ABERCROMBIE & FITCH CO.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") should be read together with the Company's
Condensed Consolidated Financial Statements and notes thereto included in this
Quarterly Report on Form 10-Q in " ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) ,"
to which all references to Notes in MD&A are made.
INTRODUCTION
MD&A is provided as a supplement to the accompanying Condensed Consolidated Financial Statements and notes thereto to help provide an understanding of the Company's results of operations, financial condition, and liquidity. MD&A is organized as follows:
• Overview . This section provides a general description of the Company's business and certain segment information.
• Current Trends and Outlook . This section provides a discussion related to certain of the Company's focus areas for the current fiscal year and discussion of certain risks and challenges, such as COVID-19, as well as a summary of the Company's performance for the thirteen and thirty-nine weeks endedOctober 30, 2021 andOctober 31, 2020 .
• Results of Operations . This section provides an analysis of certain
components of the Company's Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss) for the thirteen and thirty-nine weeks ended
• Liquidity and Capital Resources . This section provides a discussion of the Company's expected primary sources and uses of cash, financial condition and liquidity as ofOctober 30, 2021 , which includes (i) an analysis of financial condition as compared toJanuary 30, 2021 ; (ii) an analysis of changes in cash flows for the thirty-nine weeks endedOctober 30, 2021 as compared to the thirty-nine weeks endedOctober 31, 2020 ; and (iii) an analysis of liquidity, including discussion related to the Company's Senior Secured Notes and ABL Facility, the Company's share repurchase and dividend programs, and outstanding debt and covenant compliance. • Recent Accounting Pronouncements . The recent accounting pronouncements the Company has adopted or is currently evaluating, including the dates of adoption and/or expected dates of adoption, and anticipated effects on the Company's Condensed Consolidated Financial Statements, are discussed, as applicable.
• Critical Accounting Policies and Estimates . This section discusses accounting policies considered to be important to the Company's results of operations and financial condition, which typically require significant judgment and estimation on the part of management in their application.
• Non-GAAP Financial Measures . MD&A provides a discussion of certain financial measures that have been determined to not be presented in accordance with GAAP. This section includes certain reconciliations between GAAP and non-GAAP financial measures and additional details on non-GAAP financial measures, including information as to why the Company believes the non-GAAP financial measures provided within MD&A are useful to investors.
The following risks, categorized by the primary nature of the associated risk,
including the disclosures in "ITEM 1A. RISK FACTORS" of A&F's Annual Report on
Form 10-K for Fiscal 2020 in some cases have affected and in the future could
affect the Company's financial performance and cause actual results for Fiscal
2021 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. The following risks, or a combination of risks,
may be exacerbated by COVID-19 and could result in adverse impacts on the
Company's business, results of operations, financial condition and cash flows.
Macroeconomic and industry risks include:
•COVID19 has and may continue to materially adversely impact and cause
disruption to our business;
•Changes in global economic and financial conditions, and the resulting impact
on consumer confidence and consumer spending, as well as other changes in
consumer discretionary spending habits could have a material adverse impact on
our business;
•Failure to engage our customers, anticipate customer demand and changing
fashion trends, and manage our inventory commensurately could have a material
adverse impact on our business;
•Our failure to operate effectively in a highly competitive and constantly
evolving industry could have a material adverse impact on our business;
•Fluctuations in foreign currency exchange rates could have a material adverse
impact on our business;
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•Our ability to attract customers to our stores depends, in part, on the success
of the shopping malls or area attractions that our stores are located in or
around;
•The impact of war, acts of terrorism, mass casualty events, social unrest,
civil disturbance or disobedience could have a material adverse impact on our
business; and
•The impact of extreme weather, infectious disease outbreaks, including
COVID-19, and other unexpected events could result in an interruption to our
business, as well as to the operations of our third-party partners, and have a
material adverse impact on our business.
Strategic risks include:
•Failure to successfully develop an omnichannel shopping experience, a
significant component of our growth strategy, or failure to successfully invest
in customer, digital and omnichannel initiatives could have a material adverse
impact on our business;
•Our failure to optimize our global store network could have a material adverse
impact on our business;
•Our failure to execute our international growth strategy successfully and
inability to conduct business in international markets as a result of legal,
tax, regulatory, political and economic risks could have a material adverse
impact on our business; and
•Our failure to appropriately address emerging environmental, social and
governance matters could have a material adverse impact on our reputation and,
as a result, our business.
Operational risks include:
•Failure to protect our reputation could have a material adverse impact on our
business;
•If our information technology systems are disrupted or cease to operate
effectively, it could have a material adverse impact on our business;
•We may be exposed to risks and costs associated with cyber-attacks, data
protection, credit card fraud and identity theft that could have a material
adverse impact on our business;
•Our reliance on our distribution centers makes us susceptible to disruptions or
adverse conditions affecting our supply chain;
•Changes in the cost, availability and quality of raw materials, labor,
transportation, and trade relations could have a material adverse impact on our
business;
•We depend upon independent third parties for the manufacture and delivery of
all our merchandise, and a disruption of the manufacture or delivery of our
merchandise could have a material adverse impact on our business;
•We rely on the experience and skills of our executive officers and associates,
and the failure to attract or retain this talent, effectively manage succession,
and establish a diverse workforce could have a material adverse impact on our
business; and
•In the past, we have identified a material weakness in our internal control
over financial reporting and may identify additional material weaknesses in the
future. If we fail to establish and maintain effective internal control over
financial reporting, our ability to accurately and timely report our financial
results could be adversely affected.
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 could have a material adverse impact on
our business;
•Our litigation exposure, or any securities litigation and shareholder activism,
could have a material adverse impact on our business;
•Failure to adequately protect our trademarks could have a negative impact on
our brand image and limit our ability to penetrate new markets which could have
a material adverse impact on our business;
•Changes in the regulatory or compliance landscape could have a material adverse
impact on our business; and
•The agreements related to our senior secured asset-based revolving credit
facility and our senior secured notes include restrictive covenants that limit
our flexibility in operating our business and our inability to obtain credit on
reasonable terms in the future could have an adverse impact on our business.
