ABERCROMBIE & FITCH CO /DE/ (Form: 10-Q, Received: 09/11/2019 16:43:58)

false--02-01Q2201900010188400.010.01150000000150000000103300000103300000003707300040154000 0001018840 2019-02-03 2019-08-03 0001018840 anf:MarketbasedrestrictedstockunitsMember 2019-02-03 2019-08-03 0001018840 2019-08-03 2019-08-03 0001018840 2019-09-06 0001018840 2018-02-04 2018-08-04 0001018840 2019-05-05 2019-08-03 0001018840 2018-05-06 2018-08-04 0001018840 2019-02-02 0001018840 2019-08-03 0001018840 us-gaap:CommonClassAMember 2019-08-03 0001018840 us-gaap:CommonClassAMember 2019-02-02 0001018840 us-gaap:AdditionalPaidInCapitalMember 2018-02-03 0001018840 us-gaap:CommonStockMember 2019-02-03 2019-08-03 0001018840 us-gaap:RetainedEarningsMember 2018-02-04 2018-08-04 0001018840 us-gaap:AdditionalPaidInCapitalMember 2018-02-04 2018-08-04 0001018840 us-gaap:RetainedEarningsMember 2019-02-02 0001018840 us-gaap:TreasuryStockMember 2018-08-04 0001018840 us-gaap:AdditionalPaidInCapitalMember 2019-02-03 2019-08-03 0001018840 us-gaap:TreasuryStockMember 2018-02-04 2018-08-04 0001018840 us-gaap:RetainedEarningsMember 2018-02-03 0001018840 us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember 2019-02-02 0001018840 us-gaap:TreasuryStockMember 2018-02-03 0001018840 us-gaap:AdditionalPaidInCapitalMember 2019-02-02 0001018840 us-gaap:AdditionalPaidInCapitalMember 2019-08-03 0001018840 us-gaap:RetainedEarningsMember 2019-02-03 2019-08-03 0001018840 us-gaap:CommonStockMember 2018-02-04 2018-08-04 0001018840 us-gaap:RetainedEarningsMember 2018-08-04 0001018840 us-gaap:TreasuryStockMember 2019-02-03 2019-08-03 0001018840 us-gaap:CommonStockMember 2019-02-02 0001018840 us-gaap:TreasuryStockMember 2019-02-02 0001018840 us-gaap:CommonStockMember 2019-08-03 0001018840 us-gaap:NoncontrollingInterestMember 2019-02-02 0001018840 us-gaap:TreasuryStockMember 2019-08-03 0001018840 us-gaap:CommonStockMember 2018-02-03 0001018840 us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember 2019-08-03 0001018840 us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember 2018-08-04 0001018840 us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember 2018-02-03 0001018840 us-gaap:RetainedEarningsMember 2019-08-03 0001018840 us-gaap:CommonStockMember 2018-08-04 0001018840 us-gaap:NoncontrollingInterestMember 2019-08-03 0001018840 us-gaap:NoncontrollingInterestMember 2018-02-03 0001018840 us-gaap:NoncontrollingInterestMember 2018-02-04 2018-08-04 0001018840 us-gaap:AdditionalPaidInCapitalMember 2018-08-04 0001018840 us-gaap:NoncontrollingInterestMember 2018-08-04 0001018840 us-gaap:NoncontrollingInterestMember 2019-02-03 2019-08-03 0001018840 2018-02-03 0001018840 2018-08-04 0001018840 us-gaap:RetainedEarningsMember 2019-05-04 0001018840 2019-05-04 0001018840 us-gaap:CommonStockMember 2018-05-05 0001018840 us-gaap:TreasuryStockMember 2019-05-05 2019-08-03 0001018840 us-gaap:AdditionalPaidInCapitalMember 2018-05-06 2018-08-04 0001018840 us-gaap:CommonStockMember 2019-05-05 2019-08-03 0001018840 us-gaap:TreasuryStockMember 2018-05-05 0001018840 us-gaap:NoncontrollingInterestMember 2018-05-06 2018-08-04 0001018840 us-gaap:RetainedEarningsMember 2018-05-06 2018-08-04 0001018840 us-gaap:TreasuryStockMember 2019-05-04 0001018840 us-gaap:AdditionalPaidInCapitalMember 2019-05-05 2019-08-03 0001018840 us-gaap:NoncontrollingInterestMember 2019-05-05 2019-08-03 0001018840 us-gaap:CommonStockMember 2019-05-04 0001018840 us-gaap:TreasuryStockMember 2018-05-06 2018-08-04 0001018840 us-gaap:CommonStockMember 2018-05-06 2018-08-04 0001018840 us-gaap:RetainedEarningsMember 2018-05-05 0001018840 us-gaap:RetainedEarningsMember 2019-05-05 2019-08-03 0001018840 us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember 2019-05-04 0001018840 us-gaap:NoncontrollingInterestMember 2018-05-05 0001018840 2018-05-05 0001018840 us-gaap:NoncontrollingInterestMember 2019-05-04 0001018840 us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember 2018-05-05 0001018840 us-gaap:AdditionalPaidInCapitalMember 2018-05-05 0001018840 us-gaap:AdditionalPaidInCapitalMember 2019-05-04 0001018840 2019-02-03 0001018840 us-gaap:AccountingStandardsUpdate201602Member 2019-02-03 0001018840 anf:TermLoanFacilityMemberDomain 2019-08-03 0001018840 anf:TermLoanFacilityMemberDomain 2019-02-02 0001018840 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-08-03 0001018840 us-gaap:FairValueMeasurementsRecurringMember 2019-08-03 0001018840 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-08-03 0001018840 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-08-03 0001018840 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-02-02 0001018840 us-gaap:FairValueMeasurementsRecurringMember 2019-02-02 0001018840 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-02-02 0001018840 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-02-02 0001018840 anf:ABLFacilityMemberDomain 2019-02-02 0001018840 anf:ABLFacilityMemberDomain 2019-08-03 0001018840 anf:ConstructionProjectAssetsMember 2019-02-02 0001018840 anf:ServicebasedrestrictedstockunitsMember 2019-02-03 2019-08-03 0001018840 anf:ServicebasedrestrictedstockunitsMember 2018-02-04 2018-08-04 0001018840 anf:PerformancebasedrestrictedstockunitsMember 2018-02-04 2018-08-04 0001018840 anf:PerformancebasedrestrictedstockunitsMember 2019-02-03 2019-08-03 0001018840 anf:MarketbasedrestrictedstockunitsMember 2018-02-04 2018-08-04 0001018840 anf:MarketbasedrestrictedstockunitsMember 2019-08-03 0001018840 anf:ServicebasedrestrictedstockunitsMember 2019-02-02 0001018840 anf:PerformancebasedrestrictedstockunitsMember 2019-08-03 0001018840 anf:MarketbasedrestrictedstockunitsMember 2019-02-02 0001018840 anf:ServicebasedrestrictedstockunitsMember 2019-08-03 0001018840 anf:PerformancebasedrestrictedstockunitsMember 2019-02-02 0001018840 srt:MinimumMember anf:PerformancebasedrestrictedstockunitsMember 2019-02-03 2019-08-03 0001018840 srt:MaximumMember anf:PerformancebasedrestrictedstockunitsMember 2019-02-03 2019-08-03 0001018840 us-gaap:StockAppreciationRightsSARSMember 2019-02-03 2019-08-03 0001018840 us-gaap:StockAppreciationRightsSARSMember 2018-02-04 2018-08-04 0001018840 anf:Servicebasedrestrictedstockunitswith1.00netincomerequirementMember 2019-08-03 0001018840 currency:JPY anf:IntercompanyInventoryandAccountsReceivablesMember us-gaap:ForwardContractsMember us-gaap:CashFlowHedgingMember 2019-08-03 0001018840 currency:EUR anf:IntercompanyInventoryandAccountsReceivablesMember us-gaap:ForwardContractsMember us-gaap:CashFlowHedgingMember 2019-08-03 0001018840 currency:GBP anf:IntercompanyInventoryandAccountsReceivablesMember us-gaap:ForwardContractsMember us-gaap:CashFlowHedgingMember 2019-08-03 0001018840 currency:CAD anf:IntercompanyInventoryandAccountsReceivablesMember us-gaap:ForwardContractsMember us-gaap:CashFlowHedgingMember 2019-08-03 0001018840 currency:CNY anf:AssetsandLiabilitiesMember us-gaap:ForwardContractsMember us-gaap:CashFlowHedgingMember 2019-08-03 0001018840 currency:EUR anf:AssetsandLiabilitiesMember us-gaap:ForwardContractsMember us-gaap:CashFlowHedgingMember 2019-08-03 0001018840 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2019-08-03 0001018840 us-gaap:AccumulatedTranslationAdjustmentMember 2019-08-03 0001018840 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2019-02-03 2019-08-03 0001018840 us-gaap:AccumulatedTranslationAdjustmentMember 2019-05-05 2019-08-03 0001018840 us-gaap:AccumulatedTranslationAdjustmentMember 2019-02-03 2019-08-03 0001018840 us-gaap:AccumulatedTranslationAdjustmentMember 2019-05-04 0001018840 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2019-05-05 2019-08-03 0001018840 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2019-02-02 0001018840 us-gaap:AccumulatedTranslationAdjustmentMember 2019-02-02 0001018840 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2019-05-04 0001018840 us-gaap:AccumulatedTranslationAdjustmentMember 2018-08-04 0001018840 us-gaap:AccumulatedTranslationAdjustmentMember 2018-02-04 2018-08-04 0001018840 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2018-05-05 0001018840 us-gaap:AccumulatedTranslationAdjustmentMember 2018-05-06 2018-08-04 0001018840 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2018-02-04 2018-08-04 0001018840 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2018-05-06 2018-08-04 0001018840 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2018-08-04 0001018840 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2018-02-03 0001018840 us-gaap:AccumulatedTranslationAdjustmentMember 2018-05-05 0001018840 us-gaap:AccumulatedTranslationAdjustmentMember 2018-02-03 0001018840 anf:HollisterMember 2018-02-04 2018-08-04 0001018840 anf:AbercrombieMember 2019-02-03 2019-08-03 0001018840 anf:AbercrombieMember 2019-05-05 2019-08-03 0001018840 anf:HollisterMember 2018-05-06 2018-08-04 0001018840 anf:HollisterMember 2019-05-05 2019-08-03 0001018840 anf:HollisterMember 2019-02-03 2019-08-03 0001018840 anf:AbercrombieMember 2018-05-06 2018-08-04 0001018840 anf:AbercrombieMember 2018-02-04 2018-08-04 0001018840 srt:EuropeMember 2018-05-06 2018-08-04 0001018840 anf:OtherLocationsMember 2019-02-03 2019-08-03 0001018840 srt:EuropeMember 2019-02-03 2019-08-03 0001018840 srt:EuropeMember 2019-05-05 2019-08-03 0001018840 anf:OtherLocationsMember 2018-05-06 2018-08-04 0001018840 anf:OtherLocationsMember 2019-05-05 2019-08-03 0001018840 country:US 2018-05-06 2018-08-04 0001018840 srt:EuropeMember 2018-02-04 2018-08-04 0001018840 country:US 2019-02-03 2019-08-03 0001018840 anf:OtherLocationsMember 2018-02-04 2018-08-04 0001018840 country:US 2019-05-05 2019-08-03 0001018840 country:US 2018-02-04 2018-08-04 iso4217:USD xbrli:shares iso4217:USD xbrli:shares xbrli:pure

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended August 3, 2019



☐	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)

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



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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ 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). ☒ 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	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

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



Class A Common Stock		Shares outstanding as of September 6, 2019
$.01 Par Value		62,860,157

Table of Contents

ABERCROMBIE & FITCH CO.

