Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  
 
FORM 10-Q  
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 3, 2018
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 1-12107
 
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)  
 
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
¨   (Do not check if a smaller reporting company)
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
 
Outstanding at December 7, 2018
$.01 Par Value
 
65,845,073 Shares

Table of Contents


ABERCROMBIE & FITCH CO.
TABLE OF CONTENTS

 
 
Page No.
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 
 


2
Table of Contents


PART I. FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS (UNAUDITED)

ABERCROMBIE & FITCH CO.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Thousands, except per share amounts)
(Unaudited)



 
 
Thirteen Weeks Ended
 
Thirty-nine Weeks Ended
 
November 3, 2018
 
October 28, 2017
 
November 3, 2018
 
October 28, 2017
Net sales
$
861,194

 
$
859,112

 
$
2,434,507

 
$
2,299,532

Cost of sales, exclusive of depreciation and amortization
333,375

 
332,485

 
957,448

 
913,085

Gross profit
527,819

 
526,627

 
1,477,059

 
1,386,447

Stores and distribution expense
371,859

 
375,944

 
1,107,566

 
1,105,168

Marketing, general and administrative expense
117,181

 
124,533

 
365,961

 
343,779

Asset impairment
656

 
3,480

 
10,383

 
10,345

Other operating income, net
(1,557
)
 
(70
)
 
(4,551
)
 
(4,555
)
Operating income (loss)
39,680

 
22,740

 
(2,300
)
 
(68,290
)
Interest expense, net
2,857

 
4,571

 
8,898

 
12,780

Income (loss) before income taxes
36,823

 
18,169

 
(11,198
)
 
(81,070
)
Income tax expense (benefit)
12,047

 
7,553

 
8,358

 
(16,062
)
Net income (loss)
24,776

 
10,616

 
(19,556
)
 
(65,008
)
Less: Net income attributable to noncontrolling interests
857

 
541

 
2,839

 
2,108

Net income (loss) attributable to A&F
$
23,919

 
$
10,075

 
$
(22,395
)
 
$
(67,116
)
 
 
 
 
 
 
 
 
Net income (loss) per share attributable to A&F
 
 
 
 
 
 
 
Basic
$
0.36

 
$
0.15

 
$
(0.33
)
 
$
(0.98
)
Diluted
$
0.35

 
$
0.15

 
$
(0.33
)
 
$
(0.98
)
 
 
 
 
 
 
 
 
Weighted-average shares outstanding
 
 
 
 
 
 
 
Basic
66,818

 
68,512

 
67,775

 
68,347

Diluted
68,308

 
69,425

 
67,775

 
68,347

 
 
 
 
 
 
 
 
Dividends declared per share
$
0.20

 
$
0.20

 
$
0.60

 
$
0.60

 
 
 
 
 
 
 
 
Other comprehensive (loss) income
 
 
 
 
 
 
 
Foreign currency translation, net of tax
$
(3,095
)
 
$
(3,496
)
 
$
(22,640
)
 
$
21,183

Derivative financial instruments, net of tax
(681
)
 
5,518

 
19,026

 
(9,230
)
Other comprehensive (loss) income
(3,776
)
 
2,022

 
(3,614
)
 
11,953

Comprehensive income (loss)
21,000

 
12,638

 
(23,170
)
 
(53,055
)
Less: Comprehensive income attributable to noncontrolling interests
857

 
541

 
2,839

 
2,108

Comprehensive income (loss) attributable to A&F
$
20,143

 
$
12,097

 
$
(26,009
)
 
$
(55,163
)


The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
3
Table of Contents


ABERCROMBIE & FITCH CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands, except par value amounts)
(Unaudited)




 
November 3, 2018
 
February 3, 2018
Assets
 
 
 
Current assets:
 
 
 
Cash and equivalents
$
520,523

 
$
675,558

Receivables
87,714

 
79,724

Inventories
572,173

 
424,393

Other current assets
109,888

 
84,863

Total current assets
1,290,298

 
1,264,538

Property and equipment, net
684,527

 
738,182

Other assets
308,244

 
322,972

Total assets
$
2,283,069

 
$
2,325,692

Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
266,933

 
$
168,868

Accrued expenses
293,410

 
308,601

Short-term portion of deferred lease credits
19,465

 
19,751

Income taxes payable
10,360

 
10,326

Total current liabilities
590,168

 
507,546

Long-term liabilities:
 
 
 
Long-term portion of deferred lease credits
79,667

 
75,648

Long-term portion of borrowings, net
250,142

 
249,686

Leasehold financing obligations
46,081

 
50,653

Other liabilities
182,721

 
189,688

Total long-term liabilities
558,611

 
565,675

Stockholders’ equity
 
 
 
Class A Common Stock - $0.01 par value: 150,000 shares authorized and 103,300 shares issued at November 3, 2018 and February 3, 2018, respectively
1,033

 
1,033

Paid-in capital
406,169

 
406,351

Retained earnings
2,345,710

 
2,420,552

Accumulated other comprehensive loss, net of tax
(98,668
)
 
(95,054
)
Treasury stock, at average cost: 37,457 and 35,105 shares at November 3, 2018 and February 3, 2018, respectively
(1,529,774
)
 
(1,490,503
)
Total Abercrombie & Fitch Co. stockholders’ equity
1,124,470

 
1,242,379

Noncontrolling interests
9,820

 
10,092

Total stockholders’ equity
1,134,290

 
1,252,471

Total liabilities and stockholders’ equity
$
2,283,069

 
$
2,325,692


The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
4
Table of Contents


ABERCROMBIE & FITCH CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)



 
Thirty-nine Weeks Ended
 
November 3, 2018
 
October 28, 2017
Operating activities
 
 
 
Net loss
$
(19,556
)
 
$
(65,008
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
136,263

 
146,147

Asset impairment
10,383

 
10,345

Loss on disposal
3,191

 
5,624

Amortization of deferred lease credits
(16,129
)
 
(16,510
)
Benefit from deferred income taxes
(1,509
)
 
(15,597
)
Share-based compensation
16,907

 
15,774

Changes in assets and liabilities
 
 
 
Inventories
(159,421
)
 
(167,546
)
Accounts payable and accrued expenses
105,452

 
73,214

Lessor construction allowances
13,784

 
12,954

Income taxes
(3,171
)
 
93

Long-term lease deposits
1,213

 
(421
)
Other assets
(8,734
)
 
42,351

Other liabilities
(1,428
)
 
(10,036
)
Net cash provided by operating activities
77,245

 
31,384

Investing activities
 
 
 
Purchases of property and equipment
(98,768
)
 
(86,300
)
Proceeds from sale of property and equipment
—

 
203

Net cash used for investing activities
(98,768
)
 
(86,097
)
Financing activities
 
 
 
Purchase of treasury stock
(68,670
)
 
—

Dividends paid
(40,550
)
 
(40,776
)
Other financing activities
(8,761
)
 
(2,423
)
Net cash used for financing activities
(117,981
)
 
(43,199
)
Effect of exchange rates on cash
(16,068
)
 
11,661

Net decrease in cash and equivalents, and restricted cash
(155,572
)
 
(86,251
)
Cash and equivalents, and restricted cash, beginning of period
697,955

 
567,632

Cash and equivalents, and restricted cash, end of period
$
542,383

 
$
481,381

Significant non-cash investing activities
 
 
 
Change in accrual for construction in progress
$
8,045

 
$
(10,445
)
Supplemental information
 
 
 
Cash paid for interest
$
10,428

 
$
9,849

Cash paid for income taxes
$
17,712

 
$
12,322

Cash received from income tax refunds
$
7,477

 
$
27,243



The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
5
Table of Contents


ABERCROMBIE & FITCH CO.
INDEX FOR NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 
 
Page No.
 
 
 
Note 1.
 
 
 
Note 2.
 
 
 
Note 3.
 
 
 
Note 4.
 
 
 
Note 5.
 
 
 
Note 6.
 
 
 
Note 7.
 
 
 
Note 8.
 
 
 
Note 9.
 
 
 
Note 10.
 
 
 
Note 11.

6
Table of Contents


ABERCROMBIE & FITCH CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

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, specialty retailer, which primarily sells its products through its wholly-owned store and direct-to-consumer 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 Company has operations in North America, Europe, Asia and the Middle East.

Principles of consolidation

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

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

Fiscal year

The Company’s fiscal year ends on the Saturday closest to January 31. All references herein to “Fiscal 2018 ” and “Fiscal 2017 ” represent the fifty-two week fiscal year ending on February 2, 2019 and the fifty-three week fiscal year ended on February 3, 2018 , respectively.

Interim financial statements

The Condensed Consolidated Financial Statements as of November 3, 2018 , and for the thirteen and thirty-nine week periods ended November 3, 2018 and October 28, 2017 , 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 2017 filed with the SEC on April 2, 2018 . The February 3, 2018 consolidated balance sheet data, included herein, were derived from audited consolidated financial statements, but do not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”).

In the opinion of management, the accompanying Condensed Consolidated Financial Statements reflect all adjustments (which are of a normal recurring nature) necessary to state fairly, in all material respects, the financial position and 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 2018 .

7


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 not expected to have a material impact on the Company’s financial statements. The following table provides a brief description of recent accounting pronouncements the Company has adopted or is currently evaluating.
Accounting Standards Update (ASU)
 
Description
 
Date of
Adoption
 
Effect on the Financial Statements or Other Significant Matters
Standards adopted
ASU 2014-09, Revenue from Contracts with Customers
 
This update superseded the revenue recognition guidance in ASC 605, Revenue Recognition . The new guidance requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration which the entity expects to be entitled to in exchange for those goods or services.
 
February 4, 2018
 
The Company adopted this guidance and all related amendments using the modified retrospective method, and applied the standard to contracts that were not complete as of the adoption date. Comparative period information has not been restated and continues to be reported under the accounting standards in effect for those periods. This guidance primarily impacts the classification and timing of the recognition of the Company’s gift card breakage and timing of direct-to-consumer revenue. Adoption of this guidance had an immaterial impact on net income (loss) attributable to A&F in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

The cumulative effect of applying the new standard on the Condensed Consolidated Balance Sheets as of November 3, 2018 was recognized as an adjustment to the opening balance of retained earnings, increasing beginning retained earnings by $6.9 million, with corresponding reductions in accrued expenses, inventories, and other assets of $4.7 million, $6.4 million, and $2.2 million, respectively, and increases to receivables and other current assets of $6.4 million and $4.4 million, respectively.

In accordance with the new guidance, expected gift card breakage is now recognized in net sales as gift cards are redeemed. Previously, gift card breakage was recognized as other operating income when the Company determined that the likelihood of redemption was remote. Under the new guidance, direct-to-consumer revenue is recognized when control is passed to the customer, typically upon shipment or pick-up of goods. Previously, direct-to-consumer revenue was recognized upon customer acceptance, which typically occurred upon the customer’s possession of the merchandise. The Company does not expect this guidance to have a material impact on store, direct-to-consumer, wholesale, franchise or license revenues on an ongoing basis.

The Company’s revenue recognition accounting policies are discussed further in this Note 1 under “Revenue Recognition.”
ASU 2016-18, Statement of Cash Flows
 
This update amends the guidance in ASC 230, Statement of Cash Flows . The new guidance requires an entity to show the changes in total cash, cash equivalents and restricted cash in the statement of cash flows. Consequently, an entity is no longer required to present transfers between cash and equivalents and restricted cash.
 
February 4, 2018
 
The Company adopted this guidance under the retrospective method. For the thirty-nine weeks ended October 28, 2017, adoption of this guidance resulted in a $1.6 million increase in net cash provided by operating activities and increases of $20.4 million and $22.1 million to beginning and ending cash, cash equivalents and restricted cash, respectively. In addition, captions have been updated in the Condensed Consolidated Statements of Cash Flows to reflect the inclusion of restricted cash. Restricted cash is classified as other assets on the Condensed Consolidated Balance Sheets, as was the case at year-end.
Standards not yet adopted
ASU 2016-02, Leases
 
This update supersedes the leasing guidance in ASC 840, Leases . The new guidance requires an entity to recognize lease assets and lease liabilities on the balance sheet and disclose key leasing information that depicts the lease rights and obligations of an entity.
 
February 3, 2019
 
The Company expects that this guidance will result in a material increase in the Company’s long-term assets and long-term liabilities on the Company’s Condensed Consolidated Balance Sheets for right-of-use assets and lease liabilities as the majority of the Company’s retail locations are currently categorized as operating leases. The Company plans to use the optional transition method when adopting the new standard and will be electing the practical expedient package. In addition, the Company is currently evaluating any additional impacts that this guidance may have on its consolidated financial statements, including the impairment of right-of-use assets. The Company expects this guidance will result in a material decrease in the Company’s opening retained earnings related to the pre-existing impairment of right-of-use assets. The Company did not elect to early adopt this guidance.
ASU 2017-12, Derivatives and Hedging — Targeted Improvements to Accounting for Hedging Activities
 
This update amends ASC 815, Derivatives and Hedging . The new guidance simplifies certain aspects of hedge accounting to more accurately present the economic effects of an entity’s risk management activities in its financial statements. The new guidance allows more hedging strategies to be eligible for hedge accounting and aligns the recognition and presentation of the effects of hedging instruments and hedged items within the financial statements. For cash flow and net investment hedges, the guidance requires a modified retrospective approach while the amended presentation and disclosure guidance requires a prospective approach.
 
February 3, 2019
 
The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements. The Company did not elect to early adopt this guidance.

8


The Company’s significant accounting policies as of November 3, 2018 have not changed materially from those disclosed in Note 2, “ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES , ” of the Notes to Consolidated Financial Statements contained in “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of A&F’s Annual Report on Form 10-K for Fiscal 2017 , with the exception of those discussed below:

Revenue recognition

The Company recognizes revenue from product sales when control of the good is transferred to the customer, generally upon pick up at, or shipment from, a Company location.

The Company provides shipping and handling services to customers in certain direct-to-consumer transactions. Revenue associated with the related shipping and handling obligations is deferred until the obligation is fulfilled, typically upon the customer’s receipt of the merchandise. The related shipping and handling costs are classified in stores and distribution expense on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Revenue is recorded net of estimated returns, associate discounts, promotions and other similar customer incentives. The Company estimates reserves for sales returns based on historical experience among other factors. The sales return reserve is classified in accrued expenses on the Condensed Consolidated Balance Sheets.

The Company accounts for gift cards sold to customers by recognizing an unearned revenue liability at the time of sale, which remains until income from gift cards not expected to be redeemed, referred to as gift card breakage, is recognized as revenue proportionally with gift card redemptions. Gift cards sold to customers do not expire or lose value over periods of inactivity and the Company is not required by law to escheat the value of unredeemed gift cards to the jurisdictions in which it operates.

The Company also maintains loyalty programs, which primarily provides customers with the opportunity to earn points toward future merchandise discount rewards with qualifying purchases. The Company accounts for expected future reward redemptions by recognizing an unearned revenue liability as customers accumulate points, which remains until revenue is recognized at the earlier of redemption or expiration.

Unearned revenue liabilities are primarily recorded when prepayments for future merchandise are received through gift card purchases or when loyalty rewards are earned by a customer in a sales transaction, and are classified in accrued expenses on the Condensed Consolidated Balance Sheets and are typically recognized as revenue within a 12-month period. Unearned revenue liabilities as of November 3, 2018 and the date of adoption, February 4, 2018, were approximately $41.6 million and $38.7 million , respectively. On the date of adoption, February 4, 2018, an adjustment related to the adoption of new revenue recognition standards decreased the beginning of period balance by $6.2 million . For the thirteen and thirty-nine weeks ended  November 3, 2018 , the Company recognized revenue of approximately $19.9 million and $61.2 million , respectively, related to previous deferrals of revenue resulting from the Company’s gift card and loyalty programs.

The Company also recognizes revenue under wholesale arrangements, which is generally recognized upon shipment, when control passes to the wholesale partner. Revenue from the Company’s franchise and license arrangements, primarily royalties earned upon sale of merchandise, is generally recognized at the time merchandise is sold to the franchisees’ retail customers or to the licensees’ wholesale customers.

All revenues are recognized in net sales in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). For a discussion of the disaggregation of revenue, refer to Note 10, “ SEGMENT REPORTING . ” The Company does not include tax amounts collected from customers on behalf of third parties, including sales and indirect taxes, in net sales.


9


2. NET INCOME (LOSS) PER SHARE

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

Additional information pertaining to net income (loss) per share attributable to A&F is as follows:
 
Thirteen Weeks Ended
 
Thirty-nine Weeks Ended
(in thousands)
November 3, 2018
 
October 28, 2017
 
November 3, 2018
 
October 28, 2017
Shares of Common Stock issued
103,300

 
103,300

 
103,300

 
103,300

Weighted-average treasury shares
(36,482
)
 
(34,788
)
 
(35,525
)
 
(34,953
)
Weighted-average — basic shares
66,818

 
68,512

 
67,775

 
68,347

Dilutive effect of share-based compensation awards
1,490

 
913

 
—

 
—

Weighted-average — diluted shares
68,308

 
69,425

 
67,775

 
68,347

Anti-dilutive shares (1)
1,925

 
5,181

 
3,827

 
5,367


(1)  
Reflects the total number of shares related to outstanding share-based compensation awards that have been excluded from the computation of net income (loss) per diluted share because the impact would have been anti-dilutive.


3. FAIR VALUE

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

•
Level 1—inputs are unadjusted quoted prices for identical assets or liabilities that are available in active markets that the Company can access at the measurement date.
•
Level 2—inputs are other than quoted market prices included within Level 1 that are observable for assets or liabilities, directly or indirectly.
•
Level 3—inputs to the valuation methodology are unobservable.

The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy. The three levels of the hierarchy and the distribution of the Company’s assets and liabilities that are measured at fair value on a recurring basis were as follows:
 
Assets and Liabilities at Fair Value as of November 3, 2018
(in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Trust-owned life insurance policies (at cash surrender value)
$
—

 
$
105,083

 
$
—

 
$
105,083

Money market funds
55,329

 
—

 
—

 
55,329

Derivative financial instruments
—

 
11,056

 
—

 
11,056

Total assets
$
55,329

 
$
116,139

 
$
—

 
$
171,468

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Derivative financial instruments
$
—

 
$
—

 
$
—

 
$
—

Total liabilities
$
—

 
$
—

 
$
—

 
$
—

 
Assets and Liabilities at Fair Value as of February 3, 2018
(in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Trust-owned life insurance policies (at cash surrender value)
$
—

 
$
102,784

 
$
—

 
$
102,784

Money market funds
330,649

 
—

 
—

 
330,649

Derivative financial instruments
—

 
37

 
—

 
37

Total assets
$
330,649

 
$
102,821

 
$
—

 
$
433,470

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Derivative financial instruments
$
—

 
$
9,147

 
$
—

 
$
9,147

Total liabilities
$
—

 
$
9,147

 
$
—

 
$
9,147


10


The Level 2 assets and liabilities consist of trust-owned life insurance policies and derivative financial instruments, primarily foreign currency exchange forward contracts. The fair value of trust-owned life insurance policies is determined using the cash surrender value of the life insurance policies. The fair value of foreign currency exchange forward contracts is determined using quoted market prices of the same or similar instruments, adjusted for counterparty risk.

Fair value of borrowings

The Company’s borrowings under the Company’s credit facilities are carried at historical cost in the accompanying Condensed Consolidated Balance Sheets.

The carrying amount and fair value of the Company’s gross borrowings under the term loan credit facility were as follows:
(in thousands)
November 3, 2018
 
February 3, 2018
Gross borrowings outstanding, carrying amount
$
253,250

 
$
253,250

Gross borrowings outstanding, fair value
$
253,883

 
$
253,250


No borrowings were outstanding under the Company’s senior secured revolving credit facility as of November 3, 2018 or February 3, 2018 .


4. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of:
(in thousands)
November 3, 2018
 
February 3, 2018
Property and equipment, at cost
$
2,814,442

 
$
2,821,709

Less: Accumulated depreciation and amortization
(2,129,915
)
 
(2,083,527
)
Property and equipment, net
$
684,527

 
$
738,182


The Company incurred store asset impairment charges of $0.7 million and $10.4 million for the thirteen and thirty-nine weeks ended November 3, 2018 , respectively, and 3.5 million and $10.3 million for the thirteen and thirty-nine weeks ended October 28, 2017 , respectively, primarily related to certain of the Company’s international Abercrombie & Fitch stores.

The Company had $34.7 million and $38.7 million of construction project assets in property and equipment, net at November 3, 2018 and February 3, 2018 , respectively, related to the construction of buildings in certain lease arrangements where the Company is deemed to be the owner of the construction project.


11


5. INCOME TAXES

The Company’s quarterly tax provision and the estimate of the annual effective tax rate are subject to significant variation due to several factors. These include variability in the pre-tax jurisdictional mix of earnings, changes in how the Company does business including entering into new businesses or geographies, changes in foreign currency exchange rates, changes in law, regulations, interpretations and administrative practices, relative changes of expenses or losses for which tax benefits are not recognized and the impact of discrete items. The impact of these items on the effective tax rate will be greater at lower levels of pre-tax earnings.

Tax Cuts and Jobs Act of 2017

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law. The Act makes broad and significantly complex changes to the U.S. corporate income tax system by, among other things: reducing the U.S. federal corporate income tax rate from 35% to 21% ; transitioning U.S. international taxation to a modified territorial tax system; and imposing a mandatory one-time deemed repatriation tax, payable over eight years, on accumulated undistributed foreign subsidiary earnings and profits as of December 31, 2017. The Company recognized provisional discrete net tax charges of $19.9 million related to the enactment of the Act in the fourth quarter of Fiscal 2017.