The factors listed above are not our only risks. Additional risks may arise, and
current evaluations of risks may change, which could lead to material, adverse
effects on our business, operating results and financial condition. The Company
cautions that any forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995) contained in this Quarterly
Report on Form 10-Q or made by the Company, its management or spokespeople
involve risks and uncertainties and are subject to change based on various
important factors, many of which may be beyond the Company's control. Words such
as "estimate," "project," "plan," "believe," "expect," "anticipate," "intend,"
"should," "are confident," and similar expressions may identify forward-looking
statements. Future economic and industry trends that could potentially impact
revenue and profitability are difficult to predict. Therefore, there can be no
assurance that the forward-looking statements included in this Quarterly Report
on Form 10-Q will prove to be accurate. In light of the significant
uncertainties in the forward-looking statements included herein, including the
uncertainty surrounding COVID-19, the inclusion of such information should not
be regarded as a representation by the Company, or any other person, that the
objectives of the Company will be achieved. The forward-looking statements
included herein are based on information presently available to the management
of the Company. Except as may be required by applicable law, the Company assumes
no obligation to publicly update or revise its forward-looking statements even
if experience or future changes make it clear that any projected results
expressed or implied therein will not be realized.
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--------------------------------------------------------------------------------Table of Contents OVERVIEW Business summary The Company is a global, digitally-led omnichannel retailer. The Company offers a broad assortment of apparel, personal care products and accessories for men, women and kids, which are sold primarily through its digital channels and Company-owned stores, as well as through various third-party arrangements. The Company's two brand-based operating segments are Hollister, which includes the Company's Hollister,Gilly Hicks and Social Tourist brands, andAbercrombie , which includes the Company'sAbercrombie & Fitch and abercrombie kids brands. These five 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 operates primarily inNorth America ,Europe andAsia . The Company's fiscal year ends on the Saturday closest toJanuary 31 . All references herein to the Company's fiscal years are as follows: Fiscal year Year ended Number of weeks Fiscal 2019 February 1, 2020 52 Fiscal 2020 January 30, 2021 52 Fiscal 2021 January 29, 2022 52 Due to the seasonal nature of the retail apparel industry, the results of operations for any current period are not necessarily indicative of the results expected for the full fiscal year and the Company could have significant fluctuations in certain asset and liability accounts. The Company historically experiences its greatest sales activity during the fall season, the third and fourth fiscal quarters, due to back-to-school and holiday sales periods, respectively.
CURRENT TRENDS AND OUTLOOK
Focus areas for Fiscal 2021
The Company remains committed to, and confident in, its long-term vision of being and becoming a digitally-led global omnichannel apparel retailer and continues to evaluate opportunities to make progress against initiatives that support this vision.
The Company entered Fiscal 2021 on offense, and has made progress towards recouping COVID-19 driven sales losses. Reflecting ongoing global uncertainty, the Company plans to continue to actively manage inventories, optimize its distribution center capacity for digital demand and tightly manage expenses.
The following focus areas for Fiscal 2021 serve as a framework to the Company achieving sustainable long-term operating margin expansion: •Accelerate digital, data and technology investments to increase agility and improve the customer experience; •Increase marketing investments to build on momentum across brands and geographies; •Invest inGilly Hicks and the Company's newest brand, Social Tourist, which launched onMay 20, 2021 ; •Optimize store square footage, while being opportunistic in global store expansion; and •Integrate environmental, social and governance practices and standards throughout the organization.
Global Store Network Optimization
As part of its ongoing global store network optimization initiative and stated goal of repositioning from larger format, tourist-dependent flagship locations to smaller, omni-enabled stores that cater to local customers, the Company closed itsAbercrombie & Fitch brandOrchard Road ,Singapore flagship location during the first quarter of Fiscal 2021. This leaves the Company with six operating flagships at the end of the third quarter of Fiscal 2021, down from seven at the beginning of Fiscal 2021 and 15 at the beginning of Fiscal 2020. In addition, the Company closed 129 non-flagship locations and eight flagship locations during Fiscal 2020. These actions, combined with recent digital sales growth, are expected to continue to transform the Company's operating model and reposition the Company for the future as the Company continues to focus on aligning store square footage with digital penetration. Future closures could be completed through natural lease expirations, while certain other leases include early termination options that can be exercised under specific conditions. The Company may also elect to exit or modify other leases, and could incur charges related to these actions. 26 -------------------------------------------------------------------------------- Table of Contents Additional details related to store count and gross square footage follow: Hollister (1) Abercrombie (2)Total Company (3)U.S. InternationalU.S. InternationalU.S. International Total Number of stores: January 30, 2021 347 150 190 48 537 198 735 New 9 5 6 3 15 8 23 Permanently closed (1) (4) (15) (3) (16) (7) (23)October 30, 2021 355 151 181 48 536 199 735 Gross square footage (in thousands):October 30, 2021 2,344 1,204 1,224 387 3,568 1,591 5,159 (1)Hollister includes the Company's Hollister and Gilly Hicks brands. Locations withGilly Hicks carveouts within Hollister stores are represented as a single store count. Excludes 10 international franchise stores as ofOctober 30, 2021 , and 9 international franchise stores as ofJanuary 30, 2021 . Excludes 14 and 12 Company-operated temporary stores as ofOctober 30, 2021 andJanuary 30, 2021 , respectively. (2)Abercrombie includes the Company'sAbercrombie & Fitch and abercrombie kids brands. Locations with abercrombie kids carveouts withinAbercrombie & Fitch stores are represented as a single store count. Excludes 13 international franchise stores as ofOctober 30, 2021 and 10 international franchise stores as ofJanuary 30, 2021 . Excludes four and two Company-operated temporary stores as ofOctober 30, 2021 andJanuary 30, 2021 , respectively. (3)This store count excludes one international third-party operated multi-brand outlet store as of each ofOctober 30, 2021 andJanuary 30, 2021 .
