ABERCROMBIE & FITCH CO.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") generally discusses our results of operations for
Fiscal 2021 and Fiscal 2020 and provides comparisons between such fiscal years.
For our discussion and comparison of Fiscal 2020 and Fiscal 2019, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal
year ended January 30, 2021 . This MD&A should be read together with the
Company's audited Consolidated Financial Statements and notes thereto included
in this Annual Report on Form 10-K in " ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA , " to which all references to Notes in MD&A are made.
INTRODUCTION
MD&A is provided as a supplement to the accompanying 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 . A general description of the Company's business and certain segment information, and an overview of key performance indicators reviewed by various members of management to gauge the Company's results. • Current Trends and Outlook . A discussion of the Company's long-term plans for growth. In addition, this section also provides a summary of the Company's performance over recent years, primarily Fiscal 2021 and Fiscal 2020. • Results of Operations . An analysis of certain components of the Company's Consolidated Statements of Operations and Comprehensive Income (Loss) for Fiscal 2021 as compared to Fiscal 2020. • Liquidity and Capital Resources . A discussion of the Company's financial condition, changes in financial condition and liquidity as ofJanuary 29, 2022 , which includes (i) an analysis of changes in cash flows for Fiscal 2021 as compared to Fiscal 2020, (ii) an analysis of liquidity, including the availability under credit facilities, and outstanding debt and covenant compliance and (iii) a summary of contractual and other obligations as ofJanuary 29, 2022 . • Recent Accounting Pronouncements . The recent accounting pronouncements the Company has adopted or is currently evaluating, including the dates of adoption or expected dates of adoption, as applicable, and anticipated effects on the Company's audited Consolidated Financial Statements, are included in Note 2 " SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ." • Critical Accounting Policies and Estimates . The 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 the Company's management in their application. • Non-GAAP Financial Measures . MD&A provides a discussion of certain financial measures that have been determined to not be in accordance with accounting principles generally accepted in theU.S. ("GAAP"). This section includes certain reconciliations for non-GAAP financial measures and additional details on these financial measures, including information as to why the Company believes the non-GAAP financial measures provided within MD&A are useful to investors.
A discussion of the Company's financial condition, changes in financial
condition and results of operations for Fiscal 2020 as compared to Fiscal 2019,
is incorporated by reference from " ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ," in PART II of
A&F's Annual Report on Form 10-K for Fiscal 2020, filed with the
Safe harbor statement under the Private Securities Litigation Reform Act of 1995
The Company cautions that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this Annual Report on Form 10-K or made by the Company, its management or its spokespeople involve risks and uncertainties and are subject to change based on various factors, many of which may be beyond the Company's control. Words such as "guidance," "outlook," "estimate," "project," "plan," "believe," "expect," "anticipate," "intend," "goal," "should," 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 Annual Report on Form 10-K will prove to be accurate. In light of the significant uncertainties in the forward-looking statements included herein, including the on-going hostilities inUkraine , 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. A discussion of material risks that could affect the Company's financial performance and cause actual results to differ materially from those expressed or implied in any of the forward-looking statements is included in " ITEM 1A. RISK FACTORS ," of this Annual Report on Form 10-K. Abercrombie & Fitch Co. 28 2021 Form 10-K
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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 to
Fiscal year Year ended/ ending Number of weeks Fiscal 2019 February 1, 2020 52 Fiscal 2020 January 30, 2021 52 Fiscal 2021 January 29, 2022 52 Fiscal 2022 January 28, 2023 52 Due to the seasonal nature of the retail apparel industry, the results of operations for any interim period are not necessarily indicative of the results expected for the full fiscal year and the Company could experience significant fluctuations in certain asset and liability accounts. The Company experiences its greatest sales activity during Fall, due to Back-to-School and Holiday sales periods, respectively. Key performance indicators
The following measurements are among the key performance indicators reviewed by various members of the Company's management to gauge the Company's results:
•Changes in net sales and comparable sales;
•Comparative results of operations on a constant currency basis with the prior
year's results converted at the current year's foreign currency exchange rate to
remove the impact of foreign currency exchange rate fluctuation;
•Gross profit and gross profit rate;
•Cost of sales, exclusive of depreciation and amortization, as a percentage of
net sales;
•Stores and distribution expense as a percentage of net sales;
•Marketing, general and administrative expense as a percentage of net sales;
•Operating income and operating income as a percentage of net sales ("operating
margin");
•Net income and net income attributable to A&F;
•Cash flow and liquidity measures, such as the Company's current ratio, working
capital and free cash flow;
•Inventory metrics, such as inventory turnover;
•Return on invested capital and return on equity;
•Store metrics, such as net sales per gross square foot, and store 4-wall
operating margins;
•Digital and omnichannel metrics, such as total shipping expense as a percentage
of digital sales, and certain metrics related to our
purchase-online-pickup-in-store and order-in-store programs;
•Transactional metrics, such as traffic and conversion, performance across key
product categories, average unit retail, average unit cost, average units per
transaction and average transaction values; and
•Customer-centric metrics such as customer satisfaction, customer retention and
acquisition, and certain metrics related to the loyalty programs.