TABLE OF CONTENTS



		Page No.
Part I

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Statements of Operations and Comprehensive Loss	3

	Condensed Consolidated Balance Sheets	4

	Condensed Consolidated Statements of Stockholders’ Equity	5

	Condensed Consolidated Statements of Cash Flows	7

	Index for Notes to Condensed Consolidated Financial Statements	8

	Notes to Condensed Consolidated Financial Statements	9

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45

Item 4.	Controls and Procedures	46

Part II

Item 1.	Legal Proceedings	47

Item 1A.	Risk Factors	47

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

Item 6.	Exhibits	48

	Signatures	49

Table of Contents

PART I. FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)

ABERCROMBIE & FITCH CO.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(Thousands, except per share amounts)

(Unaudited)



	Thirteen Weeks Ended						Twenty-six Weeks Ended
	August 3, 2019			August 4, 2018			August 3, 2019			August 4, 2018
Net sales	$	841,078		$	842,414		$	1,575,050		$	1,573,313
Cost of sales, exclusive of depreciation and amortization	342,445			335,519			632,327			624,073
Gross profit	498,633			506,895			942,723			949,240
Stores and distribution expense	376,347			374,552			732,959			731,899
Marketing, general and administrative expense	115,694			123,883			227,641			248,780
Flagship store exit charges	44,994			—			46,738			3,808
Asset impairment, exclusive of flagship store exit charges	715			8,671			2,377			9,727
Other operating loss (income), net	367			(434		)	(250		)	(2,994		)
Operating (loss) income	(39,484		)	223			(66,742		)	(41,980		)
Interest expense, net	1,370			3,023			1,986			6,041
Loss before income taxes	(40,854		)	(2,800		)	(68,728		)	(48,021		)
Income tax (benefit) expense	(11,330		)	24			(20,918		)	(3,689		)
Net loss	(29,524		)	(2,824		)	(47,810		)	(44,332		)
Less: Net income attributable to noncontrolling interests	1,618			1,029			2,487			1,982
Net loss attributable to A&F	$	(31,142	)	$	(3,853	)	$	(50,297	)	$	(46,314	)

Net loss per share attributable to A&F
Basic	$	(0.48	)	$	(0.06	)	$	(0.76	)	$	(0.68	)
Diluted	$	(0.48	)	$	(0.06	)	$	(0.76	)	$	(0.68	)

Weighted-average shares outstanding
Basic	65,156			68,008			65,848			68,254
Diluted	65,156			68,008			65,848			68,254

Other comprehensive (loss) income
Foreign currency translation, net of tax	$	(3,788	)	$	(11,206	)	$	(6,574	)	$	(19,545	)
Derivative financial instruments, net of tax	3,133			7,447			3,080			19,707
Other comprehensive (loss) income	(655		)	(3,759		)	(3,494		)	162
Comprehensive loss	(30,179		)	(6,583		)	(51,304		)	(44,170		)
Less: Comprehensive income attributable to noncontrolling interests	1,618			1,029			2,487			1,982
Comprehensive loss attributable to A&F	$	(31,797	)	$	(7,612	)	$	(53,791	)	$	(46,152	)

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

Table of Contents

ABERCROMBIE & FITCH CO.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Thousands, except par value amounts)

(Unaudited)



	August 3, 2019			February 2, 2019
Assets
Current assets:
Cash and equivalents	$	499,757		$	723,135
Receivables	98,691			73,112
Inventories	487,109			437,879
Other current assets	86,586			101,824
Total current assets	1,172,143			1,335,950
Property and equipment, net	649,360			694,855
Operating lease right-of-use assets	1,216,998			—
Other assets	368,503			354,788
Total assets	$	3,407,004		$	2,385,593
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	226,234		$	226,878
Accrued expenses	279,050			293,579
Short-term portion of operating lease liabilities	273,989			—
Income taxes payable	10,903			18,902
Short-term portion of deferred lease credits	—			19,558
Total current liabilities	790,176			558,917
Long-term liabilities:
Long-term portion of operating lease liabilities	1,229,609			—
Long-term portion of borrowings, net	251,033			250,439
Long-term portion of deferred lease credits	—			76,134
Leasehold financing obligations	—			46,337
Other liabilities	132,891			235,145
Total long-term liabilities	1,613,533			608,055
Stockholders’ equity
Class A Common Stock - $0.01 par value: 150,000 shares authorized and 103,300 shares issued for all periods presented	1,033			1,033
Paid-in capital	394,694			405,379
Retained earnings	2,251,032			2,418,544
Accumulated other comprehensive loss, net of tax	(105,946		)	(102,452		)
Treasury stock, at average cost: 40,154 and 37,073 shares as of August 3, 2019 and February 2, 2019, respectively	(1,548,836		)	(1,513,604		)
Total Abercrombie & Fitch Co. stockholders’ equity	991,977			1,208,900
Noncontrolling interests	11,318			9,721
Total stockholders’ equity	1,003,295			1,218,621
Total liabilities and stockholders’ equity	$	3,407,004		$	2,385,593

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

Table of Contents

ABERCROMBIE & FITCH CO.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Thousands, except per share amounts)

(Unaudited)



	Thirteen Weeks Ended August 3, 2019
	Common Stock				Paid-in capital			Non-controlling interests			Retained earnings			Accumulated other comprehensive loss			Treasury stock					Total stockholders’ equity
	Shares outstanding		Par value														Shares		At average cost
Balance, May 4, 2019	66,637		$	1,033	$	395,974		$	10,124		$	2,296,347		$	(105,291	)	36,663		$	(1,493,224	)	$	1,104,963
Net loss	—		—		—			1,618			(31,142		)	—			—		—			(29,524		)
Purchase of Common Stock	(3,545	)	—		—			—			—			—			3,545		(57,812		)	(57,812		)
Dividends ($0.20 per share)	—		—		—			—			(13,139		)	—			—		—			(13,139		)
Share-based compensation issuances and exercises	54		—		(1,316		)	—			(1,034		)	—			(54	)	2,200			(150		)
Share-based compensation expense	—		—		36			—			—			—			—		—			36
Derivative financial instruments, net of tax	—		—		—			—			—			3,133			—		—			3,133
Foreign currency translation adjustments, net of tax	—		—		—			—			—			(3,788		)	—		—			(3,788		)
Distributions to noncontrolling interests, net	—		—		—			(424		)	—			—			—		—			(424		)
Balance, August 3, 2019	63,146		$	1,033	$	394,694		$	11,318		$	2,251,032		$	(105,946	)	40,154		$	(1,548,836	)	$	1,003,295

	Thirteen Weeks Ended August 4, 2018
	Common Stock				Paid-in capital			Non-controlling interests			Retained earnings			Accumulated other comprehensive loss			Treasury stock					Total stockholders’ equity
	Shares outstanding		Par value														Shares		At average cost
Balance, May 5, 2018	67,816		$	1,033	$	399,860		$	10,579		$	2,356,880		$	(91,133	)	35,484		$	(1,488,373	)	$	1,188,846
Net loss	—		—		—			1,029			(3,853		)	—			—		—			(2,824		)
Purchase of Common Stock	(969	)	—		—			—			—			—			969		(25,000		)	(25,000		)
Dividends ($0.20 per share)	—		—		—			—			(13,554		)	—			—		—			(13,554		)
Share-based compensation issuances and exercises	128		—		(4,533		)	—			(2,373		)	—			(128	)	5,959			(947		)
Share-based compensation expense	—		—		6,156			—			—			—			—		—			6,156
Derivative financial instruments, net of tax	—		—		—			—			—			7,447			—		—			7,447
Foreign currency translation adjustments, net of tax	—		—		—			—			—			(11,206		)	—		—			(11,206		)
Distributions to noncontrolling interests, net	—		—		—			(1,534		)	—			—			—		—			(1,534		)
Balance, August 4, 2018	66,975		$	1,033	$	401,483		$	10,074		$	2,337,100		$	(94,892	)	36,325		$	(1,507,414	)	$	1,147,384

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

Table of Contents

ABERCROMBIE & FITCH CO.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Thousands, except per share amounts)

(Unaudited)



	Twenty-six Weeks Ended August 3, 2019
	Common Stock				Paid-in capital			Non-controlling interests			Retained earnings			Accumulated other comprehensive loss			Treasury stock					Total stockholders’ equity
	Shares outstanding		Par value														Shares		At average cost
Balance, February 2, 2019	66,227		$	1,033	$	405,379		$	9,721		$	2,418,544		$	(102,452	)	37,073		$	(1,513,604	)	$	1,218,621
Impact from adoption of the new lease accounting standard (Refer to Note 2 “Summary of Significant Accounting Policies”)	—		—		—			—			(75,165		)	—			—		—			(75,165		)
Net loss	—		—		—			2,487			(50,297		)	—			—		—			(47,810		)
Purchase of Common Stock	(3,545	)	—		—			—			—			—			3,545		(57,812		)	(57,812		)
Dividends ($0.40 per share)	—		—		—			—			(26,385		)	—			—		—			(26,385		)
Share-based compensation issuances and exercises	464		—		(13,353		)	—			(15,665		)	—			(464	)	22,580			(6,438		)
Share-based compensation expense	—		—		2,668			—			—			—			—		—			2,668
Derivative financial instruments, net of tax	—		—		—			—			—			3,080			—		—			3,080
Foreign currency translation adjustments, net of tax	—		—		—			—			—			(6,574		)	—		—			(6,574		)
Distributions to noncontrolling interests, net	—		—		—			(890		)	—			—			—		—			(890		)
Balance, August 3, 2019	63,146		$	1,033	$	394,694		$	11,318		$	2,251,032		$	(105,946	)	40,154		$	(1,548,836	)	$	1,003,295

	Twenty-six Weeks Ended August 4, 2018
	Common Stock				Paid-in capital			Non-controlling interests			Retained earnings			Accumulated other comprehensive loss			Treasury stock					Total stockholders’ equity
	Shares outstanding		Par value														Shares		At average cost
Balance, February 3, 2018	68,195		$	1,033	$	406,351		$	10,092		$	2,420,552		$	(95,054	)	35,105		$	(1,490,503	)	$	1,252,471
Impact from adoption of the new revenue recognition accounting standard	—		—		—			—			6,944			—			—		—			6,944
Net loss	—		—		—			1,982			(46,314		)	—			—		—			(44,332		)
Purchase of Common Stock	(1,747	)	—		—			—			—			—			1,747		(43,670		)	(43,670		)
Dividends ($0.40 per share)	—		—		—			—			(27,196		)	—			—		—			(27,196		)
Share-based compensation issuances and exercises	527		—		(15,807		)	—			(16,886		)	—			(527	)	26,759			(5,934		)
Share-based compensation expense	—		—		10,939			—			—			—			—		—			10,939
Derivative financial instruments, net of tax	—		—		—			—			—			19,707			—		—			19,707
Foreign currency translation adjustments, net of tax	—		—		—			—			—			(19,545		)	—		—			(19,545		)
Distributions to noncontrolling interests, net	—		—		—			(2,000		)	—			—			—		—			(2,000		)
Balance, August 4, 2018	66,975		$	1,033	$	401,483		$	10,074		$	2,337,100		$	(94,892	)	36,325		$	(1,507,414	)	$	1,147,384

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

Table of Contents

ABERCROMBIE & FITCH CO.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands)

(Unaudited)



	Twenty-six Weeks Ended
	August 3, 2019			August 4, 2018
Operating activities
Net loss	$	(47,810	)	$	(44,332	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization	81,541			93,153
Amortization of deferred lease credits prior to adoption of new lease accounting standard	—			(10,609		)
Asset impairment	5,606			9,727
Loss on disposal	3,720			1,644
Benefit from deferred income taxes	(22,589		)	(17,049		)
Share-based compensation	2,668			10,939
Changes in assets and liabilities:
Inventories	(51,297		)	(40,934		)
Accounts payable and accrued expenses	4,201			62,918
Operating lease right-of-use assets and liabilities	39,351			—
Income taxes	(5,011		)	(1,043		)
Other assets	(46,638		)	(12,759		)
Other liabilities	203			(1,129		)
Net cash (used for) provided by operating activities	(36,055		)	50,526
Investing activities
Purchases of property and equipment	(94,224		)	(54,115		)
Net cash used for investing activities	(94,224		)	(54,115		)
Financing activities
Purchases of common stock	(57,812		)	(43,670		)
Dividends paid	(26,385		)	(27,196		)
Other financing activities	(7,727		)	(6,875		)
Net cash used for financing activities	(91,924		)	(77,741		)
Effect of exchange rates on cash	(2,455		)	(13,437		)
Net decrease in cash and equivalents, and restricted cash and equivalents	(224,658		)	(94,767		)
Cash and equivalents, and restricted cash and equivalents, beginning of period	745,829			697,955
Cash and equivalents, and restricted cash and equivalents, end of period	$	521,171		$	603,188
Supplemental information related to non-cash activities
Purchases of property and equipment not yet paid at end of period	$	33,826		$	27,985
Operating lease right-of-use assets obtained in exchange for operating lease liabilities	$	204,499		$	—
Supplemental information related to cash activities
Cash paid for interest related to Abercrombie & Fitch Co.’s term loan facility	$	7,688		$	6,832
Cash paid for income taxes	$	16,434		$	14,928
Cash received from income tax refunds	$	8,565		$	8,173
Cash paid for operating lease liabilities	$	200,457		$	—

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

Table of Contents

ABERCROMBIE & FITCH CO.

INDEX FOR NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



		Page No.

Note 1.	Nature of Business	9

Note 2.	Summary of Significant Accounting Policies	9

Note 3.	Revenue Recognition	14

Note 4.	Net Loss Per Share	14

Note 5.	Fair Value	15

Note 6.	Property and Equipment, Net	16

Note 7.	Leases	17

Note 8.	Asset Impairment	18

Note 9.	Income Taxes	18

Note 10.	Share-based Compensation	18

Note 11.	Derivative Instruments	21

Note 12.	Accumulated Other Comprehensive Loss	22

Note 13.	Segment Reporting	23

Note 14.	Flagship Store Exit Charges	24

Table of Contents

ABERCROMBIE & FITCH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. NATURE OF BUSINESS

Abercrombie & Fitch Co. (“A&F”), a company incorporated in Delaware in 1996, through its subsidiaries (collectively, A&F and its subsidiaries are referred to as the “Company”, or “we”) is a global multi-brand omnichannel specialty retailer, whose products are sold primarily 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 brands share a commitment to offering unique products of enduring quality and exceptional comfort that allow customers around the world to express their own individuality and style. The Company has operations in North America, Europe and Asia, among other regions.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

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

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

Fiscal year

The Company’s fiscal year ends on the Saturday closest to January 31. This typically results in a fifty-two week year, but occasionally gives rise to an additional week, resulting in a fifty-three week year, as was the case for the year ended February 3, 2018. Fiscal years are designated in the consolidated financial statements and notes, as well as the remainder of this Quarterly Report on Form 10-Q, by the calendar year in which the fiscal year commenced. All references herein to the Company’s fiscal years are as follows:



Fiscal year	Year ended	Number of weeks
Fiscal 2017	February 3, 2018	53
Fiscal 2018	February 2, 2019	52
Fiscal 2019	February 1, 2020	52
Fiscal 2020	January 30, 2021	52

Interim financial statements

The Condensed Consolidated Financial Statements as of August 3, 2019, and for the thirteen and twenty-six week periods ended August 3, 2019 and August 4, 2018, are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, the Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto contained in A&F’s Annual Report on Form 10-K for Fiscal 2018 filed with the SEC on April 1, 2019. The February 2, 2019 consolidated balance sheet data, included herein, were derived from audited consolidated financial statements, but do not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”).