Primarily due to proposed regulatory guidance issued by the Internal Revenue Service, the Company recognized measurement period charges in an aggregate amount of $2.4 million during the thirty-nine weeks ended November 3, 2018, which consisted of:

•
$2.0 million of measurement period charges during the thirteen weeks ended August 4, 2018, adjusting the provisional tax amounts related to the mandatory one-time deemed repatriation tax on accumulated undistributed foreign earnings; and,
•
$0.4 million of measurement period net charges during the thirteen weeks ended November 3, 2018, adjusting the provisional tax amounts related to the remeasurement of the Company’s ending deferred tax assets and liabilities at February 3, 2018, as well as adjusting the Company’s deferred tax liability on unremitted foreign earnings.

As a result of the Company’s initial analysis of the impact of the Act and subsequent measurement period adjustments, the Company has incurred discrete net income tax charges in an aggregate amount of $22.4 million since the enactment of the Act, which consists of:

•
$23.7 million of provisional tax expense related to the mandatory one-time deemed repatriation tax on accumulated undistributed foreign subsidiary earnings and profits of approximately $385.8 million ;
•
$3.5 million of provisional tax expense related to the remeasurement of the Company’s ending deferred tax assets and liabilities at February 3, 2018, as a result of the U.S. federal corporate income tax rate reduction from 35% to 21% ;
•
$0.8 million of provisional tax expense at the state level related to the Company’s decision to repatriate $250 million of the Company’s undistributed foreign earnings to the U.S. in the fourth quarter of Fiscal 2018; and,
•
$5.6 million of tax benefit for the decrease in the Company’s federal deferred tax liability on unremitted foreign earnings.

Given the significant changes resulting from and complexities associated with the Act, the estimated financial impacts related to the enactment of the Act are provisional and assessed as of November 3, 2018 . The ultimate outcome may differ from these provisional amounts and could impact the provision for income taxes in Fiscal 2018, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued and actions the Company may take as a result of the Act. Provisional amounts are expected to be finalized after the Company’s Fiscal 2017 U.S. corporate income tax return is filed in the fourth quarter of Fiscal 2018, but no later than one year from the enactment of the Act.

Other

The Company incurred discrete non-cash income tax charges of $1.8 million and $9.8 million for the thirteen and thirty-nine weeks ended  November 3, 2018 , respectively, and charges of $0.2 million and $10.1 million for the thirteen and thirty-nine weeks ended  October 28, 2017 , respectively, related to the expiration of certain share-based compensation awards, recognized in income tax expense (benefit) due to changes in share-based compensation accounting standards adopted by the Company in the first quarter of Fiscal 2017.

12


6. BORROWINGS

Asset-based revolving credit facility

On August 7, 2014, A&F, through its subsidiary Abercrombie & Fitch Management Co. (“A&F Management”) as the lead borrower (with A&F and certain other subsidiaries as borrowers or guarantors), entered into an asset-based revolving credit agreement.

On October 19, 2017, the Company, through A&F Management, entered into the Second Amendment to Credit Agreement (the “ABL Second Amendment”), amending and extending the maturity date of the asset-based revolving credit agreement. As amended, the asset-based revolving credit agreement continues to provide for a senior secured revolving credit facility of up to $400 million (the “Amended ABL Facility”). The Amended ABL Facility will mature on October 19, 2022.

The provisions of the credit agreement for the Amended ABL Facility have not changed from those describe in Note 11, “ 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 2017 .

As of November 3, 2018 , the Company had not drawn on the Amended ABL Facility, and had availability under the Amended ABL Facility of $398.9 million .

Term loan facility

A&F, through its subsidiary A&F Management as the borrower (with A&F and certain other subsidiaries as guarantors), also entered into a term loan credit agreement on August 7, 2014, which, as amended, 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 A&F Management, entered into the Term Loan Second Amendment , which served to reprice the Term Loan Facility. As permitted under the credit agreement applicable to the Term Loan Facility, among other things, the Term Loan Second Amendment provided for the issuance by A&F Management of refinancing term loans in an aggregate principal amount of $253.3 million in exchange for the term loans then outstanding under the Term Loan Facility, which resulted in the reduction of the applicable margins for term loans by 0.25% . Under the Term Loan Second Amendment, at the Company's option, borrowings under the Term Loan Facility will now bear interest at either (a) an adjusted LIBO rate no lower than 1.00% plus a margin of 3.50% per annum, reduced from a margin of 3.75% per annum, or (b) an alternate base rate plus a margin of 2.50% per annum, reduced from a margin of 2.75% per annum. Deferred financing fees associated with the repricing transaction were not significant. All other material provisions under the credit agreement applicable to the Term Loan Facility have remained unchanged.

As of November 3, 2018 , the interest rate on borrowings under the Term Loan Facility was 5.78% .

The Company’s Term Loan Facility debt is presented in the Condensed Consolidated Balance Sheets, net of the unamortized discount and fees. Net borrowings as of November 3, 2018 and February 3, 2018 were as follows:
(in thousands)
November 3, 2018
 
February 3, 2018
Borrowings, gross at carrying amount
$
253,250

 
$
253,250

Unamortized discount
(930
)
 
(1,184
)
Unamortized fees
(2,178
)
 
(2,380
)
Borrowings, net
250,142

 
249,686

Less: short-term portion of borrowings, net
—

 
—

Long-term portion of borrowings, net
$
250,142

 
249,686



13


Representations, warranties and covenants

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

The Company was in compliance with the covenants under the Credit Facilities as of November 3, 2018 .


7. SHARE-BASED COMPENSATION

Financial statement impact

The Company recognized share-based compensation expense of $6.0 million and $16.9 million for the thirteen and thirty-nine weeks ended November 3, 2018 , respectively, and $5.4 million and $15.8 million for the thirteen and thirty-nine weeks ended October 28, 2017 , respectively. The Company recognized tax benefits associated with share-based compensation expense of $1.3 million and $3.4 million for the thirteen and thirty-nine weeks ended November 3, 2018 , respectively, and $2.0 million and $6.0 million for the thirteen and thirty-nine weeks ended October 28, 2017 , respectively.

Restricted stock units

The following table summarizes activity for restricted stock units for the thirty-nine weeks ended November 3, 2018 :
 
Service-based Restricted
Stock Units
 
Performance-based Restricted
Stock Units
 
Market-based Restricted
Stock Units
 
Number of 
Underlying
Shares (1)
 
Weighted-
Average Grant
Date Fair Value
 
Number of 
Underlying
Shares
 
Weighted-
Average Grant
Date Fair Value
 
Number of 
Underlying
Shares
 
Weighted-
Average Grant
Date Fair Value
Unvested at February 3, 2018
2,520,160

 
$
15.35

 
690,174

 
$
11.82

 
383,980

 
$
16.50

Granted
764,213

 
21.79

 
197,979

 
21.77

 
142,014

 
33.69

Adjustments for performance achievement
—

 
—

 
(43,999
)
 
20.10

 
(36,817
)
 
19.04

Vested
(923,378
)
 
17.19

 
—

 
—

 
(7,185
)
 
19.04

Forfeited
(154,812
)
 
15.41

 
(12,998
)
 
12.17

 
(12,999
)
 
17.28

Unvested at November 3, 2018
2,206,183

 
$
16.83

 
831,156

 
$
13.74

 
468,993

 
$
21.45


(1)  
Includes 449,923 unvested restricted stock units as of November 3, 2018 , 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. Unvested shares related to restricted stock units with performance-based and market-based vesting conditions can achieve up to 200% of their target vesting amount and are reflected at 100% of their target vesting amount in the table above.

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

Service-based restricted stock units are expensed on a straight-line basis over the total award’s requisite service period. Performance-based restricted stock units subject to graded vesting are expensed on an accelerated attribution basis. Performance share award expense is primarily recognized in the performance period of the award’s requisite service period. Market-based restricted stock units without graded vesting features are expensed on a straight-line basis over the award’s requisite service period. Compensation

14


expense for stock options had been, and stock appreciation rights is, recognized on a straight-line basis over the award’s requisite service period. The Company adjusts share-based compensation expense on a quarterly basis for actual forfeitures. Unrecognized compensation expense presented excludes the effect of potential forfeitures, and will be adjusted for actual forfeitures as they occur.

As of November 3, 2018 , there was $27.6 million , $8.0 million and $5.5 million of total unrecognized compensation cost, related to service-based, performance-based and market-based restricted stock units, respectively. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 16 months , 12 months and 13 months for service-based, performance-based and market-based restricted stock units, respectively.

The actual tax benefit realized for tax deductions related to the issuance of shares associated with the vesting of restricted stock units was  $0.4 million  and  $5.3 million for the thirteen and thirty-nine weeks ended  November 3, 2018 , respectively, and $0.2 million  and  $2.7 million for the thirteen and thirty-nine  weeks ended  October 28, 2017 , respectively.

Additional information pertaining to restricted stock units for the thirty-nine weeks ended November 3, 2018 and October 28, 2017 follows:
(in thousands)
November 3, 2018
 
October 28, 2017
Service-based restricted stock units:
 
 
 
Total grant date fair value of awards granted
$
16,652

 
$
16,551

Total grant date fair value of awards vested
15,873

 
17,531

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

 
$
4,774

Total grant date fair value of awards vested
—

 
—

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

 
$
2,793

Total grant date fair value of awards vested
137

 
—


The weighted-average assumptions used for market-based restricted stock units in the Monte Carlo simulation during the thirty-nine weeks ended November 3, 2018 and October 28, 2017 were as follows:
 
November 3, 2018
 
October 28, 2017
Grant date market price
$
23.59

 
$
11.43

Fair value
$
33.69

 
$
11.79

Assumptions:
 
 
 
Price volatility
54
%
 
47
%
Expected term (years)
2.9

 
2.9

Risk-free interest rate
2.4
%
 
1.5
%
Dividend yield
3.4
%
 
7.0
%
Average volatility of peer companies
37.4
%
 
35.2
%
Average correlation coefficient of peer companies
0.2709

 
0.2664



15


Stock appreciation rights

The following table summarizes stock appreciation rights activity for the thirty-nine weeks ended November 3, 2018 :
 
Number of
Underlying
Shares
 
Weighted-Average
Exercise Price
 
Aggregate
Intrinsic Value
 
Weighted-Average
Remaining
Contractual Life (years)
Outstanding at February 3, 2018
3,010,720

 
$
49.35

 
 
 
 
Granted
—

 
—

 
 
 
 
Exercised
(50,190
)
 
22.21

 
 
 
 
Forfeited or expired
(1,903,746
)
 
56.65

 
 
 
 
Outstanding at November 3, 2018
1,056,784

 
$
37.68

 
$
15,525

 
4.0
Stock appreciation rights exercisable at November 3, 2018
965,488

 
$
39.09

 
$
11,644

 
3.8
Stock appreciation rights expected to become exercisable in the future as of November 3, 2018
87,897

 
$
22.85

 
$
3,460

 
6.4

As of November 3, 2018 , there was $0.3 million of total unrecognized compensation cost related to stock appreciation rights. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 3 months .

The grant date fair value of stock appreciation rights that were exercised during the thirty-nine weeks ended November 3, 2018 and October 28, 2017 was $1.3 million and $2.2 million , respectively.

Stock options

The following table summarizes stock option activity for the thirty-nine weeks ended November 3, 2018 :
 
Number of
Underlying
Shares
 
Weighted-Average
Exercise Price
 
Aggregate
Intrinsic Value
 
Weighted-Average
Remaining
Contractual Life (years)
Outstanding at February 3, 2018
87,200

 
$
78.20

 
 
 
 
Granted
—

 
—

 
 
 
 
Exercised
—

 
—

 
 
 
 
Forfeited or expired
(87,200
)
 
78.20

 
 
 
 
Outstanding at November 3, 2018
—

 
$
—

 
$
—

 
—

Stock options exercisable at November 3, 2018
—

 
$
—

 
$
—

 
—


As of November 3, 2018 , there was no unrecognized compensation cost related to stock options.


8. 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. Under the current accounting guidance, substantially all of the unrealized gains or losses related to designated cash flow hedges as of November 3, 2018 would be recognized in cost of sales, exclusive of depreciation and amortization, over the next twelve months . Refer to Note 1, “ BASIS OF PRESENTATION , ” for further discussion of recent accounting pronouncements related to derivative instruments that could affect the Company's financial statements.

16



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

As of November 3, 2018 , the Company had outstanding the following foreign currency exchange forward contracts that were entered into to hedge either a portion, or all, of forecasted foreign currency denominated intercompany inventory sales, the resulting settlement of the foreign currency denominated intercompany accounts receivable, or both:
(in thousands)
Notional Amount (1)
Euro
$
105,013

British pound
$
50,161

Canadian dollar
$
19,494

Japanese yen
$
9,928


(1)  
Amounts reported are the U.S. Dollar notional amounts outstanding as of November 3, 2018 .

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.

As of November 3, 2018 , the Company had outstanding the following foreign currency exchange forward contracts that were entered into to hedge foreign-currency-denominated net monetary assets/liabilities:
(in thousands)
Notional Amount (1)
Euro
$
3,427


(1)  
Amount reported is the U.S. Dollar notional amount outstanding as of November 3, 2018 .

The location and amounts of derivative fair values on the Condensed Consolidated Balance Sheets as of November 3, 2018 and February 3, 2018 were as follows:
(in thousands)
Location
 
November 3,
2018
 
February 3,
2018
 
Location
 
November 3,
2018
 
February 3,
2018
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange forward contracts
 
 
$
11,050

 
$
37

 
 
 
$
—

 
$
9,108

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange forward contracts
 
 
$
6

 
$
—

 
 
 
$
—

 
$
39

Total
Other current assets
 
$
11,056

 
$
37

 
Accrued expenses
 
$
—

 
$
9,147


Refer to Note 3, “ FAIR VALUE , ” for further discussion of the determination of the fair value of derivative instruments.


17


The location and amounts of derivative gains and losses for the thirteen and thirty-nine weeks ended November 3, 2018 and October 28, 2017 on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) were as follows:
(in thousands)
 
 
Thirteen Weeks Ended
 
Thirty-nine Weeks Ended
Derivatives not designated as hedging instruments:
Location
 
November 3, 2018
 
October 28, 2017
 
November 3, 2018
 
October 28, 2017
Foreign currency exchange forward contracts gain (loss)
Other operating income, net
 
$
(1,912
)
 
$
634

 
$
2,684

 
$
83

 
Effective Portion
 
Ineffective Portion and Amount Excluded from Effectiveness Testing
 
Amount of Gain (Loss) Recognized in AOCL on Derivative Contracts (1)
 
Location of Gain (Loss) Reclassified from AOCL into Earnings
 
Amount of Gain (Loss) Reclassified from AOCL into Earnings (2)
 
Location of Gain Recognized in Earnings on Derivative Contracts
 
Amount of Gain (Loss) Recognized in Earnings on Derivative Contracts (3)
 
Thirteen Weeks Ended
(in thousands)
November 3, 2018
 
October 28, 2017
 
 
 
November 3, 2018
 
October 28, 2017
 
 
 
November 3, 2018
 
October 28, 2017
Derivatives in cash flow hedging relationships:
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange forward contracts
$
2,051

 
$
1,775

 
Cost of sales, exclusive of depreciation and amortization
 
$
2,814

 
$
(3,544
)
 
Other operating income, net
 
$
1,265

 
$
975

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Thirty-nine Weeks Ended
(in thousands)
November 3, 2018
 
October 28, 2017
 
 
 
November 3, 2018
 
October 28, 2017
 
 
 
November 3, 2018
 
October 28, 2017
Derivatives in cash flow hedging relationships:
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange forward contracts
$
18,716

 
$
(10,627
)
 
Cost of sales, exclusive of depreciation and amortization
 
$
(2,408
)
 
$
536

 
Other operating income, net
 
$
4,320

 
$
2,136


(1)  
The amount represents the change in fair value of derivative contracts due to changes in spot rates.
(2)  
The amount represents the reclassification from AOCL into earnings when the hedged item affects earnings, which is when merchandise is sold to the Company’s customers.
(3)  
The amount represents the change in fair value of derivative contracts due to changes in the difference between the spot price and forward price that is excluded from the assessment of hedge effectiveness and, therefore, recognized in earnings.

18


9. ACCUMULATED OTHER COMPREHENSIVE LOSS

The activity in accumulated other comprehensive loss for the thirteen and thirty-nine weeks ended November 3, 2018 was as follows:
 
Thirteen Weeks Ended November 3, 2018
(in thousands)
Foreign Currency Translation Adjustment
 
Unrealized Gain (Loss) on Derivative Financial Instruments
 
Total
Beginning balance at August 4, 2018
$
(104,492
)
 
$
9,600

 
$
(94,892
)
Other comprehensive (loss) income before reclassifications
(3,111
)
 
2,051

 
(1,060
)
Reclassified from accumulated other comprehensive loss (1)
—

 
(2,814
)
 
(2,814
)
Tax effect
16

 
82

 
98

Other comprehensive loss
(3,095
)
 
(681
)
 
(3,776
)
Ending balance at November 3, 2018
$
(107,587
)
 
$
8,919

 
$
(98,668
)
 
Thirty-nine Weeks Ended November 3, 2018
(in thousands)
Foreign Currency Translation Adjustment
 
Unrealized Gain (Loss) on Derivative Financial Instruments
 
Total
Beginning balance at February 3, 2018
$
(84,947
)
 
$
(10,107
)
 
$
(95,054
)
Other comprehensive (loss) income before reclassifications
(22,656
)
 
18,716

 
(3,940
)
Reclassified from accumulated other comprehensive loss  (1)
—

 
2,408

 
2,408

Tax effect
16

 
(2,098
)
 
(2,082
)
Other comprehensive (loss) income
(22,640
)
 
19,026

 
(3,614
)
Ending balance at November 3, 2018
$
(107,587
)
 
$
8,919

 
$
(98,668
)

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

The activity in accumulated other comprehensive loss for the thirteen and thirty-nine weeks ended October 28, 2017 was as follows:
 
Thirteen Weeks Ended October 28, 2017
(in thousands)
Foreign Currency Translation Adjustment
 
Unrealized Gain (Loss) on Derivative Financial Instruments
 
Total
Beginning balance at July 29, 2017
$
(101,448
)
 
$
(9,923
)
 
$
(111,371
)
Other comprehensive (loss) income before reclassifications
(2,451
)
 
1,775

 
(676
)
Reclassified from accumulated other comprehensive loss (1)
—

 
3,544

 
3,544

Tax effect
(1,045
)
 
199

 
(846
)
Other comprehensive (loss) income
(3,496
)
 
5,518

 
2,022

Ending balance at October 28, 2017
$
(104,944
)
 
$
(4,405
)
 
$
(109,349
)
 
Thirty-nine Weeks Ended October 28, 2017
(in thousands)
Foreign Currency Translation Adjustment
 
Unrealized Gain (Loss) on Derivative Financial Instruments
 
Total
Beginning balance at January 28, 2017
$
(126,127
)
 
$
4,825

 
$
(121,302
)
Other comprehensive income before reclassifications
22,228

 
(10,627
)
 
11,601

Reclassified from accumulated other comprehensive loss  (1)
—

 
(536
)
 
(536
)
Tax effect
(1,045
)
 
1,933

 
888

Other comprehensive income (loss)
21,183

 
(9,230
)
 
11,953

Ending balance at October 28, 2017
$
(104,944
)
 
$
(4,405
)
 
$
(109,349
)

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

19


10. SEGMENT REPORTING

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

The following table provides the Company’s net sales by operating segment for the thirteen and thirty-nine weeks ended November 3, 2018 and October 28, 2017 .
 
Thirteen Weeks Ended
 
Thirty-nine Weeks Ended
(in thousands)
November 3, 2018
 
October 28, 2017
 
November 3, 2018
 
October 28, 2017
Hollister
$
515,125

 
$
508,086

 
$
1,439,589

 
$
1,329,401

Abercrombie
346,069

 
351,026

 
994,918

 
970,131

Total
$
861,194

 
$
859,112

 
$
2,434,507

 
$
2,299,532


The following table provides the Company’s net sales by geographic area for the thirteen and thirty-nine weeks ended November 3, 2018 and October 28, 2017 .
 
Thirteen Weeks Ended
 
Thirty-nine Weeks Ended
(in thousands)
November 3, 2018
 
October 28, 2017
 
November 3, 2018
 
October 28, 2017
United States
$
562,590

 
$
554,673

 
$
1,543,162

 
$
1,434,019

Europe
187,516

 
192,698

 
549,530

 
543,578

Other
111,088

 
111,741

 
341,815

 
321,935

Total
$
861,194

 
$
859,112

 
$
2,434,507

 
$
2,299,532



20


11. CONTINGENCIES

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. Based on currently available information, the Company cannot estimate a range of reasonably possible losses in excess of these 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 of or potential liability, and 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 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.