COVID-19
InMarch 2020 , the COVID-19 outbreak was declared to be a global pandemic by theWorld Health Organization . In response to COVID-19, certain governments imposed travel restrictions and local statutory quarantines and the Company experienced widespread temporary store closures. As ofOctober 30, 2021 , all Company-operated stores were fully open for in-store service. The extent of future impacts of COVID-19 on the Company's business, including the duration and impact on overall customer demand, are uncertain as current circumstances are dynamic and depend on future developments, including, but not limited to, the duration and spread of COVID-19, the emergence of new variants of coronavirus, such as the Delta and Omicron variants, and the availability and acceptance of effective vaccines, boosters or medical treatments. The Company plans to follow the guidance of local governments to evaluate whether further store closures will be necessary. Total net sales increased approximately 10% and 27% for the thirteen and thirty-nine weeks endedOctober 30, 2021 as compared to the thirteen and thirty-nine weeks endedOctober 31, 2020 driven largely by increased store foot traffic relative to last year which was impacted by widespread temporary store closures due to COVID-19. Digital net sales increased approximately 8% and increased 14% for the thirteen and thirty-nine weeks endedOctober 30, 2021 as compared to the thirteen and thirty-nine weeks endedOctober 31, 2020 . Digital net sales remained highly penetrated, representing 46% and 47% of total net sales for the thirteen and thirty-nine weeks endedOctober 30, 2021 . The Company's digital operations across brands have continued to serve the Company's customers during periods of temporary store closures as the Company's distribution centers implemented enhanced cleaning and social distancing measures in order to remain operational. In response to elevated digital demand during this period, the Company has leaned into its omnichannel capabilities by continuing to offer Purchase-Online-Pickup-in-Store, rolling out curbside pick-up at a majority ofU.S. locations, and by utilizing ship-from-store capabilities. Despite the recent strength in digital sales, the Company has historically generated the majority of its annual net sales through stores and there can be no assurance that the current performance in the digital channel will continue. COVID-19 has also caused disruptions to global supply chains, including temporary closures of factories. The inability to receive inventory in a timely manner could cause delays in responding to customer demand and adversely affect sales. In addition, the Company has seen and expects to continue to see inflationary pressures affecting the Company's transportation costs. In order to mitigate the risk associated with supply chain constraints, the Company has taken and expects to continue to take actions to manage through the disruption, including shipping inventory by air and shifting production as necessary and where possible, which adversely impacted the Company during the thirteen weeks endedOctober 30, 2021 , and is likely to continue to cause increased inventory costs related to freight. It is possible that responses to extended factory closures and transportation delays are not adequate to mitigate their impact, and that these events could adversely affect the business and results of operations. For a discussion of material risks that have the potential to cause our actual results to differ materially from our expectations, refer to the disclosures under the heading "FORWARD-LOOKING STATEMENTS AND RISK FACTORS" in "ITEM 1A. RISK FACTORS" of A&F's Annual Report on Form 10-K for Fiscal 2020. 27 -------------------------------------------------------------------------------- Table of Contents Summary of results A summary of results for the thirteen and thirty-nine weeks endedOctober 30, 2021 andOctober 31, 2020 follows: GAAP Non-GAAP (1) (in thousands, except change in net sales, gross profit rate, operating income (loss) margin and per share October 30, October 31, October 30, October 31, amounts) 2021 (2) 2020 (3) 2021 (2) 2020 (3) Thirteen Weeks Ended Net sales$ 905,160 $ 819,653 Change in net sales 10.4 % (17.0) % Gross profit rate 63.7 % 64.0 % Operating income$ 72,731 $ 58,616 $ 79,480 $ 64,945 Operating income margin 8.0 % 7.2 % 8.8 % 7.9 % Net income attributable to A&F$ 47,233 $ 42,271 $ 52,607 $ 48,231 Net income per diluted share attributable to A&F$ 0.77 $ 0.66 $ 0.86 $ 0.76 Thirty-nine Weeks Ended Net sales$ 2,551,415 $ 2,003,340 Change in net sales 27.4 % (24.8) % Gross profit rate 64.1 % 60.5 % Operating income (loss)$ 244,951 $ (136,368) $ 255,150 $ (79,028) Operating income (loss) margin 9.6 % (6.8) % 10.0 % (3.9) % Net income (loss) attributable to A&F$ 197,501 $ (196,413) $ 205,652 $ (142,708) Net income (loss) per diluted share attributable to A&F$ 3.10 $ (3.14) $ 3.22 $ (2.28) (1) Discussion as to why the Company believes that these non-GAAP financial measures are useful to investors and a reconciliation of the Non-GAAP measures to the most directly comparable financial measure calculated and presented in accordance with GAAP are provided below under " NON-GAAP FINANCIAL MEASURES ." (2) Results for Fiscal 2021 reflect tax benefits related to the release of income tax valuation allowances and the impact of a statutory rate change on the valuation of deferred tax assets. Refer to Note 10, " INCOME TAXES ." (3) Results for Fiscal 2020 reflect significant adverse tax impacts related to valuation allowances on deferred tax assets and other tax charges. Refer to Note 10, " INCOME TAXES ."
Certain components of the Company's Condensed Consolidated Balance Sheets as of
October 30, 2021 January 30, 2021
Cash and equivalents $ 865,622 $ 1,104,862
Gross long-term borrowings outstanding, carrying amount $ 307,730 $ 350,000
Inventories $ 543,713 $ 404,053
Certain components of the Company's Condensed Consolidated Statements of Cash
Flows for the thirty-nine week periods ended October 30, 2021 and October 31,
2020 were as follows:
(in thousands) October 30, 2021 October 31, 2020
Net cash provided by operating activities $ 131,287 $ 108,894
Net cash used for investing activities $ (62,223) $ (41,748)
Net cash (used for) provided by financing activities $ (304,358) $ 70,129
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RESULTS OF OPERATIONS
The estimated basis point ("BPS") change disclosed throughout this Results of Operations has been rounded based on the change in the percentage of net sales.
