Acquisition

9 Months Ended

Nov. 02, 2024

Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract]

Acquisition

Acquisition

On December 30, 2022, the Company completed its acquisition of 100% of the equity interests of AdoreMe, Inc. (“Adore Me”). Under the terms of the definitive agreement setting forth the terms and conditions of the acquisition (the “Merger Agreement”), the Company made an upfront cash payment of $391 million at closing and agreed to pay further cash consideration in an aggregate amount of at least $80 million, consisting of a fixed payment to be made on or prior to January 15, 2025, and up to $300 million based on the performance of Adore Me and achievement of specified strategic objectives and certain EBITDA and net revenue goals within the two-year period following closing of the transaction. Under the terms of the Merger Agreement, up to $60 million of the further cash consideration is subject to the continued employment of a certain Adore Me employee (“Contingent Compensation Payments”). These Contingent Compensation Payments are not included as consideration when applying the acquisition method of accounting and are recognized as compensation expense within General, Administrative and Store Operating Expenses in the Consolidated Statements of Loss if and when earned in future periods.

During the first quarter of 2024, the Company made payments of $20 million for the achievement of a specified strategic objective under the terms of the Merger Agreement, comprised of $16 million for contingent consideration classified as financing cash outflows and $4 million of Contingent Compensation Payments classified as operating cash outflows in the Consolidated Statement of Cash Flows.

In the third quarter and year-to-date 2024 and 2023, the Company recognized the financial impact of purchase accounting items, including recognition of changes in the estimated fair value of contingent consideration and Contingent Compensation Payments and amortization of acquired intangible assets. In addition, in the third quarter and year-to-date 2023, the Company recognized the financial impact of additional acquisition-related costs and recognition in gross profit of the fair value adjustment to acquired inventories that were sold in the respective period.

The following table provides a summary by line item in the Consolidated Statements of Loss of the financial impact of purchase accounting items and additional acquisition-related costs for the third quarter and year-to-date 2024 and 2023:

	Third Quarter				Year-to-Date
	2024		2023		2024		2023
Income Statement Line Item	(in millions)
Costs of Goods Sold, Buying and Occupancy	$	—	$	7	$	—	$	22
General, Administrative and Store Operating Expenses	6		—		19		24
Interest Expense	2		1		4		3

The deferred consideration liability for the future fixed payment was $79 million and $76 million as of November 2, 2024 and February 3, 2024, respectively, and is included within Accrued Expenses and Other in the Consolidated Balance Sheets. As of October 28, 2023, the deferred consideration liability for the future fixed payment was $74 million and is included within Other Long-term Liabilities in the Consolidated Balance Sheet. See Note 11, “Fair Value of Financial Instruments” for further information regarding the liability recognized at fair value for the contingent consideration.