Certain legal matters

The Company was a defendant in two separate class action lawsuits filed by former associates of the Company who are represented by the same counsel. The first lawsuit, filed in 2013, alleged failure to indemnify business expenses and a series of derivative claims for compelled patronization, inaccurate wage statements, waiting time penalties, minimum wage violations and unfair competition under California state law on behalf of all non-exempt hourly associates at Abercrombie & Fitch, abercrombie kids, Hollister and Gilly Hicks stores in California. Four subclasses of associates were certified, and the matter was before a U.S. District Court of California. The second lawsuit, filed in 2015, alleged that associates were required to purchase uniforms without reimbursement in violation of federal law, and laws of the states of New York, Florida and Massachusetts, as well as derivative putative state law claims and sought to pursue such claims on a class and collective basis. On December 12, 2017, a U.S. District Court of California granted the parties’ stipulation to transfer and combine the first-filed lawsuit with the second-filed lawsuit then pending before a U.S. District Court of Ohio. Both matters were mediated and the parties signed a settlement with a maximum potential payment of $25.0 million subject to a claim process. On February 16, 2018, a U.S. District Court of Ohio granted preliminary approval of the proposed settlement and ordered that notice of the proposed settlement be given to the absent members of the settlement class. On November 7, 2018 , the U.S. District Court of Ohio granted final approval of the proposed settlement, which will result in a full and final settlement of all claims in both lawsuits on a class-wide basis for an ultimate settlement amount of approximately $10.1 million , to be paid by the Company in the fourth quarter of Fiscal 2018, based on the actual claims made by members of the class. As of November 3, 2018 , the Company had accrued charges for this payment obligation of $10.1 million , classified within accrued expenses on the accompanying Condensed Consolidated Balance Sheet.

In addition to the matters discussed above, the Company was a defendant in certain other class action lawsuits filed by former associates of the Company. These lawsuits, assigned to the same judge in a U.S. District Court of California, alleged non-exempt hourly associates of the Company were not properly compensated, in violation of federal and California law, for call-in practices requiring associates to engage in certain pre-shift activities in order to determine whether they should report to work and the Company’s alleged failure to pay reporting time pay and all wages earned at termination. In addition, these lawsuits included derivative claims alleging inaccurate wage statements and unfair competition under California state law on behalf of non-exempt hourly associates. One of these lawsuits was mediated and the parties involved have signed a $9.6 million settlement agreement, which was preliminary approved by a U.S. District Court of California. On November 20, 2018 the U.S. District Court of California granted final approval of the proposed settlement, which will result in a full and final settlement of all claims made therein for an ultimate settlement amount of $9.6 million , to be paid by the Company in the fourth quarter of Fiscal 2018. The ultimate settlement amount could be subject to appeal from class members. As of November 3, 2018 , the Company had accrued charges for this legal contingency of $9.6 million , classified within accrued expenses on the accompanying Condensed Consolidated Balance Sheet. There can be no absolute assurance of the ultimate outcome of this litigation.

21


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


OVERVIEW

Business summary

The Company is a global, multi-brand, specialty retailer, which primarily sells its products through its wholly-owned store and direct-to-consumer 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 Company has operations in North America, Europe, Asia and the Middle East.

The Company’s fiscal year ends on the Saturday closest to January 31. Fiscal years are designated in the consolidated financial statements and notes by the calendar year in which the fiscal year commences. All references herein to “Fiscal 2018 ” represent the fifty-two-week fiscal year ending on February 2, 2019 , and to “Fiscal 2017 ” represent the fifty-three-week fiscal year that ended February 3, 2018 .

Due to the seasonal nature of the retail apparel industry, the results of operations for any current period are not necessarily indicative of the results expected for the full fiscal year. The seasonality of the Company’s operations may also lead to significant fluctuations in certain asset and liability accounts.

Summary results of operations

The table below summarizes the Company’s results of operations and reconciles financial measures determined in accordance with accounting principles generally accepted in the U.S. (“GAAP”) to non-GAAP financial measures for the thirteen and thirty-nine week periods ended November 3, 2018 and October 28, 2017 . Additional discussion about why the Company believes that these non-GAAP financial measures are useful to investors is provided below under “NON-GAAP FINANCIAL MEASURES.”
 
 
November 3, 2018
 
October 28, 2017
(in thousands, except change in comparable sales, gross profit rate and per share amounts)
 
GAAP
 
Excluded Items (1)
 
Non-GAAP
 
GAAP
 
Excluded Items (1)
 
Non-GAAP
Thirteen Weeks Ended
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
861,194

 
$
—

 
$
861,194

 
$
859,112

 
$
—

 
$
859,112

Change in net sales
 
0
%
 
 
 
 
 
 
 
 
 
 
Change in comparable sales (2)
 
 
 
 
 
3
%
 
 
 
 
 
4
%
Gross profit rate
 
61.3
%
 
—
%
 
61.3
%
 
61.3
%
 
—
%
 
61.3
%
Operating income
 
$
39,680

 
$
3,005

 
$
36,675

 
$
22,740

 
$
(14,550
)
 
$
37,290

Net income attributable to A&F
 
$
23,919

 
$
1,536

 
$
22,383

 
$
10,075

 
$
(10,433
)
 
$
20,508

Net income per diluted share attributable to A&F
 
$
0.35

 
$
0.02

 
$
0.33

 
$
0.15

 
$
(0.15
)
 
$
0.30

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

 
$
—

 
$
2,434,507

 
$
2,299,532

 
$
—

 
$
2,299,532

Change in net sales
 
6
%
 
 
 
 
 
 
 
 
 
 
Change in comparable sales  (2)
 
 
 
 
 
3
%
 
 
 
 
 
0
%
Gross profit rate
 
60.7
%
 
—
%
 
60.7
%
 
60.3
%
 
—
%
 
60.3
%
Operating (loss) income
 
$
(2,300
)
 
$
(11,266
)
 
$
8,966

 
$
(68,290
)
 
$
(20,685
)
 
$
(47,605
)
Net loss attributable to A&F
 
$
(22,395
)
 
$
(10,547
)
 
$
(11,848
)
 
$
(67,116
)
 
$
(14,958
)
 
$
(52,158
)
Net loss per diluted share attributable to A&F
 
$
(0.33
)
 
$
(0.16
)
 
$
(0.17
)
 
$
(0.98
)
 
$
(0.22
)
 
$
(0.76
)

(1)  
Refer to “ RESULTS OF OPERATIONS ” for details on excluded items.
(2)  
Comparable sales are calculated on a constant currency basis. Due to the calendar shift resulting from the 53 rd week in Fiscal 2017, comparable sales for the thirteen weeks ended November 3, 2018 are compared to the thirteen weeks ended November 4, 2017 . Refer to the discussion below in “NON-GAAP FINANCIAL MEASURES” for further details on the comparable sales calculation.


22
Table of Contents


As of November 3, 2018 , the Company had $520.5 million in cash and equivalents, and $253.3 million in gross borrowings outstanding under the Term Loan Facility. Net cash provided by operating activities was $77.2 million for the thirty-nine weeks ended November 3, 2018 . The Company also used cash of $68.7 million to repurchase approximately 2.9 million shares of A&F’s Common Stock in the open market, $98.8 million for capital expenditures and $40.6 million to pay dividends during the thirty-nine weeks ended November 3, 2018 .

As of October 28, 2017 , the Company had $459.3 million in cash and equivalents, and $268.3 million in gross borrowings outstanding under the Term Loan Facility. Net cash provided by operating activities was $31.4 million for the thirty-nine weeks ended October 28, 2017 . The Company also used cash of $86.3 million for capital expenditures and $40.8 million to pay dividends during the thirty-nine weeks ended October 28, 2017 .


STORE ACTIVITY

Store count and gross square footage by brand and geography for the thirty-nine weeks ended November 3, 2018 and October 28, 2017 , respectively, were as follows:
 
Hollister (1)
 
Abercrombie (2)
 
Total
 
United States
 
International
 
United States
 
International
 
United States
 
International
February 3, 2018
394

 
144

 
285

 
45

 
679

 
189

New
6

 
3

 
4

 
3

 
10

 
6

Closed
—

 
—

 
(5
)
 
—

 
(5
)
 
—

November 3, 2018
400

 
147

 
284

 
48

 
684

 
195

Gross square footage  (in thousands) :
 
 
 
 
 
 
 
 
 
 
 
November 3, 2018
2,705

 
1,219

 
2,156

 
639

 
4,861

 
1,858

 
 
 
 
 
 
 
 
 
 
 
 
 
Hollister (1)
 
Abercrombie (2)
 
Total
 
United States
 
International
 
United States
 
International
 
United States
 
International
January 28, 2017
398

 
145

 
311

 
44

 
709

 
189

New
1

 
—

 
3

 
1

 
4

 
1

Closed
(3
)
 
—

 
(10
)
 
(1
)
 
(13
)
 
(1
)
October 28, 2017
396

 
145

 
304

 
44

 
700

 
189

Gross square footage (in thousands) :
 
 
 
 
 
 
 
 
 
 
 
October 28, 2017
2,694

 
1,216

 
2,355

 
615

 
5,049

 
1,831


(1)
Excludes eight international franchise stores as of November 3, 2018 , five international franchise stores as of each of February 3, 2018 and October 28, 2017 , and three international franchise stores as of January 28, 2017 .
(2)
Includes Abercrombie & Fitch and abercrombie kids brands. Excludes six international franchise stores as of November 3, 2018 , four international franchise stores as of each of February 3, 2018 and October 28, 2017 , and one international franchise store as of January 28, 2017 .

23
Table of Contents


CURRENT TRENDS AND OUTLOOK

We are pleased with our third quarter performance, with net sales up slightly despite adverse impacts from the calendar shift resulting from Fiscal 2017’s 53 rd week and changes in foreign currency exchange rates, and our fifth consecutive quarter of positive comparable sales, with growth across brands. We delivered comparable sales of 3%, on top of 4% last year, with continued gross profit rate stabilization. Our strong U.S omnichannel business, and 16% global digital sales growth, confirm that our playbooks are working.

During the third quarter, we improved net income over last year, while continuing to invest in the transformation of our business. As previously discussed, these transformation initiatives are focused on the following four pillars:
•
continuing our global store network optimization;
•
enhancing digital and omnichannel capabilities;
•
streamlining our end-to-end concept to customer process by investing in capabilities to position our supply chain for greater speed and efficiency, while leveraging data and analytics to offer the right product at the right time; and
•
optimizing our marketing investments, including leveraging our growing loyalty programs.

As expected, we had a solid start to the holiday season, demonstrating the effectiveness of our continued focus on the customer. We are well-positioned to deliver top-line growth, gross profit rate expansion and operating expense leverage for the full year.

Fourth quarter of Fiscal 2018 outlook

For the fourth quarter of Fiscal 2018, we expect:
•
Net sales to be down mid single digits, including the adverse effect from the calendar shift and the loss of Fiscal 2017’s 53 rd week of approximately $60 million and the adverse effect from changes in foreign currency exchange rates.
•
Comparable sales to be up low single digits.
•
A gross profit rate flat to up slightly from the Fiscal 2017 rate of 58.4%.
•
GAAP operating expense, excluding other operating income to be down in the range of 1-2% from Fiscal 2017 adjusted non-GAAP operating expense of $561 million.
•
Other operating income, which fluctuates due to changes in foreign currency exchange rates, to be approximately $2 million.
•
An effective tax rate in the mid-to-upper 20s.
•
A weighted average fully-diluted share count of approximately 68 million shares, excluding the effect of potential share buybacks.
•
Inventory to be flat to up low single digits from Fiscal 2017 ending inventory of $424 million.

Full year Fiscal 2018 outlook

For Fiscal 2018, we expect:
•
Net sales to be up in the range of 2% to 4%, including the adverse effect from the loss of Fiscal 2017’s 53 rd week of approximately $40 million, partially offset by a benefit from foreign currency exchange rates.
•
Comparable sales to be up in the range of 2% to 4%.
•
A gross profit rate up slightly from the Fiscal 2017 rate of 59.7%.
•
GAAP operating expense, excluding other operating income to be up approximately 2% from Fiscal 2017 adjusted operating expense of $2 billion, including $11 million of net charges this year related to asset impairment and certain legal matters that are excluded from adjusted non-GAAP operating expense. We expect adjusted non-GAAP operating expense to be up approximately 1.5%.
•
An effective tax rate in the mid-to-upper 30s, including discrete non-cash net income tax charges of approximately $9 million related to share-based compensation accounting standards that went into effect in Fiscal 2017. The full year effective tax rate also includes discrete net tax charges of $2 million related to the Tax Cuts and Jobs Act of 2017 provisional estimate, which are excluded from adjusted non-GAAP results.
•
A weighted average fully-diluted share count of approximately 69 million shares, excluding the effect of potential share buybacks.
•
Capital expenditures to be approximately $145 million, including approximately $90 million for store updates and new stores, and approximately $55 million for the continued rollout of omnichannel and CRM capabilities, including investments in our loyalty programs, information technology and other investments.
•
To deliver approximately 70 new store experiences through new store prototypes, remodeled stores and right-sizes.
•
To close up to 40 stores, primarily in the U.S.

24
Table of Contents


NON-GAAP FINANCIAL MEASURES

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

Financial information on a constant currency basis

The Company provides certain financial information on a constant currency basis to enhance investors’ understanding of underlying business trends and operating performance by removing the impact of foreign currency exchange rate fluctuations. The effect from foreign currency exchange rates, calculated on a constant currency basis, is determined by applying the current period’s foreign currency exchange rates to the prior year’s results and is net of the year-over-year impact from hedging. The per diluted share effect from foreign currency exchange rates for Fiscal 2018 is calculated using a 27% effective tax rate.

Comparable sales

In addition, the Company provides comparable sales, defined as the aggregate of (1) year-over-year 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) year-over-year direct-to-consumer sales with the prior year’s net sales converted at the current year’s foreign currency exchange rates to remove the impact of foreign currency exchange rate fluctuations. Comparable sales excludes revenue other than store and direct-to-consumer sales. Due to the calendar shift in Fiscal 2018, resulting from the 53 rd week in Fiscal 2017, comparable sales for the Fiscal 2018 quarterly periods ended May 5, 2018, August 4, 2018, November 3, 2018 and February 2, 2019 are to be compared to the thirteen weeks ended May 6, 2017, August 5, 2017, November 4, 2017 and February 3, 2018, respectively. Management uses comparable sales to understand the drivers of year-over-year changes in net sales as well as a performance metric for certain performance-based restricted stock units. The Company believes comparable sales is a useful metric as it can assist investors in distinguishing the portion of the Company’s revenue attributable to existing locations from the portion attributable to the opening or closing of stores. The most directly comparable GAAP financial measure is change in net sales.

Calendar shift impact

The estimated impact from the calendar shift, resulting from Fiscal 2017’s 53 rd week, is calculated on a constant currency basis using the difference between net sales for the thirteen weeks and thirty-nine weeks ended November 4, 2017 and reported net sales for the thirteen and thirty-nine weeks ended October 28, 2017. In addition, the estimated impact from the calendar shift on net income (loss) per diluted share is calculated using the gross profit rate differential between shifted weeks, an assumption for the variable component of operating expenses for changes in net sales, a 27% effective tax rate and the prior year period’s weighted-average diluted shares.

Excluded items

The following financial measures are disclosed on a GAAP and on an adjusted non-GAAP basis excluding the following items, as applicable:
Financial measures (1)
 
Excluded items
Marketing, general and administrative expense
 
Benefits and charges related to certain legal matters
Operating income (loss)
 
Asset impairment; benefits and charges related to certain legal matters
Net income (loss) and net income (loss) per share attributable to A&F (2)
 
Asset impairment; benefits and charges related to certain legal matters; discrete net tax charges related to the Act; and the tax effect of excluded items

(1)  
Certain of these financial measures are also expressed as a percentage of net sales.
(2)  
The Company also presents income tax expense (benefit) and the effective tax rate on both a GAAP and on an adjusted non-GAAP basis excluding the items listed under “ Operating income (loss) ,” as applicable, in the table above and discrete net tax charges related to the Act. The tax effect of excluded items is the difference between the tax provision calculation on a GAAP basis and on an adjusted non-GAAP basis.

25
Table of Contents


RESULTS OF OPERATIONS

THIRTEEN AND THIRTY-NINE WEEKS ENDED NOVEMBER 3, 2018 VERSUS OCTOBER 28, 2017

Net sales
 
Thirteen Weeks Ended
 
 
 
 
 
 
 
November 3, 2018
 
October 28, 2017
 
 
 
 
 
 
(in thousands)
Net Sales
 
Net Sales
 
$ Change
 
% Change
 
Change in Comparable
Sales (1)
Hollister
$
515,125

 
$
508,086

 
$
7,039

 
1%
 
4%
Abercrombie  (2)
346,069

 
351,026

 
(4,957
)
 
(1)%
 
1%
Total net sales
$
861,194

 
$
859,112

 
$
2,082

 
0%
 
3%
 
 
 
 
 
 
 
 
 
 
United States
$
562,590

 
$
554,673

 
$
7,917

 
1%
 
6%
International
298,604

 
304,439

 
(5,835
)
 
(2)%
 
(3)%
Total net sales
$
861,194

 
$
859,112

 
$
2,082

 
0%
 
3%
 
Thirty-nine Weeks Ended
 
 
 
 
 
 
 
November 3, 2018
 
October 28, 2017
 
 
 
 
 
 
(in thousands)
Net Sales
 
Net Sales
 
$ Change
 
% Change
 
Change in Comparable
Sales (1)
Hollister
$
1,439,589

 
$
1,329,401

 
$
110,188

 
8%
 
4%
Abercrombie (2)
994,918

 
970,131

 
24,787

 
3%
 
2%
Total net sales
$
2,434,507

 
$
2,299,532

 
$
134,975

 
6%
 
3%
 
 
 
 
 
 
 
 
 
 
United States
$
1,543,162

 
$
1,434,019

 
$
109,143

 
8%
 
7%
International
891,345

 
865,513

 
25,832

 
3%
 
(2)%
Total net sales
$
2,434,507

 
$
2,299,532

 
$
134,975

 
6%
 
3%

(1)  
Comparable sales are calculated on a constant currency basis. Due to the calendar shift resulting from the 53 rd week in Fiscal 2017, comparable sales for the thirteen weeks ended November 3, 2018 are compared to the thirteen weeks ended November 4, 2017 . Comparable sales for the thirty-nine weeks ended November 3, 2018 are compared to the thirty-nine weeks ended November 4, 2017 . Refer to “ NON-GAAP FINANCIAL MEASURES, ” for further details on the comparable sales calculation.
(2)  
Includes Abercrombie & Fitch and abercrombie kids brands.

For the third quarter of Fiscal 2018 , net sales were up slightly as compared to the third quarter of Fiscal 2017 , with units sold approximately flat year-over-year and average unit retail up slightly. The year-over-year change in net sales reflects:
•
Changes in foreign currency exchange rates, which adversely impacted net sales by approximately $7 million , or 1% ;
•
The calendar shift resulting from Fiscal 2017’s 53 rd week, which adversely impacted net sales by approximately $20 million , or 2 %; and,
•
Positive comparable sales of 3% , which do not include impacts from changes in foreign currency exchange rates or the calendar shift.

For the year-to-date period of Fiscal 2018 , net sales increased 6% as compared to the year-to-date period of Fiscal 2017 , primarily attributable to an increase in units sold. The year-over-year change in net sales reflects:
•
Changes in foreign currency exchange rates, which benefited net sales by approximately $26 million , or 1% ;
•
The calendar shift resulting from Fiscal 2017’s 53 rd week, which benefited net sales by approximately $20 million , or 1% ; and,
•
Positive comparable sales of 3% , which do not include impacts from changes in foreign currency exchange rates or the calendar shift.

26
Table of Contents


Cost of sales, exclusive of depreciation and amortization
 
Thirteen Weeks Ended
 
November 3, 2018
 
October 28, 2017
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Cost of sales, exclusive of depreciation and amortization
$
333,375

 
38.7%
 
$
332,485

 
38.7%
 
 
 
 
 
 
 
 
Gross profit
$
527,819

 
61.3%
 
$
526,627

 
61.3%
 
Thirty-nine Weeks Ended
 
November 3, 2018
 
October 28, 2017
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Cost of sales, exclusive of depreciation and amortization
$
957,448

 
39.3%
 
$
913,085

 
39.7%
 
 
 
 
 
 
 
 
Gross profit
$
1,477,059

 
60.7%
 
$
1,386,447

 
60.3%

For the third quarter of Fiscal 2018 , cost of sales, exclusive of depreciation and amortization, as a percentage of net sales was approximately flat as compared to the third quarter of Fiscal 2017 .

For the year-to-date period of Fiscal 2018 cost of sales, exclusive of depreciation increased $44.4 million as compared to the year-to-date period of Fiscal 2017 , primarily driven by the year-over-year increase in net sales and an increase in freight costs. For the year-to-date period of Fiscal 2018 cost of sales, exclusive of depreciation and amortization, as a percentage of net sales decreased by approximately 40 basis points as compared to the year-to-date period of Fiscal 2017 primarily due to costs increasing at a lower rate than the relative increase in net sales.

Stores and distribution expense
 
Thirteen Weeks Ended
 
November 3, 2018
 
October 28, 2017
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Stores and distribution expense
$
371,859

 
43.2%
 
$
375,944

 
43.8%
 
Thirty-nine Weeks Ended
 
November 3, 2018
 
October 28, 2017
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Stores and distribution expense
$
1,107,566

 
45.5%
 
$
1,105,168

 
48.1%

For the third quarter of Fiscal 2018 , stores and distribution expense as a percentage of net sales decreased by approximately 60 basis points as compared to the third quarter of Fiscal 2017 , primarily due to expense reduction efforts within store occupancy expense, partially offset by higher direct-to-consumer expense as a percentage of total net sales. For the third quarter of Fiscal 2018 , store occupancy expense, a component of stores and distribution expense which includes rent, depreciation, utilities and other store expenses, decreased as a percentage of net sales by approximately 130 basis points as compared to the third quarter of Fiscal 2017 .

For the year-to-date period of Fiscal 2018 , stores and distribution expense as a percentage of net sales decreased by approximately 260 basis points as compared to the year-to-date period of Fiscal 2017 , primarily due to the leveraging effect from higher net sales and expense reductions within store occupancy expense, partially offset by higher direct-to-consumer expense as a percentage of total net sales and $3.9 million of lease termination charges related to the A&F flagship store lease in Copenhagen. For the year-to-date period of Fiscal 2018 , store occupancy expense decreased as a percentage of net sales by approximately 210 basis points as compared to the year-to-date period of Fiscal 2017 .