Net sales
The Company's net sales by operating segment for the thirteen and thirty-nine
weeks ended
Thirteen Weeks Ended
(in thousands) October 30, 2021 October 31, 2020 $ Change % Change
Hollister (1) $ 522,311 $ 476,665 $ 45,646 10%
Abercrombie (2) 382,849 342,988 39,861 12%
Total $ 905,160 $ 819,653 $ 85,507 10%
Thirty-nine Weeks Ended
(in thousands) October 30, 2021 October 31, 2020 $ Change % Change
Hollister(1) $ 1,479,202 $ 1,178,925 $ 300,277 25%
Abercrombie (2) 1,072,213 824,415 247,798 30%
Total $ 2,551,415 $ 2,003,340 $ 548,075 27%
(1) Includes Hollister,
Net sales by geographic area are presented by attributing revenues to an individual country on the basis of the country in which the merchandise was sold for in-store purchases and the shipping location provided by customers for digital orders. The Company's net sales by geographic area for the thirteen and thirty-nine weeks endedOctober 30, 2021 andOctober 31, 2020 were as follows: Thirteen Weeks Ended (in thousands) October 30, 2021 October 31, 2020 $ Change % Change U.S. $ 654,858 $ 557,814$ 97,044 17% EMEA 179,156 190,214 (11,058) (6)% APAC 38,215 43,618 (5,403) (12)% Other 32,931 28,007 4,924 18% International $ 250,302 $ 261,839$ (11,537) (4)% Total $ 905,160 $ 819,653$ 85,507 10% Thirty-nine Weeks Ended (in thousands) October 30, 2021 October 31, 2020 $ Change % Change U.S.$ 1,810,471 $ 1,339,347 $ 471,124 35% EMEA 528,998 474,165 54,833 12% APAC 125,489 117,768 7,721 7% Other 86,457 72,060 14,397 20% International $ 740,944 $ 663,993$ 76,951 12% Total$ 2,551,415 $ 2,003,340 $ 548,075 27% For the third quarter of Fiscal 2021, net sales increased 10% as compared to the third quarter of Fiscal 2020, primarily due to an increase in stores sales as a result of increased store foot traffic relative to last year, which was impacted by widespread temporary store closures due to COVID-19, and 8% digital sales growth. Average unit retail increased year-over-year, driven by lower promotions and markdowns, with benefits from changes in foreign currency exchange rates of approximately$4 million . For the year-to-date period of Fiscal 2021, net sales increased 27% as compared to the year-to-date period of Fiscal 2020, primarily due to an increase in units sold as a result of increased store foot traffic relative to last year, which was impacted by widespread temporary store closures due to COVID-19, and 14% digital sales growth. Average unit retail increased year-over-year, driven by less promotions and lower clearance levels, with benefits from changes in foreign currency exchange rates of approximately$33 million . 29
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Cost of sales, exclusive of depreciation and amortization
Thirteen Weeks Ended
October 30, 2021 October 31, 2020
(in thousands) % of Net sales % of Net sales BPS Change
Cost of sales, exclusive of depreciation
and amortization $ 328,916 36.3% $ 295,220 36.0% 30
Thirty-nine Weeks Ended
October 30, 2021 October 31, 2020
(in thousands) % of Net Sales % of Net Sales BPS Change
Cost of sales, exclusive of depreciation
and amortization $ 916,552 35.9% $ 791,154 39.5% (360)
For the third quarter of Fiscal 2021, cost of sales, exclusive of depreciation
and amortization, as a percentage of net sales increased by approximately 30
basis points as compared to the third quarter of Fiscal 2020. The year-over-year
increase was driven by approximately 300 basis points of higher average unit
cost from freight inflation and efforts to offset supply chain issues, almost
fully offset by higher average unit retail on reduced promotions.
For the year-to-date period of Fiscal 2021, cost of sales, exclusive of
depreciation and amortization, as a percentage of net sales decreased by
approximately 360 basis points as compared to the year-to-date period of Fiscal
2020. The year-over-year decline was primarily attributable to increased average
unit retail on reduced promotions and markdowns.
Gross profit, exclusive of depreciation and amortization
Thirteen Weeks Ended
October 30, 2021 October 31, 2020
(in thousands) % of Net sales % of Net sales BPS Change
Gross profit, exclusive of depreciation and
amortization $ 576,244 63.7% $ 524,433 64.0% (30)
Thirty-nine Weeks Ended
October 30, 2021 October 31, 2020
(in thousands) % of Net Sales % of Net Sales BPS Change
Gross profit, exclusive of depreciation and
amortization $ 1,634,863 64.1% $ 1,212,186 60.5% 360
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Stores and distribution expense
Thirteen Weeks Ended
October 30, 2021 October 31, 2020
(in thousands) % of Net sales % of Net sales BPS Change
Stores and distribution expense $ 351,804 38.9% $ 346,263 42.2% (330)
Thirty-nine Weeks Ended
October 30, 2021 October 31, 2020
(in thousands) % of Net Sales % of Net Sales BPS Change
Stores and distribution expense $ 994,347 39.0% $ 978,757 48.9% (990)
For the third quarter of Fiscal 2021, stores and distribution expense increased
2% as compared to the third quarter of Fiscal 2020, primarily driven by a $13
million increase in digital sales marketing expense, a $5 million increase in
digital direct expense, and a $3 million increase in digital shipping and
handling expenses, reflecting 8% year-over-year digital sales growth. These
increases were partially offset by a $19 million reduction in store occupancy
expense reflecting a decrease in store count and favorable rent negotiations.
For the year-to-date period of Fiscal 2021, stores and distribution expense
increased 2% as compared to the year-to-date period of Fiscal 2020, primarily
driven by a $36 million increase in store payroll expense, reflecting the return
of certain expenses saved last year from COVID-19 temporary store closures, a
$24 million increase in digital sales marketing expense, and a $15 million
increase in digital shipping and handling expense reflecting 14% year-over-year
digital sales growth. These increases were partially offset by a $75 million
reduction in store occupancy expense reflecting a decrease in store count and
favorable rent negotiations and include approximately $18 million in benefits
related to rent abatements and a favorable resolution of a flagship store
closure.
Marketing, general and administrative expense
Thirteen Weeks Ended
October 30, 2021 October 31, 2020
(in thousands) % of Net sales % of Net sales BPS Change
Marketing, general and administrative
expense $ 146,269 16.2% $ 121,000 14.8% 140
Thirty-nine Weeks Ended
October 30, 2021 October 31, 2020
(in thousands) % of Net Sales % of Net Sales BPS Change
Marketing, general and administrative
expense $ 391,129 15.3% $ 326,509 16.3% (100)
For the third quarter of Fiscal 2021, marketing, general and administrative
expense increased 21% as compared to the third quarter of Fiscal 2020, primarily
driven by increased digital media spend, performance-based compensation, legal,
consulting and information technology expense. These increases were partially
offset by a decrease in depreciation expense.
For the year-to-date period of Fiscal 2021, marketing, general and
administration expense increased 20% as compared to the year-to-date period of
Fiscal 2020, primarily driven by increased digital media spend,
performance-based compensation, legal, consulting and information technology
expense. These increases were partially offset by a decrease in depreciation
expense.