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

Certain prior year amounts have been reclassified for consistency with the current year presentation of flagship store exit charges on the Condensed Consolidated Statements of Operations and Comprehensive Loss.

Table of Contents

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 consolidated financial statements. The following table provides a brief description of certain recent accounting pronouncements the Company has adopted.



Accounting Standards Update (ASU)	Description	Effect on the financial statements or other significant matters
Leases (ASU 2016-02) Date of adoption: February 3, 2019	This update supersedes the leasing standard in Accounting Standards Codification (“ASC”) 840, Leases. The new standard requires an entity to recognize lease assets and lease liabilities on the balance sheet and disclose key leasing information that depicts the lease rights and obligations of an entity.	The Company adopted this standard using a modified retrospective transition method and elected to not restate comparative periods. In conjunction with the adoption of this standard, the Company elected: - the package of practical expedients which, among other things, allowed the Company to carry forward historical lease classification for leases existing before the date of adoption; and - to combine lease and nonlease components for leases existing before the date of adoption, as well as for any new leases. However, the Company did not elect the practical expedient to use hindsight when determining the lease term or assessing impairment. Adoption of this standard resulted in the Company’s total assets and total liabilities on the Condensed Consolidated Balance Sheet each increasing by approximately $1.2 billion, primarily due to the recognition of operating lease right-of-use assets and liabilities. The Company also recognized a cumulative adjustment decreasing the opening balance of retained earnings by $0.1 billion on the date of adoption. The adoption of this standard did not have a significant impact on the timing or classification of the Company’s Consolidated Statement of Cash Flows, the Company’s liquidity or the Company’s debt covenant compliance under current agreements. Additional information regarding the impact from adoption of the new lease accounting standard and updated accounting policies related to leases are provided further in this Note 2.
Derivatives and Hedging — Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12) Date of adoption: February 3, 2019	This update amends ASC 815, Derivatives and Hedging. The new standard simplifies certain aspects of hedge accounting for both financial and commodity risks to more accurately present the economic effects of an entity’s risk management activities in its financial statements.	The Company adopted this standard using a modified retrospective transition approach, while the amended presentation and disclosure standard requires a prospective approach. Upon adoption of this standard, the Company elected to include time value in its assessment of effectiveness for derivative instruments designated as cash flow hedges. Updated accounting policies related to derivatives have been updated and are provided further in this Note 2. The adoption of this standard did not have a significant impact on the Company’s Condensed Consolidated Financial Statements for the thirteen and twenty-six weeks ended August 3, 2019, and is not expected to have a significant impact on the Company’s consolidated financial statements for Fiscal 2019.
Intangibles — Goodwill and Other —Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (ASU 2018-15) Date of adoption: February 3, 2019	This update amends ASC 350, Intangibles — Goodwill and Other —Internal-Use Software. The new standard allows companies to defer certain direct costs related to software as a service (“SaaS”) implementation costs and amortize them to operating expense over the term of the related SaaS arrangement. The criteria for determining whether costs associated with SaaS can be capitalized is now the same criteria applied to internal software development costs in order to assess eligibility for deferral.	The Company early adopted this standard on a prospective basis and comparative periods have not been restated. The Company expects to capitalize up to $10 million of SaaS implementation costs in Fiscal 2019, of which $2.2 million has been capitalized in the twenty-six weeks ended August 3, 2019. Amortization expense related to capitalized SaaS implementation costs was immaterial for each of the thirteen and twenty-six weeks ended August 3, 2019.

Table of Contents

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



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


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

⁽²⁾

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

⁽³⁾

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


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


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

⁽⁶⁾

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

Table of Contents

The Company’s significant accounting policies as of August 3, 2019 have not changed materially from those disclosed in Note 2, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,” of the Notes to Consolidated Financial Statements contained in “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of A&F’s Annual Report on Form 10-K for Fiscal 2018, with the exception of those discussed below which have been updated to reflect new accounting standards adopted in Fiscal 2019.

Leases

The Company determines if an arrangement is a lease at inception. On the lease commencement date, the Company recognizes an asset for the right to use a leased asset and a liability based on the present value of remaining lease payments over the lease term.

As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the transactional currency of the lease and the lease term. For leases existing before the adoption of the new lease accounting standard, the Company used its incremental borrowing rate as of the date of adoption, determined using the remaining lease term as of the date of adoption. For leases commencing on or after the adoption of the new lease accounting standard, the incremental borrowing rate is determined using the remaining lease term as of the lease commencement date.

The Company has elected to combine lease and nonlease components for all leases existing before the adoption of the new lease accounting standard, as well as for any new leases.

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


•	Lease payments made prior to the lease commencement date;


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


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


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


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

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


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


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


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


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

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

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

Table of Contents

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

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

Refer to Note 7, “LEASES.”

Derivative instruments

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

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

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

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

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

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

Refer to Note 11, “DERIVATIVE INSTRUMENTS.”

Table of Contents

Condensed Consolidated Statements of Cash Flows reconciliation

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



(in thousands)	Location	August 3, 2019		February 2, 2019		August 4, 2018		February 3, 2018
Cash and equivalents	Cash and equivalents	$	499,757	$	723,135	$	581,166	$	675,558
Long-term restricted cash and equivalents	Other assets	18,877		22,694		22,022		22,397
Short-term restricted cash and equivalents	Other current assets	$	2,537	$	—	$	—	$	—
Cash and equivalents and restricted cash and equivalents		$	521,171	$	745,829	$	603,188	$	697,955

3. REVENUE RECOGNITION

Contract liabilities

The following table details certain contract liabilities representing unearned revenue as of August 3, 2019, February 2, 2019, August 4, 2018 and February 3, 2018:



(in thousands)	August 3, 2019		February 2, 2019		August 4, 2018		February 3, 2018
Unearned revenue liabilities related to the Company’s gift card program	$	20,056	$	26,062	$	17,478	$	28,939
Unearned revenue liabilities related to the Company’s loyalty programs	$	21,073	$	19,904	$	20,042	$	15,965

The Company recognized revenue associated with gift card redemptions and gift card breakage of approximately $12.8 million and $28.1 million for the thirteen and twenty-six weeks ended August 3, 2019, respectively, and approximately $12.0 million and $25.8 million for the thirteen and twenty-six weeks ended August 4, 2018, respectively.

The Company recognized revenue associated with reward redemptions and breakage related to the Company’s loyalty programs of approximately $8.0 million and $14.5 million for the thirteen and twenty-six weeks ended August 3, 2019, respectively, and approximately $8.2 million and $15.4 million for the thirteen and twenty-six weeks ended August 4, 2018, respectively.

Disaggregation of revenue

All revenues are recognized in net sales in the Condensed Consolidated Statements of Operations and Comprehensive Loss. For information regarding the disaggregation of revenue, refer to Note 13, “SEGMENT REPORTING.”

4. NET LOSS PER SHARE

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

Additional information pertaining to net loss per share attributable to A&F is as follows:



	Thirteen Weeks Ended				Twenty-six Weeks Ended
(in thousands)	August 3, 2019		August 4, 2018		August 3, 2019		August 4, 2018
Shares of Common Stock issued	103,300		103,300		103,300		103,300
Weighted-average treasury shares	(38,144	)	(35,292	)	(37,452	)	(35,046	)
Weighted-average — basic shares	65,156		68,008		65,848		68,254
Dilutive effect of share-based compensation awards	—		—		—		—
Weighted-average — diluted shares	65,156		68,008		65,848		68,254
Anti-dilutive shares ⁽¹⁾	3,318		3,466		3,065		4,033


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

Table of Contents

5. FAIR VALUE

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


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


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


•	Level 3—inputs to the valuation methodology are unobservable.

The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy. The 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 August 3, 2019
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents ⁽¹⁾	$	211	$	25,288	$	—	$	25,499
Derivative instruments ⁽²⁾	—		5,457		—		5,457
Rabbi Trust assets ⁽³⁾	1		107,466		—		107,467
Restricted cash equivalents ⁽⁴⁾	10,056		4,546		—		14,602
Total assets	$	10,268	$	142,757	$	—	$	153,025

Liabilities:
Derivative instruments ⁽²⁾	$	—	$	349	$	—	$	349
Total liabilities	$	—	$	349	$	—	$	349



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

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


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


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


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


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

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


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


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


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

Table of Contents

Fair value of borrowings

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



(in thousands)	August 3, 2019		February 2, 2019
Gross borrowings outstanding, carrying amount	$	253,250	$	253,250
Gross borrowings outstanding, fair value	$	254,516	$	252,933

No borrowings were outstanding under the Company’s senior secured revolving credit facility as of August 3, 2019 or February 2, 2019.

6. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of:



(in thousands)	August 3, 2019			February 2, 2019
Property and equipment, at cost	$	2,719,350		$	2,829,250
Less: Accumulated depreciation and amortization	(2,069,990		)	(2,134,395		)
Property and equipment, net	$	649,360		$	694,855

Details related to store asset impairment charges incurred during the thirteen and twenty-six weeks ended August 3, 2019 and August 4, 2018 are as follows:



	Thirteen Weeks Ended		Twenty-six Weeks Ended
(in thousands)	August 3, 2019	August 4, 2018	August 3, 2019	August 4, 2018
Store asset impairment	355	8,671	2,017	9,727

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

Table of Contents

7. LEASES

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

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



(in thousands)	Thirteen Weeks Ended		Twenty-six Weeks Ended
Single lease cost ⁽¹⁾	$	121,270	$	213,544
Variable lease cost ⁽²⁾	60,238		103,083
Operating lease right-of-use asset impairment ⁽³⁾	3,589		3,589
Total operating lease cost	$	185,097	$	320,216


⁽¹⁾	Includes amortization and interest expense associated with operating lease right-of-use assets and liabilities. Includes $23.3 million of charges related to flagship store exit charges for each of the thirteen and twenty-six weeks ended August 3, 2019. Refer to Note 14, “FLAGSHIP STORE EXIT CHARGES.”

⁽²⁾

Includes variable payments related to both lease and nonlease components, such as contingent rent payments made by the Company based on performance, and payments related to taxes, insurance, and maintenance costs. Includes $20.2 million of charges related to flagship store exit charges for each of the thirteen and twenty-six weeks ended August 3, 2019. Refer to Note 14, “FLAGSHIP STORE EXIT CHARGES.”


⁽³⁾	Includes $3.2 million of charges related to flagship store exit charges for each of the thirteen and twenty-six weeks ended August 3, 2019. Refer to Note 14, “FLAGSHIP STORE EXIT CHARGES.”

The following table provides the weighted-average remaining lease term of the Company’s operating leases and the weighted-average discount rates used to calculate the Company’s operating lease liabilities as of August 3, 2019:



	August 3, 2019
Weighted-average remaining lease term (years)	6.3
Weighted-average discount rate	5.5	%

The following table provides a maturity analysis of the Company’s operating lease liabilities, based on undiscounted cash flows, as of August 3, 2019:



(in thousands)
Fiscal 2019 (excluding the twenty-six weeks ended August 3, 2019)	$	173,786
Fiscal 2020	342,672
Fiscal 2021	293,971
Fiscal 2022	245,215
Fiscal 2023	202,561
Fiscal 2024 and thereafter	531,374
Total undiscounted operating lease payments	$	1,789,579
Less: Imputed interest	(285,981		)
Present value of operating lease liabilities	$	1,503,598

As of August 3, 2019, the Company had minimum commitments related to additional operating lease contracts that have not yet commenced, primarily for its Company-operated retail stores, of approximately $28.1 million.

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



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

Table of Contents

8. ASSET IMPAIRMENT

The following table provides additional details related to long-lived asset impairment charges for thirteen and twenty-six weeks ended August 3, 2019 and August 4, 2018.



	Thirteen Weeks Ended				Twenty-six Weeks Ended
(in thousands)	August 3, 2019		August 4, 2018		August 3, 2019		August 4, 2018
Operating lease right-of-use asset impairment ⁽¹⁾	$	3,589	$	—	$	3,589	$	—
Store asset impairment	355		8,671		2,017		9,727
Total asset impairment	$	3,944	$	8,671	$	5,606	$	9,727


⁽¹⁾	Includes $3.2 million of operating lease right-of-use asset impairment related to flagship store exit charges for each of the thirteen and twenty-six weeks ended August 3, 2019. Refer to Note 14, “FLAGSHIP STORE EXIT CHARGES.”

9. INCOME TAXES

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

The Company incurred discrete income tax charges of $0.1 million and benefits of $1.0 million for the thirteen and twenty-six weeks ended August 3, 2019, respectively, primarily related to the exercise of certain share-based compensation awards, and incurred discrete non-cash income tax benefits of $0.2 million and charges of $7.9 million for the thirteen and twenty-six ended August 4, 2018, respectively, primarily related to the expiration of certain share-based compensation awards.

10. SHARE-BASED COMPENSATION

Financial statement impact

The following table details share-based compensation expense for the thirteen and twenty-six weeks ended August 3, 2019 and August 4, 2018:



	Thirteen Weeks Ended				Twenty-six Weeks Ended
(in thousands)	August 3, 2019		August 4, 2018		August 3, 2019		August 4, 2018
Share-based compensation expense	$	36	$	6,156	$	2,668	$	10,939

The Company recognized tax expense associated with share-based compensation of $0.2 million and tax benefits of $0.4 million for the thirteen and twenty-six weeks ended August 3, 2019, respectively, and tax benefits of $1.3 million and $2.2 million for the thirteen and twenty-six weeks ended August 4, 2018, respectively.