27


Marketing, general and administrative expense
 
Thirteen Weeks Ended
 
November 3, 2018
 
October 28, 2017
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Marketing, general and administrative expense
$
117,181

 
13.6%
 
$
124,533

 
14.5%
Deduct:
 
 
 
 
 
 
 
Benefits (charges) related to certain legal matters  (1)
3,005

 
0.3%
 
(11,070
)
 
(1.3)%
Adjusted non-GAAP marketing, general and administrative expense
$
120,186

 
14.0%
 
$
113,463

 
13.2%
 
Thirty-nine Weeks Ended
 
November 3, 2018
 
October 28, 2017
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Marketing, general and administrative expense
$
365,961

 
15.0%
 
$
343,779

 
14.9%
Deduct:
 
 
 
 
 
 
 
Charges related to certain legal matters (2)
(2,595
)
 
(0.1)%
 
(11,070
)
 
(0.5)%
Adjusted non-GAAP marketing, general and administrative expense
$
363,366

 
14.9%
 
$
332,709

 
14.5%

(1)  
The third quarter of Fiscal 2018 includes benefits of $3.0 million related to an update of previously accrued legal charges in connection with a class action settlement, which received final court approval in the fourth quarter of Fiscal 2018. The third quarter of Fiscal 2017 includes legal charges of $11.1 million in connection with a proposed settlement of two related class actions, which received final court approval in the fourth quarter of Fiscal 2018. See Note 11, “ CONTINGENCIES .”
(2)  
The year-to-date period of Fiscal 2018 includes legal charges of $5.6 million and benefits of $3.0 million, each updating previously accrued legal charges in connection with class action settlements, which received final court approval in the fourth quarter of Fiscal 2018. The year-to-date period of Fiscal 2017 includes legal charges of $11.1 million in connection with a proposed settlement of two related class actions, which received final court approval in the fourth quarter of Fiscal 2018. See Note 11, “ CONTINGENCIES .”

For the third quarter of Fiscal 2018 , marketing, general and administrative expense as a percentage of net sales decreased by approximately 90 basis points as compared to the third quarter of Fiscal 2017 , primarily due to the net year-over-year impact of items presented above and expense reduction efforts, partially offset by increases in marketing and expenses related to the transformation of the business. Excluding items presented above, third quarter of Fiscal 2018 adjusted non-GAAP marketing, general and administrative expense as a percentage of net sales increased by approximately 80 basis points as compared to the third quarter of Fiscal 2017 .

For the year-to-date period of Fiscal 2018 , marketing, general and administrative expense as a percentage of net sales increased by approximately 10 basis points as compared to the year-to-date period of Fiscal 2017 , primarily due to increases in marketing and expenses related to the transformation of the business, partially offset by the leveraging effect from increased net sales, the net year-over-year impact of items presented above and expense reduction efforts. Excluding items presented above, year-to-date Fiscal 2018 adjusted non-GAAP marketing, general and administrative expense as a percentage of net sales increased by approximately 40 basis points as compared to the year-to-date period of Fiscal 2017 .

Asset impairment

The Company incurred store asset impairment charges of $0.7 million and $10.4 million for the third quarter and year-to-date period of Fiscal 2018 , respectively, and $3.5 million and $10.3 million for the third quarter and year-to-date period of Fiscal 2017 , respectively, primarily related to certain of the Company’s international Abercrombie & Fitch stores.


28


Other operating income, net
 
Thirteen Weeks Ended
 
November 3, 2018
 
October 28, 2017
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Other operating income, net
$
1,557

 
0.2%
 
$
70

 
0.0%
 
Thirty-nine Weeks Ended
 
November 3, 2018
 
October 28, 2017
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Other operating income, net
$
4,551

 
0.2%
 
$
4,555

 
0.2%

For the third quarter of Fiscal 2018 , other operating income, net as a percentage of net sales increased by approximately 20 basis points as compared to the third quarter of Fiscal 2017 , primarily due to higher foreign currency exchange rate related gains, partially offset by a change in classification of gift card breakage, discussed further in Note 1, “ BASIS OF PRESENTATION .”

For the year-to-date period of Fiscal 2018 , other operating income, net as a percentage of net sales was approximately flat as compared to the year-to-date period of Fiscal 2017 as higher foreign currency exchange rate related gains were offset by a change in classification of gift card breakage, discussed further in Note 1, “ BASIS OF PRESENTATION .”

Operating income (loss)
 
Thirteen Weeks Ended
 
November 3, 2018
 
October 28, 2017
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Operating income
$
39,680

 
4.6%
 
$
22,740

 
2.6%
Deduct:
 
 
 
 
 
 
 
Asset impairment
—

 
0.0%
 
3,480

 
0.4%
(Benefits) charges related to certain legal matters (1)
(3,005
)
 
(0.3)%
 
11,070

 
1.3%
Adjusted non-GAAP operating income
$
36,675

 
4.3%
 
$
37,290

 
4.3%
 
Thirty-nine Weeks Ended
 
November 3, 2018
 
October 28, 2017
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Operating loss
$
(2,300
)
 
(0.1)%
 
$
(68,290
)
 
(3.0)%
Deduct:
 
 
 
 
 
 
 
Certain asset impairment
8,671

 
0.4%
 
9,615

 
0.4%
Charges related to certain legal matters (2)
2,595

 
0.1%
 
11,070

 
0.5%
Adjusted non-GAAP operating income (loss)
$
8,966

 
0.4%
 
$
(47,605
)
 
(2.1)%

(1)  
The third quarter of Fiscal 2018 includes benefits of $3.0 million related to an update of previously accrued legal charges in connection with a class action settlement, which received final court approval in the fourth quarter of Fiscal 2018. The third quarter of Fiscal 2017 includes legal charges of $11.1 million in connection with a proposed settlement of two related class actions, which received final court approval in the fourth quarter of Fiscal 2018. See Note 11, “ CONTINGENCIES .”
(2)  
The year-to-date period of Fiscal 2018 includes legal charges of $5.6 million and benefits of $3.0 million, each updating previously accrued legal charges in connection with class action settlements, which received final court approval in the fourth quarter of Fiscal 2018. The year-to-date period of Fiscal 2017 includes legal charges of $11.1 million in connection with a proposed settlement of two related class actions, which received final court approval in the fourth quarter of Fiscal 2018. See Note 11, “ CONTINGENCIES .”

For the third quarter of Fiscal 2018 , operating income was $39.7 million as compared to $22.7 million for the third quarter of Fiscal 2017 . Excluding items presented above, third quarter of Fiscal 2018 adjusted non-GAAP operating income was $36.7 million , as compared to $37.3 million for the third quarter of Fiscal 2017 . Changes in foreign currency exchange rates benefited operating income by approximately $4 million , net of hedging.

For the year-to-date period of Fiscal 2018 , operating loss was $2.3 million as compared to $68.3 million for the year-to-date period of Fiscal 2017 . Excluding items presented above, year-to-date Fiscal 2018 adjusted non-GAAP operating income was $9.0 million as compared to adjusted non-GAAP operating loss of $47.6 million for the year-to-date period of Fiscal 2017. Changes in foreign currency exchange rates benefited operating loss by approximately $10 million , net of hedging.

29


Interest expense, net
 
Thirteen Weeks Ended
 
November 3, 2018
 
October 28, 2017
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Interest expense
$
5,643

 
0.7%
 
$
6,114

 
0.7%
Interest income
(2,786
)
 
(0.3)%
 
(1,543
)
 
(0.2)%
Interest expense, net
$
2,857

 
0.3%
 
$
4,571

 
0.5%
 
Thirty-nine Weeks Ended
 
November 3, 2018
 
October 28, 2017
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Interest expense
$
17,000

 
0.7%
 
$
16,781

 
0.7%
Interest income
(8,102
)
 
(0.3)%
 
(4,001
)
 
(0.2)%
Interest expense, net
$
8,898

 
0.4%
 
$
12,780

 
0.6%

Interest expense, net primarily consists of interest expense on borrowings outstanding under the Company’s Term Loan Facility, partially offset by realized gains from the trust-owned life insurance policies held in the irrevocable rabbi trust (the “Rabbi Trust”) and interest income earned on the Company’s investments and cash holdings.

For the third quarter and the year-to-date period of Fiscal 2018 , interest expense, net as a percentage of net sales decreased as compared to the third quarter and year-to-date period of Fiscal 2017 by approximately 20 basis points and 20 basis points, respectively, primarily due to higher interest income earned on the Company’s investments and cash holdings.

Income tax expense (benefit)
 
Thirteen Weeks Ended
 
November 3, 2018
 
October 28, 2017
(in thousands, except ratios)
 
 
Effective Tax Rate
 
 
 
Effective Tax Rate
Income tax expense
$
12,047

 
32.7%
 
$
7,553

 
41.6%
Deduct:
 
 
 
 
 
 
 
Tax effect of excluded items (1)
(1,064
)
 


4,117

 
 
Tax Cuts and Jobs Act of 2017 net charges (2)
(405
)
 
 
 
—

 
 
Adjusted non-GAAP income tax expense
$
10,578

 
31.3%
 
$
11,670

 
35.7%
 
Thirty-nine Weeks Ended
 
November 3, 2018
 
October 28, 2017
(in thousands, except ratios)
 
 
Effective Tax Rate
 
 
 
Effective Tax Rate
Income tax expense (benefit)
$
8,358

 
(74.6)%
 
$
(16,062
)
 
19.8%
Deduct:
 
 
 
 
 
 
 
Tax effect of excluded items  (1)
3,166

 
 
 
5,727

 
 
Tax Cuts and Jobs Act of 2017 net charges  (2)
(2,447
)
 
 
 
—

 
 
Adjusted non-GAAP income tax expense (benefit)
$
9,077

 
13,348.5%
 
$
(10,335
)
 
17.1%

(1)  
Refer to “ Operating income (loss) ” for details of excluded items. 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.
(2)  
Discrete tax charges related to the Act. See Note 5, “ INCOME TAXES ,” for further discussion.

For the third quarter of Fiscal 2018 , the effective tax rate was 32.7% as compared to 41.6% for the third quarter of Fiscal 2017 . In the third quarter of Fiscal 2018, the effective tax rate was impacted by discrete income tax net charges of $0.4 million related to the provisional estimate of the Act and discrete non-cash income tax charges related to the expiration of certain share-based compensation awards of $1.8 million . In the third quarter of Fiscal 2017, the effective tax rate was impacted by discrete non-cash income tax charges related to the expiration of certain share-based compensation awards of $0.2 million . Excluding items presented above in the table under “ Operating income (loss) ,” and charges related to the Act, the third quarter Fiscal 2018 adjusted non-GAAP effective tax rate was 31.3% as compared to 35.7% for the third quarter of Fiscal 2017 .

30


For the year-to-date period of Fiscal 2018 , the effective tax rate was -74.6% as compared to 19.8% for the year-to-date period of Fiscal 2017 . In both the Fiscal 2018 and Fiscal 2017 year-to-date period, the effective tax rate was impacted by discrete non-cash income tax charges related to the expiration of certain share-based compensation awards of $9.8 million and $10.1 million , respectively. In addition, for the year-to-date period of Fiscal 2018 the effective tax rate was also impacted by a discrete income tax net charges of $2.4 million related to the provisional estimate of the Act. Excluding items presented above in the table under “ Operating income (loss) ,” and charges related to the Act, the year-to-date Fiscal 2018 adjusted non-GAAP effective tax rate, which is highly sensitive at lower levels of pre-tax earnings, was not meaningful as compared to 17.1% for the year-to-date period of Fiscal 2017 .

For the third quarter and the year-to-date period of Fiscal 2018 , the year-over-year change in the effective tax rate, which is highly sensitive at lower levels of pre-tax earnings, was primarily driven by changes in the level and mix of consolidated pre-tax earnings between operating and valuation allowance jurisdictions and the reduction in the U.S. federal corporate income tax rate from 35% to 21% as a result of the enactment of the Act in the fourth quarter of Fiscal 2017.

Net income (loss) and Net income (loss) per share attributable to A&F
 
Thirteen Weeks Ended
 
November 3, 2018
 
October 28, 2017
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Net income attributable to A&F
$
23,919

 
2.8%
 
$
10,075

 
1.2%
Adjusted non-GAAP net income attributable to A&F (1)
$
22,383

 
2.6%
 
$
20,508

 
2.4%
 

 
 
 

 
 
Net income per diluted share attributable to A&F
$
0.35

 

 
$
0.15

 

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

 
 
 
$
0.30

 
 
 
Thirty-nine Weeks Ended
 
November 3, 2018
 
October 28, 2017
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Net loss attributable to A&F
$
(22,395
)
 
(0.9)%
 
$
(67,116
)
 
(2.9)%
Adjusted non-GAAP net loss attributable to A&F  (1)
$
(11,848
)
 
(0.5)%
 
$
(52,158
)
 
(2.3)%
 
 
 
 
 
 
 
 
Net loss per diluted share attributable to A&F
$
(0.33
)
 
 
 
$
(0.98
)
 
 
Adjusted non-GAAP net loss per diluted share attributable to A&F (1)
$
(0.17
)
 
 
 
$
(0.76
)
 
 

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

For the third quarter of Fiscal 2018 , net income per diluted share attributable to A&F was $0.35 as compared to $0.15 for the third quarter of Fiscal 2017 . Excluding items presented above under “ Operating income (loss) , ” and “ Income tax expense (benefit) , ” third quarter of Fiscal 2018 adjusted non-GAAP net income per diluted share attributable to A&F was $0.33 , as compared to $0.30 last year. The year-over-year change in net income per diluted share attributable to A&F reflects:
•
Changes in foreign currency exchange rates, which benefited net income per diluted share attributable to A&F by approximately $0.05 , net of hedging; and,
•
The calendar shift resulting from Fiscal 2017’s 53 rd week, which was estimated to have adversely impacted net income per diluted share attributable to A&F by approximately $0.05.

For the year-to-date period of Fiscal 2018 , net loss per diluted share attributable to A&F was $0.33 as compared to $0.98 for the year-to-date period of Fiscal 2017 . Excluding items presented above under “ Operating income (loss) , ” and “ Income tax expense (benefit) , ” year-to-date Fiscal 2018 adjusted non-GAAP net loss per diluted share attributable to A&F was $0.17 , as compared to $0.76 last year. The year-over-year change in net loss per diluted share attributable to A&F reflects:
•
Changes in foreign currency exchange rates, which benefited net loss per diluted share attributable to A&F by approximately $0.11 , net of hedging; and,
•
The calendar shift resulting from Fiscal 2017’s 53 rd week, which was estimated to have benefited net loss per diluted share attributable to A&F by approximately $0.14.

31


LIQUIDITY AND CAPITAL RESOURCES

HISTORICAL SOURCES AND USES OF CASH

Seasonality of cash flows

The Company’s business has two principal selling seasons: the spring season, which includes the first and second fiscal quarters (“Spring”) and the fall season, which includes the third and fourth fiscal quarters (“Fall”). As is typical in the apparel industry, the Company experiences its greatest sales activity during Fall due to 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 a revolving credit facility available as a source of additional funding.

Credit Facilities

On August 7, 2014, A&F, through its subsidiary A&F Management as the lead borrower (with A&F and certain other subsidiaries as borrowers or guarantors), entered into an asset-based revolving credit agreement.

On October 19, 2017, the Company, through A&F Management, entered into the ABL Second Amendment, amending and extending the maturity date of the asset-based revolving credit agreement to October 19, 2022. The Amended ABL Facility continues to provide for a senior secured credit facility of up to $400 million.

As of November 3, 2018 , the borrowing base on the Amended ABL Facility was $400.0 million .

The Company uses, in the ordinary course of business, stand-by letters of credit under the Amended ABL Facility. As of November 3, 2018 and February 3, 2018 , the Company had not drawn on the Amended ABL Facility, but had outstanding stand-by letters of credit under the Amended ABL Facility of approximately $1.1 million and $1.9 million , respectively. The Company has no other off-balance sheet arrangements.

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

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

The material provisions of the Credit Facilities have not changed from those disclosed in Note 11, “ BORROWINGS ,” of the Notes to Consolidated Financial Statements contained in “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of A&F’s Annual Report on Form 10-K for Fiscal 2017 , except as described in Note 6, “ BORROWINGS ” of the Notes to Condensed Consolidated Financial Statements included in “ITEM 1. FINANCIAL STATEMENTS (UNAUDITED),” of this Quarterly Report on Form 10-Q.

Operating activities

For the thirty-nine weeks ended November 3, 2018 , net cash provided by operating activities was $77.2 million as compared to $31.4 million for the thirty-nine weeks ended October 28, 2017 . The year-over-year change in cash flow associated with operating activities was primarily due to higher cash receipts from increased net sales, decreased rent payments, and increased payments to vendors in the fourth quarter of Fiscal 2017 which resulted in lower cash payments in Fiscal 2018 as compared to the prior year. These year-over-year changes were partially offset by an increase in incentive compensation payments in Fiscal 2018 primarily related to Fiscal 2017 performance, and income tax refunds received in Fiscal 2017 from prior year tax returns.

Investing activities

For the thirty-nine weeks ended November 3, 2018 and October 28, 2017 , cash used for investing activities included capital expenditures of $98.8 million and $86.3 million , respectively, primarily for store updates and new stores, as well as direct-to-consumer and omnichannel and information technology investments.

32


Financing activities

For the thirty-nine weeks ended November 3, 2018 , cash used for financing activities consisted primarily for the repurchase of approximately 2.9 million shares of A&F’s Common Stock in the open market with a market value of approximately $68.7 million and dividend payments of $40.6 million . For the thirty-nine weeks ended October 28, 2017 , cash used for financing activities consisted primarily of dividend payments of $40.8 million .

FUTURE CASH REQUIREMENTS AND SOURCES OF CASH

The Company’s capital allocation strategy remains to prioritize investments in the business to build on the foundation for sustainable long-term growth and invest in projects that have the highest expected return, and to evaluate opportunities to accelerate potential investments, including improvements in customer experience, both in stores and online. These improvements include store remodels and right-sizes, new store openings, and acceleration of our transformation efforts. The Company also evaluates store closures quarterly, including flagship lease buyouts and kick-outs. In addition, the Company returns cash to stockholders through dividends and completes share repurchases as deemed appropriate. Capital allocation priorities and investments are reviewed by the Company’s Board of Directors considering both liquidity and valuation factors.

To execute its capital allocation strategy, the Company relies on excess operating cash flows, which are largely generated in the Fall season, to fund operations throughout the fiscal year and to reinvest in the business to support future growth. The Company also has availability under the Amended ABL Facility as a source of additional funding. Over the next twelve months, the Company’s primary cash requirements will be to fund operating activities, including the acquisition of inventory, and obligations related to compensation, leases, any obligations related to lease buyouts or kickouts we may exercise, taxes and other operating activities, as well as to fund capital expenditures, marketing initiatives, quarterly dividends to stockholders subject to approval by A&F’s Board of Directors and debt service requirements, including voluntary debt prepayments, or required repayments, if any, based on annual excess cash flows, as defined in the credit agreement applicable to the Term Loan Facility.

The Company may repurchase shares of its Common Stock and, if it were to do so, would anticipate funding such repurchases by utilizing free cash flow generated from operations or proceeds from the Amended ABL Facility. As of November 3, 2018 , A&F had the ability to repurchase up to 3.6 million shares as part of the A&F Board of Directors’ previously approved authorization.

Income taxes

As of November 3, 2018 , certain foreign subsidiaries have lent approximately $266.9 million to certain U.S. subsidiaries resulting in $331.9 million of the Company’s $520.5 million of cash and equivalents being held by U.S. subsidiaries. The Company is not dependent on dividends from its foreign affiliates to fund its U.S. operations or pay dividends to A&F’s stockholders. As a result of the adoption of a modified territorial system under the Act, future earnings from foreign subsidiaries are generally not subject to additional federal tax upon repatriation. Because of the complexities associated with the Act, the Company has not fully concluded on its position with respect to reinvestment of remaining and future foreign earnings and whether its existing international structure for the various jurisdictions is the optimal structure for the future, but expects to complete this assessment in Fiscal 2018.

In the third quarter of Fiscal 2018, the Company decided to repatriate $250 million of the Company’s undistributed foreign earnings to the U.S. in the fourth quarter of Fiscal 2018. See Note 5, “ INCOME TAXES ,” for further discussion, including the impact of provisional tax expense at the state level. If additional funds were to be repatriated to the U.S., there could be implications at the state and foreign levels.

Capital expenditures

For Fiscal 2018 , the Company expects capital expenditures to be approximately $145 million, primarily for store updates and new stores, as well as direct-to-consumer, omnichannel and information technology and other investments.

Other

The Company expects cash payments to be paid in the fourth quarter of Fiscal 2018 , in connection with certain legal matters, which received final court approval in the fourth quarter of Fiscal 2018. See Note 11, “ CONTINGENCIES .”