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Flagship store exit charges (benefits)
Thirteen Weeks Ended
October 30, 2021 October 31, 2020
(in thousands) % of Net sales % of Net sales BPS Change
Flagship store exit charges (benefits) $ 11 -% $ (8,063) (1.0)% 100
Thirty-nine Weeks Ended
October 30, 2021 October 31, 2020
(in thousands) % of Net Sales % of Net Sales BPS Change
Flagship store exit charges (benefits) $ (1,177) -% $ (12,490) (0.6)% 60
Refer to Note 16, " FLAGSHIP STORE EXIT CHARGE S ( BENEFITS )."
Asset impairment
Thirteen Weeks Ended
October 30, 2021 October 31, 2020
(in thousands) % of Net sales % of Net sales BPS Change
Asset impairment $ 6,749 0.7% $ 6,329 0.8% (10)
Excluded items:
Asset impairment charges (1) (6,749) (0.7)% (6,329) (0.8)% 10
Adjusted non-GAAP asset impairment $ - 0.0% $ - -% -
Thirty-nine Weeks Ended
October 30, 2021 October 31, 2020
(in thousands) % of Net Sales % of Net Sales BPS Change
Asset impairment $ 10,199 0.4% $ 57,340 2.9% (250)
Excluded items:
Asset impairment charges (1) (10,199) (0.4)% (57,340) (2.9)% 250
Adjusted non-GAAP asset impairment $ - 0.0% $ - -% -
(1) Refer to " NON-GAAP FINANCIAL MEASURES ," for further details.
Refer to Note 9, " ASSET IMPAIRMENT ."
Other operating income (loss), net
Thirteen Weeks Ended
October 30, 2021 October 31, 2020
(in thousands) % of Net sales % of Net sales BPS Change
Other operating income (loss), net $ 1,320 0.1% $ (288) -% (10)
Thirty-nine Weeks Ended
October 30, 2021 October 31, 2020
(in thousands) % of Net Sales % of Net Sales BPS Change
Other operating income, net $ 4,586 0.2% $ 1,562 0.1% 10
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Operating income (loss)
Thirteen Weeks Ended
October 30, 2021 October 31, 2020
(in thousands) % of Net sales % of Net sales BPS Change
Operating income $ 72,731 8.0% $ 58,616 7.2% 80
Excluded items:
Asset impairment charges (1) 6,749 0.7% 6,329 0.8% (10)
Adjusted non-GAAP operating income $ 79,480 8.8% $ 64,945 7.9% 90
Thirty-nine Weeks Ended
October 30, 2021 October 31, 2020
(in thousands) % of Net Sales % of Net Sales BPS Change
Operating income (loss) $ 244,951 9.6% $ (136,368) (6.8)% 1,640
Excluded items:
Asset impairment charges (1) 10,199 0.4% 57,340 2.9% (250)
Adjusted non-GAAP operating income (loss) $ 255,150 10.0% $ (79,028) (3.9)% 1,390
(1) Refer to " NON-GAAP FINANCIAL MEASURES ," for further details.
Interest expense, net
Thirteen Weeks Ended
October 30, 2021 October 31, 2020
(in thousands) % of Net sales % of Net sales BPS Change
Interest expense $ 7,802 0.9% $ 9,408 1.1% (20)
Interest income (532) (0.1)% (600) (0.1)% -
Interest expense, net $ 7,270 0.8% $ 8,808 1.1% (30)
Thirty-nine Weeks Ended
October 30, 2021 October 31, 2020
(in thousands) % of Net Sales % of Net Sales BPS Change
Interest expense $ 30,505 1.2% $ 22,242 1.1% 10
Interest income (3,354) (0.1)% (2,965) (0.1)% -
Interest expense, net $ 27,151 1.1% $ 19,277 1.0% 10
For the third quarter of Fiscal 2021, interest expense, net decreased $1.5
million as compared to the third quarter of Fiscal 2020, primarily driven by
lower interest expense as a result of lower borrowings in the current quarter
due to the purchase of Senior Secured Notes in the second quarter of Fiscal
2021, as well as the settlement of a lease liability related to a previously
closed store.
For the year-to-date period of Fiscal 2021, interest expense, net increased $7.9
million as compared to the year-to-date period of Fiscal 2020. The increase in
interest expense, net, is primarily driven by the loss on the extinguishment of
debt related to the purchase of Senior Secured Notes and higher interest expense
in the current year, reflecting higher average borrowings outstanding at a
higher interest rate.
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Income tax expense
Thirteen Weeks Ended
October 30, 2021 October 31, 2020
(in thousands, except ratios) Effective Tax Rate Effective Tax Rate
Income tax expense $ 16,383 25.0% $ 5,779 11.6%
Excluded items:
Tax effect of pre-tax excluded items (1) 1,375 369
Adjusted non-GAAP income tax expense $ 17,758 24.6% $ 6,148 11.0%
Thirty-nine Weeks Ended
October 30, 2021 October 31, 2020
(in thousands, except ratios) Effective Tax Rate Effective Tax Rate
Income tax expense $ 15,560 7.1% $ 38,565 (24.8)%
Excluded items:
Tax effect of pre-tax excluded items (1) 2,048 3,635
Adjusted non-GAAP income tax expense $ 17,608 7.7% $ 42,200 (42.9)%
(1) The tax effect of pre-tax excluded items is the difference between the tax
provision calculation on a GAAP basis and on an adjusted non-GAAP basis. Refer
to "Operating income (loss)" for details of pre-tax excluded items.
Refer to Note 10, " INCOME TAXES ."
Net income (loss) attributable to A&F
Thirteen Weeks Ended
October 30, 2021 October 31, 2020
(in thousands) % of Net sales % of Net sales BPS Change
Net income attributable to A&F $ 47,233 5.2% $ 42,271 5.2% -
Excluded items, net of tax (1) 5,374 0.6% 5,960 0.7% (10)
Adjusted non-GAAP net income attributable
to A&F (2) $ 52,607 5.8% $ 48,231 5.9% (10)
Thirty-nine Weeks Ended
October 30, 2021 October 31, 2020
(in thousands) % of Net Sales % of Net Sales BPS Change
Net income (loss) attributable to A&F $ 197,501 7.7% $ (196,413) (9.8)% 1,750
Excluded items, net of tax (1) 8,151 0.3% 53,705 2.7% (240)
Adjusted non-GAAP net income (loss)
attributable to A&F (2) $ 205,652 8.1% $ (142,708) (7.1)% 1,520
(1) Excluded items presented above under "Operating income (loss)," and "Income
tax expense."