Table of Contents

Restricted stock units

The following table summarizes activity for restricted stock units for the twenty-six weeks ended August 3, 2019:



	Service-based Restricted Stock Units				Performance-based Restricted Stock Units				Market-based Restricted Stock Units
	Number of Underlying Shares ⁽¹⁾		Weighted- Average Grant Date Fair Value		Number of Underlying Shares		Weighted- Average Grant Date Fair Value		Number of Underlying Shares		Weighted- Average Grant Date Fair Value
Unvested at February 2, 2019	2,020,030		$	16.76	801,527		$	13.65	435,970		$	21.24
Granted	724,363		22.16		234,984		22.89		115,238		36.24
Adjustments for performance achievement	—		—		(90,616	)	24.06		(72,497	)	28.20
Vested	(701,802	)	17.92		—		—		(18,125	)	28.20
Forfeited	(261,851	)	16.22		(195,162	)	12.93		(38,802	)	29.90
Unvested at August 3, 2019	1,780,740		$	18.58	750,733		$	15.44	421,784		$	23.05

⁽¹⁾

Includes 271,420 unvested restricted stock units as of August 3, 2019, subject to vesting requirements related to the achievement of certain performance metrics, such as operating income and net income, for the fiscal year immediately preceding the vesting date. Holders of these restricted stock units have the opportunity to earn back one or more installments of the award if the cumulative performance requirements are met in a subsequent year. 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 award’s requisite service period. Performance-based restricted stock units subject to graded vesting are expensed on an accelerated attribution basis. Performance share award expense is primarily recognized in the performance period of the award’s requisite service period. Market-based restricted stock units without graded vesting features are expensed on a straight-line basis over the award’s requisite service period. Compensation expense for stock appreciation rights is recognized on a straight-line basis over the award’s requisite service period. The Company adjusts share-based compensation expense on a quarterly basis for actual forfeitures. Unrecognized compensation expense presented excludes the effect of potential forfeitures, and will be adjusted for actual forfeitures as they occur.

As of August 3, 2019, there was $27.6 million, $4.3 million and $5.4 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 remaining weighted-average period of 16 months, 16 months and 14 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 restricted stock units vesting was $0.3 million and $4.4 million for the thirteen and twenty-six weeks ended August 3, 2019, respectively, and $1.5 million and $4.9 million for the thirteen and twenty-six weeks ended August 4, 2018, respectively.

The amount of employee tax withheld by the Company upon the issuance of shares associated with restricted stock units vesting and the exercise of stock appreciation rights was $0.2 million and $6.4 million for the thirteen and twenty-six weeks ended August 3, 2019, respectively, and $0.9 million and $5.9 million for the thirteen and twenty-six weeks ended August 4, 2018, respectively, and is classified within other financing activities on the Condensed Consolidated Statements of Cash Flows.

Table of Contents

Additional information pertaining to restricted stock units for the twenty-six weeks ended August 3, 2019 and August 4, 2018 follows:



(in thousands)	August 3, 2019		August 4, 2018
Service-based restricted stock units:
Total grant date fair value of awards granted	$	16,052	$	16,161
Total grant date fair value of awards vested	12,576		14,608

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

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

The weighted-average assumptions used for market-based restricted stock units in the Monte Carlo simulation during the twenty-six weeks ended August 3, 2019 and August 4, 2018 were as follows:



	August 3, 2019			August 4, 2018
Grant date market price	$	25.34		$	23.59
Fair value	$	36.24		$	33.69
Assumptions:
Price volatility	57		%	54		%
Expected term (years)	2.9			2.9
Risk-free interest rate	2.2		%	2.4		%
Dividend yield	3.2		%	3.4		%
Average volatility of peer companies	40.0		%	37.4		%
Average correlation coefficient of peer companies	0.2407			0.2709

Stock appreciation rights

The following table summarizes stock appreciation rights activity for the twenty-six weeks ended August 3, 2019:



	Number of Underlying Shares		Weighted-Average Exercise Price		Aggregate Intrinsic Value		Weighted-Average Remaining Contractual Life (years)
Outstanding at February 2, 2019	1,041,867		$	37.81
Granted	—		—
Exercised	(43,463	)	22.41
Forfeited or expired	(52,725	)	33.96
Outstanding at August 3, 2019	945,679		$	38.75	$	—	2.4
Stock appreciation rights exercisable at August 3, 2019	940,054		$	38.86	$	—	2.4
Stock appreciation rights expected to become exercisable in the future as of August 3, 2019	5,526		$	19.90	$	—	6.1

As of August 3, 2019, total unrecognized compensation cost related to stock appreciation rights was insignificant and is expected to be recognized over a weighted-average period of 2 months.

The grant date fair value of stock appreciation rights that vested during the twenty-six weeks ended August 3, 2019 was $0.6 million. The grant date fair value of stock appreciation rights that were exercised during the twenty-six weeks ended August 4, 2018 was $1.2 million.

Table of Contents

11. DERIVATIVE INSTRUMENTS

As of August 3, 2019, the Company had outstanding the following foreign currency exchange forward contracts that were entered into to hedge either a portion, or all, of forecasted foreign-currency-denominated intercompany inventory sales, the resulting settlement of the foreign-currency-denominated intercompany accounts receivable, or both:



(in thousands)	Notional Amount ⁽¹⁾
Euro	$	86,139
British pound	$	42,892
Canadian dollar	$	15,742
Japanese yen	$	9,140


⁽¹⁾	Amounts reported are the U.S. Dollar notional amounts outstanding as of August 3, 2019.

As of August 3, 2019, foreign currency exchange forward contracts that were entered into to hedge foreign-currency-denominated net monetary assets and liabilities were as follows:



(in thousands)	Notional Amount ⁽¹⁾
Chinese yuan	$	21,763
Euro	$	9,485


⁽¹⁾	Amount reported is the U.S. Dollar notional amount outstanding as of August 3, 2019.

The location and amounts of derivative fair values of foreign currency exchange forward contracts on the Condensed Consolidated Balance Sheets as of August 3, 2019 and February 2, 2019 were as follows:



(in thousands)	Location	August 3, 2019		February 2, 2019		Location	August 3, 2019		February 2, 2019
Derivatives designated as cash flow hedging instruments	Other current assets	$	5,254	$	2,162	Accrued expenses	$	349	$	15
Derivatives not designated as hedging instruments	Other current assets	203		—		Accrued expenses	—		317
Total		$	5,457	$	2,162		$	349	$	332

Refer to Note 5, “FAIR VALUE,” for further discussion of the determination of the fair value of derivative instruments.

Additional information pertaining to derivative gains or losses from foreign currency exchange forward contracts designated as cash flow hedging instruments for the thirteen and twenty-six weeks ended August 3, 2019 and August 4, 2018 follows:



	Thirteen Weeks Ended					Twenty-six Weeks Ended
(in thousands)	August 3, 2019		August 4, 2018			August 3, 2019		August 4, 2018
Gain recognized in AOCL ⁽¹⁾	$	4,791	$	8,058		$	7,053	$	16,665
Gain (loss) reclassified from AOCL into cost of sales, exclusive of depreciation and amortization ⁽²⁾	$	1,763	$	(150	)	$	4,303	$	(5,222	)


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


⁽²⁾	The amount represents the reclassification from AOCL into earnings when the hedged item affects earnings, which is when merchandise is converted to cost of sales, exclusive of depreciation and amortization.

Substantially all of the unrealized gains or losses related foreign currency exchange forward contracts designated as cash flow hedging instruments as of August 3, 2019 will be recognized in cost of sales, exclusive of depreciation and amortization, on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) over the next twelve months.

Additional information pertaining to derivative gains or losses from foreign currency exchange forward contracts not designated as hedging instruments for the thirteen and twenty-six weeks ended August 3, 2019 and August 4, 2018 follows:



	Thirteen Weeks Ended				Twenty-six Weeks Ended
(in thousands)	August 3, 2019		August 4, 2018		August 3, 2019		August 4, 2018
Gain recognized in other operating income, net	$	906	$	1,894	$	1,181	$	4,595

Table of Contents

12. ACCUMULATED OTHER COMPREHENSIVE LOSS

The activity in accumulated other comprehensive loss for the thirteen and twenty-six weeks ended August 3, 2019 was as follows:



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

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


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

The activity in accumulated other comprehensive loss for the thirteen and twenty-six weeks ended August 4, 2018 was as follows:



	Thirteen Weeks Ended August 4, 2018
(in thousands)	Foreign Currency Translation Adjustment			Unrealized Gain (Loss) on Derivative Financial Instruments			Total
Beginning balance at May 5, 2018	$	(93,286	)	$	2,153		$	(91,133	)
Other comprehensive (loss) income before reclassifications	(11,206		)	8,058			(3,148		)
Reclassified from accumulated other comprehensive loss ⁽¹⁾	—			150			150
Tax effect	—			(761		)	(761		)
Other comprehensive (loss) income	(11,206		)	7,447			(3,759		)
Ending balance at August 4, 2018	$	(104,492	)	$	9,600		$	(94,892	)

	Twenty-six Weeks Ended August 4, 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	(19,545		)	16,665			(2,880		)
Reclassified from accumulated other comprehensive loss⁽¹⁾	—			5,222			5,222
Tax effect	—			(2,180		)	(2,180		)
Other comprehensive (loss) income	(19,545		)	19,707			162
Ending balance at August 4, 2018	$	(104,492	)	$	9,600		$	(94,892	)


⁽¹⁾	Amount represents 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 Loss.

Table of Contents

13. 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 operating segment and geographic area.

The following table provides the Company’s net sales by operating segment for the thirteen and twenty-six weeks ended August 3, 2019 and August 4, 2018.



	Thirteen Weeks Ended				Twenty-six Weeks Ended
(in thousands)	August 3, 2019		August 4, 2018		August 3, 2019		August 4, 2018
Hollister	$	504,758	$	500,836	$	933,203	$	924,464
Abercrombie	336,320		341,578		641,847		648,849
Total	$	841,078	$	842,414	$	1,575,050	$	1,573,313

The following table provides the Company’s net sales by geographic area for the thirteen and twenty-six weeks ended August 3, 2019 and August 4, 2018.



	Thirteen Weeks Ended				Twenty-six Weeks Ended
(in thousands)	August 3, 2019		August 4, 2018		August 3, 2019		August 4, 2018
United States	$	543,472	$	531,446	$	1,013,130	$	980,572
Europe	182,815		192,354		341,060		362,014
Other	114,791		118,614		220,860		230,727
Total	$	841,078	$	842,414	$	1,575,050	$	1,573,313

Table of Contents

14. FLAGSHIP STORE EXIT CHARGES

Global Store Network Optimization

Reflecting a continued focus on one of the Company’s key transformation initiatives ‘Global Store Network Optimization’, the Company continues to pivot away from its large format flagship stores and strives to open smaller, more productive omnichannel focused brand experiences.

As a result, the Company has closed certain of its flagship stores and may have additional closures as it executes against this strategy. For context, at the end of Fiscal 2018, the Company had 19 flagship stores, and at the end of the second quarter of Fiscal 2019, the Company had 17 flagship stores. Details related to previously announced flagship store closures are as follows:



Location	Brand	Actual or expected closure date
Pedder Street, Hong Kong	Abercrombie	Closed in the first quarter of Fiscal 2017
Copenhagen, Denmark	Abercrombie	Closed in the first quarter of Fiscal 2019
SoHo in New York City	Hollister	Closed in the second quarter of Fiscal 2019
Milan, Italy	Abercrombie	Expected to close by the end of Fiscal 2019
Fukuoka, Japan	Abercrombie	Expected to close in the second half of Fiscal 2020

The Company has recognized charges related to the aforementioned store closures in flagship store exit charges on the Consolidated Statements of Operations and Comprehensive Loss. The following table provides additional details related to these charges incurred during the thirteen and twenty-six weeks ended August 3, 2019 and August 4, 2018.



	Thirteen Weeks Ended					Twenty-six Weeks Ended
(in thousands)	August 3, 2019			August 4, 2018		August 3, 2019			August 4, 2018
Single lease cost ⁽¹⁾	$	23,269		$	—	$	23,269		$	—
Variable lease cost ⁽²⁾	20,218			—		20,218			—
Operating lease right-of-use asset impairment	3,229			—		3,229			—
Operating lease cost	46,716			—		46,716			—
Lease termination fees ⁽³⁾	—			—		—			3,688
Asset disposals and other store-closure costs ⁽⁴⁾	(1,675		)	—		(1,687		)	—
Employee severance and other employee transition costs	(47		)	—		1,709			120
Total flagship store exit charges	$	44,994		$	—	$	46,738		$	3,808


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


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


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


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

The Company’s future lease payments associated with these stores are reflected within short-term and long-term operating lease liabilities on the Condensed Consolidated Balance Sheet and will be paid through the fiscal year ending January 30, 2029 (“Fiscal 2028”).These future lease payments are not expected to exceed $15 million in any fiscal year. Refer to Note 7, “LEASES,” for a maturity analysis of the Company’s operating lease liabilities, based on undiscounted cash flows.

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

Table of Contents


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

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

INTRODUCTION

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


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


•	Current Trends and Outlook. This section provides a summary of the Company’s performance for the thirteen and twenty-six weeks ended August 3, 2019 and August 4, 2018. In addition, this section discusses certain of management’s expectations for the upcoming fiscal year.


•	Results of Operations. This section provides an analysis of certain components of the Company’s Condensed Consolidated Statements of Operations and Comprehensive Loss for the thirteen and twenty-six weeks ended August 3, 2019 and August 4, 2018.

•

Liquidity and Capital Resources. This section provides a discussion of the Company’s financial condition and liquidity as of August 3, 2019, which includes (i) an analysis of financial condition as compared to February 2, 2019; (ii) an analysis of changes in cash flows for the twenty-six weeks ended August 3, 2019 as compared to the twenty-six weeks ended August 4, 2018; (iii) and an analysis of liquidity, including the availability under credit facilities, payments of dividends, and outstanding debt and covenant compliance.