33


OFF-BALANCE SHEET ARRANGEMENTS

The Company uses, in the ordinary course of business, stand-by letters of credit under the Amended ABL Facility. The Company has no other 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 thirty-nine weeks ended November 3, 2018 , there were no material changes in the contractual obligations as of February 3, 2018 , 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 2017 . Refer to Note 1, “ BASIS OF PRESENTATION--Recent accounting pronouncements ” of the Notes to Condensed Consolidated Financial Statements included in “ITEM 1. FINANCIAL STATEMENTS (UNAUDITED),” of this Quarterly Report on Form 10-Q for recent accounting pronouncements, including the dates of adoption or expected dates of adoption, as applicable, and estimated effects on the Condensed 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 2017 . There have been no other significant changes in critical accounting policies and estimates since the end of Fiscal 2017 , except as described in Note 1, “ BASIS OF PRESENTATION--Recent accounting pronouncements ” of the Notes to Condensed Consolidated Financial Statements included in “ITEM 1. FINANCIAL STATEMENTS (UNAUDITED),” of this Quarterly Report on Form 10-Q.


34


SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

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, 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.

The following factors, categorized by the primary nature of the associated risk, including the disclosures under the heading “FORWARD-LOOKING STATEMENTS AND RISK FACTORS” in “ITEM 1A. RISK FACTORS” of A&F’s Annual Report on Form 10-K for Fiscal 2017 , in some cases have affected and in the future could affect the Company’s financial performance and could cause actual results for Fiscal 2018 and beyond to differ materially from those expressed or implied in any of the forward-looking statements included in this Quarterly Report on Form 10-Q or otherwise made by management:

Macroeconomic and industry risks include:
•
Changes in global economic and financial conditions, and the resulting impact on consumer confidence and consumer spending, as well as other changes in consumer discretionary spending habits, could have a material adverse effect on our business, results of operations and liquidity;
•
Failure to anticipate customer demand and changing fashion trends and to manage our inventory commensurately could adversely impact our sales levels and profitability;
•
Our market share may be negatively impacted by increasing competition and pricing pressures from companies with brands or merchandise competitive with ours;
•
Fluctuations in foreign currency exchange rates could adversely impact our financial condition and results of operations;
•
Our ability to attract customers to our stores depends, in part, on the success of the shopping malls or area attractions that our stores are located in or around; and,
•
The impact of war, acts of terrorism or civil unrest could have a material adverse effect on our operating results and financial condition.

Strategic risks include:
•
The expansion of our direct-to-consumer sales channels and omnichannel initiatives are significant components of our growth strategy, and the failure to successfully develop our position across all channels could have an adverse impact on our results of operations;
•
Our international growth strategy and ability to conduct business in international markets may be adversely affected by legal, regulatory, political and economic risks; and,
•
Failure to successfully implement our strategic plans could have a negative impact on our growth and profitability.

Operational risks include:
•
Failure to protect our reputation could have a material adverse effect on our brands;
•
Our business could suffer if our information technology systems are disrupted or cease to operate effectively;
•
We may be exposed to risks and costs associated with cyber-attacks, credit card fraud and identity theft that would cause us to incur unexpected expenses and reputation loss;
•
Our reliance on DCs makes us susceptible to disruptions or adverse conditions affecting our supply chain;
•
Changes in cost, availability and quality of raw materials, labor, transportation, and trade relations could cause manufacturing delays and increase our costs;
•
We depend upon independent third parties for the manufacture and delivery of all our merchandise, and a disruption of the manufacture or delivery of our merchandise could result in lost sales and could increase our costs;
•
We rely on the experience and skills of our senior executive officers and associates, the loss of whom could have a material adverse effect on our business; and,
•
Extreme weather conditions, including natural disasters, pandemic disease and other unexpected events, could negatively impact our facilities, systems and stores, as well as the facilities and systems of our vendors and manufacturers, which could result in an interruption to our business and adversely affect our operating results.


35


Legal, tax, regulatory and compliance risks include:
•
Fluctuations in our tax obligations and effective tax rate may result in volatility in our results of operations;
•
Our litigation exposure could have a material adverse effect on our financial condition and results of operations;
•
Failure to adequately protect our trademarks could have a negative impact on our brand image and limit our ability to penetrate new markets;
•
Changes in the regulatory or compliance landscape and compliance with changing regulations for accounting, corporate governance and public disclosure could adversely affect our business, results of operations and reported financial results; and,
•
Our Asset-Based Revolving Credit Agreement and our Term Loan Agreement include restrictive covenants that limit our flexibility in operating our business.

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


ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Investment securities

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 $0.8 million and $2.3 million for the thirteen and thirty-nine weeks ended November 3, 2018 , respectively, and realized gains of $0.8 million and $2.3 million for the thirteen and thirty-nine weeks ended October 28, 2017 , respectively, which are recorded in interest expense, net on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

The Rabbi Trust assets are included in other assets on the Condensed Consolidated Balance Sheets as of November 3, 2018 and February 3, 2018 , and are restricted in their use as noted above.

Interest rate risks

As of November 3, 2018 , the Company has approximately $253.3 million in gross borrowings outstanding under its Term Loan Facility and no borrowings outstanding under its Amended ABL Facility. The Credit Facilities carry interest rates that are tied to LIBO rate, or an alternate base rate, plus a margin. The interest rate on the Term Loan Facility has a 100 basis point LIBO rate floor, and assuming no changes in the Company’s financial structure as it stands, an increase in market interest rates of 100 basis points would increase annual interest expense by approximately $2.6 million . This hypothetical analysis for the fifty-two weeks ending February 2, 2019 may differ from the actual change in interest expense due to potential changes in interest rates or gross borrowings outstanding under the Company’s Credit Facilities.


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Foreign 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 its condensed consolidated 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 currency fluctuation increases as international expansion increases.

A&F and its subsidiaries have exposure to changes in foreign currency exchange rates associated with foreign currency transactions and forecasted foreign currency transactions, including the sale 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 forward contracts, to mitigate the impact of foreign currency gains or losses. The Company does not use forward contracts to engage in currency speculation. All outstanding foreign currency exchange forward contracts are recorded at fair value at the end of each fiscal period.

The fair value of outstanding foreign currency exchange forward contracts included in other current assets was $11.1 million as of November 3, 2018 and insignificant as of February 3, 2018 . The fair value of outstanding foreign currency exchange forward contracts included in accrued expenses was $9.1 million as of February 3, 2018 . Foreign currency exchange forward contracts are sensitive to changes in foreign currency exchange rates. The Company assessed the risk of loss in fair values from the effect of a hypothetical 10% devaluation of the U.S. Dollar against the exchange rates for foreign currencies under contract. Such a hypothetical devaluation would decrease derivative contract fair values by approximately $17.6 million . As the Company’s foreign currency exchange forward contracts are primarily designated as cash flow hedges of forecasted transactions, the hypothetical change in fair value would be largely offset by the net change in fair values of the underlying hedged items.


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 the principal executive officer and the principal financial officer, as appropriate to allow timely decisions regarding required disclosures. Because of inherent limitations, disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of disclosure controls and procedures are met.

A&F’s management, including the Chief Executive Officer of A&F (who serves as Principal Executive Officer of A&F) and the Senior Vice President and Chief Financial Officer of A&F (who serves as Principal Financial Officer and Principal Accounting Officer of A&F), evaluated the effectiveness of A&F’s design and operation of its disclosure controls and procedures as of the end of the fiscal quarter ended November 3, 2018 . The Chief Executive Officer of A&F (in such individual’s capacity as the Principal Executive Officer of A&F) and the Senior Vice President and Chief Financial Officer of A&F (in such individual’s capacity as the Principal Financial Officer of A&F) concluded that A&F’s disclosure controls and procedures were effective at a reasonable level of assurance as of November 3, 2018 , 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 November 3, 2018 that materially affected, or are reasonably likely to materially affect, A&F’s internal control over financial reporting.

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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 Sheet included in “ITEM 1. FINANCIAL STATEMENTS (UNAUDITED),” of this Quarterly Report on Form 10-Q. 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 of or potential liability, and 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 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  November 3, 2018  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  2017 .


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

There were no sales of equity securities during the third quarter of Fiscal 2018 that were not registered under the Securities Act of 1933, as amended.

The following table provides information regarding the purchase of shares of Common Stock of A&F made by or on behalf of A&F or any “affiliated purchaser” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended, during each fiscal month of the thirteen weeks ended November 3, 2018 :
Period (Fiscal Month)
Total Number of Shares Purchased (1)
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
 
Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs (3)
August 5, 2018 through September 1, 2018
2,811

 
$
25.85

 
—

 
4,756,426

September 2, 2018 through October 6, 2018
1,202,648

 
$
21.12

 
1,184,488

 
3,571,938

October 7, 2018 through November 3, 2018
5,575

 
$
18.15

 
—

 
3,571,938

Total
1,211,034

 
$
21.12

 
1,184,488

 
3,571,938


(1)  
26,546 shares of A&F’s Common Stock purchased during the thirteen weeks ended November 3, 2018  represented shares which were withheld for tax payments due upon the vesting of employee restricted stock units, classified in other financing activities on the Condensed Consolidated Statements of Cash Flows.
(2)  
1,184,488 shares of A&F’s Common Stock were repurchased during the thirteen weeks ended November 3, 2018 pursuant to A&F’s publicly announced stock repurchase authorization. On August 14, 2012, A&F’s Board of Directors authorized the repurchase of 10.0 million shares of A&F’s Common Stock, which was announced on August 15, 2012.
(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 market conditions.

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ITEM 6.     EXHIBITS
Exhibit No.
Document
10.1
10.2
31.1
31.2
32.1
101
The following materials from Abercrombie & Fitch Co.’s Quarterly Report on Form 10-Q for the quarterly period ended November 3, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Thirteen and Thirty-nine Weeks Ended November 3, 2018 and October 28, 2017; (ii) Condensed Consolidated Balance Sheets at November 3, 2018 and February 3, 2018; (iii) Condensed Consolidated Statements of Cash Flows for the Thirty-nine Weeks Ended November 3, 2018 and October 28, 2017; and (iv) Notes to Condensed Consolidated Financial Statements.*
 
*
Filed herewith.
**
Furnished herewith.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
ABERCROMBIE & FITCH CO.
Date: December 12, 2018
By
/s/ Scott Lipesky
 
 
Scott Lipesky
 
 
Senior Vice President and Chief Financial Officer
(Principal Financial Officer and Authorized Officer)

40

EXHIBIT 10.1
ABERCROMBIEFITCHLOGOA03.JPG
August 24, 2018
Gregory J. Henchel
******
******


Dear Greg:

We are thrilled that you are considering joining Abercrombie & Fitch (A&F), and we are pleased to extend the following offer of employment:

Position
Senior Vice President & General Counsel , reporting to Fran Horowitz, Chief Executive Officer
Start Date
To be determined
Base Salary
$550,000  annually; paid bi-weekly

Annual salary adjustments based on:

(1) Your performance
(2) Economic factors (i.e. business conditions, inflation, job market, etc.)

Your annual salary will be reviewed again in March 2020.
Bonus Program
You will be eligible to participate in A&F’s Designated Officer Annual Incentive Compensation (IC) Program at a target payout level of 60% of your annual base salary and a maximum payout of 120% of your annual base salary. At the base salary quoted in this offer, your target annual payout is $330,000, and your maximum annual payout is $660,000. Your IC eligibility for 2018 will be pro-rated based on your start date.

IC for you and other Designated Officers will be based on annual Company financial results, and if earned will be paid in March following conclusion of the prior Fiscal Year, subject to participants’ being actively employed on the payout date. (Please note that the Designated Officer Annual IC Program is subject to change each year in the discretion of the Compensation Committee of the A&F Board of Directors (the “Compensation Committee”)).



Inducement Equity Grant: Restricted Stock Units (RSUs)
Subject to you starting employment with us on or before October 1, 2018, and further subject to approval of the Compensation Committee (or its designee) and to the terms and conditions of the grant, you will receive an inducement equity grant with an approximate total value of  $150,000 , in the form of A&F Restricted Stock Units (RSUs). The actual number of RSUs granted will be based on the share closing price on the date of the grant, which will occur (subject to Compensation Committee approval) at the next regularly scheduled meeting of the Compensation Committee following your Start Date or as soon as practicable thereafter.

Upon vesting, one RSU converts to one share of A&F stock. Subject to continued employment with A&F, these RSUs will vest annually on the date of grant ratably over the next four years.
2019 Annual Equity Grant
Subject to satisfactory performance and continued employment, Management will recommend to the Compensation Committee that an equity grant equal in value to approximately $500,000  be awarded to you as part of A&F’s Fiscal Year 2019 annual equity grant process. The vesting schedule, types of awards, and other terms and conditions will be consistent with grants made during the 2019 annual grant process to other Designated Officers.
Executive Severance
Agreement (ESA)
In consideration of (and as a condition of) this offer of employment and your continued employment following hire, you agree to enter into an Executive Severance Agreement (ESA) in the form attached as Exhibit A to this offer letter. The ESA includes severance protection and other benefits for you, as well as protections for the company such as non-competition and non-solicitation provisions.
Benefits
You will be eligible to participate in various A&F benefit programs as set forth in this letter and other relevant documents. All benefit programs are subject to change in accordance with A&F’s policies and procedures.
A&F Qualified
Savings
As of the first of the following month of your start date, you will be eligible to participate in the Abercrombie & Fitch Co. Savings and Retirement Plan. As a participant in this plan, you will be eligible to defer up to 50% of your base salary and bonus payouts, or up to the IRS maximum annual deferral limit ($18,500 for 2018), whichever is less. After one year of employment, the first 5% of your base salary and bonus payouts that you defer into this plan will be matched by A&F at 100%. The maximum level of pensionable compensation allowed by the IRS is $275,000 for 2018. Company matching contributions and earnings are always 100% vested.
A&F Non-Qualified
Savings Plan
After 30 days of employment, you will be eligible to participate in the Abercrombie & Fitch Co. Non-Qualified Savings Plan. This plan allows you to defer up to 75% of your base salary each year, and up to 75% of your Bonus payouts. The company will match the first 3% that you defer on a dollar-for-dollar basis. Company contributions and earnings vest 100% after 5 years of continuous service on the anniversary date of employment.

2


Healthcare Coverage
After one month of employment, you will be eligible to participate in our Healthcare Benefit plans. For 2018, the associate contribution required for these benefits is as follows:

 
                      
Medical/Dental
Vision
 
   Single Coverage
$ 44.00 bi-weekly
$ 2.08 bi-weekly
 
   Single (+) Spouse
$ 120.00 bi-weekly
$ 3.68 bi-weekly
 
   Single (+) Child(ren)
$ 90.00 bi-weekly
$ 4.34 bi-weekly
 
   Family Coverage
$ 145.00 bi-weekly
$ 6.75 bi-weekly
Life & Disability Insurance
After one month of employment, you will automatically be enrolled in A&F’s Life & Disability Insurance plans.
Flexible Spending Account
(FSA)
After one month of employment, you will be eligible to participate in A&F’s Flexible Spending Account (FSA) plan. FSAs allow you to save money by paying for certain healthcare expenses with pre-tax dollars via automatic payroll deductions.
Associate Assistance Program (AAP)
After one month of employment, you will automatically be enrolled in A&F’s Associate Assistance Program (AAP). The AAP gives you or any covered dependents access to free, confidential psychological, financial or legal counseling through our AAP provider. Up to 8 free visits, per specific issue, are available through the AAP.
A&F Gym
Effective upon hire, you will be eligible to join the A&F Gym, our state of the art 8,000 square foot on-site fitness facility. The cost of membership can be paid via automatic payroll deduction after you enroll.
Merchandise Discount
You will receive a discount of 40% on qualifying purchases at all Abercrombie & Fitch and abercrombie kids stores. You will also receive a discount of 30% on qualifying purchases at all Hollister Co. stores. (Please note that this benefit is subject to the terms of the Associate Discount Policy as set forth in our Associate Handbook.)
Paid Time Off (PTO) /Holidays
You will be eligible for 33 paid time off (PTO) days per fiscal year. PTO will be pro-rated during the first year based on your start date. Unused PTO days do not carry over into subsequent fiscal years. A&F also grants 8 paid holidays to all home office associates annually.
Additional A&F Perks
In addition to benefits listed above, you will be eligible for the following A&F Perks:
●  Volunteer Day
● Summer Hours
● On-Site Café
● Varsity Field and Equipment
● Stock Purchase Plan

Please see the Home Office Associate Handbook or your Associate Relations Representative for more information on these programs.

3


Background/Reference Inquiry and Work Authorization
This offer of employment is contingent on successful completion of background and reference checks, and on successful demonstration of your authorization to work in the United States. Please complete the enclosed Fair Credit Reporting Act Disclosure and Authorization Form (attached as Exhibit B) and return it along with your signed copy of this employment offer letter.


This offer, if accepted, is for employment with the Company that is at-will, and nothing in this offer letter is to be construed as altering that at-will status or promising employment for a definite term.

Greg, we look forward to working with you and are convinced that you will be an outstanding addition to the A&F team. To indicate your acceptance of this offer, please sign below and return this letter to Human Resources.


Sincerely,

/s/ John Gabrielli
John Gabrielli
Senior Vice President, Human Resources


I represent that I am not subject to any restriction, covenant or limitation with any prior employer which could prevent me from working for Abercrombie & Fitch in the capacity described in this offer letter. I further represent that to the extent I am subject to an agreement that allows me to work for Abercrombie & Fitch, but that forbids me to solicit employees of another company or to share another company's confidential information, I agree that I will not breach any such agreement while employed by Abercrombie & Fitch. I accept Abercrombie & Fitch's offer of employment as outlined in this letter, and I am returning a signed copy to Human Resources.

/s/ Gregory J. Henchel
 
September 3, 2018
Gregory J. Henchel
 
Date

4


EXHIBIT A


AGREEMENT

This AGREEMENT (this " Agreement "), is entered into between Abercrombie & Fitch Management Co., a Delaware corporation (the " Company "), and Gregory J. Henchel (the " Executive ") as of the execution date by the Company below (the " Effective Date ").

WHEREAS, the Company and the Executive desire to enter into this Agreement to set forth the terms under which the Executive may be entitled to severance benefits from the Company upon the occurrence of certain events during the Term of this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants contained herein, the Company and the Executive hereby agree as follows:

1.     Term of Agreement; Termination of Employment

(a) Term . The term of this Agreement shall be from the Effective Date and for a period of two years thereafter (the “ Original Term ”); provided, that, this Agreement shall be automatically extended, subject to earlier termination as provided herein, for successive additional one year periods (each, an “ Additional Term ”), on the second anniversary of the Effective Date and each subsequent anniversary thereof unless, at least 90 days before the date on which an Additional Term otherwise would automatically begin, the Company or the Executive notifies the other in writing that the Term (as defined below) shall not be extended by any Additional Terms thereafter. Notwithstanding the foregoing, if a Change of Control (as defined below) occurs during the Original Term or an Additional Term, the term of this Agreement shall extend until the later of the Original Term or an Additional Term or the 18-month anniversary of such Change of Control (such extension, together with the Original Term or any Additional Terms, the “ Term ”).

(b) At-Will Nature of Employment . The Executive acknowledges and agrees that the Executive's employment with the Company is and shall remain "at-will" and the Executive's employment with the Company may be terminated at any time and for any reason (or no reason) by the Company, with or without notice, or the Executive, subject to the terms of this Agreement. During the period of the Executive's employment with the Company, the Executive shall perform such duties and fulfill such responsibilities as reasonably requested by the Company from time to time commensurate with the Executive's position with the Company.

(c) Termination of Employment by the Company . During the Term, the Company may terminate the Executive's employment at any time with or without Cause (as defined below) pursuant to the Notice of Termination provision below.

(d) Termination of Employment by the Executive . During the Term, the Executive may terminate employment with the Company with or without Good Reason (as defined below) by delivering to the Company, not less than thirty (30) days prior to the Termination Date, a written notice of termination; provided, that, if such termination of employment is by the Executive with Good Reason, such notice shall state in reasonable detail the facts and circumstances that constitute Good Reason. This provision does not change the at-will nature of Executive's employment, and the Company may end Executive's employment, pursuant to Executive's notice, prior to the expiration of the thirty (30) days' notice.


5


(e) Notice of Termination . Any termination of the Executive's employment by the Company or by the Executive shall be communicated by a written Notice of Termination addressed to the Executive or the Company, as applicable. A “ Notice of Termination ” shall mean a notice stating that the Executive's employment with the Company has been or will be terminated and the specific provisions of this Section 1 under which such termination is being effected.

(f) Termination Date. Subject to Section 4(a) hereof, “ Termination Date ” as used in this Agreement shall mean in the case of the Executive's death or Disability (as defined below), the date of death or Disability, or in all other cases of termination by the Company or the Executive, the date specified in writing by the Company or the Executive as the Termination Date in accordance with Section 1(e).

2.      Compensation Upon Certain Terminations by the Company.

(a) Termination Without Cause, or for Good Reason . If the Executive's employment is terminated during the Term (i) by the Company without Cause (other than as a result of the Executive’s death or Disability), or (ii) by the Executive for Good Reason, in each case, other than during the COC Protection Period (as defined below), the Company shall (A) pay to the Executive any portion of Executive’s accrued but unpaid base salary earned through the Termination Date; (B) pay to the Executive any annual bonus that was earned by the Executive for the fiscal year immediately preceding the fiscal year in which the Termination Date occurs, to the extent not already paid; (C) reimburse the Executive for any and all amounts advanced in connection with Executive’s employment with the Company for reasonable and necessary expenses incurred by Executive through the Termination Date in accordance with the Company’s policies and procedures on reimbursement of expenses; (D) pay to the Executive any earned vacation pay not theretofore used or paid in accordance with the Company’s policy for payment of earned and unused vacation time; and (E) provide to the Executive all other accrued but unpaid payments and benefits to which Executive may be entitled under the terms of any applicable compensation arrangement or benefit plan or program of the Company (excluding any severance plan or policy of the Company) (collectively, the " Accrued Compensation "). In addition, provided that the Executive executes a release of claims in a form acceptable to the Company (a “ Release ”), returns such Release to the Company by no later than 45 days following the Termination Date (the “ Release Deadline ”) and does not revoke such Release prior to the expiration of the applicable revocation period (the date on which such Release becomes effective, the “ Release Effective Date ”), then subject to the further provisions of Sections 3, 4, and 6 below, the Company shall have the following obligations with respect to the Executive (or the Executive’s estate, if applicable), subject to applicable taxes and withholdings:

(1)
The Company will continue to pay the Executive’s Base Salary (as defined below) during the period beginning on the Executive’s Termination Date and continuing for eighteen months thereafter (“ Salary Continuation ”). This Salary Continuation payment shall be paid in bi-weekly installments, consistent with the Company’s payroll practices. Subject to Sections 4(c) and 4(d) hereof, the first such payment shall be made on the first payroll date following the Release Effective Date, such payment to include all payments that would have otherwise been payable between the Termination Date and the date of such payment.