While not all of these metrics are disclosed publicly by the Company due to the proprietary nature of the information, the Company publicly discloses and discusses many of these metrics within this MD&A.
Abercrombie & Fitch Co. 29 2021 Form 10-K
--------------------------------------------------------------------------------Table of Contents CURRENT TRENDS AND OUTLOOK Focus areas for Fiscal 2022
The Company remains committed to, and confident in, its long-term vision of being 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 with positive momentum, and has made progress towards recovering from COVID-19 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 2022 serve as a framework to the Company achieving sustainable growth and long-term operating margin expansion: •Accelerate digital, data and technology investments to increase agility and improve the customer experience; •Create a more personalized customer experience through a connected omnichannel ecosystem, •Optimize our global distribution network to expand digital capacity and improve product delivery speed •Opportunistically open new, omni-enabled stores in under penetrated markets, and •Integrate environmental, social and governance practices and standards throughout the organization.
Global Store Network Optimization
Reflecting a continued focus on its key transformation initiative 'Global Store
Network Optimization,' the Company delivered new store experiences across brands
during Fiscal 2021 and Fiscal 2020. Details related to these new store
experiences follow:
Type of new store experience Fiscal 2021 Fiscal 2020
New stores 38 15
Remodels 2 4
Right-sizes 5 6
Total 45 25
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 its Abercrombie & Fitch brand Singapore and Hamburg flagship locations
during Fiscal 2021. This leaves the Company with five operating flagships at the
end 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 42 non-flagship locations, resulting in 44 total
store closures during Fiscal 2021. Store optimization efforts in Fiscal 2021
reduced total Company store gross square footage by approximately 0.2 million
gross square feet, or 3%, as compared to Fiscal 2020 year-end. The actions taken
in Fiscal 2021, combined with ongoing digital sales growth, are expected to
continue to transform the Company's operating model and reposition the Company
for the future as it continues to focus on aligning store square footage with
digital penetration.
Store count and gross square footage by brand and geography as of
Hollister (1) Abercrombie (2) Total Company (3)
United States International United States International United States International Total
Number of stores:
January 30, 2021 347 150 190 48 537 198 735
New 10 12 7 9 17 21 38
Closed (6) (8) (24) (6) (30) (14) (44)
January 29, 2022 351 154 173 51 524 205 729
Gross square footage (in thousands):
January 30, 2021 2,309 1,219 1,311 393 3,620 1,612 5,232
January 29, 2022 2,312 1,212 1,161 367 3,473 1,579 5,052
(1)Hollister includes the Hollister and Gilly Hicks brands. Locations with Gilly
Hicks carveouts within Hollister stores are represented as a single store count.
Excludes nine international franchise stores as of each of January 29, 2022 and
January 30, 2021 . Excludes 14 Company-operated temporary stores as of
January 29, 2022 and 12 as of January 30, 2021 .
(2)Abercrombie includes the Abercrombie & Fitch and abercrombie kids brands.
Locations with abercrombie kids carveouts within Abercrombie & Fitch stores are
represented as a single store count. Excludes 14 international franchise stores
as of January 29, 2022 and 10 as of January 30, 2021 . Excludes five
Company-operated temporary stores as of January 29, 2022 and two as of
January 30, 2021 .
(3)This store count excludes one international third-party operated multi-brand
outlet store as of January 30, 2021 .