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


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


•	Non-GAAP Financial Measures. This section provides a discussion of certain financial measures provided with MD&A that have been determined to not be in accordance with accounting principles generally accepted in the U.S. (“GAAP”), including information on why the Company believes the non-GAAP financial measures provided within MD&A are useful to investors.

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.

Table of Contents

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

Macroeconomic and industry risks include:


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


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


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


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


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


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

Strategic risks include:


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


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


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

Operational risks include:


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


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


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


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


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


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


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


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

Legal, tax, regulatory and compliance risks include:


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


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


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


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


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

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

Table of Contents

OVERVIEW

Business summary

The Company is a global multi-brand omnichannel specialty retailer, whose products are sold primarily 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 brands share a commitment to offering unique products of enduring quality and exceptional comfort that allow customers around the world to express their own individuality and style. The Company has operations in North America, Europe and Asia, among other regions.

The Company’s fiscal year ends on the Saturday closest to January 31. Fiscal years are designated in the Condensed Consolidated Financial Statements and notes by the calendar year in which the fiscal year commences. All references herein to “Fiscal 2019” represent the fifty-two-week fiscal year that will end on February 1, 2020, and to “Fiscal 2018” represent the fifty-two-week fiscal year that ended February 2, 2019.

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.

Table of Contents

CURRENT TRENDS AND OUTLOOK

Throughout the lifetime of our Company, we have taken strides to transform our brands as consumer habits and shopping preferences change. We aim to keep pace with and anticipate our customers’ needs through a test-and-learn mentality, which has been embedded throughout our organization. Our plans for long-term growth are centered around our strategic pillars and are best categorized into three planned phases:


•	Phase I: Stabilizing while Transforming


–	Fiscal 2015 through Fiscal 2017


•	Phase II: Growing while Transforming


–	Fiscal 2018 through Fiscal 2020


•	Phase III: Accelerating Growth


–	Fiscal 2021 and thereafter

Fiscal 2019 is the second year of Phase II, “Growing while Transforming,” which we expect to continue through Fiscal 2020. We have developed the following key transformation initiatives in order to deliver on our previously disclosed Fiscal 2020 targets:


•	Optimizing our global store network;


•	Enhancing digital and omnichannel capabilities;


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


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

A summary of results for the second quarter ended August 3, 2019:


•	Net sales decreased 0.2% to $841.1 million, and increased 1% on a constant currency basis as compared to last year.


•	Comparable sales were flat against positive comparable sales of 3% last year.


•	Gross profit rate of 59.3% was down 90 basis points to last year.


•	Operating expense, excluding other operating income, of $537.8 million included $45.0 million of flagship store exit charges. Operating expense deleveraged 370 basis points and 470 basis points on a GAAP and an adjusted non-GAAP basis, respectively, reflecting a 530 basis point adverse impact from flagship store exit charges.


•	Operating loss of $39.5 million. Operating margin decreased 470 basis points from last year to a loss of 4.7%, primarily driven by the adverse impact of flagship store exit charges of 530 basis points. Excluding asset impairment charges last year, adjusted non-GAAP operating margin decreased 580 basis points or 530 basis points on a constant currency basis as compared to last year.


•	Net loss per diluted share was $0.48, reflecting the estimated adverse impact from flagship store exit charges of $0.50. This compares to GAAP net loss per diluted share of $0.06, adjusted non-GAAP net income per diluted share of $0.06 or $0.01 per diluted share on a constant currency basis.

Trends improved throughout the second quarter ended August 3, 2019, resulting in net sales down 0.2% from last year, which reflects adverse impacts from changes in foreign currency exchange rates of approximately $10 million. On a constant currency basis, we experienced net sales growth of approximately 1%. The second quarter also reflects $45 million of charges related to the previously announced exits of our SoHo Hollister flagship store in New York City and our Fukuoka, Japan Abercrombie flagship store. In addition to these flagship store closures, which are a part of our key transformation initiative ‘Global Store Network Optimization’, we continue to execute on our other transformation initiatives and remain focused on achieving our Fiscal 2020 target of doubling our Fiscal 2017 adjusted non-GAAP operating income margin of 2.9%.

For the full year of Fiscal 2019, we expect:


•	Net sales to be in the range of flat to up 2%, driven by comparable sales and net new store contribution, partially offset by an adverse impact from changes in foreign currency exchange rates of approximately $45 million;


•	Comparable sales to be in the range of flat to up 2%, against positive comparable sales of 3% last year;


•	Gross profit rate to be down in the range of 50 to 90 basis points from the Fiscal 2018 rate of 60.2% reflecting adverse impacts from changes in foreign currency exchange rates of approximately 40 basis points and anticipated China tariffs of approximately 20 basis points;


•	Operating expense, excluding other operating income, to be up in the range of 2% to 3% from Fiscal 2018 adjusted non-GAAP operating expense of $2.03 billion, including flagship store exit charges in the second quarter of Fiscal 2019 of $45 million;


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


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


•	Capital investments of approximately $200 million.

Table of Contents

Global Store Network Optimization

Reflecting a continued focus on one of our key transformation initiatives ‘Global Store Network Optimization’, we continue to pivot away from large format flagship stores and strive to open smaller, more productive omnichannel focused brand experiences.

As a result, we have closed certain of our flagship stores and may have additional closures as we execute against this strategy. For context, at the end of Fiscal 2018, we had 19 flagship stores, and at the end of the second quarter of Fiscal 2019, we had reduced our fleet to 17 flagship stores. Details related to previously announced flagship store closures are as follows:



Location	Brand	Actual or expected flagship store closure date
Pedder Street, Hong Kong	Abercrombie	Closed in the first quarter of Fiscal 2017
Copenhagen, Denmark	Abercrombie	Closed in the first quarter of Fiscal 2019
SoHo in New York City	Hollister	Closed in the second quarter of Fiscal 2019
Milan, Italy	Abercrombie	Expected to close by the end of Fiscal 2019
Fukuoka, Japan	Abercrombie	Expected to close in the second half of Fiscal 2020

We plan to continue our efforts ‘Global Store Network Optimization’ efforts and expect to deliver approximately 85 new store experiences in Fiscal 2019 across brands, including approximately 40 new stores, approximately 25 remodeled stores and approximately 20 right-sizes. We also expect to close up to 40 stores in Fiscal 2019, primarily in the U.S. through natural lease expirations. In addition to natural lease expirations, certain other of our leases also include early termination options that can be exercised under specific conditions, allowing for significant lease flexibility. We may also elect to exit or modify our other leases, and could incur charges related to these actions.

Certain risks and challenges

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

Specifically, there continues to be uncertainty with respect to trade policies, tariffs and government regulations affecting trade between the U.S. and other countries, such as the threat of additional tariffs on imported consumer goods from China. In May 2019, tariffs on certain imported merchandise from China to the U.S. increased from 10% to 25%, and in August 2019 these List 3 tariffs increased to 30%. Our products affected by these List 3 tariffs include fashion accessories, handbags and hats. In addition, List 4 tariffs of up to 25% were proposed on certain other imported merchandise from China to the U.S., including select apparel and footwear. These List 4 tariffs are now in effect at the starting rate of 15%. The imposition of these List 3 and List 4 tariffs, based on the List 4 starting rate of 15%, are expected to have a direct adverse impact on cost of merchandise and gross profit of approximately $6 million for the fall season of Fiscal 2019. In response to the recent trade developments between the U.S. and China, we believe we have a number of tools available to help mitigate this risk and continue to focus on the diversification of our global supply chain. Our team has taken actions to proactively prepare for potential impacts, including shifting production into other countries and regions to both existing and new partners as necessary. As a reminder, only a portion of total goods sourced from China in Fiscal 2018 were subject to tariffs. Specifically, in Fiscal 2018 approximately 25% of our total global merchandise receipts were sourced from China and imported to the U.S. We continue to believe we have the ability to reduce this percentage to under 20% in Fiscal 2019 and to the low-teens in Fiscal 2020.

In addition, in June 2016, the United Kingdom passed a referendum to recommend exiting the European Union which has resulted in greater uncertainty related to the free movement of goods, services, people and capital between the United Kingdom and the European Union, consumer behavior, economic conditions and foreign currency exchange rates. We are preparing for the United Kingdom to leave the European Union on October 31, 2019 and the potential impacts of United Kingdom’s withdrawal from the European Union remain unclear and could adversely impact certain areas of our business, including, but not limited to, an increase in duties and delays in the delivery of merchandise from our Netherlands DC to our stores and direct-to-consumer customers in the United Kingdom if trade barriers materialize at ports of entry and departure. The potential impacts of United Kingdom’s withdrawal from the European Union could also adversely impact the operations of our vendors. In order to mitigate the risks associated with the United Kingdom’s withdrawal from the European Union, our team has begun to proactively prepare for potential adverse impacts by collaborating across the organization and testing our systems as well as working with external partners to develop the necessary contingency plans. We have also taken actions to reduce, to the extent possible, the potential impact of any incremental duty exposure.

Table of Contents

We continue to monitor certain other events of global, political unrest, including the ongoing protests in Hong Kong. Our team continues to proactively assess the potential impacts these protests and similar events may have on the business and is preparing for potential adverse impacts by developing contingency plans.

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

SUMMARY OF RESULTS

The table below summarizes our results of operations determined in accordance with GAAP and non-GAAP financial measures, and other financial data for the thirteen and twenty-six week periods ended August 3, 2019 and August 4, 2018. Discussion on why the Company believes that these non-GAAP financial measures are useful to investors is provided below under “NON-GAAP FINANCIAL MEASURES.”



	August 3, 2019						August 4, 2018
(in thousands, except change in net sales, comparable sales, gross profit rate, operating loss margin and per share amounts)	GAAP			Non-GAAP ⁽¹⁾			GAAP			Non-GAAP ⁽¹⁾
Thirteen Weeks Ended
Net sales	$	841,078					$	842,414
Change in net sales	(0.2		)%				8		%
Comparable sales ⁽²⁾				0		%				3		%
Gross profit rate	59.3		%				60.2		%
Operating (loss) income	$	(39,484	)	$	(39,484	)	$	223		$	8,894
Operating (loss) income margin	(4.7		)%	(4.7		)%	0.0		%	1.1		%
Net (loss) income attributable to A&F	$	(31,142	)	$	(31,142	)	$	(3,853	)	$	4,171
Net (loss) income per diluted share attributable to A&F	$	(0.48	)	$	(0.48	)	$	(0.06	)	$	0.06

Twenty-six Weeks Ended
Net sales	$	1,575,050					$	1,573,313
Change in net sales	0.1		%				9		%
Comparable sales ⁽²⁾				1		%				4		%
Gross profit rate	59.9		%				60.3		%
Operating loss	$	(66,742	)	$	(66,742	)	$	(41,980	)	$	(27,709	)
Operating loss margin	(4.2		)%	(4.2		)%	(2.7		)%	(1.8		)%
Net loss attributable to A&F	$	(50,297	)	$	(50,297	)	$	(46,314	)	$	(34,231	)
Net loss per diluted share attributable to A&F	$	(0.76	)	$	(0.76	)	$	(0.68	)	$	(0.50	)
Net cash (used for) provided by operating activities	$	(36,055	)				$	50,526
Purchases of property and equipment	$	(94,224	)				$	(54,115	)
Dividends paid	$	(26,385	)				$	(27,196	)
Purchase of Common Stock	$	(57,812	)				$	(43,670	)


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


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

The table below provides certain components of the Company’s Condensed Consolidated Balance Sheets as of August 3, 2019 and February 2, 2019.



(in thousands)	August 3, 2019		February 2, 2019
Cash and equivalents	$	499,757	$	723,135
Borrowings, gross at carrying amount	$	253,250	$	253,250
Inventories	$	487,109	$	437,879

Table of Contents

STORE ACTIVITY

Store count and gross square footage by brand and geography for the twenty-six weeks ended August 3, 2019 and August 4, 2018, respectively, were as follows:



	Hollister ⁽¹⁾			Abercrombie ⁽²⁾				Total Company
	United States		International	United States		International		United States		International		Total
February 2, 2019	393		149	270		49		663		198		861
New	5		3	1		—		6		3		9
Closed	(3	)	—	(3	)	(1	)	(6	)	(1	)	(7	)
August 3, 2019	395		152	268		48		663		200		863
Gross square footage (in thousands):
August 3, 2019	2,622		1,250	1,980		624		4,602		1,874		6,476

	Hollister ⁽¹⁾			Abercrombie ⁽²⁾				Total Company
	United States		International	United States		International		United States		International		Total
February 3, 2018	394		144	285		45		679		189		868
New	2		—	1		2		3		2		5
Closed	—		—	(3	)	—		(3	)	—		(3	)
August 4, 2018	396		144	283		47		679		191		870
Gross square footage (in thousands):
August 4, 2018	2,685		1,196	2,182		631		4,867		1,827		6,694

⁽¹⁾

Locations with Gilly Hicks carveouts within Hollister stores are represented as a single store count. Excludes nine international franchise stores as of August 3, 2019, eight international franchise stores as of February 2, 2019, seven international franchise stores as of August 4, 2018, and five international franchise stores as of February 3, 2018. Excludes six U.S. company operated Gilly Hicks temporary stores as of August 3, 2019.

⁽²⁾

Abercrombie includes the Company’s Abercrombie & Fitch and abercrombie kids brands. Locations with abercrombie kids carveouts within Abercrombie & Fitch stores are represented as a single store count. Excludes seven international franchise stores as of each of August 3, 2019 and February 2, 2019, six international franchise stores as of August 4, 2018, and four international franchise stores as of February 3, 2018. Excludes four U.S. company operated abercrombie kids temporary stores as of August 3, 2019.