(2) Refer to " NON-GAAP FINANCIAL MEASURES ," for further details.
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Net income (loss) per diluted share attributable to A&F
Thirteen Weeks Ended
October 30,
2021 October 31, 2020 $ Change
Net income per diluted share attributable to A&F
0.66 $0.11
Excluded items, net of tax (1) $ 0.09 $ 0.09 $-
Adjusted non-GAAP net income per diluted share
attributable to A&F $ 0.86 $ 0.76 $0.10
Impact from changes in foreign currency exchange
rates $ - $ (0.05) $0.05
Adjusted non-GAAP net income per diluted share
attributable to A&F on a constant currency basis (2) $ 0.86 $ 0.71 $0.15
Thirty-nine Weeks Ended
October 30,
2021 October 31, 2020 $ ChangeNet income (loss) per diluted share attributable to A&F
$ 3.10 $ (3.14)$6.24 Excluded items, net of tax (1)$ 0.13 $ 0.86$(0.73)
Adjusted non-GAAP net income (loss) per diluted share attributable to A&F
$ 3.22 $ (2.28)$5.50 Impact from changes in foreign currency exchange rates $ - $ (0.02)$0.02
Adjusted non-GAAP net income (loss) per diluted share
attributable to A&F on a constant currency basis (2)
(2.30) $5.52
(1) Excluded items presented above under "Operating income (loss)," and "Income
tax expense."
(2) Refer to " NON-GAAP FINANCIAL MEASURES ," for further details.
35-------------------------------------------------------------------------------- Table of Contents LIQUIDITY AND CAPITAL RESOURCES
Overview
The Company's capital allocation strategy, priorities and investments are reviewed by A&F's Board of Directors considering both liquidity and valuation factors. The Company believes that it will have adequate liquidity to fund operating activities over the next 12 months.
Primary sources and uses of cash
The Company's business has two principal selling seasons: the spring season,
which includes the first and second fiscal quarters ("Spring") and the fall
season, which includes the third and fourth fiscal quarters ("Fall"). The
Company generally experiences its greatest sales activity during the Fall
season, due to the back-to-school and holiday sales periods. The Company relies
on excess operating cash flows, which are largely generated in Fall, to fund
operations throughout the year and to reinvest in the business to support future
growth. The Company also has the ABL Facility available as a source of
additional funding, which is described further below under "Credit facilities
and Senior Secured Notes".
Over the next twelve months, the Company expects its primary cash requirements
to be directed towards prioritizing investments in the business and continuing
to fund operating activities, including the acquisition of inventory, and
obligations related to compensation, marketing, leases and any lease buyouts or
modifications it may exercise, taxes and other operating activities.
The Company evaluates opportunities for investments in the business that are in
line with initiatives that position the business for sustainable long-term
growth that align with its strategic pillars as described within "ITEM 1.
BUSINESS - STRATEGY AND KEY BUSINESS PRIORITIES" of A&F's Annual Report on Form
10-K for Fiscal 2020, including being opportunistic regarding growth
opportunities, such as launching the Social Tourist brand. Examples of potential
investment opportunities include, but are not limited to, new store experiences
and options to early terminate store leases, investments in its omnichannel
initiatives and investments to increase the Company's capacity to fulfill
digital orders. Historically, the Company has utilized free cash flow generated
from operations to fund any discretionary capital expenditures, which have been
prioritized towards new store experiences, as well as digital and omnichannel
investments, information technology, and other projects. For the year-to-date
period ended October 30, 2021 , the Company used $62.2 million towards capital
expenditures. Total capital expenditures for Fiscal 2021 are expected to be
approximately $100 million as compared to $101.9 million of capital expenditures
in Fiscal 2020.
The Company entered Fiscal 2021 in a strong financial position, with cash and
cash equivalents of $1.1 billion and total liquidity of approximately $1.3
billion . This allows the Company to evaluate potential opportunities to
strategically deploy excess cash and delever the balance sheet, depending on
various factors, such as market and business conditions, including the Company's
ability to accelerate investments in the business. Such opportunities include,
but are not limited to, returning cash to shareholders through share repurchases
or repurchasing outstanding senior secured notes.
Share repurchases and dividends
In order to preserve liquidity and maintain financial flexibility in light of COVID-19, inMarch 2020 , the Company announced that it had temporarily suspended its share repurchase program and inMay 2020 , the Company announced that it had temporarily suspended its dividend program. The Company has since resumed share repurchases and may repurchase shares in the future, dependent on various factors, such as market and business conditions, including the Company's ability to accelerate investments in the business. InNovember 2021 , the A&F Board of Directors approved a new$500 million share repurchase authorization, replacing the prior 2021 share repurchase authorization of 10.0 million shares, which had approximately 3.9 million shares remaining available. Historically, the Company has repurchased shares of its Common Stock from time to time, dependent on market and business conditions, with the objectives of offsetting dilution from issuances of Common Stock associated with the exercise of employee stock appreciation rights and the vesting of restricted stock units and returning excess cash to shareholders. Shares may be repurchased in the open market, including pursuant to trading plans established in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), through privately negotiated transactions or other transactions or by a combination of such methods. Refer to " ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS " of Part II of this Quarterly Report on Form 10-Q for the amount remaining available for purchase under the Company's publicly announced stock repurchase authorization. The Company may in the future review its dividend program to determine, in light of facts and circumstances at that time, whether and when to reinstate. Any dividends are declared at the discretion of A&F's Board of Directors. A&F's Board of Directors reviews and establishes a dividend amount, if any, based on A&F's financial condition, results of operations, capital requirements, current and projected cash flows, business prospects and other factors, including the potential severity of impacts to the business resulting from COVID-19 and any restrictions under the Company's agreements related to the Senior Secured Notes and the ABL Facility. A quarterly dividend, of$0.20 per share outstanding, was declared in February and paid in March of Fiscal 2020. There can be no assurance that the Company will pay dividends in the future or, if dividends are paid, that they will be in amounts similar to past dividends. 36 -------------------------------------------------------------------------------- Table of Contents Credit facilities and Senior Secured Notes InJuly 2020 , the Company completed the private offering of the Senior Secured Notes, and received gross proceeds of$350.0 million . The Senior Secured Notes will mature onJuly 15, 2025 and bear interest at a rate of 8.75% per annum, with semi-annual interest payments which began inJanuary 2021 . The Company's debt related to the Senior Secured Notes is presented on the Condensed Consolidated Balance Sheets, net of the unamortized fees. During the thirty-nine weeks endedOctober 30, 2021 , the Company repurchased$42.3 million of its outstanding Senior Secured Notes and incurred$5.3 million of loss on extinguishment of debt, comprised of a premium of$4.7 million and the write-off of unamortized fees of$0.6 million . As ofOctober 30, 2021 , the Company had$307.7 million of gross borrowings outstanding under the Senior Secured Notes. In addition, the ABL Facility provides for a senior secured asset-based revolving credit facility of up to$400 million . As ofOctober 30, 2021 , the Company did not have any borrowings outstanding under the ABL Facility. The ABL Facility matures onApril 29, 2026 . Details regarding the remaining borrowing capacity under the ABL Facility as ofOctober 30, 2021 are as follows: (in thousands) October 30, 2021 Borrowing base $ 301,850 Less: Outstanding stand-by letters of credit (827) Borrowing capacity 301,023 Less: Minimum excess availability (1) (30,185) Borrowing available $ 270,838
(1) The Company must maintain excess availability equal to the greater of 10%
of the loan cap or
Refer to Note 11, " BORROWINGS ."