Abercrombie & Fitch Co. 30 2021 Form 10-K
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Table of Contents
Impact of COVID-19
In March 2020 , the COVID-19 outbreak was declared to be a global pandemic by the
World 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 of January 29, 2022 , all U.S.
Company -operated stores were fully open for in-store service; however, temporary
store closures have subsequently been mandated in certain parts of the APAC
region in response to COVID-19. During periods of temporary store closures,
reductions in revenue have not been offset by proportional decreases in expense,
as the Company continues to incur store occupancy costs such as operating lease
costs, net of rent abatements agreed upon during the period, depreciation
expense, and certain other costs such as compensation, net of government payroll
relief, and administrative expenses resulting in a negative effect on the
relationship between the Company's costs and revenues.
Although U.S. and global economies have begun to recover from the COVID-19
pandemic as many health and safety restrictions have been lifted and vaccine
distribution has increased, certain adverse consequences of the pandemic
continue to impact the macroeconomic environment and may persist for some time,
including labor shortages and disruptions of global supply chains and temporary
store closures. 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 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 future
store closures will be necessary.
The Company's digital operations across brands have continued to serve the
Company's customers during periods of temporary store closures. In response to
elevated digital demand during this period, the Company leveraged its
omnichannel capabilities by continuing to offer Purchase-Online-Pickup-in-Store,
including curbside pickup at a majority of U.S. locations, and by utilizing
ship-from-store capabilities, including same-day delivery across its entire U.S.
store fleet. 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 level of digital penetration will
continue when stores operate at full capacity.
For further information about how COVID-19 could impact our operations, refer to
" ITEM 1A. RISK FACTORS ," of this Annual Report on Form 10-K.
Supply chain disruptions, inflation and changing prices
The Company has continued to see disruptions in 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 and other 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. This adversely impacted the Company during the latter half of Fiscal 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. The Company has also recently experienced inflation in labor, raw materials and other costs. Inflation can have a long-term impact on the Company because increasing costs may impact the ability to maintain satisfactory margins. The Company may be unsuccessful in passing these increases on to the customer through higher ticket prices. Furthermore, Increases in inflation may not be matched by growth in consumer income, which also could have a negative impact on spending.
Impact of global events and uncertainty
As a global multi-brand omnichannel specialty retailer, with operations inNorth America ,Europe andAsia , among other regions and, as a result, management is are mindful of macroeconomic risks, global challenges and the changing global geopolitical environment, including the on-going hostilities inUkraine , that could adversely impact certain areas of the business. As a result, in addition to the events listed within MD&A, management continues to monitor certain other global events. The Company continues to assess the potential impacts these events and similar events may have on the business in future periods and continues to develop contingency plans to assist in mitigating potential impacts. It is possible that the Company's preparations for such events are not adequate to mitigate their impact, and that these events could further adversely affect its business and results of operations. For a discussion of material risks that have the potential to cause actual results to differ materially from expectations, refer to " ITEM 1A. RISK FACTORS ," included in this Annual Report on Form 10-K. The Company continues to evaluate opportunities to invest in and make progress on initiatives that position the business for sustainable long-term growth that align with the strategic pillars as described within " ITEM 1. BUSINESS - STRATEGY AND KEY BUSINESS PRIORITIES ," included in this Annual Report on Form 10-K. Abercrombie & Fitch Co. 31 2021 Form 10-K
-------------------------------------------------------------------------------- Table of Contents Summary of results
A summary of results for Fiscal 2021 and Fiscal 2020 follows:
GAAP Non-GAAP (1)
(in thousands, except change in net sales,
gross profit rate, operating margin and per
share amounts) Fiscal 2021 Fiscal 2020 Fiscal 2021 Fiscal 2020 Net sales
$ 3,712,768 $
3,125,384
Change in net sales from the prior fiscal year 19 % (14) % Gross profit rate (2) 62.3 60.5 Operating income (loss)$ 343,084 $ (20,469) $ 355,184 $ 52,468 Operating income (loss) margin 9.2 % (0.7) % 9.6 % 1.7 % Net income (loss) attributable to A&F (3)$ 263,010 $ (114,021) $ 272,689 $ (45,383) Net income (loss) per diluted share attributable to A&F (3) 4.20 (1.82) 4.35 (0.73) (1) Refer to " RESULTS OF OPERATIONS " for details on excluded items. A reconciliation from each non-GAAP financial measure presented in this Annual Report on Form 10-K to the most directly comparable financial measure calculated in accordance with GAAP, as well as a discussion as to why the Company believes that these non-GAAP financial measures are useful to investors is provided below under " NON-GAAP FINANCIAL MEASURES ." (2) Gross profit is derived from cost of sales, exclusive of depreciation and amortization. (3) Fiscal 2021 results includes$42.5 million of tax benefits due to the release of valuation allowances as a result of the improvement seen in business conditions. Fiscal 2020 results included$101 million of adverse tax impacts related to valuation allowances on deferred tax assets and other tax charges as a result of the COVID-19 pandemic, which adversely impacted net loss per diluted share by or$1.61 per share. Refer to Note 12, " INCOME TAXES ."
