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 November 2, 2019

OR

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

For the transition period from                      to                     

Commission File Number 1-12107

ABERCROMBIE & FITCH CO.

(Exact name of Registrant as specified in its charter)

Delaware			31-1469076
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
6301 Fitch Path,	New Albany,	Ohio	43054
(Address of principal executive offices)			(Zip Code)

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

Not Applicable

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

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 December 6, 2019
$.01 Par Value	62,748,098

ABERCROMBIE & FITCH CO.

TABLE OF CONTENTS

		Page No.
Part I
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)	3
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Stockholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	7
	Index for Notes to Condensed Consolidated Financial Statements	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	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

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

ABERCROMBIE & FITCH CO.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Thousands, except per share amounts)

(Unaudited)

 

	Thirteen Weeks Ended						Thirty-nine Weeks Ended
	November 2, 2019			November 3, 2018			November 2, 2019			November 3, 2018
Net sales	$	863,472		$	861,194		$	2,438,522		$	2,434,507
Cost of sales, exclusive of depreciation and amortization	344,541			333,375			976,868			957,448
Gross profit	518,931			527,819			1,461,654			1,477,059
Stores and distribution expense	377,697			371,859			1,110,656			1,103,758
Marketing, general and administrative expense	114,075			117,181			341,716			365,961
Flagship store exit charges	285			—			47,023			3,808
Asset impairment, exclusive of flagship store exit charges	12,610			656			14,987			10,383
Other operating income, net	(215		)	(1,557		)	(465		)	(4,551		)
Operating income (loss)	14,479			39,680			(52,263		)	(2,300		)
Interest expense, net	2,922			2,857			4,908			8,898
Income (loss) before income taxes	11,557			36,823			(57,171		)	(11,198		)
Income tax expense (benefit)	3,987			12,047			(16,931		)	8,358
Net income (loss)	7,570			24,776			(40,240		)	(19,556		)
Less: Net income attributable to noncontrolling interests	1,047			857			3,534			2,839
Net income (loss) attributable to A&F	$	6,523		$	23,919		$	(43,774	)	$	(22,395	)
Net income (loss) per share attributable to A&F
Basic	$	0.10		$	0.36		$	(0.67	)	$	(0.33	)
Diluted	$	0.10		$	0.35		$	(0.67	)	$	(0.33	)
Weighted-average shares outstanding
Basic	63,099			66,818			64,932			67,775
Diluted	63,911			68,308			64,932			67,775
Other comprehensive loss
Foreign currency translation, net of tax	$	1,355		$	(3,095	)	$	(5,219	)	$	(22,640	)
Derivative financial instruments, net of tax	(3,654		)	(681		)	(574		)	19,026
Other comprehensive loss	(2,299		)	(3,776		)	(5,793		)	(3,614		)
Comprehensive income (loss)	5,271			21,000			(46,033		)	(23,170		)
Less: Comprehensive income attributable to noncontrolling interests	1,047			857			3,534			2,839
Comprehensive income (loss) attributable to A&F	$	4,224		$	20,143		$	(49,567	)	$	(26,009	)

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

3

ABERCROMBIE & FITCH CO.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Thousands, except par value amounts)

(Unaudited)

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

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

4

ABERCROMBIE & FITCH CO.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Thousands, except per share amounts)

(Unaudited)