Income taxes
The Company's earnings and profits from its foreign subsidiaries could be repatriated to theU.S. without incurring additional federal income tax. The Company determined that the balance of the Company's undistributed earnings and profits from its foreign subsidiaries as ofFebruary 2, 2019 are considered indefinitely reinvested outside of theU.S. , and if these funds were to be repatriated to theU.S. , the Company would expect to incur an insignificant amount of state income taxes and foreign withholding taxes. The Company accrues for both state income taxes and foreign withholding taxes with respect to earnings and profits earned afterFebruary 2, 2019 , in such a manner that these funds could be repatriated without incurring additional tax expense. As ofOctober 30, 2021 ,$405.5 million of the Company's$865.6 million of cash and equivalents were held by foreign affiliates. The Company is not dependent on dividends from its foreign affiliates to fund itsU.S. operations or pay dividends, if any, to A&F's stockholders.
Refer to Note 10, " INCOME TAXES ."
Analysis of cash flows
The table below provides certain components of the Company's Condensed
Consolidated Statements of Cash Flows for the thirty-nine weeks ended
Thirty-nine Weeks Ended
October 30, 2021 October 31, 2020
(in thousands)
Cash and equivalents, and restricted cash and equivalents, $ 1,124,157 $ 692,264
beginning of period
Net cash provided by operating activities 131,287 108,894
Net cash used for investing activities (62,223) (41,748)
Net cash (used for) provided by financing activities (304,358) 70,129
Effect of foreign currency exchange rates on cash (8,560) 2,269
Net (decrease) increase in cash and equivalents, and restricted cash and equivalents
(243,854) 139,544
Cash and equivalents, and restricted cash and equivalents, $ 880,303 $ 831,808 end of period
Operating activities - During the year-to-date period endedOctober 30, 2021 , the Company recognized higher cash receipts as compared to the year-to-date period endedOctober 31, 2020 as a result of the 27% year-over-year increase in net sales as the Company experienced widespread temporary store closures in response to COVID-19 during Fiscal 2020. The Company also took various immediate, aggressive actions during Fiscal 2020 to preserve liquidity and manage cash flows in light of COVID-19 in order to best position the business for key stakeholders, including, but not limited to (i) partnering with 37 -------------------------------------------------------------------------------- Table of Contents merchandise and non-merchandise vendors in regards to payment terms; (ii) tightly managing inventory receipts to align inventory with expected market demand; and (iii) significantly reducing expenses to better align operating costs with sales. The Company also suspended rent payments for a larger proportion of its stores in Fiscal 2020 than it has in Fiscal 2021 related to stores that were closed for a period of time as a result of COVID-19. Certain payment term extensions were temporary and certain previously deferred payments have since been made. There can be no assurance that the Company will be able to maintain extended payment terms or continue to defer payments, which may result in incremental operating cash outflows in future periods. In addition, during the year-to-date period endedOctober 30, 2021 , the Company finalized an agreement with and paid its landlord partner to settle all remaining obligations related to the SoHo Hollister flagship store inNew York City , which closed during the second quarter of Fiscal 2019. Prior to this new agreement, the Company was required to make payments in aggregate of$80.1 million pursuant to the lease agreements through Fiscal 2028. The new agreement resulted in an acceleration of payments and provided for a discount resulting in an operating cash outflow of$63.8 million during the year-to-date period endedOctober 30, 2021 . Investing activities - During the year-to-date period endedOctober 30, 2021 , net cash outflows for investing activities were used for capital expenditures of$62.2 million as compared to$91.7 million for the year-to-date period endedOctober 31, 2020 . In addition, the year-to-date period endedOctober 31, 2020 , reflects the withdrawal of$50.0 million from the overfunded Rabbi Trust assets, which represented the majority of excess funds, improving the Company's near-term cash position in light of COVID-19. Financing activities - During the year-to-date period endedOctober 30, 2021 , net cash used by financing activities included the purchase of$42.3 million of outstanding Senior Secured Notes at a premium of$4.7 million . During the year-to-date period endedOctober 31, 2020 , net cash provided by financing activities primarily consisted of the issuance of the Senior Secured Notes and receipt of related gross proceeds of$350.0 million and borrowings under the ABL Facility of$210.0 million . The gross proceeds from the Senior Secured Notes offering were used along with existing cash on hand, to repay all then outstanding borrowings and accrued interest under the Term Loan Facility and ABL Facility, with the remaining net proceeds used towards fees and expenses in connection with such repayments and the offering. In addition, the Company returned$27.7 million to shareholders through share repurchases and dividends during the year-to-date period endedOctober 31, 2020 , prior to the Company's decision to temporarily suspend its share repurchase and dividend programs in light of COVID-19. The Company resumed share repurchase activity beginningMarch 2021 and repurchased approximately 6.1 million shares of A&F's Common Stock with a market value of approximately$235.2 million during the year-to-date period endedOctober 30, 2021 .