Certain components of the Company's Consolidated Balance Sheets as of
(in thousands) Balance Sheets data January 29, 2022 January 30, 2021 Cash and equivalents $ 823,139$ 1,104,862 Gross borrowings outstanding, carrying amount 307,730 350,000 Inventories 525,864 404,053 Statement of Cash Flows data Fiscal 2021 Fiscal 2020 Net cash provided by operating activities $ 277,782 $ 404,918 Net cash used for investing activities (96,979) (51,910) Net cash (used for) provided by financing activities (446,898) 69,717 Abercrombie & Fitch Co. 32 2021 Form 10-K
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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
(in thousands) Fiscal 2021 Fiscal 2020 $ Change % Change
Hollister $ 2,147,979 $ 1,834,349 $ 313,630 17%
Abercrombie 1,564,789 1,291,035 273,754 21%
Total Company $ 3,712,768 $ 3,125,384 $ 587,384 19%
Net sales by geographic area are presented by attributing revenues 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 Fiscal 2021 and Fiscal 2020 were as follows:
(in thousands) Fiscal 2021 Fiscal 2020 $ Change % Change
United States $ 2,652,158 $ 2,127,403 $ 524,755 25%
EMEA 755,072 709,451 45,621 6%
APAC 171,701 176,636 (4,935) (3)%
Other 133,837 111,894 21,943 20%
International $ 1,060,610 $ 997,981 $ 62,629 6%
Total Company $ 3,712,768 $ 3,125,384 $ 587,384 19%
For Fiscal 2021, net sales increased 19% as compared to Fiscal 2020, primarily
due to an increase in units sold as a result of increased store traffic relative
to last year, which was impacted by widespread temporary store closures due to
COVID-19, and 4% 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 $26
million .
Cost of sales, exclusive of depreciation and amortization
Fiscal 2021 Fiscal 2020
(in thousands) % of Net Sales % of Net Sales BPS Change
Cost of sales, exclusive of depreciation
and amortization $ 1,400,773 37.7% $ 1,234,179 39.5% (180)
For Fiscal 2021, cost of sales, exclusive of depreciation and amortization, as a
percentage of net sales decreased approximately 180 basis points as compared to
Fiscal 2020. The year-over-year decrease was primarily attributable to
approximately 550 basis points of increased average unit retail as a result of
lower promotions and markdowns, partially offset by higher average unit cost
related to approximately 414 basis points of increased freight costs as well as
other costs incurred to offset supply chain issues.
Gross profit, exclusive of depreciation and amortization
Fiscal 2021 Fiscal 2020
% of Net Sales % of Net Sales BPS Change
Gross profit, exclusive of depreciation and
amortization $ 2,311,995 62.3% $ 1,891,205 60.5% 180
Abercrombie & Fitch Co. 33 2021 Form 10-K
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Stores and distribution expense
Fiscal 2021 Fiscal 2020
(in thousands) % of Net Sales % of Net Sales BPS Change
Stores and distribution expense $ 1,429,476 38.5% $ 1,391,584 44.5% (600)
For Fiscal 2021, stores and distribution expense increased 3% as compared to
Fiscal 2020, primarily driven by a a $42 million increase in digital sales
marketing expense, $36 million increase in payroll expense, reflecting the
return of certain expenses not incurred in Fiscal 2020 due to COVID-19 temporary
store closures, a $15 million increase in digital shipping and handling expense
reflecting 4% year-over-year digital sales growth and a $11 million increase in
digital direct expense. These increases in expense were partially offset by a
$68 million reduction in store occupancy expense, due to a decrease in store
count and favorable rent negotiations and include approximately $17.9 million in
benefits related to rent abatements and a favorable resolution of a flagship
store closure.