	Thirteen Weeks Ended November 2, 2019
	Common Stock				Paid-in capital			Non-controlling interests			Retained earnings			Accumulated other comprehensive loss			Treasury stock					Total stockholders’ equity
	Shares outstanding		Par value														Shares		At average cost
Beginning balance at August 3, 2019	63,146		$	1,033	$	394,694		$	11,318		$	2,251,032		$	(105,946	)	40,154		$	(1,548,836	)	$	1,003,295
Net income	—		—		—			1,047			6,523			—			—		—			7,570
Purchase of common stock	(412	)	—		—			—			—			—			412		(5,730		)	(5,730		)
Dividends ($0.20 per share)	—		—		—			—			(12,574		)	—			—		—			(12,574		)
Share-based compensation issuances and exercises	23		—		(509		)	—			(831		)	—			(23	)	1,159			(181		)
Share-based compensation expense	—		—		5,796			—			—			—			—		—			5,796
Derivative financial instruments, net of tax	—		—		—			—			—			(3,654		)	—		—			(3,654		)
Foreign currency translation adjustments, net of tax	—		—		—			—			—			1,355			—		—			1,355
Distributions to noncontrolling interests, net	—		—		—			(1,511		)	—			—			—		—			(1,511		)
Ending balance at November 2, 2019	62,757		$	1,033	$	399,981		$	10,854		$	2,244,150		$	(108,245	)	40,543		$	(1,553,407	)	$	994,366
	Thirteen Weeks Ended November 3, 2018
	Common Stock				Paid-in capital			Non-controlling interests			Retained earnings			Accumulated other comprehensive loss			Treasury stock					Total stockholders’ equity
	Shares outstanding		Par value														Shares		At average cost
Beginning balance at August 4, 2018	66,975		$	1,033	$	401,483		$	10,074		$	2,337,100		$	(94,892	)	36,325		$	(1,507,414	)	$	1,147,384
Net income	—		—		—			857			23,919			—			—		—			24,776
Purchase of common stock	(1,184	)	—		—			—			—			—			1,184		(25,000		)	(25,000		)
Dividends ($0.20 per share)	—		—		—			—			(13,354		)	—			—		—			(13,354		)
Share-based compensation issuances and exercises	52		—		(1,271		)	—			(1,955		)	—			(52	)	2,640			(586		)
Share-based compensation expense	—		—		5,957			—			—			—			—		—			5,957
Derivative financial instruments, net of tax	—		—		—			—			—			(681		)	—		—			(681		)
Foreign currency translation adjustments, net of tax	—		—		—			—			—			(3,095		)	—		—			(3,095		)
Distributions to noncontrolling interests, net	—		—		—			(1,111		)	—			—			—		—			(1,111		)
Ending balance at November 3, 2018	65,843		$	1,033	$	406,169		$	9,820		$	2,345,710		$	(98,668	)	37,457		$	(1,529,774	)	$	1,134,290

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

5

ABERCROMBIE & FITCH CO.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Thousands, except per share amounts)

(Unaudited)

	Thirty-nine Weeks Ended November 2, 2019
	Common Stock				Paid-in capital			Non-controlling interests			Retained earnings			Accumulated other comprehensive loss			Treasury stock					Total stockholders’ equity
	Shares outstanding		Par value														Shares		At average cost
Beginning balance at February 2, 2019	66,227		$	1,033	$	405,379		$	9,721		$	2,418,544		$	(102,452	)	37,073		$	(1,513,604	)	$	1,218,621
Impact from adoption of the new lease accounting standard (Refer to Note 2, “Summary of Significant Accounting Policies”)	—		—		—			—			(75,165		)	—			—		—			(75,165		)
Net loss	—		—		—			3,534			(43,774		)	—			—		—			(40,240		)
Purchase of common stock	(3,957	)	—		—			—			—			—			3,957		(63,542		)	(63,542		)
Dividends ($0.60 per share)	—		—		—			—			(38,959		)	—			—		—			(38,959		)
Share-based compensation issuances and exercises	487		—		(13,862		)	—			(16,496		)	—			(487	)	23,739			(6,619		)
Share-based compensation expense	—		—		8,464			—			—			—			—		—			8,464
Derivative financial instruments, net of tax	—		—		—			—			—			(574		)	—		—			(574		)
Foreign currency translation adjustments, net of tax	—		—		—			—			—			(5,219		)	—		—			(5,219		)
Distributions to noncontrolling interests, net	—		—		—			(2,401		)	—			—			—		—			(2,401		)
Ending balance at November 2, 2019	62,757		$	1,033	$	399,981		$	10,854		$	2,244,150		$	(108,245	)	40,543		$	(1,553,407	)	$	994,366
	Thirty-nine Weeks Ended November 3, 2018
	Common Stock				Paid-in capital			Non-controlling interests			Retained earnings			Accumulated other comprehensive loss			Treasury stock					Total stockholders’ equity
	Shares outstanding		Par value														Shares		At average cost
Beginning balance at February 3, 2018	68,195		$	1,033	$	406,351		$	10,092		$	2,420,552		$	(95,054	)	35,105		$	(1,490,503	)	$	1,252,471
Impact from adoption of the new revenue recognition accounting standard	—		—		—			—			6,944			—			—		—			6,944
Net loss	—		—		—			2,839			(22,395		)	—			—		—			(19,556		)
Purchase of common stock	(2,931	)	—		—			—			—			—			2,931		(68,670		)	(68,670		)
Dividends ($0.60 per share)	—		—		—			—			(40,550		)	—			—		—			(40,550		)
Share-based compensation issuances and exercises	579		—		(17,078		)	—			(18,841		)	—			(579	)	29,399			(6,520		)
Share-based compensation expense	—		—		16,896			—			—			—			—		—			16,896
Derivative financial instruments, net of tax	—		—		—			—			—			19,026			—		—			19,026
Foreign currency translation adjustments, net of tax	—		—		—			—			—			(22,640		)	—		—			(22,640		)
Distributions to noncontrolling interests, net	—		—		—			(3,111		)	—			—			—		—			(3,111		)
Ending balance at November 3, 2018	65,843		$	1,033	$	406,169		$	9,820		$	2,345,710		$	(98,668	)	37,457		$	(1,529,774	)	$	1,134,290