Off-balance sheet arrangements
As of
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. There have been no material changes during the thirteen weeks endedOctober 30, 2021 in the contractual obligations as ofJanuary 30, 2021 , 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 2020. The Company reviews recent accounting pronouncements on a quarterly basis and has excluded discussion of those not applicable to the Company and those that did not have, or are not expected to have, a material impact on the Company's consolidated financial statements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company describes its critical accounting policies and estimates in "ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," of A&F's Annual Report on Form 10-K for Fiscal 2020. There have
been no significant changes in critical accounting policies and estimates since
the end of Fiscal 2020.
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NON-GAAP FINANCIAL MEASURES
This Quarterly Report on Form 10-Q includes discussion of certain financial
measures calculated and presented 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 may not reflect its future operating
outlook, such as certain asset impairment charges related to the Company's
flagship stores and significant impairments primarily attributable to the
COVID-19 pandemic, 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
At times, the Company provides comparable sales, defined as the year-over-year percentage change in the aggregate of (1) net sales for stores that have been open as the same brand at least one year and whose square footage has not been expanded or reduced by more than 20% within the past year, with the prior year's net sales converted at the current year's foreign currency exchange rates to remove the impact of foreign currency exchange rate fluctuations, and (2) digital net sales with the prior year's net sales converted at the current year's foreign currency exchange rates to remove the impact of foreign currency exchange rate fluctuations. Comparable sales exclude revenue other than store and digital sales. Management uses comparable sales to understand the drivers of year-over-year changes in net sales and believes comparable sales is a useful metric as it can assist investors in distinguishing the portion of the Company's revenue attributable to existing locations from the portion attributable to the opening or closing of stores. The most directly comparable GAAP financial measure is change in net sales. In light of store closures related to COVID-19, the Company has not disclosed comparable sales for Fiscal 2020 or Fiscal 2021.
Excluded items
The following financial measures are disclosed on a GAAP and on an adjusted non-GAAP basis excluding the following items, as applicable: Financial measures (1) Excluded items Asset impairment Asset impairment charges Operating income (loss) Asset impairment charges Income tax expense (2) Tax effect of pre-tax excluded items Net income (loss) and net income (loss) per Pre-tax excluded items and the tax effect of share attributable to A&F (2) pre-tax excluded
items
(1) Certain of these financial measures are also expressed as a percentage of
net sales.
(2) The tax effect of excluded items is the difference between the tax
provision calculation on a GAAP basis and on an adjusted non-GAAP basis.
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Financial information on a constant currency basis
The Company provides certain financial information on a constant currency basis
to enhance investors' understanding of underlying business trends and operating
performance by removing the impact of foreign currency exchange rate
fluctuations. Management also uses financial information on a constant currency
basis to award employee performance-based compensation. The effect from foreign
currency exchange rates, calculated on a constant currency basis, is determined
by applying the current period's foreign currency exchange rates to the prior
year's results and is net of the year-over-year impact from hedging. The per
diluted share effect from foreign currency exchange rates is calculated using a
26% effective tax rate.
A reconciliation of non-GAAP financial metrics on a constant currency basis to
financial measures calculated and presented in accordance with GAAP for the
thirteen and thirty-nine weeks ended October 30, 2021 and October 31, 2020
follows:
(in thousands, except change in
net sales, gross profit rate,
operating margin and per share
data) Thirteen Weeks Ended Thirty-nine Weeks Ended
October 30, October 31,
Net sales 2021 2020 % Change October 30, 2021 October 31, 2020 % Change
GAAP $ 905,160 $ 819,653 10% $ 2,551,415 $ 2,003,340 27%
Impact from changes in foreign
currency exchange rates - 3,540 -% - 32,518 (2)%
Non-GAAP on a constant currency basis$ 905,160 $ 823,193 10%$ 2,551,415 $ 2,035,858 25% Gross profit, exclusive of depreciation and amortization October 30, October 31, expense 2021 2020 BPS Change (1) October 30, 2021 October 31, 2020 BPS Change (1) GAAP$ 576,244 $ 524,433 (30)$ 1,634,863 $ 1,212,186
360
Impact from changes in foreign currency exchange rates - (1,702) 50 - 17,861
10
Non-GAAP on a constant currency basis$ 576,244 $ 522,731 20$ 1,634,863 $ 1,230,047 370 October 30, October 31, Operating income (loss) 2021 2020 BPS Change (1) October 30, 2021 October 31, 2020 BPS Change (1) GAAP$ 72,731 $ 58,616 80 $ 244,951$ (136,368) 1,640 Excluded items (2) (6,749) (6,329) (10) (10,199) (57,340) 250 Adjusted non-GAAP$ 79,480 $ 64,945 90 $ 255,150 $ (79,028) 1,390 Impact from changes in foreign currency exchange rates - (4,067) 50 - (1,549)
(10)
Adjusted non-GAAP on a constant currency basis$ 79,480 $ 60,878 140 $ 255,150 $ (80,577) 1,400 Net income (loss) per diluted October 30, October 31, share attributable to A&F 2021 2020
$ Change October 30, 2021 October 31, 2020 $ Change
GAAP $ 0.77 $ 0.66 $0.11 $ 3.10 $ (3.14) $6.24
Excluded items, net of tax (2) (0.09) (0.09) - (0.13) (0.86) 0.73
Adjusted non-GAAP $ 0.86 $ 0.76 $0.10 $ 3.22 $ (2.28) $5.50
Impact from changes in foreign
currency exchange rates - (0.05) 0.05 - (0.02) 0.02
Adjusted non-GAAP on a constant currency basis$ 0.86 $ 0.71 $0.15 $ 3.22 $ (2.30)$5.52 (1) The estimated basis point change has been rounded based on the change in the percentage of net sales. (2) Excluded items for the thirteen and thirty-nine weeks endedOctober 30, 2021 andOctober 31, 2020 consisted of pre-tax store asset impairment charges and the tax effect of pre-tax excluded items. 40
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