(2)
The Company will pay to the Executive, at such time as those executives who are actively employed with the Company would receive payments under the Company’s short-term cash bonus plan in which the Executive was eligible to participate immediately prior to the Termination Date (but in no event later than

6


the 15th day of the third month of the fiscal year following the fiscal year in which the Termination Date occurred), a pro-rated amount of the Executive’s bonus under such plan, based on the actual performance during the applicable period, determined in accordance with the terms of the Plan and subject to the approval of the Compensation and Organization Committee of the Board of Directors. The pro-rated amount shall be calculated using a fraction where the numerator is the number of days from the beginning of the applicable bonus period through the Termination Date and the denominator is the total number of days in the applicable bonus period.

(3)
Subject to the Executive's timely election of continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (" COBRA "), during the period in which Salary Continuation is in effect, the Company shall reimburse the Executive for 100% of the monthly premium costs of COBRA coverage, less applicable withholding taxes on such reimbursement; provided, however, that the Company's obligation to provide such benefits shall cease upon the earlier of (i) the Executive's becoming eligible for such benefits as the result of employment with another employer and (ii) the expiration of the Executive's right to continue such medical and dental benefits under applicable law (such as COBRA); provided, further, that notwithstanding the foregoing, the Company shall not be obligated to provide the continuation coverage contemplated by this Section 2(a)(3) if it would result in the imposition of excise taxes on the Company for failure to comply with the nondiscrimination requirements of the Patient Protection and Affordable Care Act of 2010, as amended, and the Health Care and Education Reconciliation Act of 2010, as amended (to the extent applicable).

(b) Termination for Cause, without Good Reason, or Death . If the Executive's employment is terminated during the Term by the Company for Cause, by the Executive without Good Reason or by reason of the Executive's death, the Company shall provide the Executive (or the Executive’s estate, if applicable) with only the Accrued Compensation.
(c) Termination due to Disability . If the Executive's employment is terminated by the Company by reason of the Executive's Disability, the Company shall have the following obligations with respect to the Executive (or the Executive’s estate, if applicable): (i) the Company shall provide the Executive with the Accrued Compensation; and (ii) the Executive shall be entitled to receive any disability benefits available under the Company's Long-Term Disability Plan (if any). For purposes of this Agreement, “ Disability ” means a physical or mental infirmity which impairs the Executive's ability to substantially perform the Executive's duties with the Company or its subsidiaries for a period of at least six (6) months in any twelve (12)-month calendar period as determined in accordance with the Company's long-term disability plan or, in the absence of such plan, as determined by the Company's Board of Directors (the “ Board ”).

(d) Change of Control. If the Executive’s employment is terminated during the Term (i) by the Company other than for Cause, or due to the Executive’s death or Disability or (ii) by the Executive for Good Reason, in each case, during the three months prior to, and the eighteen months following, a Change of Control (such period, the “ COC Protection Period ”), then the Company shall provide the Executive with the Accrued Compensation and, subject to the Executive executing a Release, returning such Release to the Company by no later than the Release Deadline, and not revoking such Release prior to the expiration of the applicable revocation period, and subject to the further provisions of Sections 2(j), 3, 4 and 6 below, the Company shall have the following obligations with respect to the Executive (or the Executive’s estate, if applicable), subject to applicable taxes and withholdings:

7


(1)
The Company will pay the Executive an amount equal to eighteen months of the Executive's Base Salary in effect on the Termination Date. Subject to Sections 4(c) and 4(d) hereof, such amount shall be payable in a lump sum on the sixtieth (60 th ) day following the Termination Date, except to the extent that such amount becomes payable on account of a termination that occurs during the three month period preceding a Change of Control. To that extent, the amount shall be paid at the time described in Section 2(a)(1) to the extent necessary to avoid the imposition of tax penalties under Section 409A of the Code.

(2)
The Company will pay Executive an amount equal to 1.5 times the Executive's Target Bonus. Subject to Sections 4(c) and 4(d) hereof, such amount shall be payable in a lump sum on the sixtieth (60 th ) day following the Termination Date.

(3)
Subject to the Executive's timely election of continuation coverage under COBRA for a period of eighteen months following the Termination Date, the Company shall reimburse the Executive for 100% of the monthly premium costs of COBRA coverage, less applicable withholding taxes on such reimbursement; provided, however, that the Company's obligation to provide such benefits shall cease upon the earlier of (i) the Executive's becoming eligible for such benefits as the result of employment with another employer and (ii) the expiration of the Executive's right to continue such medical and dental benefits under applicable law (such as COBRA); provided, further, that notwithstanding the foregoing, the Company shall not be obligated to provide the continuation coverage contemplated by this Section 2(d)(3) if it would result in the imposition of excise taxes on the Company for failure to comply with the nondiscrimination requirements of the Patient Protection and Affordable Care Act of 2010, as amended, and the Health Care and Education Reconciliation Act of 2010, as amended (to the extent applicable).

(e)      Definitions .

(1)
Base Salary . For the purpose of this Agreement, “Base Salary” shall mean the Executive’s annual rate of base salary as in effect on the applicable date; provided, however, that if the Executive’s employment with the Company is being terminated by the Executive for Good Reason as a result of a reduction in the Executive’s Base Salary, then “Base Salary” shall, for purposes of the definition of “Good Reason” and Section 3 of this Agreement, constitute the Executive’s Base Salary as in effect prior to such reduction.

(2)
Cause. For purposes of this Agreement, "Cause" shall mean: (i) the Executive’s conviction of, or entrance of a plea of guilty or nolo contendere to, a felony under federal or state law; (ii) fraudulent conduct by the Executive in connection with the business affairs of the Company; (iii) the Executive’s willful refusal to materially perform the Executive’s duties hereunder; (iv) the Executive’s willful misconduct which has, or would have if generally known, a materially adverse effect on the business or reputation of the company; or (v) the Executive’s material breach of a covenant, representation, warranty or obligation of the Executive to the Company. With respect to the circumstances in subsections (iii), (iv), and (v), above, such circumstances will only constitute “Cause” once the Company has provided the Executive written notice and the Executive has failed

8


to cure such issue within 30 days. No act or failure to act on the Executive’s part shall be considered “willful” unless done, or omitted to be done, by the Executive in bad faith and without reasonable belief that the Executive’s action or omission was in the best interest of the Company.

(3)
Change of Control . For purposes of this Agreement, "Change of Control" shall have the same meaning as such term is defined in the Company’s 2016 Long-Term Incentive Plan for Associates; provided , however, that for purposes of this Agreement, such definition shall only apply to the extent that the event that constitutes such a “Change of Control” also constitutes a “change in ownership or control” as such term is defined in Section 409A of the United States Internal Revenue Code of 1986, as amended (the “ Code ”), and the regulations and guidance issued thereunder (“ Section 409A of the Code ”).

(4)
Good Reason . For purposes of this Agreement, “Good Reason” shall mean, without the Executive’s written consent: (i) a reduction in the Executive’s Base Salary or Target Bonus as in effect from time to time; (ii) a material reduction (including as a result of any co-sharing of responsibilities arrangement) of the Executive’s authority, responsibilities, or duties, (iii) a requirement that the Executive be based at a location in excess of 50 miles from the location of its principal executive office as of the date of this Agreement; (iv) the Company fails to obtain the written assumption of its obligations to the Executive under this Agreement by a successor no later than the consummation of a Change of Control; (v) a material breach by the Company of its obligations to the Executive under this Agreement; or (vi) in anticipation or contemplation of or following a Change of Control, as defined above, a material adverse change in the Executive’s reporting structure; which in each of the circumstances described above, is not remedied by the Company within 30 days of receipt of written notice by the Executive to the Company; so long as the Executive provides such written notice to the Company no later than 90 days following the first date the event giving rise to a claim of Good Reason exists;

(5)
Target Bonus . “Target Bonus” shall mean the percentage of the Executive’s Base Salary equal to the Executive’s short-term cash bonus opportunity under the terms of the applicable short-term cash bonus program in which the Executive is entitled to participate in respect of the fiscal year of the Company in which the Termination Date occurs (if any); provided, however, that if the Executive’s employment with the Company is terminated by the Executive for Good Reason as a result of a reduction in the Executive’s Target Bonus, then “Target Bonus” shall mean the Executive’s Target Bonus as in effect immediately prior to such reduction.

(f)      Mitigation. The Executive shall not be required to mitigate the amount of any payment provided for in this Section 2 by seeking other employment or otherwise and no such payment or benefit shall be eliminated, offset or reduced by the amount of any compensation provided to the Executive in any subsequent employment, except as provided in Section 2(a)(3) or Section 2(d)(3).

(g) Resignation from Office. The Executive's termination of employment with the Company for any reason shall be deemed to automatically remove the Executive, without further action, from any and all offices held by the Executive with the Company or its affiliates.

9


The Executive shall execute such additional documents as requested by the Company from time to time to evidence the foregoing.

(h) Exclusivity . This Agreement is intended to provide severance payments and/or benefits only under the circumstances expressly enumerated under Section 2 hereof. Unless otherwise determined by the Company in its sole discretion, in the event of a termination of the Executive's employment with the Company for any reason (or no reason) or at any time other than as expressly contemplated by Section 2 hereof, the Executive shall not be entitled to receive any severance payments and/or benefits or other further compensation from the Company hereunder whatsoever, except for the Accrued Compensation and any other rights or benefits to which the Executive is otherwise entitled pursuant to the requirements of applicable law. Except as otherwise expressly provided in this Section 2, all of the Executive's rights to salary, bonuses, fringe benefits and other compensation hereunder (if any) which accrue or become payable after the Termination Date will cease upon the Termination Date.

(i) Set-Off. The Executive agrees that, to the extent permitted by applicable law, the Company may deduct from and set-off against any amounts otherwise payable to the Executive under this Agreement such amounts as may be owed by the Executive to the Company. The Executive shall remain liable for any part of the Executive’s payment obligation not satisfied through such deduction and setoff.

(j) Exclusive Remedies. The Executive agrees and acknowledges that the payments and benefits set forth in this Section 2 shall be the only payments and benefits to which the Executive is entitled from the Company in connection with the termination of the Executive’s employment with the Company, and that neither the Company nor its subsidiaries shall have any liability to the Executive or the Executive’s estate, whether under this Agreement or otherwise, in connection with the termination of the Executive’s employment.

3.     Limitations on Certain Payments. Notwithstanding any provision of this Agreement to the contrary, if any amount or benefit to be paid or provided under this Agreement or otherwise would be an “excess parachute payment,” within the meaning of Section 280G of the Code, or any successor provision thereto, but for the application of this sentence, then the payments and benefits identified in the second to last sentence of this Section 3 to be paid or provided will be reduced to the minimum extent necessary (but in no event to less than zero) so that no portion of any such payment or benefit, as so reduced, constitutes an excess parachute payment; provided, however, that the foregoing reduction will be made only if and to the extent that such reduction would result in an increase in the aggregate payment and benefits to be provided to the Executive, determined on an after-tax basis (taking into account the excise tax imposed pursuant to Section 4999 of the Code, or any successor provision thereto, any tax imposed by any comparable provision of state law, and any applicable federal, state and local income and employment taxes). Whether requested by the Executive or the Company, the determination of whether any reduction in such payments or benefits to be provided under this Agreement or otherwise is required pursuant to the preceding sentence will be made at the expense of the Company by a certified accounting firm that is independent from the Company. In the event that any payment or benefit intended to be provided under this Agreement or otherwise is required to be reduced pursuant to this Section 3, the Company will reduce the Executive’s payments and/or benefits, to the extent required, in the following order: (a) the payments due under Section 2(d)(3) (beginning with the payment farthest out in time that would otherwise be paid); (b) the payments due under Section 2(d)(1) (beginning with the payment farthest out in time that would otherwise be paid); (c) the payment due under Section 2(d)(2). The assessment of whether or not such payments or benefits constitute or would include excess parachute payments shall take into account a reasonable compensation analysis of the value of services provided or to be provided by the Executive, including any agreement by the Executive (if

10


applicable) to refrain from performing services pursuant to a covenant not to compete or similar covenant applicable to you that may then be in effect.

4.     Section 409A of the Code; Withholding .

(a)
This Agreement is intended to avoid the imposition of taxes and/or penalties under Section 409A of the Code. The parties agree that this Agreement shall at all times be interpreted, construed and operated in a manner to avoid the imposition of taxes and/or penalties under with Section 409A of the Code. To the extent required for compliance with Section 409A of the Code, all references to a termination of employment and separation from service shall mean “separation from service” as defined in Section 409A of the Code, and the date of such “separation from service” shall be referred to as the “ Termination Date ”.

(b)
All reimbursements provided under this Agreement shall comply with Section 409A of the Code and shall be subject to the following requirement: (i) the amount of expenses eligible for reimbursement, during the Executive’s taxable year may not affect the expenses eligible for reimbursement to be provided in another taxable year; and (ii) the reimbursement of an eligible expense must be made by December 31 following the taxable year in which the expense was incurred. The right to reimbursement is not subject to liquidation or exchange for another benefit.

(c)
Notwithstanding anything in this Agreement to the contrary, for purposes of the period specified in this Agreement relating to the timing of the Executive’s execution of the Release as a condition of the Company’s obligation to provide any severance payments or benefits, if such period would begin in one taxable year and end in a second taxable year, any payment otherwise due to the Executive upon execution of the Release shall be made in the second taxable year and without regard to when the Release was executed or became irrevocable.

(d)
If the Executive is a “specified employee” (as defined under Section 409A of the Code) on the Executive’s Termination Date, to the extent that any amount payable under this Agreement constitutes “non-qualified deferred compensation” under Section 409A of the Code (and is not otherwise excepted from Section 409A of the Code coverage by virtue of being considered “separation pay” or a “short term deferral” or otherwise) and is payable to Executive based upon a separation from service, such amount shall not be paid until the first day following the six (6) month anniversary of the Executive’s Termination Date or the Executive’s death, if earlier.

(e)
To the maximum extent permitted under Section 409A of the Code, the payments and benefits under this Agreement are intended to meet the requirements of the short-term deferral exemption under Section 409A of the Code and the “separation pay exception” under Treasury Regulation §1.409A-1(b)(9)(iii). Any right to a series of installment payments shall be treated as a right to a series of separate payments for purposes of Section 409A of the Code.

(f)
All amounts due and payable under this Agreement shall be paid less all amounts required to be withheld by law, including all applicable federal, state and local withholding taxes and deductions.

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5.     Indemnification . The Company shall indemnify, defend, and hold the Executive harmless to the maximum extent permitted by law and the Company by-laws against all judgments, fines, amounts paid in settlement and all reasonable expenses, including attorneys’ fees incurred by the Executive, in connection with the defense of or as a result of any action or proceeding (or any appeal from any action or proceeding) in which the Executive is made or is threatened to be made a party by reason of the fact that the Executive is or was an officer or director of the Company. Subject to the terms of the Company’s director and officer indemnification policies then in effect, the Company acknowledges that the Executive will be covered and insured up to the full limits provided by all directors’ and officers’ insurance which the Company then maintains to indemnify its directors and officers.

6.      Executive Covenants .

(a)
For the purposes of this Section 6, the term “ Company ” shall include Abercrombie & Fitch Management Co. and all of its subsidiaries, parent companies and affiliates thereof

(b)
Non-Disclosure and Non-Use . The Executive shall not, during the Term and at all times thereafter, without the written authorization of the Chief Executive Officer (“ CEO ”) of the Company or such other executive governing body as may exist in lieu of the CEO, (hereinafter referred to as the “ Executive Approval ”), use (except for the benefit of the Company) any Confidential and Trade Secret Information relating to the Company. The Executive shall hold in strictest confidence and shall not, without the Executive Approval, disclose to anyone, other than directors, officers, employees and counsel of the Company in furtherance of the business of the Company, any Confidential and Trade Secret Information relating to the Company. For purposes of this Agreement, “ Confidential and Trade Secret Information ” includes: the general or specific nature of any concept in development, the business plan or development schedule of any concept, vendor, merchant or customer lists or other processes, know-how, designs, formulas, methods, software, improvements, technology, new products, marketing and selling plans, business plans, development schedules, budgets and unpublished financial statements, licenses, prices and costs, suppliers, and information regarding the skills, compensation or duties of employees, independent contractors or consultants of the Company and any other information about the Company that is proprietary or confidential. Notwithstanding the foregoing, nothing herein shall prevent the Executive from disclosing Confidential and Trade Secret Information to the extent required by law or by any court or regulatory authority having actual or apparent authority to require such disclosure or in connection with any litigation or arbitration involving this Agreement.

The restrictions set forth in this Section 6(b) shall not apply to information that is or becomes generally available to the public or known within the Company’s trade or industry (other than as a result of its wrongful disclosure by the Executive), or information received on a non-confidential basis from sources other than the Company who are not in violation of a confidentiality agreement with the Company.

The Executive further represents and agrees that, during the Term and at all times thereafter, the Executive is obligated to comply with the rules and regulations of the Securities and Exchange Commission (“ SEC ”) regarding trading shares and/or exercising options related to the Company's stock. The Executive acknowledges that the Company has not provided opinions or legal advice regarding the Executive’s

12


obligations in this respect and that it is the Executive's responsibility to seek independent legal advice with respect to any stock or option transaction.

(c)      Non-Disparagement and Cooperation . Neither the Executive nor any officer, director of the Company, nor any other spokesperson authorized as a spokesperson by any officer or director of the Company, shall, during the Term or at any time thereafter, intentionally state or otherwise publish anything about the other party which would adversely affect the reputation, image or business relationships and goodwill of the other party in the market and community at large. During the Term and at all times thereafter, the Executive shall fully cooperate with the Company in defense of legal claims asserted against the Company and other matters requiring the testimony or input and knowledge of the Executive. If at any time the Executive should be required to cooperate with the Company pursuant to this Section 6(c), the Company agrees to promptly reimburse the Executive for reasonable documented costs and expenses incurred as a result thereof. The Executive agrees that, during the Term and at all times thereafter, the Executive will not speak or communicate with any party or representative of any party, who is known to the Executive to be either adverse to the Company in litigation or administrative proceedings or to have threatened to commence litigation or administrative proceedings against the Company, with respect to the pending or threatened legal action, unless the Executive receives the written consent of the Company to do so, or is otherwise compelled by law to do so, and then only after advance notice to the Company. Nothing herein shall prevent the Executive from pursuing any claim in connection with enforcing or defending the Executive’s rights or obligations under this Agreement, or engaging in any activity as set forth in Section 14 of this Agreement.

(d)
Non-Competition . For the period of Executive’s employment with the Company and its subsidiaries and for twelve (12) months following Executive’s Termination Date with the Company and its subsidiaries for any reason (the “ Non-Competition Period ”), Executive shall not, directly or indirectly, without the Executive Approval, own, manage, operate, join, control, be employed by, consult with or participate in the ownership, management, operation or control of, or be connected with (as a stockholder, partner, or otherwise), any entity listed on Appendix A attached to this Agreement, or any of their current or future divisions, subsidiaries or affiliates (whether majority or minority owned), even if said division, subsidiary or affiliate becomes unrelated to the entity on Appendix A at some future date, or any other entity engaged in a business that is competitive with the Company in any part of the world in which the Company conducts business or is actively preparing or considering conducting business (“ Competing Entity ”); provided, however, that the “beneficial ownership” by the Executive, either individually or by a “group” in which the Executive is a member (as such terms are used in Rule 13d of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)), of less than 2% of the voting stock of any publicly held corporation shall not be a violation of this Section 6(d). The Executive acknowledges and agrees that any consideration that the Executive received in respect of any non-competition covenant in favor of the Company or its subsidiaries entered into prior to the date hereof shall be incorporated herein as consideration for the promises set forth in this Section 6(d) and that the provisions contained in this Section 6(d) shall supersede any prior non-competition covenants between the Executive and the Company or its subsidiaries.

(e)
Non-Solicitation . For the period of Executive’s employment with the Company and its subsidiaries and for twenty-four (24) months following Executive’s Termination Date

13


with the Company and its subsidiaries for any reason (“ Non-Solicitation Period ”), the Executive shall not, either directly or indirectly, alone or in conjunction with another party, interfere with or harm, or attempt to interfere with or harm, the relationship of the Company with any person who at any time was a customer or supplier of the Company or otherwise had a business relationship with the Company. During the Non-Solicitation Period, the Executive shall not hire, solicit for hire, aid in or facilitate the hire, or cause to be hired, either as an employee, contractor or consultant, any person who is currently employed, or was employed at any time during the six-month period prior thereto, as an employee, contractor or consultant of the Company. The Executive acknowledges and agrees that any consideration that the Executive received for in respect of any non-solicitation covenant in favor of the Company or its subsidiaries entered into prior to the date hereof shall be incorporated herein as consideration for the promises set forth in this Section 6(e) and that the provisions contained in this Section 6(e) shall supersede any prior non-solicitation covenants between the Executive and the Company or its subsidiaries.