Table of Contents

RESULTS OF OPERATIONS

THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 3, 2019 VERSUS AUGUST 4, 2018

Net sales



	Thirteen Weeks Ended
	August 3, 2019		August 4, 2018
(in thousands)	Net Sales		Net Sales		$ Change			% Change	Constant Currency % Change ⁽¹⁾	Comparable Sales ⁽¹⁾
Hollister	$	504,758	$	500,836	$	3,922		1%	2%	0%
Abercrombie⁽²⁾	336,320		341,578		(5,258		)	(2)%	(1)%	0%
Total company	$	841,078	$	842,414	$	(1,336	)	0%	1%	0%

United States	$	543,472	$	531,446	$	12,026		2%	2%	2%
International	297,606		310,968		(13,362		)	(4)%	(1)%	(3)%
Total company	$	841,078	$	842,414	$	(1,336	)	0%	1%	0%

	Twenty-six Weeks Ended
	August 3, 2019		August 4, 2018
(in thousands)	Net Sales		Net Sales		$ Change			% Change	Constant Currency % Change ⁽¹⁾	Comparable Sales ⁽¹⁾
Hollister	$	933,203	$	924,464	$	8,739		1%	3%	1%
Abercrombie ⁽²⁾	641,847		648,849		(7,002		)	(1)%	0%	0%
Total net sales	$	1,575,050	$	1,573,313	$	1,737		0%	2%	1%

United States	$	1,013,130	$	980,572	$	32,558		3%	3%	3%
International	561,920		592,741		(30,821		)	(5)%	(1)%	(3)%
Total net sales	$	1,575,050	$	1,573,313	$	1,737		0%	2%	1%


⁽¹⁾	Calculated on a constant currency basis. Refer to “NON-GAAP FINANCIAL MEASURES,” for further details.


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

For the second quarter of Fiscal 2019, net sales decreased 0.2% as compared to the second quarter of Fiscal 2018, reflecting a slight decrease in average unit retail and units sold remaining approximately flat year-over-year.

For the year-to-date period of Fiscal 2019, net sales increased 0.1% as compared to the year-to-date period of Fiscal 2018, with an increase in units sold, partially offset by a decrease in average unit retail.

Table of Contents

Cost of sales, exclusive of depreciation and amortization



	Thirteen Weeks Ended
	August 3, 2019			August 4, 2018
(in thousands)			% of Net Sales			% of Net Sales
Cost of sales, exclusive of depreciation and amortization	$	342,445	40.7%	$	335,519	39.8%

Gross profit	$	498,633	59.3%	$	506,895	60.2%
Gross profit on a constant currency basis ⁽¹⁾	$	498,633	59.3%	$	498,870	59.9%

	Twenty-six Weeks Ended
	August 3, 2019			August 4, 2018
(in thousands)			% of Net Sales			% of Net Sales
Cost of sales, exclusive of depreciation and amortization	$	632,327	40.1%	$	624,073	39.7%

Gross profit	$	942,723	59.9%	$	949,240	60.3%
Gross profit on a constant currency basis ⁽¹⁾	$	942,723	59.9%	$	932,770	60.3%


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

For the second quarter of Fiscal 2019, cost of sales, exclusive of depreciation and amortization, as a percentage of net sales increased by approximately 90 basis points as compared to the second quarter of Fiscal 2018, primarily due to higher average unit costs driven by product mix, and slightly lower average unit retail.

For the year-to-date period of Fiscal 2019, cost of sales, exclusive of depreciation and amortization, as a percentage of net sales increased by approximately 40 basis points as compared to the year-to-date period of Fiscal 2018, primarily due to lower average unit retail without a corresponding decrease in average unit cost.

Stores and distribution expense



	Thirteen Weeks Ended
	August 3, 2019			August 4, 2018
(in thousands)			% of Net Sales			% of Net Sales
Stores and distribution expense	$	376,347	44.7%	$	374,552	44.5%

	Twenty-six Weeks Ended
	August 3, 2019			August 4, 2018
(in thousands)			% of Net Sales			% of Net Sales
Stores and distribution expense	$	732,959	46.5%	$	731,899	46.5%

For the second quarter of Fiscal 2019, stores and distribution expense as a percentage of net sales increased by approximately 20 basis points as compared to the second quarter of Fiscal 2018, primarily due to increased direct-to-consumer expense as a percentage of total net sales, partially offset by a decrease in store occupancy expense as a percentage of net sales of approximately 40 basis points.

For the year-to-date period of Fiscal 2019, stores and distribution expense as a percentage of net sales was approximately flat as compared to the year-to-date period of Fiscal 2018, reflecting a decrease in store occupancy expense as a percentage of net sales of approximately 60 basis points and increased direct-to-consumer expense as a percentage of total net sales.

Table of Contents

Marketing, general and administrative expense



	Thirteen Weeks Ended
	August 3, 2019			August 4, 2018
(in thousands)			% of Net Sales				% of Net Sales
Marketing, general and administrative expense	$	115,694	13.8%	$	123,883		14.7%

	Twenty-six Weeks Ended
	August 3, 2019			August 4, 2018
(in thousands)			% of Net Sales				% of Net Sales
Marketing, general and administrative expense	$	227,641	14.5%	$	248,780		15.8%
Deduct:
Charges related to certain legal matters ⁽¹⁾	—		0.0%	(5,600		)	(0.4)%
Adjusted non-GAAP marketing, general and administrative expense	$	227,641	14.5%	$	243,180		15.5%


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

For the second quarter of Fiscal 2019, marketing, general and administrative expense as a percentage of net sales decreased by approximately 90 basis points as compared to the second quarter of Fiscal 2018, primarily due to decreased performance-based compensation expense, decreased consulting costs and a reduction in depreciation expense on information technology assets. These decreases were partially offset by employee severance charges recognized in the second quarter of Fiscal 2019 and an increase in marketing spend.

For the year-to-date period of Fiscal 2019, marketing, general and administrative expense as a percentage of net sales decreased by approximately 130 basis points as compared to the year-to-date period of Fiscal 2018, primarily due to decreased performance-based compensation expense, the impact of the $5.6 million, or 40 basis points, of charges related to certain legal matters on last year’s results, decreased consulting expenses and a reduction in depreciation expense on information technology assets. These decreases were partially offset by an increase in marketing spend and employee severance charges recognized in the second quarter of Fiscal 2019. Excluding the $5.6 million of charges related to certain legal matters presented above, year-to-date Fiscal 2019 adjusted non-GAAP marketing, general and administrative expense as a percentage of net sales decreased by approximately 100 basis points as compared to the year-to-date period of Fiscal 2018.

Flagship store exit charges



	Thirteen Weeks Ended
	August 3, 2019			August 4, 2018
(in thousands)			% of Net Sales			% of Net Sales
Flagship store exit charges	$	44,994	5.3%	$	—	0.0%

	Twenty-six Weeks Ended
	August 3, 2019			August 4, 2018
(in thousands)			% of Net Sales			% of Net Sales
Flagship store exit charges	$	46,738	3.0%	$	3,808	0.2%

For the second quarter and year-to-date period of Fiscal 2019, flagship store exit charges as a percentage of net sales increased by approximately 530 and 280 basis points, respectively, as compared to the second quarter and year-to-date period of Fiscal 2018, primarily due to charges related to the closure of the SoHo Hollister flagship in New York City in the second quarter of Fiscal 2019. Refer to Note 14, “FLAGSHIP STORE EXIT CHARGES.”

Table of Contents

Asset impairment, exclusive of flagship store exit charges



	Thirteen Weeks Ended
	August 3, 2019			August 4, 2018
(in thousands)			% of Net Sales			% of Net Sales
Asset impairment, exclusive of flagship store exit charges	$	715	0.1%	$	8,671	1.0%

	Twenty-six Weeks Ended
	August 3, 2019			August 4, 2018
(in thousands)			% of Net Sales			% of Net Sales
Asset impairment, exclusive of flagship store exit charges	$	2,377	0.2%	$	9,727	0.6%

For the second quarter and year-to-date period of Fiscal 2019, asset impairment as a percentage of net sales decreased by approximately 90 basis points and 40 basis points as compared to the second quarter and year-to-date period of Fiscal 2018, respectively. Refer to Note 8, “ASSET IMPAIRMENT” for further details on the asset impairment charges listed above.

Other operating (loss) income, net



	Thirteen Weeks Ended
	August 3, 2019				August 4, 2018
(in thousands)				% of Net Sales			% of Net Sales
Other operating (loss) income, net	$	(367	)	0.0%	$	434	0.1%

	Twenty-six Weeks Ended
	August 3, 2019				August 4, 2018
(in thousands)				% of Net Sales			% of Net Sales
Other operating income, net	$	250		0.0%	$	2,994	0.2%

For the second quarter and year-to-date period of Fiscal 2019, other operating (loss) income, net as a percentage of net sales decreased by approximately 10 basis points and 20 basis points as compared to the second quarter and year-to-date period of Fiscal 2018, respectively.

Table of Contents

Operating (loss) income



	Thirteen Weeks Ended
	August 3, 2019				August 4, 2018
(in thousands)				% of Net Sales				% of Net Sales
Operating (loss) income	$	(39,484	)	(4.7)%	$	223		0.0%
Deduct:
Certain asset impairment charges	—			0.0%	8,671			1.0%
Adjusted non-GAAP operating (loss) income	$	(39,484	)	(4.7)%	$	8,894		1.1%
Adjusted non-GAAP operating (loss) income on a constant currency basis ⁽¹⁾	$	(39,484	)	(4.7)%	$	4,587		0.6%

	Twenty-six Weeks Ended
	August 3, 2019				August 4, 2018
(in thousands)				% of Net Sales				% of Net Sales
Operating loss	$	(66,742	)	(4.2)%	$	(41,980	)	(2.7)%
Deduct:
Certain asset impairment charges	—			0.0%	8,671			0.6%
Charges related to certain legal matters ⁽²⁾	—			0.0%	5,600			0.4%
Adjusted non-GAAP operating loss	$	(66,742	)	(4.2)%	$	(27,709	)	(1.8)%
Adjusted non-GAAP operating loss on a constant currency basis ⁽¹⁾	$	(66,742	)	(4.2)%	$	(34,338	)	(2.2)%


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


⁽²⁾	Includes legal charges in connection with a then proposed settlement of a class action claim, which received final court approval and was paid in the fourth quarter of Fiscal 2018.

For the second quarter of Fiscal 2019, operating (loss) income as a percentage of net sales decreased by approximately 470 basis points as compared to the second quarter of Fiscal 2018, primarily due to the adverse impact of flagship store exit charges in the second quarter of Fiscal 2019 of approximately 530 basis points, the net year-over-year impact of items presented in the table above and the adverse impact from changes in foreign currency exchange rates of approximately 50 basis points, net of hedging. Excluding items presented above, second quarter of Fiscal 2019 adjusted non-GAAP operating (loss) income as a percentage of net sales decreased by approximately 580 basis points as compared to the second quarter of Fiscal 2018.

For the year-to-date period of Fiscal 2019, operating loss as a percentage of net sales decreased by approximately 150 basis points as compared to the year-to-date period of Fiscal 2018, primarily due to flagship store exit charges in the second quarter of Fiscal 2019 of approximately 530 basis points, the net year-over-year impact of items presented in the table above and the adverse impact from changes in foreign currency exchange rates of approximately 40 basis points, net of hedging. Excluding items presented above, year-to-date Fiscal 2019 adjusted non-GAAP operating loss as a percentage of net sales decreased by approximately 240 basis points as compared to the year-to-period of Fiscal 2018.

Refer to Note 14, “FLAGSHIP STORE EXIT CHARGES,” for further discussion.

Table of Contents

Interest expense, net



	Thirteen Weeks Ended
	August 3, 2019				August 4, 2018
(in thousands)				% of Net Sales				% of Net Sales
Interest expense	$	4,479		0.5%	$	5,695		0.7%
Interest income	(3,109		)	(0.4)%	(2,672		)	(0.3)%
Interest expense, net	$	1,370		0.2%	$	3,023		0.4%

	Twenty-six Weeks Ended
	August 3, 2019				August 4, 2018
(in thousands)				% of Net Sales				% of Net Sales
Interest expense	$	9,011		0.6%	$	11,357		0.7%
Interest income	(7,025		)	(0.4)%	(5,316		)	(0.3)%
Interest expense, net	$	1,986		0.1%	$	6,041		0.4%

For the second quarter and year-to-date period of Fiscal 2019, interest expense, net as a percentage of net sales decreased by approximately 20 basis points and 30 basis points, respectively, as compared to the second quarter and year-to-date period of Fiscal 2018. These decreases were primarily due to the elimination of leasehold financing obligations and corresponding interest expense related to these obligations upon adoption of the new lease accounting standard on February 3, 2019. In addition, higher interest income earned on the Company’s investments and cash holdings contributed to the decrease in interest expense, net as a percentage of net sales.

Income tax (benefit) expense



	Thirteen Weeks Ended
	August 3, 2019				August 4, 2018
(in thousands, except ratios)				Effective Tax Rate				Effective Tax Rate
Income tax (benefit) expense	$	(11,330	)	27.7%	$	24		(0.9)%
Deduct:
Tax effect of excluded items ⁽¹⁾	—				2,689
Tax Cuts and Jobs Act of 2017 charges	—				(2,042		)
Adjusted non-GAAP income tax (benefit) expense	$	(11,330	)	27.7%	$	671		11.4%

	Twenty-six Weeks Ended
	August 3, 2019				August 4, 2018
(in thousands, except ratios)				Effective Tax Rate				Effective Tax Rate
Income tax benefit	$	(20,918	)	30.4%	$	(3,689	)	7.7%
Deduct:
Tax effect of excluded items ⁽¹⁾	—				4,230
Tax Cuts and Jobs Act of 2017 charges	—				(2,042		)
Adjusted non-GAAP income tax benefit	$	(20,918	)	30.4%	$	(1,501	)	4.4%


⁽¹⁾	Refer to “Operating (loss) income” 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.