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

6

ABERCROMBIE & FITCH CO.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands)

(Unaudited)

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

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

7

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 Income (Loss) Per Share	14
Note 5.	Fair Value	15
Note 6.	Property and Equipment, Net	16
Note 7.	Leases	16
Note 8.	Asset Impairment	17
Note 9.	Income Taxes	18
Note 10.	Share-Based Compensation	19
Note 11.	Derivative Instruments	21
Note 12.	Accumulated Other Comprehensive Loss	22
Note 13.	Segment Reporting	23
Note 14.	Flagship Store Exit Charges	24

8

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

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

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

Fiscal year

The Company’s fiscal year ends on the Saturday closest to January 31. This typically results in a fifty-two week year, but occasionally gives rise to an additional week, resulting in a fifty-three week year. Fiscal years are designated in the consolidated financial statements 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	Fiscal year ended	Number of weeks
Fiscal 2018	February 2, 2019	52
Fiscal 2019	February 1, 2020	52

Interim financial statements

The Condensed Consolidated Financial Statements as of November 2, 2019, and for the thirteen and thirty-nine week periods ended November 2, 2019 and November 3, 2018, are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, the Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto contained in A&F’s Annual Report on Form 10-K for Fiscal 2018 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 (“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 Income (Loss).

9

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

10

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.

11

The Company’s significant accounting policies as of November 2, 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 the rates implicit in the Company's leases are not readily determinable, the Company uses its incremental borrowing rate based on the transactional currency of the lease and the lease term for the initial measurement of the lease right-of-use asset and liability. For leases existing before the adoption of the new lease accounting standard, the Company used its incremental borrowing rate as of the date of adoption, determined using the remaining lease term as of the date of adoption. For leases commencing on or after the adoption of the new lease accounting standard, the incremental borrowing rate is determined using the remaining lease term as of the lease commencement date.

The Company has elected to combine lease and nonlease components for all current classes of underlying leased assets.

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 within stores and distribution expense, marketing, general and administrative expense, or flagship store exit charges on the Consolidated Statements of Operations and Comprehensive Income (Loss).

12

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.”

13

Condensed Consolidated Statements of Cash Flows reconciliation

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

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

3. REVENUE RECOGNITION

Contract liabilities

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

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

The following table details recognized revenue associated with the Company’s gift card program and loyalty programs for the thirteen and thirty-nine weeks ended November 2, 2019 and November 3, 2018:

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

Disaggregation of revenue

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

4. NET INCOME (LOSS) PER SHARE

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

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

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

14

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 November 2, 2019
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents (1)	$	222	$	25,920	$	—	$	26,142
Derivative instruments (2)	—		2,478		—		2,478
Rabbi Trust assets (3)	1		108,271		—		108,272
Restricted cash equivalents (4)	9,812		5,511		—		15,323
Total assets	$	10,035	$	142,180	$	—	$	152,215
Liabilities:
Derivative instruments (2)	$	—	$	1,767	$	—	$	1,767
Total liabilities	$	—	$	1,767	$	—	$	1,767

	Assets and Liabilities at Fair Value as of February 2, 2019
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents (1)	$	55,558	$	34,440	$	—	$	89,998
Derivative instruments (2)	—