Marketing, general and administrative expense
Fiscal 2021 Fiscal 2020
(in thousands) % of Net Sales % of Net Sales BPS Change
Marketing, general and administrative
expense $ 536,815 14.5% $ 463,843 14.8% (30)
For Fiscal 2021, marketing, general and administrative expense increased 16% as
compared to 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.
Flagship store exit (benefits) charges
Fiscal 2021 Fiscal 2020
(in thousands) % of Net Sales % of Net Sales BPS Change
Flagship store exit (benefits) charges $ (1,153) 0.0% $ (11,636) (0.4)% 40
For Fiscal 2021, flagship store exit benefits primarily related to the closure
of two international
Asset impairment, exclusive of flagship store exit charges
Fiscal 2021 Fiscal 2020
(in thousands) % of Net Sales % of Net Sales BPS Change
Asset impairment, exclusive of flagship
store exit charges $ 12,100 0.3% $ 72,937 2.3% (200)
Excluded items:
Asset impairment charges (1) (12,100) (0.3)% (72,937) (2.3)% 200
Adjusted non-GAAP asset impairment,
exclusive of flagship store exit charges $ - 0.0% $ - 0.0% -
(1) Refer to " NON-GAAP FINANCIAL MEASURES ," for further details.
Refer to Note 9, " ASSET IMPAIRMENT ," for further discussion.
Abercrombie & Fitch Co. 34 2021 Form 10-K
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Other operating income, net
Fiscal 2021 Fiscal 2020
(in thousands) % of Net Sales % of Net Sales BPS Change
Other operating income, net $ 8,327 0.2% $ 5,054 0.2% -
For Fiscal 2021, other operating income, net, increased as compared to Fiscal 2020, primarily due to sublease rental income recognized in Fiscal 2021.
Operating income (loss)
Fiscal 2021 Fiscal 2020
(in thousands) % of Net Sales % of Net Sales BPS Change
Operating (loss) income $ 343,084 9.2% $ (20,469) (0.7)% 990
Excluded items:
Asset impairment charges (1) 12,100 0.3% 72,937 2.3% (200)
Adjusted non-GAAP operating income $ 355,184 9.6% $ 52,468 1.7% 790
(1) Refer to " NON-GAAP FINANCIAL MEASURES ," for further details.
Interest expense, net
Fiscal 2021 Fiscal 2020
(in thousands) % of Net Sales % of Net Sales BPS Change
Interest expense $ 37,958 1.0% $ 31,726 1.0% -
Interest income (3,848) (0.1)% (3,452) (0.1)% -
Interest expense, net $ 34,110 0.9% $ 28,274 0.9% -
For Fiscal 2021, interest expense, net, increased 21% 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 than before the completion of the Senior Secured Notes
private offering.
Income tax expense
Fiscal 2021 Fiscal 2020
(in thousands, except ratios) Effective Tax Rate Effective Tax Rate
Income tax expense $ 38,908 12.6% $ 60,211 (123.5)%
Excluded items:
Tax effect of pre-tax excluded items (1) 2,421 4,299
Adjusted non-GAAP income tax expense $ 41,329 12.9% $ 64,510 266.6%
(1) Refer to "Operating income (loss)" for details of pre-tax excluded items. The tax effect of pre-tax excluded items is the difference between the tax provision calculation on a GAAP basis and an adjusted non-GAAP basis.
The Company's effective tax rate for Fiscal 2021 was impacted by$42.5 million of tax benefits due to the release of valuation allowances, primarily in theU.S. andGermany , and a discrete tax benefit of$3.9 million due to a rate change in theU.K. The Company did not recognize income tax benefits on$25.3 million of pre-tax losses generated in Fiscal 2021 primarily inSwitzerland , resulting in adverse tax impacts of$4.6 million .
