⁾
May 3, 2020 through May 30, 2020	2,487	$	12.67	—	3,218,058
May 31, 2020 through July 4, 2020	3,873	$	12.13	—	3,218,058
July 5, 2020 through August 1, 2020	1,089	$	10.39	—	3,218,058
Total	7,449	$	12.05	—	3,218,058


⁽¹⁾	~~An aggregate of 574,141~~All 7,449 shares of A&F’s Common Stock purchased during the thirteen weeks ended ~~May 2,~~August 1, 2020 were withheld for tax payments due upon the vesting of employee restricted stock units.

⁽²⁾

Amounts represent shares of A&F’s Common Stock repurchased during the thirteen weeks ended May 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 June 12, 2019, A&F’s Board of Directors authorized the repurchase of 5.0 million shares of A&F’s Common Stock, which was announced on June 12, 2019.

⁽³⁾

The number shown represents, as of the end of each period, the maximum number of shares of A&F’s Common Stock that may yet be purchased under A&F’s publicly announced stock repurchase authorization described in footnote 2 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.

Item 6. Exhibits



Exhibit		Document
3.1		Amended and Restated Certificate of Incorporation of Abercrombie & Fitch Co., reflecting amendments through the date of this Quarterly Report on Form 10-Q, incorporated herein by reference to Exhibit 3.2 to A&F’s Quarterly Report on Form 10-Q for the quarterly period ended July 30, 2011 (File No. 001-12107). [This document represents the Amended and Restated Certificate of Incorporation of Abercrombie & Fitch Co. in compiled form incorporating all amendments. This compiled document has not been filed with the Delaware Secretary of State.]
3.2		Amended and Restated Bylaws of Abercrombie & Fitch Co. reflecting amendments through the date of this Quarterly Report on Form 10-Q, incorporated herein by reference to Exhibit 3.10 to A&F’s Annual Report on Form 10-K for the fiscal year ended February 3, 2018 (File No. 001-12107). [This document represents the Amended and Restated Bylaws of Abercrombie & Fitch Co. in compiled form incorporating all amendments.]
~~10.1~~4.1		Indenture, dated as of July 2, 2020, by and among Abercrombie & Fitch Management Co., Abercrombie & Fitch Co., as Parent, the other Guarantors party thereto and U.S. Bank National Association, as Trustee, Registrar, Paying Agent, and Notes Collateral Agent, incorporated herein by reference to Exhibit 4.1 to A&F’s Current Report on Form 8-K dated and filed on July 9, 2020 (File No. 001-12107).
4.2		Form of ~~Restricted Stock Unit Award Agreement used~~8.75% Senior Secured Notes due 2025 (included in Exhibit 4.1), incorporated herein by reference to ~~evidence the grant of restricted stock units~~Exhibit 4.2 (which is in turn included in Exhibit 4.1) to ~~associates (employees) of Abercrombie & Fitch Co.~~A&F’s Current Report on Form 8-K dated and ~~its subsidiaries under the Abercrombie & Fitch Co. 2016 Long-Term Incentive Plan for Associates~~filed on and after March 26, 2019*July 9, 2020 (File No. 001-12107).
~~10.2~~10.1		Abercrombie & Fitch Co. 2016 Long-Term Incentive Plan for Directors (as amended ~~effective~~on 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~~10.2		Abercrombie & Fitch Co. 2016 Long-Term Incentive Plan for Associates (as amended ~~effective~~on 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~~10.3		~~Summary of Compensation Structure for Non-Associate Directors of~~Separation Agreement entered into by and between Abercrombie & Fitch Management Co. for Fiscal 2020.*
~~10.5~~		~~Summary of Terms of the Annual Restricted Stock Unit Grants made~~ and John Gabrielli, effective July 2, 2020, incorporated herein by reference to ~~be made~~Exhibit 10.1 to the Non-Associate Directors of Abercrombie & Fitch Co. under the Abercrombie & Fitch Co. 2016 Long-Term Incentive Plan for Directors in Fiscal 2020.*A&F’s Current Report on Form 8-K/A dated and filed on July 7, 2020 (File No. 001-12107).
31.1		Certifications by Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2		Certifications by Senior Vice President and Chief Financial Officer (Principal Financial Officer) pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1		Certifications by Chief Executive Officer (who serves as Principal Executive Officer) and Senior Vice President and Chief Financial Officer (who serves as Principal Financial Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its Inline XBRL tags are embedded within the Inline XBRL document.*
101.SCH		Inline XBRL Taxonomy Extension Schema Document.*
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.*
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.*
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.*
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.*
104		Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101).*


*	Filed herewith.


**	Furnished herewith.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	Abercrombie & Fitch Co.

Date: ~~June 10,~~September 8, 2020	By:	/s/ Scott Lipesky
		Scott Lipesky
		Senior Vice President and Chief Financial Officer (Principal Financial Officer, Principal Accounting Officer and Authorized Officer)

4348



PART I
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Operations and Comprehensive ~~Loss~~Income (Loss)	3
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Stockholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	67
	Index for Notes to Condensed Consolidated Financial Statements	78
	Notes to Condensed Consolidated Financial Statements	89
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2324
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3943
Item 4.	Controls and Procedures	4044
PART II
Item 1.	Legal Proceedings	4145
Item 1A.	Risk Factors	4145
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4146
Item 6.	Exhibits	4247
	Signatures	4348



	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)