(f)
Confidentiality of this Agreement . Unless this Agreement is required to be publicly disclosed under applicable U.S. securities laws, the Executive agrees that, during the Term and at all times thereafter, the Executive shall not speak about, write about, or otherwise publicize or disclose to any third party the terms of this Agreement or any fact concerning its negotiation, execution or implementation, except with (i) an attorney, accountant, or other advisor engaged by the Executive; (ii) the Internal Revenue Service or other governmental agency upon proper request; or (iii) the Executive’s immediate family; provided, that all such persons agree in advance to keep said information confidential and not to disclose it to others. This Section 6(f) shall not prohibit Executive from disclosing the terms of this Section 6 to a prospective employer.

(g)
Remedies . The Executive agrees that any breach of the terms of this Section 6 would result in irreparable injury and damage to the Company for which the Company would have no adequate remedy at law; the Executive therefore also agrees that in the event of said breach or any threat of breach, the Company shall be entitled to an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any and all persons and/or entities acting for and/or with the Executive, without having to prove damages. The terms of this Section 6(g) shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach hereof, including but not limited to the recovery of damages from the Executive. The Executive and the Company further agree that the confidentiality provisions and the covenants not to compete and solicit contained in this Section 6 are reasonable and that the Company would not have entered into this Agreement but for the inclusion of such covenants herein. The parties agree that the prevailing party shall be entitled to all costs and expenses, including reasonable attorneys' fees and costs, in addition to any other remedies to which either may be entitled at law or in equity in connection with the enforcement of the covenants set forth in this Section 6. Should a court with jurisdiction determine, however, that all or any portion of the covenants set forth in this Section 6 is unreasonable, either in period of time, geographical area, or otherwise, the parties hereto agree that such covenants or portion thereof should be interpreted and enforced to the maximum extent that such court deems reasonable. In the event of any violation of the provisions of this Section 6, the Executive acknowledges and agrees that the post-termination restrictions contained in this Section 6 shall be extended by a period of time equal to the period of such violation, it being the intention of the parties hereto that the running of the applicable post-

14


termination of employment restriction period shall be tolled during any period of such violation. In the event of a material violation by the Executive of this Section 6, any severance being paid to the Executive pursuant to Section 2 of this Agreement or otherwise shall immediately cease, and the aggregate gross amount of any severance previously paid to the Executive shall be immediately repaid to the Company.

(h) The provisions of this Section 6 shall survive any termination of this Agreement and any termination of the Executive’s employment, and the existence of any claim or cause of action by the Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants and agreements of this Section 6.

7.     Successors and Assigns .

(a)
This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns, and the Company shall require any successor or assign to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. The term “the Company” as used herein shall include any such successors and assigns to the Company's business and/or assets. The term “successors and assigns” as used herein shall mean a corporation or other entity acquiring or otherwise succeeding to, directly or indirectly, all or substantially all the assets and business of the Company (including this Agreement) whether by operation of law or otherwise.

(b)
Neither this Agreement nor any right or interest hereunder shall be assignable or
transferable by the Executive, the Executive's beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal personal representative.

8.      Arbitration . Except with respect to the remedies set forth in Section 6(g) hereof, any controversy or claim between the Company or any of its affiliates and the Executive arising out of or relating to this Agreement or its termination shall be settled and determined by a single arbitrator whose award shall be accepted as final and binding upon the parties. The American Arbitration Association, under its Employment Arbitration Rules, shall administer the binding arbitration. The arbitration shall take place in Columbus, Ohio. The Company and the Executive each waive any right to a jury trial or to a petition for stay in any action or proceeding of any kind arising out of or relating to this Agreement or its termination and agree that the arbitrator shall have the authority to award costs and attorney fees to the prevailing party.

9.     Effect on Prior Agreements. Except as otherwise set forth herein, this Agreement supersedes all provisions in prior agreements, either express or implied, between the parties hereto, with respect to post-termination payments and/or benefits; provided, that, this Agreement shall not supersede the Company’s 2005, 2007 or 2016 Long-Term Incentive Plans (or any other applicable equity plan) or any applicable award agreements evidencing equity-based incentive awards thereunder (the “ Equity Documents ”), and any rights of the Executive with respect to equity-based incentive awards hereunder shall be in addition to, and not in lieu of, any rights pursuant to the Equity Documents. No provisions of this Agreement shall supersede or nullify the clawback provisions in the Equity Documents or any of the applicable Company incentive compensation plans.

15


10.      Notice . For the purposes of this Agreement, notices and all other communications provided for in this Agreement (including the Notice of Termination) shall be in writing and shall be deemed to have been duly given when personally delivered or sent by registered or certified mail, return receipt requested, postage prepaid, or upon receipt if overnight delivery service or facsimile is used, addressed as follows:

To the Executive :
To Executive's last home address as listed in the books and records of the Company.

To the Company :
Abercrombie & Fitch Management Co.
6301 Fitch Path
New Albany, Ohio 43054
Attn: Chief Human Resources Officer

11.      Miscellaneous . No provision of this Agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement.

12.     Governing Law . This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Ohio without giving effect to the conflict of law principles thereof. Except as provided in Section 8, any actions or proceedings instituted under this Agreement with respect to any matters arising under or related to this Agreement shall be brought and tried only in the Court of Common Please, Franklin County, Ohio.

13.      Severability . The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

14.     Protected Rights . Nothing contained in this Agreement limits Executive’s ability to file a charge or complaint with the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission or any other federal, state or local governmental agency or commission (“Government Agencies”). Executive further understands that this Agreement does not limit Executive’s ability to communicate with any Government Agencies or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information, without notice to the Company. This Agreement does not limit Executive’s right to receive an award from a Government Agency for information provided to any Government Agency.

[Remainder of page intentionally left blank; signature page follows]

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IN WITNESS WHEREOF, the undersigned has hereto set his/her hand this 3 rd day of September, 2018.
 
/s/ Gregory J. Henchel
Gregory J. Henchel



IN WITNESS WHEREOF, the undersigned has hereto set his/her hand this 13 th day of September, 2018.
 
/s/ Fran Horowitz
Fran Horowitz
Chief Executive Officer
Abercrombie & Fitch Co.

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Appendix A to EXHIBIT A
(all current and future (as described in Section 6(d) of the Agreement) subsidiaries, divisions and affiliates of the entities below)
American Eagle Outfitters, Inc.
Gap, Inc.
J. Crew Group, Inc.
Pacific Sunwear of California, Inc.
Urban Outfitters, Inc.
Aeropostale, Inc.
Polo Ralph Lauren Corporation
Ascena Retail Group
Lululemon Athletica, Inc.
Levi Strauss & Co.
L Brands (formerly known as Limited Brands, including, without limitation, Victoria’s Secret, Pink, Bath & Body Works, La Senza and Henri Bendel)
Express, Inc.
Nike, Inc.
Under Armour, Inc.
Amazon.com, Inc.
 

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EXHIBIT B


FAIR CREDIT REPORTING ACT DISCLOSURE AND AUTHORIZATION


Abercrombie & Fitch Stores, Inc. (“Abercrombie & Fitch”), when making a decision whether to offer you employment, when deciding whether to continue your employment (if you are hired), and when making other employment-related decisions directly affecting you, may wish to obtain and use a “consumer report” from a “consumer reporting agency” (“CRA”). These terms are defined in the Fair Credit Reporting Act (“FCRA”), which applies to you. As either an applicant for employment or an employee of Abercrombie & Fitch, you are a “consumer” with rights under the FCRA.

By signing below, I acknowledge receipt of the above disclosures regarding the FCRA and voluntarily authorize Abercrombie & Fitch to obtain “consumer reports” about me from a “consumer reporting agency” and to consider the “consumer reports” when making decisions regarding whether to offer me employment, when deciding whether to continue my employment (if I am hired), and when making other employment-related decisions regarding me. During any period while I may be employed by Abercrombie & Fitch, I hereby authorize Abercrombie & Fitch to make further like inquiries to a “consumer reporting agency” as Abercrombie & Fitch may from time to time deem necessary for employment purposes.

Name (signature)    _ /s/ Gregory J. Henchel _______

Last Name _ Henchel ________    First Name _ Gregory ______        Middle Initial _ J _

Date    _ September 3, 2018 ___

Address:    _ ****** __________________________________________________________________
Street                City            State        Zip

Social Security #    _ ****** _____________

Driver’s License #    _ ****** _________    State Where License Issued:    _ ****** _____

Month/Day/Year of Birth    _ ****** _________
    
Current Home Address:    _ ****** _______________________________________________

Alias or Other Name(s) Used (if applicable):

__ N/A ____________________________________________________________________________
Last Name            First Name            Middle Initial

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EXHIBIT 10.2

AGREEMENT

This AGREEMENT (this " Agreement "), is entered into between Abercrombie & Fitch Management Co., a Delaware corporation (the " Company "), and Gregory J. Henchel (the " Executive ") as of the execution date by the Company below (the " Effective Date ").

WHEREAS, the Company and the Executive desire to enter into this Agreement to set forth the terms under which the Executive may be entitled to severance benefits from the Company upon the occurrence of certain events during the Term of this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants contained herein, the Company and the Executive hereby agree as follows:

1.     Term of Agreement; Termination of Employment

(a) Term . The term of this Agreement shall be from the Effective Date and for a period of two years thereafter (the “ Original Term ”); provided, that, this Agreement shall be automatically extended, subject to earlier termination as provided herein, for successive additional one year periods (each, an “ Additional Term ”), on the second anniversary of the Effective Date and each subsequent anniversary thereof unless, at least 90 days before the date on which an Additional Term otherwise would automatically begin, the Company or the Executive notifies the other in writing that the Term (as defined below) shall not be extended by any Additional Terms thereafter. Notwithstanding the foregoing, if a Change of Control (as defined below) occurs during the Original Term or an Additional Term, the term of this Agreement shall extend until the later of the Original Term or an Additional Term or the 18-month anniversary of such Change of Control (such extension, together with the Original Term or any Additional Terms, the “ Term ”).

(b) At-Will Nature of Employment . The Executive acknowledges and agrees that the Executive's employment with the Company is and shall remain "at-will" and the Executive's employment with the Company may be terminated at any time and for any reason (or no reason) by the Company, with or without notice, or the Executive, subject to the terms of this Agreement. During the period of the Executive's employment with the Company, the Executive shall perform such duties and fulfill such responsibilities as reasonably requested by the Company from time to time commensurate with the Executive's position with the Company.

(c) Termination of Employment by the Company . During the Term, the Company may terminate the Executive's employment at any time with or without Cause (as defined below) pursuant to the Notice of Termination provision below.

(d) Termination of Employment by the Executive . During the Term, the Executive may terminate employment with the Company with or without Good Reason (as defined below) by delivering to the Company, not less than thirty (30) days prior to the Termination Date, a written notice of termination; provided, that, if such termination of employment is by the Executive with Good Reason, such notice shall state in reasonable detail the facts and circumstances that constitute Good Reason. This provision does not change the at-will nature of Executive's employment, and the Company may end Executive's employment, pursuant to Executive's notice, prior to the expiration of the thirty (30) days' notice.





(e) Notice of Termination . Any termination of the Executive's employment by the Company or by the Executive shall be communicated by a written Notice of Termination addressed to the Executive or the Company, as applicable. A “ Notice of Termination ” shall mean a notice stating that the Executive's employment with the Company has been or will be terminated and the specific provisions of this Section 1 under which such termination is being effected.

(f) Termination Date. Subject to Section 4(a) hereof, “ Termination Date ” as used in this Agreement shall mean in the case of the Executive's death or Disability (as defined below), the date of death or Disability, or in all other cases of termination by the Company or the Executive, the date specified in writing by the Company or the Executive as the Termination Date in accordance with Section 1(e).

2.      Compensation Upon Certain Terminations by the Company.

(a) Termination Without Cause, or for Good Reason . If the Executive's employment is terminated during the Term (i) by the Company without Cause (other than as a result of the Executive’s death or Disability), or (ii) by the Executive for Good Reason, in each case, other than during the COC Protection Period (as defined below), the Company shall (A) pay to the Executive any portion of Executive’s accrued but unpaid base salary earned through the Termination Date; (B) pay to the Executive any annual bonus that was earned by the Executive for the fiscal year immediately preceding the fiscal year in which the Termination Date occurs, to the extent not already paid; (C) reimburse the Executive for any and all amounts advanced in connection with Executive’s employment with the Company for reasonable and necessary expenses incurred by Executive through the Termination Date in accordance with the Company’s policies and procedures on reimbursement of expenses; (D) pay to the Executive any earned vacation pay not theretofore used or paid in accordance with the Company’s policy for payment of earned and unused vacation time; and (E) provide to the Executive all other accrued but unpaid payments and benefits to which Executive may be entitled under the terms of any applicable compensation arrangement or benefit plan or program of the Company (excluding any severance plan or policy of the Company) (collectively, the " Accrued Compensation "). In addition, provided that the Executive executes a release of claims in a form acceptable to the Company (a “ Release ”), returns such Release to the Company by no later than 45 days following the Termination Date (the “ Release Deadline ”) and does not revoke such Release prior to the expiration of the applicable revocation period (the date on which such Release becomes effective, the “ Release Effective Date ”), then subject to the further provisions of Sections 3, 4, and 6 below, the Company shall have the following obligations with respect to the Executive (or the Executive’s estate, if applicable), subject to applicable taxes and withholdings:

(1)
The Company will continue to pay the Executive’s Base Salary (as defined below) during the period beginning on the Executive’s Termination Date and continuing for eighteen months thereafter (“ Salary Continuation ”). This Salary Continuation payment shall be paid in bi-weekly installments, consistent with the Company’s payroll practices. Subject to Sections 4(c) and 4(d) hereof, the first such payment shall be made on the first payroll date following the Release Effective Date, such payment to include all payments that would have otherwise been payable between the Termination Date and the date of such payment.

(2)
The Company will pay to the Executive, at such time as those executives who are actively employed with the Company would receive payments under the Company’s short-term cash bonus plan in which the Executive was eligible to participate immediately prior to the Termination Date (but in no event later than




the 15th day of the third month of the fiscal year following the fiscal year in which the Termination Date occurred), a pro-rated amount of the Executive’s bonus under such plan, based on the actual performance during the applicable period, determined in accordance with the terms of the Plan and subject to the approval of the Compensation and Organization Committee of the Board of Directors. The pro-rated amount shall be calculated using a fraction where the numerator is the number of days from the beginning of the applicable bonus period through the Termination Date and the denominator is the total number of days in the applicable bonus period.

(3)
Subject to the Executive's timely election of continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (" COBRA "), during the period in which Salary Continuation is in effect, the Company shall reimburse the Executive for 100% of the monthly premium costs of COBRA coverage, less applicable withholding taxes on such reimbursement; provided, however, that the Company's obligation to provide such benefits shall cease upon the earlier of (i) the Executive's becoming eligible for such benefits as the result of employment with another employer and (ii) the expiration of the Executive's right to continue such medical and dental benefits under applicable law (such as COBRA); provided, further, that notwithstanding the foregoing, the Company shall not be obligated to provide the continuation coverage contemplated by this Section 2(a)(3) if it would result in the imposition of excise taxes on the Company for failure to comply with the nondiscrimination requirements of the Patient Protection and Affordable Care Act of 2010, as amended, and the Health Care and Education Reconciliation Act of 2010, as amended (to the extent applicable).

(b) Termination for Cause, without Good Reason, or Death . If the Executive's employment is terminated during the Term by the Company for Cause, by the Executive without Good Reason or by reason of the Executive's death, the Company shall provide the Executive (or the Executive’s estate, if applicable) with only the Accrued Compensation.
(c) Termination due to Disability . If the Executive's employment is terminated by the Company by reason of the Executive's Disability, the Company shall have the following obligations with respect to the Executive (or the Executive’s estate, if applicable): (i) the Company shall provide the Executive with the Accrued Compensation; and (ii) the Executive shall be entitled to receive any disability benefits available under the Company's Long-Term Disability Plan (if any). For purposes of this Agreement, “ Disability ” means a physical or mental infirmity which impairs the Executive's ability to substantially perform the Executive's duties with the Company or its subsidiaries for a period of at least six (6) months in any twelve (12)-month calendar period as determined in accordance with the Company's long-term disability plan or, in the absence of such plan, as determined by the Company's Board of Directors (the “ Board ”).

(d) Change of Control. If the Executive’s employment is terminated during the Term (i) by the Company other than for Cause, or due to the Executive’s death or Disability or (ii) by the Executive for Good Reason, in each case, during the three months prior to, and the eighteen months following, a Change of Control (such period, the “ COC Protection Period ”), then the Company shall provide the Executive with the Accrued Compensation and, subject to the Executive executing a Release, returning such Release to the Company by no later than the Release Deadline, and not revoking such Release prior to the expiration of the applicable revocation period, and subject to the further provisions of Sections 2(j), 3, 4 and 6 below, the Company shall have the following obligations with respect to the Executive (or the Executive’s estate, if applicable), subject to applicable taxes and withholdings:




(1)
The Company will pay the Executive an amount equal to eighteen months of the Executive's Base Salary in effect on the Termination Date. Subject to Sections 4(c) and 4(d) hereof, such amount shall be payable in a lump sum on the sixtieth (60 th ) day following the Termination Date, except to the extent that such amount becomes payable on account of a termination that occurs during the three month period preceding a Change of Control. To that extent, the amount shall be paid at the time described in Section 2(a)(1) to the extent necessary to avoid the imposition of tax penalties under Section 409A of the Code.

(2)
The Company will pay Executive an amount equal to 1.5 times the Executive's Target Bonus. Subject to Sections 4(c) and 4(d) hereof, such amount shall be payable in a lump sum on the sixtieth (60 th ) day following the Termination Date.

(3)
Subject to the Executive's timely election of continuation coverage under COBRA for a period of eighteen months following the Termination Date, the Company shall reimburse the Executive for 100% of the monthly premium costs of COBRA coverage, less applicable withholding taxes on such reimbursement; provided, however, that the Company's obligation to provide such benefits shall cease upon the earlier of (i) the Executive's becoming eligible for such benefits as the result of employment with another employer and (ii) the expiration of the Executive's right to continue such medical and dental benefits under applicable law (such as COBRA); provided, further, that notwithstanding the foregoing, the Company shall not be obligated to provide the continuation coverage contemplated by this Section 2(d)(3) if it would result in the imposition of excise taxes on the Company for failure to comply with the nondiscrimination requirements of the Patient Protection and Affordable Care Act of 2010, as amended, and the Health Care and Education Reconciliation Act of 2010, as amended (to the extent applicable).

(e)      Definitions .

(1)
Base Salary . For the purpose of this Agreement, “Base Salary” shall mean the Executive’s annual rate of base salary as in effect on the applicable date; provided, however, that if the Executive’s employment with the Company is being terminated by the Executive for Good Reason as a result of a reduction in the Executive’s Base Salary, then “Base Salary” shall, for purposes of the definition of “Good Reason” and Section 3 of this Agreement, constitute the Executive’s Base Salary as in effect prior to such reduction.

(2)
Cause. For purposes of this Agreement, "Cause" shall mean: (i) the Executive’s conviction of, or entrance of a plea of guilty or nolo contendere to, a felony under federal or state law; (ii) fraudulent conduct by the Executive in connection with the business affairs of the Company; (iii) the Executive’s willful refusal to materially perform the Executive’s duties hereunder; (iv) the Executive’s willful misconduct which has, or would have if generally known, a materially adverse effect on the business or reputation of the company; or (v) the Executive’s material breach of a covenant, representation, warranty or obligation of the Executive to the Company. With respect to the circumstances in subsections (iii), (iv), and (v), above, such circumstances will only constitute “Cause” once the Company has provided the Executive written notice and the Executive has failed




to cure such issue within 30 days. No act or failure to act on the Executive’s part shall be considered “willful” unless done, or omitted to be done, by the Executive in bad faith and without reasonable belief that the Executive’s action or omission was in the best interest of the Company.

(3)
Change of Control . For purposes of this Agreement, "Change of Control" shall have the same meaning as such term is defined in the Company’s 2016 Long-Term Incentive Plan for Associates; provided , however, that for purposes of this Agreement, such definition shall only apply to the extent that the event that constitutes such a “Change of Control” also constitutes a “change in ownership or control” as such term is defined in Section 409A of the United States Internal Revenue Code of 1986, as amended (the “ Code ”), and the regulations and guidance issued thereunder (“ Section 409A of the Code ”).

(4)
Good Reason . For purposes of this Agreement, “Good Reason” shall mean, without the Executive’s written consent: (i) a reduction in the Executive’s Base Salary or Target Bonus as in effect from time to time; (ii) a material reduction (including as a result of any co-sharing of responsibilities arrangement) of the Executive’s authority, responsibilities, or duties, (iii) a requirement that the Executive be based at a location in excess of 50 miles from the location of its principal executive office as of the date of this Agreement; (iv) the Company fails to obtain the written assumption of its obligations to the Executive under this Agreement by a successor no later than the consummation of a Change of Control; (v) a material breach by the Company of its obligations to the Executive under this Agreement; or (vi) in anticipation or contemplation of or following a Change of Control, as defined above, a material adverse change in the Executive’s reporting structure; which in each of the circumstances described above, is not remedied by the Company within 30 days of receipt of written notice by the Executive to the Company; so long as the Executive provides such written notice to the Company no later than 90 days following the first date the event giving rise to a claim of Good Reason exists;

(5)
Target Bonus . “Target Bonus” shall mean the percentage of the Executive’s Base Salary equal to the Executive’s short-term cash bonus opportunity under the terms of the applicable short-term cash bonus program in which the Executive is entitled to participate in respect of the fiscal year of the Company in which the Termination Date occurs (if any); provided, however, that if the Executive’s employment with the Company is terminated by the Executive for Good Reason as a result of a reduction in the Executive’s Target Bonus, then “Target Bonus” shall mean the Executive’s Target Bonus as in effect immediately prior to such reduction.