For the second quarter of Fiscal 2019, the year-over-year change in the effective tax rate as compared to the second quarter of Fiscal 2018, 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.

In the year-to-date period of Fiscal 2019, the effective tax rate was impacted by discrete income tax benefits of $1.0 million, as compared to discrete non-cash income tax charges of $7.9 million in the year-to-date period of Fiscal 2018, primarily related to the exercise and expiration of certain share-based compensation awards.

In the second quarter and year-to-date period of Fiscal 2018, the effective tax rate was also impacted by discrete income tax charges of $2.0 million related to the then provisional estimate of the Tax Cuts and Jobs Act of 2017.

Table of Contents

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



	Thirteen Weeks Ended
	August 3, 2019				August 4, 2018
(in thousands)				% of Net Sales				% of Net Sales
Net loss attributable to A&F	$	(31,142	)	(3.7)%	$	(3,853	)	(0.5)%
Adjusted non-GAAP net (loss) income attributable to A&F ⁽¹⁾	$	(31,142	)	(3.7)%	$	4,171		0.5%

Net loss per diluted share attributable to A&F	$	(0.48	)		$	(0.06	)
Adjusted non-GAAP net (loss) income per diluted share attributable to A&F⁽¹⁾	$	(0.48	)		$	0.06
Adjusted non-GAAP net (loss) income per diluted share attributable to A&F on a constant currency basis⁽²⁾	$	(0.48	)		$	0.01

	Twenty-six Weeks Ended
	August 3, 2019				August 4, 2018
(in thousands)				% of Net Sales				% of Net Sales
Net loss attributable to A&F	$	(50,297	)	(3.2)%	$	(46,314	)	(2.9)%
Adjusted non-GAAP net loss attributable to A&F⁽¹⁾	$	(50,297	)	(3.2)%	$	(34,231	)	(2.2)%

Net loss per diluted share attributable to A&F	$	(0.76	)		$	(0.68	)
Adjusted non-GAAP net loss per diluted share attributable to A&F ⁽¹⁾	$	(0.76	)		$	(0.50	)
Adjusted non-GAAP net loss per diluted share attributable to A&F on a constant currency basis⁽²⁾	$	(0.76	)		$	(0.57	)


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


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

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

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

As of August 3, 2019, the borrowing base on the Amended ABL Facility was $345.1 million.

The Company uses, in the ordinary course of business, stand-by letters of credit under the existing Amended ABL Facility. As of both August 3, 2019 and February 2, 2019, the Company had not drawn on the Amended ABL Facility, but had approximately $0.4 million of outstanding stand-by letters of credit under the Amended ABL Facility.

As of August 3, 2019, the Company had availability under the Amended ABL Facility of $344.7 million. 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.

Table of Contents

As of February 2, 2019, A&F, through its subsidiary A&F Management as the borrower (with A&F and certain other subsidiaries as guarantors), also entered into a term loan agreement on August 7, 2014, which provides for a term loan facility of $300 million (the “Term Loan Facility” and, together with the Amended ABL Facility, the “Credit Facilities”).

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

The interest rate on borrowings under the Term Loan Facility was 5.77% as of August 3, 2019.

The Company’s Term Loan debt is presented in the Condensed Consolidated Balance Sheets, net of the unamortized discount and fees. Net borrowings as of August 3, 2019 and February 2, 2019 were as follows:



(in thousands)	August 3, 2019			February 2, 2019
Borrowings, gross at carrying amount	$	253,250		$	253,250
Unamortized discount	(676		)	(845		)
Unamortized fees	(1,541		)	(1,966		)
Borrowings, net	251,033			250,439
Less: short-term portion of borrowings, net	—			—
Long-term portion of borrowings, net	$	251,033		$	250,439

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

Operating activities

For the twenty-six weeks ended August 3, 2019, net cash used for operating activities was $36.1 million as compared to net cash provided by operating activities of $50.5 million for the twenty-six weeks ended August 4, 2018. The year-over-year change in cash flow associated with operating activities reflects changes in the timing of payments to vendors, which resulted in increased payments in the first quarter of Fiscal 2019 as compared to the prior year, and decreased incentive compensation payments in Fiscal 2019 as compared to the prior year.

Investing activities

For the twenty-six weeks ended August 3, 2019 and August 4, 2018, net cash outflows for investing activities were used primarily for purchases of property and equipment of $94.2 million and $54.1 million, respectively.

Financing activities

For the twenty-six weeks ended August 3, 2019, net cash used for financing activities primarily consisted of the repurchase of approximately 3.5 million shares of A&F’s Common Stock in the open market with a market value of approximately $57.8 million and dividend payments of $26.4 million. For the twenty-six weeks ended August 4, 2018, cash used for financing activities consisted primarily of the repurchase of approximately 1.7 million shares of A&F’s Common Stock in the open market with a market value of approximately $43.7 million and dividend payments of $27.2 million.

Table of Contents

FUTURE CASH REQUIREMENTS AND SOURCES OF CASH

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

To execute its capital allocation strategy, the Company relies on excess operating cash flows, which are largely generated in the Fall season, to fund operations throughout the fiscal year and to reinvest in the business to support future growth. The Company also 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 lease buyouts or options to terminate store leases the Company may exercise, taxes and other operating activities, as well as to fund capital expenditures, marketing initiatives, quarterly dividends to stockholders subject to approval by A&F’s Board of Directors and debt service requirements, including voluntary debt prepayments, or required repayments, if any, based on annual excess cash flows, as defined in the term loan agreement applicable to the Term Loan Facility.

The Company may repurchase shares of its Common Stock from time to time, dependent on market and business conditions, with the primary objective to offset dilution from issuances of Common Stock associated with the exercise of employee stock appreciation rights and vesting of restricted stock units. Shares may be repurchased in the open market, including pursuant to any trading plans established in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, through privately negotiated transactions or other transactions or by a combination of such methods. The Company would anticipate funding such repurchases by utilizing free cash flow generated from operations or proceeds from the Amended ABL Facility.

As of August 3, 2019, the Company had the authority to repurchase approximately 5.0 million shares as part of the A&F Board of Directors’ previously approved authorizations.

Income taxes

The Company’s earnings and profits from its foreign subsidiaries could be repatriated to the U.S., without incurring additional federal income tax.

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

As of August 3, 2019, $235.9 million of the Company’s $499.8 million of cash and equivalents was held by foreign affiliates. The Company is not dependent on dividends from its foreign affiliates to fund its U.S. operations or pay dividends to A&F’s stockholders.

Capital investments

For Fiscal 2019, the Company expects capital investments to be approximately $200 million, prioritized towards new store experiences, as well as direct-to-consumer and omnichannel investments, information technology, and other projects.

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.

Table of Contents

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 twenty-six weeks ended August 3, 2019, there were no material changes in the contractual obligations as of February 2, 2019, with the exception of those obligations which occurred in the normal course of business (primarily changes in the Company’s merchandise inventory-related purchases and lease obligations, which fluctuate throughout the year as a result of the seasonal nature of the Company’s operations).

RECENT ACCOUNTING PRONOUNCEMENTS

The Company describes its significant accounting policies in Note 2, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,” of the Notes to Consolidated Financial Statements contained in “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of A&F’s Annual Report on Form 10-K for Fiscal 2018. Refer to Note 2, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” of the Notes to Condensed Consolidated Financial Statements included in “ITEM 1. FINANCIAL STATEMENTS (UNAUDITED),” of this Quarterly Report on Form 10-Q for recent accounting pronouncements, including the dates of adoption and estimated effects on the Condensed Consolidated Financial Statements.

Table of Contents

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company describes its critical accounting policies and estimates in “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” of A&F’s Annual Report on Form 10-K for Fiscal 2018. There have been no other significant changes in critical accounting policies and estimates since the end of Fiscal 2018, except as described below and in Note 2, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Recent accounting pronouncements” of the Notes to Condensed Consolidated Financial Statements included in “ITEM 1. FINANCIAL STATEMENTS (UNAUDITED),” of this Quarterly Report on Form 10-Q.



Policy		Effect if Actual Results Differ from Assumptions
Impairment of long-lived assets
Long-lived assets, primarily lease right-of-use assets, leasehold improvements, furniture, fixtures and equipment, are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset group might not be recoverable. These include, but are not limited to, material declines in operational performance, a history of losses, an expectation of future losses, adverse market conditions and store closure or relocation decisions. On at least a quarterly basis, the Company reviews for indicators of impairment at the individual store level, the lowest level for which cash flows are identifiable. Stores that display an indicator of impairment are subjected to an impairment assessment. The Company’s impairment assessment requires management to make assumptions and judgments related, but not limited, to management’s expectations for future operations and projected cash flows. The key assumptions used in the Company’s undiscounted future cash flow models include sales, gross profit and, to a lesser extent, operating expenses. An impairment loss may be recognized when these undiscounted future cash flows are less than the carrying amount of the asset group. In the circumstance of impairment, any loss would be measured as the excess of the carrying amount of the asset group over its fair value. The fair value of the asset group is determined based on the highest and best use of the asset group, which may include consideration of market rent for the right to use leased assets included in the asset group. The Company also may utilize assumptions related to projected store cash flows when estimating the fair value of impaired assets.		If actual results are not consistent with the estimates and assumptions used, there may be a material impact on the Company’s financial condition or results of operation. Store assets that were tested for impairment and not impaired during the thirteen weeks ended August 3, 2019, had long-lived assets with a net book value of $129.8 million, which included $116.8 million of operating lease right-of-use assets under the new lease accounting standard as of August 3, 2019. These stores had undiscounted cash flows which were in the range of 100% to 150% of their respective net asset values. Store assets that were impaired as of August 3, 2019 had a remaining net book value of $116.5 million, which included $113.1 million of operating lease right-of-use assets under the new lease accounting standard.
Leases
The Company’s lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term. The Company’s lease liabilities represent the Company’s obligation to make lease payments arising from the lease. At the lease commencement date, the Company’s lease right-of-use assets and liabilities are recognized on the Condensed Consolidated Balance Sheets, based on the present value of remaining lease payments over the lease term. In measuring the Company’s lease liabilities, the remaining lease payments are discounted to present value using a discount rate. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the remaining lease term as of the date of adoption. The Company estimates its incremental borrowing rate on a quarterly basis, based on the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.		The Company does not expect material changes to the underlying assumptions used to measure its lease liabilities as of August 3, 2019. However, actual results could vary from estimates and could result in material gains or losses. An increase or decrease of 10% in the Company’s weighted-average discount rate as of August 3, 2019, would impact both the Company’s total assets and total liabilities by less than 1% and would not have a material impact on the Company’s pre-tax income for Fiscal 2019.

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 meaningful basis to evaluate the Company’s operating performance excluding the effect of certain items that the Company believes do not reflect its future operating outlook, and thereby supplementing investors’ understanding of comparability of operations across periods. Management used these non-GAAP financial measures during the periods presented to assess the Company’s performance and to develop expectations for future operating performance. These non-GAAP financial measures should be used as a supplement to, and not as an alternative to, the Company’s GAAP financial results, and may not be calculated in the same manner as similar measures presented by other companies.

Comparable sales

In addition, the Company provides comparable sales, defined as the percentage year-over-year change in the aggregate of (1) sales for stores that have been open as the same brand at least one year and whose square footage has not been expanded or reduced by more than 20% within the past year, with the prior year’s net sales converted at the current year’s foreign currency exchange rates to remove the impact of foreign currency exchange rate fluctuations, and (2) direct-to-consumer sales with the prior year’s net sales converted at the current year’s foreign currency exchange rates to remove the impact of foreign currency exchange rate fluctuations. Comparable sales exclude revenue other than store and direct-to-consumer sales. Management uses comparable sales to understand the drivers of year-over-year changes in net sales as well as a performance metric for certain performance-based restricted stock units. The Company believes comparable sales is a useful metric as it can assist investors in distinguishing the portion of the Company’s revenue attributable to existing locations from the portion attributable to the opening or closing of stores. The most directly comparable GAAP financial measure is change in net sales.

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		Certain legal charges
Asset impairment, exclusive of flagship store exit charges		Certain asset impairment charges
Operating (loss) income		Certain legal and asset impairment charges
Net (loss) income and net (loss) income per share attributable to A&F ⁽²⁾		Certain legal and asset impairment charges; discrete net tax charges related to the Tax Cuts and Jobs Act of 2017; and the tax effect of pre-tax excluded items


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


⁽²⁾	The Company also presents income tax benefit and the effective tax rate on both a GAAP and on an adjusted non-GAAP basis excluding the items listed under “Operating (loss) income,” as applicable, in the table above. The tax effect of excluded items is the difference between the tax provision calculation on a GAAP basis and on an adjusted non-GAAP basis.

Table of Contents

Financial information on a constant currency basis

The Company provides certain financial information on a constant currency basis to enhance investors’ understanding of underlying business trends and operating performance by removing the impact of foreign currency exchange rate fluctuations. Management also uses financial information on a constant currency basis to award employee performance-based compensation. The effect from foreign currency exchange rates, calculated on a constant currency basis, is determined by applying the current period’s foreign currency exchange rates to the prior year’s results and is net of the year-over-year impact from hedging. The per diluted share effect from foreign currency exchange rates for the thirteen and twenty-six weeks ended August 3, 2019 and August 4, 2018 is calculated using a 27% effective tax rate. A reconciliation of constant currency financial measures for the thirteen and twenty-six weeks ended August 3, 2019 and August 4, 2018 follows:



(in thousands, except change in net sales, gross profit rate, operating margin and per share data)	Thirteen Weeks Ended									Twenty-six Weeks Ended
Net sales	August 3, 2019			August 4, 2018			% Change			August 3, 2019			August 4, 2018			% Change
Total company:
GAAP	$	841,078		$	842,414		0		%	$	1,575,050		$	1,573,313		0		%
Impact from changes in foreign currency exchange rates	—			(9,957		)	1		%	—			(26,246		)	2		%
Net sales on a constant currency basis	$	841,078		$	832,457		1		%	$	1,575,050		$	1,547,067		2		%
Hollister:
GAAP	$	504,758		$	500,836		1		%	$	933,203		$	924,464		1		%
Impact from changes in foreign currency exchange rates	—			(6,984		)	1		%	—			(17,831		)	2		%
Net sales on a constant currency basis	$	504,758		$	493,852		2		%	$	933,203		$	906,633		3		%
Abercrombie:
GAAP	$	336,320		$	341,578		(2		)%	$	641,847		$	648,849		(1		)%
Impact from changes in foreign currency exchange rates	—			(2,973		)	1		%	—			(8,415		)	1		%
Net sales on a constant currency basis	$	336,320		$	338,605		(1		)%	$	641,847		$	640,434		0		%
United States:
GAAP	$	543,472		$	531,446		2		%	$	1,013,130		$	980,572		3		%
Impact from changes in foreign currency exchange rates	—			*			*			—			*			*
Net sales on a constant currency basis	$	543,472		$	531,446		2		%	$	1,013,130		$	980,572		3		%
International:
GAAP	$	297,606		$	310,968		(4		)%	$	561,920		$	592,741		(5		)%
Impact from changes in foreign currency exchange rates	—			(9,957		)	3		%	—			(26,246		)	4		%
Net sales on a constant currency basis	$	297,606		$	301,011		(1		)%	$	561,920		$	566,495		(1		)%

Gross profit ⁽²⁾	August 3, 2019			August 4, 2018			BPS Change ⁽¹⁾			August 3, 2019			August 4, 2018			BPS Change ⁽¹⁾
GAAP	$	498,633		$	506,895		(90		)	$	942,723		$	949,240		(40		)
Impact from changes in foreign currency exchange rates	—			(8,025		)	30			—			(16,470		)	—
Gross profit on a constant currency basis	$	498,633		$	498,870		(60		)	$	942,723		$	932,770		(40		)

Operating (loss) income	August 3, 2019			August 4, 2018			BPS Change ⁽¹⁾			August 3, 2019			August 4, 2018			BPS Change ⁽¹⁾
GAAP	$	(39,484	)	$	223		(470		)	$	(66,742	)	$	(41,980	)	(150		)
Excluded items ⁽³⁾	—			(8,671		)	110			—			(14,271		)	90
Adjusted non-GAAP	$	(39,484	)	$	8,894		(580		)	$	(66,742	)	$	(27,709	)	(240		)
Impact from changes in foreign currency exchange rates	—			(4,307		)	50			—			(6,629		)	40
Adjusted non-GAAP on a constant currency basis	$	(39,484	)	$	4,587		(530		)	$	(66,742	)	$	(34,338	)	(200		)

Net (loss) income per diluted share attributable to Abercrombie & Fitch Co.	August 3, 2019			August 4, 2018			$ Change			August 3, 2019			August 4, 2018			$ Change
GAAP	$	(0.48	)	$	(0.06	)	$	(0.42	)	$	(0.76	)	$	(0.68	)	$	(0.08	)
Excluded items, net of tax ⁽³⁾	—			(0.12		)	0.12			—			(0.18		)	0.18
Adjusted non-GAAP	$	(0.48	)	$	0.06		$	(0.54	)	$	(0.76	)	$	(0.50	)	$	(0.26	)
Impact from changes in foreign currency exchange rates	—			(0.05		)	0.05			—			(0.07		)	0.07
Adjusted non-GAAP on a constant currency basis	$	(0.48	)	$	0.01		$	(0.49	)	$	(0.76	)	$	(0.57	)	$	(0.19	)


*	Not applicable.


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


⁽²⁾	Gross profit is derived from cost of sales, exclusive of depreciation and amortization.


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

Table of Contents

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Investment securities

The Company maintains its cash equivalents in financial instruments, primarily time deposits and money market funds, with original maturities of three months or less. Due to the short-term nature of these instruments, changes in interest rates are not expected to materially affect the fair value of these financial instruments.

The Rabbi Trust includes amounts to meet funding obligations to participants in the Abercrombie & Fitch Co. Nonqualified Savings and Supplemental Retirement Plan I, the Abercrombie & Fitch Co. Nonqualified Savings and Supplemental Retirement Plan II and the Supplemental Executive Retirement Plan. The Rabbi Trust assets primarily consist of trust-owned life insurance policies which are recorded at cash surrender value. The change in cash surrender value of the trust-owned life insurance policies held in the Rabbi Trust resulted in realized gains of $0.8 million and $1.6 million for the thirteen and twenty-six weeks ended August 3, 2019, respectively, and realized gains of $0.8 million and $1.5 million for the thirteen and twenty-six weeks ended August 4, 2018, respectively, which are recorded in interest expense, net on the Condensed Consolidated Statements of Operations and Comprehensive Loss.

The Rabbi Trust assets are included in other assets on the Condensed Consolidated Balance Sheets as of August 3, 2019 and February 2, 2019, and are restricted in their use as noted above.

Interest rate risks

As of August 3, 2019, 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 the interest rate on borrowings under the Term Loan Facility as of August 3, 2019 of 100 basis points would increase Fiscal 2019 annual interest expense by approximately $2.6 million. This hypothetical analysis for Fiscal 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. The expected transition from the widespread use of LIBO rate to alternative rates over the next several years is not expected to have a material impact on interest expense on borrowings outstanding under the Company’s Credit Facilities.

Foreign exchange rate risk

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

A&F and its subsidiaries have exposure to changes in foreign currency exchange rates associated with foreign currency transactions and forecasted foreign currency transactions, including the sale of inventory between subsidiaries and foreign-currency-denominated assets and liabilities. The Company has established a program that primarily utilizes foreign currency exchange forward contracts to partially offset the risks associated with the effects of certain foreign currency transactions and forecasted transactions. Under this program, increases or decreases in foreign currency exchange rate exposures are partially offset by gains or losses on foreign currency exchange forward contracts, to mitigate the impact of foreign currency exchange gains or losses. The Company does not use forward contracts to engage in currency speculation. All outstanding 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 $5.5 million as of August 3, 2019 and was $2.2 million as of February 2, 2019. The fair value of outstanding foreign currency exchange forward contracts included in accrued expenses was $0.3 million as of each of August 3, 2019 and February 2, 2019. Foreign currency exchange forward contracts are sensitive to changes in foreign currency exchange rates. The Company assessed the risk of loss in fair values from the effect of a hypothetical 10% devaluation of the U.S. Dollar against the exchange rates for foreign currencies under contract. Such a hypothetical devaluation would decrease derivative contract fair values by approximately $17.9 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.

Table of Contents


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 August 3, 2019. 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 August 3, 2019, 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 August 3, 2019 that materially affected, or are reasonably likely to materially affect, A&F’s internal control over financial reporting.

Table of Contents

PART II. OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

The Company is a defendant in lawsuits and other adversary proceedings arising in the ordinary course of business. The Company’s legal costs incurred in connection with the resolution of claims and lawsuits are generally expensed as incurred, and the Company establishes estimated liabilities for the outcome of litigation where losses are deemed probable and the amount of loss, or range of loss, is reasonably estimable. The Company also determines estimates of reasonably possible losses or ranges of reasonably possible losses in excess of related accrued liabilities, if any, when it has determined that a loss is reasonably possible and it is able to determine such estimates. The Company’s accrued charges for certain legal contingencies are classified within accrued expenses on the Condensed Consolidated Balance Sheets included in “ITEM 1. FINANCIAL STATEMENTS (UNAUDITED),” of this Quarterly Report on Form 10-Q. In addition, the Company has not established accruals for certain claims and legal proceedings pending against the Company where it is not possible to reasonably estimate the outcome or potential liability, and 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 August 3, 2019 have not changed materially from those disclosed in Part I, “ITEM 1A. RISK FACTORS” of A&F’s Annual Report on Form 10-K for Fiscal 2018.


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

There were no sales of equity securities during the second quarter of Fiscal 2019 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 August 3, 2019:



Period (Fiscal Month)	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽²⁾	Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs ⁽³⁾
May 5, 2019 through June 1, 2019	2,874	$	25.64	—	3,571,938
June 2, 2019 through July 6, 2019	3,444,815	$	16.26	3,440,417	5,131,521
July 7, 2019 through August 3, 2019	104,834	$	17.91	104,414	5,027,107
Total	3,552,523	$	16.32	3,544,831	5,027,107


⁽¹⁾	7,692 shares of A&F’s Common Stock purchased during the thirteen weeks ended August 3, 2019 represented shares withheld for tax payments due upon the vesting of employee restricted stock units.

⁽²⁾

3,544,831 shares of A&F’s Common Stock were repurchased during the thirteen weeks ended August 3, 2019 pursuant to A&F’s publicly announced stock repurchase authorizations. On August 14, 2012, A&F’s Board of Directors authorized the repurchase of 10.0 million shares of A&F’s Common Stock, which was announced on August 15, 2012. On June 12, 2019, A&F’s Board of Directors authorized the repurchase of an additional 5.0 million shares of A&F’s Common Stock, which was announced on June 12, 2019.


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

Table of Contents

ITEM 6. EXHIBITS



Exhibit No.	Document
3.1	Amended and Restated Certificate of Incorporation of Abercrombie & Fitch Co., reflecting amendments through the date of this Quarterly Report on Form 10-Q, incorporated herein by reference to Exhibit 3.2 to A&F’s Quarterly Report on Form 10-Q for the quarterly period ended July 30, 2011 (File No. 001-12107). [This document represents the Amended and Restated Certificate of Incorporation of Abercrombie & Fitch Co. in compiled form incorporating all amendments. This compiled document has not been filed with the Delaware Secretary of State.]
3.2	Amended and Restated Bylaws of Abercrombie & Fitch Co. reflecting amendments through the date of this Quarterly Report on Form 10-Q, incorporated herein by reference to Exhibit 3.10 to A&F’s Annual Report on Form 10-K for the fiscal year ended February 3, 2018 (File No. 001-12107). [This document represents the Amended and Restated Bylaws of Abercrombie & Fitch Co. in compiled form incorporating all amendments.]
10.1	Abercrombie & Fitch Co. 2016 Long-Term Incentive Plan for Associates (as amended effective June 12, 2019), incorporated herein by reference to Exhibit 10.1 to A&F’s Current Report on Form 8-K dated and filed on June 13, 2019 (File No. 001-12107).
10.2	Separation Agreement between Abercrombie & Fitch Management Co. and Joanne Crevoiserat, executed on June 12, 2019 by Abercrombie & Fitch Management Co. and by Joanne Crevoiserat, incorporated herein by reference to Exhibit 10.1 to A&F’s Current Report on Form 8-K dated and filed on June 18, 2019 (File No. 001-12107).
10.3	Executive Agreement entered into between Abercrombie & Fitch Management Co. and John Gabrielli, effective as of May 10, 2017, the date of execution by Abercrombie & Fitch Management Co.*
31.1	Certifications by Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Certifications by Senior Vice President and Chief Financial Officer (Principal Financial Officer) pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certifications by Chief Executive Officer (who serves as Principal Executive Officer) and Senior Vice President and Chief Financial Officer (who serves as Principal Financial Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.*
101.SCH	Inline XBRL Taxonomy Extension Schema Document.*
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.*
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.*
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.*
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.*
104	Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101).*


*	Filed herewith.


**	Furnished herewith.

Table of Contents

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: September 11, 2019	By	/s/ Scott Lipesky
		Scott Lipesky
		Senior Vice President and Chief Financial Officer (Principal Financial Officer and Authorized Officer)

EXHIBIT 10.3

AGREEMENT

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

WHEREAS, the Company and the Executive entered into an Agreement dated as of July 7, 2015 (the "Prior Agreement") that sets forth the terms under which the Executive may be entitled to severance benefits upon the occurrence of certain events;

WHEREAS, the Company and the Executive desire to enter into this Agreement to alter and supersede the terms of the Prior Agreement, as set forth below.

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 l(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 detail 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).

For the avoidance of doubt, the payments and obligations set forth in this Section 2(a) shall be in lieu of any payments due to the Executive under the Prior Agreement.

(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, and in lieu of any payments due to the Executive in the Prior Agreement, 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 other than during the twelve month period following a Change of Control. To that extent, the amount shall be paid at the time described in Section 2(a)(l) 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 COBR A 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).

For the avoidance of doubt, the payments and obligations set forth in this Section 2(d) shall be in lieu of any payments due to the Executive under the Prior Agreement.

(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, the Prior 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 port ion 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 §l.409A-l(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, including the Prior Agreement; 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. For the avoidance of doubt, except as otherwise set forth herein, the post-termination payments and benefits provided herein shall be in lieu of, and not in addition to, any post-termination payment or benefits provided under the terms of the Prior Agreement.

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: General Counsel

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 not ice 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.

IN WITNESS WHEREOF, the undersigned has hereto set his/her hand this 24^th day of March, 2017.

/s/ John Gabrielli

John Gabrielli

IN WITNESS WHEREOF, the undersigned has hereto set his hand this 10^th day of May, 2017.

/s/ Arthur C. Martinez

Arthur C. Martinez

Executive Chairman of the Board of Directors

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 August 3, 2019;


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 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 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: September 11, 2019	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 August 3, 2019;


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 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 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: September 11, 2019	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 August 3, 2019, 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: September 11, 2019		Date: September 11, 2019

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.