(f)      Mitigation. The Executive shall not be required to mitigate the amount of any payment provided for in this Section 2 by seeking other employment or otherwise and no such payment or benefit shall be eliminated, offset or reduced by the amount of any compensation provided to the Executive in any subsequent employment, except as provided in Section 2(a)(3) or Section 2(d)(3).

(g) Resignation from Office. The Executive's termination of employment with the Company for any reason shall be deemed to automatically remove the Executive, without further action, from any and all offices held by the Executive with the Company or its affiliates.




The Executive shall execute such additional documents as requested by the Company from time to time to evidence the foregoing.

(h) Exclusivity . This Agreement is intended to provide severance payments and/or benefits only under the circumstances expressly enumerated under Section 2 hereof. Unless otherwise determined by the Company in its sole discretion, in the event of a termination of the Executive's employment with the Company for any reason (or no reason) or at any time other than as expressly contemplated by Section 2 hereof, the Executive shall not be entitled to receive any severance payments and/or benefits or other further compensation from the Company hereunder whatsoever, except for the Accrued Compensation and any other rights or benefits to which the Executive is otherwise entitled pursuant to the requirements of applicable law. Except as otherwise expressly provided in this Section 2, all of the Executive's rights to salary, bonuses, fringe benefits and other compensation hereunder (if any) which accrue or become payable after the Termination Date will cease upon the Termination Date.

(i) Set-Off. The Executive agrees that, to the extent permitted by applicable law, the Company may deduct from and set-off against any amounts otherwise payable to the Executive under this Agreement such amounts as may be owed by the Executive to the Company. The Executive shall remain liable for any part of the Executive’s payment obligation not satisfied through such deduction and setoff.

(j) Exclusive Remedies. The Executive agrees and acknowledges that the payments and benefits set forth in this Section 2 shall be the only payments and benefits to which the Executive is entitled from the Company in connection with the termination of the Executive’s employment with the Company, and that neither the Company nor its subsidiaries shall have any liability to the Executive or the Executive’s estate, whether under this Agreement or otherwise, in connection with the termination of the Executive’s employment.

3.     Limitations on Certain Payments. Notwithstanding any provision of this Agreement to the contrary, if any amount or benefit to be paid or provided under this Agreement or otherwise would be an “excess parachute payment,” within the meaning of Section 280G of the Code, or any successor provision thereto, but for the application of this sentence, then the payments and benefits identified in the second to last sentence of this Section 3 to be paid or provided will be reduced to the minimum extent necessary (but in no event to less than zero) so that no portion of any such payment or benefit, as so reduced, constitutes an excess parachute payment; provided, however, that the foregoing reduction will be made only if and to the extent that such reduction would result in an increase in the aggregate payment and benefits to be provided to the Executive, determined on an after-tax basis (taking into account the excise tax imposed pursuant to Section 4999 of the Code, or any successor provision thereto, any tax imposed by any comparable provision of state law, and any applicable federal, state and local income and employment taxes). Whether requested by the Executive or the Company, the determination of whether any reduction in such payments or benefits to be provided under this Agreement or otherwise is required pursuant to the preceding sentence will be made at the expense of the Company by a certified accounting firm that is independent from the Company. In the event that any payment or benefit intended to be provided under this Agreement or otherwise is required to be reduced pursuant to this Section 3, the Company will reduce the Executive’s payments and/or benefits, to the extent required, in the following order: (a) the payments due under Section 2(d)(3) (beginning with the payment farthest out in time that would otherwise be paid); (b) the payments due under Section 2(d)(1) (beginning with the payment farthest out in time that would otherwise be paid); (c) the payment due under Section 2(d)(2). The assessment of whether or not such payments or benefits constitute or would include excess parachute payments shall take into account a reasonable compensation analysis of the value of services provided or to be provided by the Executive, including any agreement by the Executive (if




applicable) to refrain from performing services pursuant to a covenant not to compete or similar covenant applicable to you that may then be in effect.

4.     Section 409A of the Code; Withholding .

(a)
This Agreement is intended to avoid the imposition of taxes and/or penalties under Section 409A of the Code. The parties agree that this Agreement shall at all times be interpreted, construed and operated in a manner to avoid the imposition of taxes and/or penalties under with Section 409A of the Code. To the extent required for compliance with Section 409A of the Code, all references to a termination of employment and separation from service shall mean “separation from service” as defined in Section 409A of the Code, and the date of such “separation from service” shall be referred to as the “ Termination Date ”.

(b)
All reimbursements provided under this Agreement shall comply with Section 409A of the Code and shall be subject to the following requirement: (i) the amount of expenses eligible for reimbursement, during the Executive’s taxable year may not affect the expenses eligible for reimbursement to be provided in another taxable year; and (ii) the reimbursement of an eligible expense must be made by December 31 following the taxable year in which the expense was incurred. The right to reimbursement is not subject to liquidation or exchange for another benefit.

(c)
Notwithstanding anything in this Agreement to the contrary, for purposes of the period specified in this Agreement relating to the timing of the Executive’s execution of the Release as a condition of the Company’s obligation to provide any severance payments or benefits, if such period would begin in one taxable year and end in a second taxable year, any payment otherwise due to the Executive upon execution of the Release shall be made in the second taxable year and without regard to when the Release was executed or became irrevocable.

(d)
If the Executive is a “specified employee” (as defined under Section 409A of the Code) on the Executive’s Termination Date, to the extent that any amount payable under this Agreement constitutes “non-qualified deferred compensation” under Section 409A of the Code (and is not otherwise excepted from Section 409A of the Code coverage by virtue of being considered “separation pay” or a “short term deferral” or otherwise) and is payable to Executive based upon a separation from service, such amount shall not be paid until the first day following the six (6) month anniversary of the Executive’s Termination Date or the Executive’s death, if earlier.

(e)
To the maximum extent permitted under Section 409A of the Code, the payments and benefits under this Agreement are intended to meet the requirements of the short-term deferral exemption under Section 409A of the Code and the “separation pay exception” under Treasury Regulation §1.409A-1(b)(9)(iii). Any right to a series of installment payments shall be treated as a right to a series of separate payments for purposes of Section 409A of the Code.

(f)
All amounts due and payable under this Agreement shall be paid less all amounts required to be withheld by law, including all applicable federal, state and local withholding taxes and deductions.




5.     Indemnification . The Company shall indemnify, defend, and hold the Executive harmless to the maximum extent permitted by law and the Company by-laws against all judgments, fines, amounts paid in settlement and all reasonable expenses, including attorneys’ fees incurred by the Executive, in connection with the defense of or as a result of any action or proceeding (or any appeal from any action or proceeding) in which the Executive is made or is threatened to be made a party by reason of the fact that the Executive is or was an officer or director of the Company. Subject to the terms of the Company’s director and officer indemnification policies then in effect, the Company acknowledges that the Executive will be covered and insured up to the full limits provided by all directors’ and officers’ insurance which the Company then maintains to indemnify its directors and officers.

6.      Executive Covenants .

(a)
For the purposes of this Section 6, the term “ Company ” shall include Abercrombie & Fitch Management Co. and all of its subsidiaries, parent companies and affiliates thereof

(b)
Non-Disclosure and Non-Use . The Executive shall not, during the Term and at all times thereafter, without the written authorization of the Chief Executive Officer (“ CEO ”) of the Company or such other executive governing body as may exist in lieu of the CEO, (hereinafter referred to as the “ Executive Approval ”), use (except for the benefit of the Company) any Confidential and Trade Secret Information relating to the Company. The Executive shall hold in strictest confidence and shall not, without the Executive Approval, disclose to anyone, other than directors, officers, employees and counsel of the Company in furtherance of the business of the Company, any Confidential and Trade Secret Information relating to the Company. For purposes of this Agreement, “ Confidential and Trade Secret Information ” includes: the general or specific nature of any concept in development, the business plan or development schedule of any concept, vendor, merchant or customer lists or other processes, know-how, designs, formulas, methods, software, improvements, technology, new products, marketing and selling plans, business plans, development schedules, budgets and unpublished financial statements, licenses, prices and costs, suppliers, and information regarding the skills, compensation or duties of employees, independent contractors or consultants of the Company and any other information about the Company that is proprietary or confidential. Notwithstanding the foregoing, nothing herein shall prevent the Executive from disclosing Confidential and Trade Secret Information to the extent required by law or by any court or regulatory authority having actual or apparent authority to require such disclosure or in connection with any litigation or arbitration involving this Agreement.

The restrictions set forth in this Section 6(b) shall not apply to information that is or becomes generally available to the public or known within the Company’s trade or industry (other than as a result of its wrongful disclosure by the Executive), or information received on a non-confidential basis from sources other than the Company who are not in violation of a confidentiality agreement with the Company.

The Executive further represents and agrees that, during the Term and at all times thereafter, the Executive is obligated to comply with the rules and regulations of the Securities and Exchange Commission (“ SEC ”) regarding trading shares and/or exercising options related to the Company's stock. The Executive acknowledges that the Company has not provided opinions or legal advice regarding the Executive’s




obligations in this respect and that it is the Executive's responsibility to seek independent legal advice with respect to any stock or option transaction.

(c)      Non-Disparagement and Cooperation . Neither the Executive nor any officer, director of the Company, nor any other spokesperson authorized as a spokesperson by any officer or director of the Company, shall, during the Term or at any time thereafter, intentionally state or otherwise publish anything about the other party which would adversely affect the reputation, image or business relationships and goodwill of the other party in the market and community at large. During the Term and at all times thereafter, the Executive shall fully cooperate with the Company in defense of legal claims asserted against the Company and other matters requiring the testimony or input and knowledge of the Executive. If at any time the Executive should be required to cooperate with the Company pursuant to this Section 6(c), the Company agrees to promptly reimburse the Executive for reasonable documented costs and expenses incurred as a result thereof. The Executive agrees that, during the Term and at all times thereafter, the Executive will not speak or communicate with any party or representative of any party, who is known to the Executive to be either adverse to the Company in litigation or administrative proceedings or to have threatened to commence litigation or administrative proceedings against the Company, with respect to the pending or threatened legal action, unless the Executive receives the written consent of the Company to do so, or is otherwise compelled by law to do so, and then only after advance notice to the Company. Nothing herein shall prevent the Executive from pursuing any claim in connection with enforcing or defending the Executive’s rights or obligations under this Agreement, or engaging in any activity as set forth in Section 14 of this Agreement.

(d)
Non-Competition . For the period of Executive’s employment with the Company and its subsidiaries and for twelve (12) months following Executive’s Termination Date with the Company and its subsidiaries for any reason (the “ Non-Competition Period ”), Executive shall not, directly or indirectly, without the Executive Approval, own, manage, operate, join, control, be employed by, consult with or participate in the ownership, management, operation or control of, or be connected with (as a stockholder, partner, or otherwise), any entity listed on Appendix A attached to this Agreement, or any of their current or future divisions, subsidiaries or affiliates (whether majority or minority owned), even if said division, subsidiary or affiliate becomes unrelated to the entity on Appendix A at some future date, or any other entity engaged in a business that is competitive with the Company in any part of the world in which the Company conducts business or is actively preparing or considering conducting business (“ Competing Entity ”); provided, however, that the “beneficial ownership” by the Executive, either individually or by a “group” in which the Executive is a member (as such terms are used in Rule 13d of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)), of less than 2% of the voting stock of any publicly held corporation shall not be a violation of this Section 6(d). The Executive acknowledges and agrees that any consideration that the Executive received in respect of any non-competition covenant in favor of the Company or its subsidiaries entered into prior to the date hereof shall be incorporated herein as consideration for the promises set forth in this Section 6(d) and that the provisions contained in this Section 6(d) shall supersede any prior non-competition covenants between the Executive and the Company or its subsidiaries.

(e)
Non-Solicitation . For the period of Executive’s employment with the Company and its subsidiaries and for twenty-four (24) months following Executive’s Termination Date




with the Company and its subsidiaries for any reason (“ Non-Solicitation Period ”), the Executive shall not, either directly or indirectly, alone or in conjunction with another party, interfere with or harm, or attempt to interfere with or harm, the relationship of the Company with any person who at any time was a customer or supplier of the Company or otherwise had a business relationship with the Company. During the Non-Solicitation Period, the Executive shall not hire, solicit for hire, aid in or facilitate the hire, or cause to be hired, either as an employee, contractor or consultant, any person who is currently employed, or was employed at any time during the six-month period prior thereto, as an employee, contractor or consultant of the Company. The Executive acknowledges and agrees that any consideration that the Executive received for in respect of any non-solicitation covenant in favor of the Company or its subsidiaries entered into prior to the date hereof shall be incorporated herein as consideration for the promises set forth in this Section 6(e) and that the provisions contained in this Section 6(e) shall supersede any prior non-solicitation covenants between the Executive and the Company or its subsidiaries.

(f)
Confidentiality of this Agreement . Unless this Agreement is required to be publicly disclosed under applicable U.S. securities laws, the Executive agrees that, during the Term and at all times thereafter, the Executive shall not speak about, write about, or otherwise publicize or disclose to any third party the terms of this Agreement or any fact concerning its negotiation, execution or implementation, except with (i) an attorney, accountant, or other advisor engaged by the Executive; (ii) the Internal Revenue Service or other governmental agency upon proper request; or (iii) the Executive’s immediate family; provided, that all such persons agree in advance to keep said information confidential and not to disclose it to others. This Section 6(f) shall not prohibit Executive from disclosing the terms of this Section 6 to a prospective employer.

(g)
Remedies . The Executive agrees that any breach of the terms of this Section 6 would result in irreparable injury and damage to the Company for which the Company would have no adequate remedy at law; the Executive therefore also agrees that in the event of said breach or any threat of breach, the Company shall be entitled to an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any and all persons and/or entities acting for and/or with the Executive, without having to prove damages. The terms of this Section 6(g) shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach hereof, including but not limited to the recovery of damages from the Executive. The Executive and the Company further agree that the confidentiality provisions and the covenants not to compete and solicit contained in this Section 6 are reasonable and that the Company would not have entered into this Agreement but for the inclusion of such covenants herein. The parties agree that the prevailing party shall be entitled to all costs and expenses, including reasonable attorneys' fees and costs, in addition to any other remedies to which either may be entitled at law or in equity in connection with the enforcement of the covenants set forth in this Section 6. Should a court with jurisdiction determine, however, that all or any portion of the covenants set forth in this Section 6 is unreasonable, either in period of time, geographical area, or otherwise, the parties hereto agree that such covenants or portion thereof should be interpreted and enforced to the maximum extent that such court deems reasonable. In the event of any violation of the provisions of this Section 6, the Executive acknowledges and agrees that the post-termination restrictions contained in this Section 6 shall be extended by a period of time equal to the period of such violation, it being the intention of the parties hereto that the running of the applicable post-




termination of employment restriction period shall be tolled during any period of such violation. In the event of a material violation by the Executive of this Section 6, any severance being paid to the Executive pursuant to Section 2 of this Agreement or otherwise shall immediately cease, and the aggregate gross amount of any severance previously paid to the Executive shall be immediately repaid to the Company.

(h) The provisions of this Section 6 shall survive any termination of this Agreement and any termination of the Executive’s employment, and the existence of any claim or cause of action by the Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants and agreements of this Section 6.

7.     Successors and Assigns .

(a)
This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns, and the Company shall require any successor or assign to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. The term “the Company” as used herein shall include any such successors and assigns to the Company's business and/or assets. The term “successors and assigns” as used herein shall mean a corporation or other entity acquiring or otherwise succeeding to, directly or indirectly, all or substantially all the assets and business of the Company (including this Agreement) whether by operation of law or otherwise.

(b)
Neither this Agreement nor any right or interest hereunder shall be assignable or
transferable by the Executive, the Executive's beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal personal representative.

8.      Arbitration . Except with respect to the remedies set forth in Section 6(g) hereof, any controversy or claim between the Company or any of its affiliates and the Executive arising out of or relating to this Agreement or its termination shall be settled and determined by a single arbitrator whose award shall be accepted as final and binding upon the parties. The American Arbitration Association, under its Employment Arbitration Rules, shall administer the binding arbitration. The arbitration shall take place in Columbus, Ohio. The Company and the Executive each waive any right to a jury trial or to a petition for stay in any action or proceeding of any kind arising out of or relating to this Agreement or its termination and agree that the arbitrator shall have the authority to award costs and attorney fees to the prevailing party.

9.     Effect on Prior Agreements. Except as otherwise set forth herein, this Agreement supersedes all provisions in prior agreements, either express or implied, between the parties hereto, with respect to post-termination payments and/or benefits; provided, that, this Agreement shall not supersede the Company’s 2005, 2007 or 2016 Long-Term Incentive Plans (or any other applicable equity plan) or any applicable award agreements evidencing equity-based incentive awards thereunder (the “ Equity Documents ”), and any rights of the Executive with respect to equity-based incentive awards hereunder shall be in addition to, and not in lieu of, any rights pursuant to the Equity Documents. No provisions of this Agreement shall supersede or nullify the clawback provisions in the Equity Documents or any of the applicable Company incentive compensation plans.




10.      Notice . For the purposes of this Agreement, notices and all other communications provided for in this Agreement (including the Notice of Termination) shall be in writing and shall be deemed to have been duly given when personally delivered or sent by registered or certified mail, return receipt requested, postage prepaid, or upon receipt if overnight delivery service or facsimile is used, addressed as follows:

To the Executive :
To Executive's last home address as listed in the books and records of the Company.

To the Company :
Abercrombie & Fitch Management Co.
6301 Fitch Path
New Albany, Ohio 43054
Attn: Chief Human Resources Officer

11.      Miscellaneous . No provision of this Agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement.

12.     Governing Law . This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Ohio without giving effect to the conflict of law principles thereof. Except as provided in Section 8, any actions or proceedings instituted under this Agreement with respect to any matters arising under or related to this Agreement shall be brought and tried only in the Court of Common Please, Franklin County, Ohio.

13.      Severability . The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

14.     Protected Rights . Nothing contained in this Agreement limits Executive’s ability to file a charge or complaint with the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission or any other federal, state or local governmental agency or commission (“Government Agencies”). Executive further understands that this Agreement does not limit Executive’s ability to communicate with any Government Agencies or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information, without notice to the Company. This Agreement does not limit Executive’s right to receive an award from a Government Agency for information provided to any Government Agency.

[Remainder of page intentionally left blank; signature page follows]




IN WITNESS WHEREOF, the undersigned has hereto set his/her hand this 3 rd day of September, 2018.
 
/s/ Gregory J. Henchel
Gregory J. Henchel



IN WITNESS WHEREOF, the undersigned has hereto set his/her hand this 13 th day of September, 2018.
 
/s/ Fran Horowitz
Fran Horowitz
Chief Executive Officer
Abercrombie & Fitch Co.




Appendix A
(all current and future (as described in Section 6(d) of the Agreement) subsidiaries, divisions and affiliates of the entities below)
American Eagle Outfitters, Inc.
Gap, Inc.
J. Crew Group, Inc.
Pacific Sunwear of California, Inc.
Urban Outfitters, Inc.
Aeropostale, Inc.
Polo Ralph Lauren Corporation
Ascena Retail Group
Lululemon Athletica, Inc.
Levi Strauss & Co.
L Brands (formerly known as Limited Brands, including, without limitation, Victoria’s Secret, Pink, Bath & Body Works, La Senza and Henri Bendel)
Express, Inc.
Nike, Inc.
Under Armour, Inc.
Amazon.com, Inc.
 





EXHIBIT 31.1
 
CERTIFICATIONS

I, Fran Horowitz , certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Abercrombie & Fitch Co. for the quarterly period ended November 3, 2018 ;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;    
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
ABERCROMBIE & FITCH CO.
 
 
 
Date: December 12, 2018
By:
/s/ Fran Horowitz
 
 
Fran Horowitz
 
 
Chief Executive Officer
 
 
(Principal Executive Officer)




EXHIBIT 31.2
 
CERTIFICATIONS

I, Scott Lipesky , certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Abercrombie & Fitch Co. for the quarterly period ended November 3, 2018 ;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;    
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
ABERCROMBIE & FITCH CO.
 
 
 
Date: December 12, 2018
By:
/s/ Scott Lipesky
 
 
Scott Lipesky
 
 
Senior Vice President and Chief Financial Officer
 
 
(Principal Financial Officer)




EXHIBIT 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*

In connection with the Quarterly Report of Abercrombie & Fitch Co. (the “Corporation”) on Form 10-Q for the quarterly period ended November 3, 2018 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Fran Horowitz, Chief Executive Officer of the Corporation (serving as Principal Executive Officer of the Corporation) and Scott Lipesky, Senior Vice President and Chief Financial Officer of the Corporation (serving as Principal Financial Officer of the Corporation), certify, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of the Corporation and its subsidiaries.

/s/ Fran Horowitz
 
/s/ Scott Lipesky
Fran Horowitz
Chief Executive Officer
(Principal Executive Officer)
 
Scott Lipesky
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
 
 
 
Date: December 12, 2018
 
Date: December 12, 2018


*
These certifications are being furnished as required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code, and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section. These certifications shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Corporation specifically incorporates these certifications by reference in such filing.