Refer to Note 12, " INCOME TAXES ," for further discussion on factors that impacted the effective tax rate in Fiscal 2021 and Fiscal 2020.
Abercrombie & Fitch Co. 35 2021 Form 10-K
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Net income (loss) attributable to A&F
Fiscal 2021 Fiscal 2020
(in thousands) % of Net Sales % of Net Sales BPS Change
Net income (loss) attributable to A&F $ 263,010 7.1% $ (114,021) (3.6)% 1,070
Excluded items, net of tax (1) 9,679 0.3% 68,638 2.2% (190)
Adjusted non-GAAP net income (loss)
attributable to A&F (2) $ 272,689 7.3% $ (45,383) (1.5)% 880
(1) Excludes items presented above under "Operating income (loss)," and "Income tax expense."
Net income (loss) per diluted share attributable to A&F
Fiscal 2021 Fiscal 2020 $ Change
Net income (loss) per diluted share attributable to A&F
$ (1.82) $6.02 Excluded items, net of tax (1) 0.15 1.10 (0.95)
Adjusted non-GAAP net income (loss) per diluted share attributable to A&F
$ 4.35 $ (0.73) $5.08 Impact from changes in foreign currency exchange rates - 0.01 (0.01)
Adjusted non-GAAP net income (loss) per diluted share
attributable to A&F on a constant currency basis(2)
$ (0.74) $5.09 (1) Excludes items presented above under "Operating income (loss)," and "Income tax expense." (2) Refer to " NON-GAAP FINANCIAL MEASURES ," for further details. Abercrombie & Fitch Co. 36 2021 Form 10-K
-------------------------------------------------------------------------------- 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. Regarding returns to shareholders, although the dividend program remains suspended, during Fiscal 2021, the Company resumed share repurchases. The timing and amount of any future share repurchases will depend on various factors, such as market and business conditions, including the Company's ability to accelerate investments in the business. The Company believes that it will have adequate liquidity to fund operating activities over the next 12 months. The Company monitors financing market conditions and may in the future determine whether and when to amend, modify, or restructure its Credit Facilities and/or Senior Secured Notes.
Primary sources and uses of cash
The Company's business has two principal selling seasons: Spring and Fall. The Company experiences its greatest sales activity during Fall, due to back-to-school and holiday sales periods. The Company relies on excess operating cash flows, which are largely generated in Fall, to fund operations throughout the year and to reinvest in the business to support future growth. The Company also has 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 12 months, the Company expects its primary cash requirements to be directed towards funding 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 ". 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 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 Fiscal 2021, the Company used$97.0 million towards capital expenditures, down from$101.9 million of capital expenditures in Fiscal 2020. Total capital expenditures for Fiscal 2022 are expected to be approximately$150 million .
Share repurchases and dividends
In order to preserve liquidity and maintain financial flexibility in light of COVID-19, the Company announced that it had temporarily suspended its dividend and share repurchase programs in Fiscal 2020.. The Company has since adopted a new share repurchase program and may repurchase shares in the future, but the timing and amount of any further repurchases are dependent on various factors, such as market and business conditions, including the Company's ability to accelerate investments in the business. The Company's dividend program remains suspended. 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. InNovember 2021 , the A&F Board of Directors approved a new$500 million share repurchase authorization, replacing the priorFebruary 19, 2021 share repurchase authorization of 10.0 million shares, which had approximately 3.9 million shares remaining available at termination. During Fiscal 2021, the Company repurchased 10.2 million shares and returned$377 million to shareholders through share repurchases. The timing and amount of any future share repurchases will depend on various factors, including market and business conditions. The Company has repurchased shares of its Common Stock from time to time, dependent on market and business conditions, with the objectives of returning excess cash to shareholders and offsetting dilution from issuances of Common Stock associated with the exercise of employee stock appreciation rights and the vesting of restricted stock units. Shares may be repurchased in the open market, including pursuant to any trading plans established in accordance with Rule 10b5-1 of the Exchange Act, through privately negotiated transactions or other transactions or by a combination of such methods. Refer to " ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES " for additional information regarding the Company's share repurchases during the fourth quarter of Fiscal 2021 and the number of shares remaining available for purchase under the Company's publicly announced stock repurchase authorization. A&F's Board of Directors reviews and establishes a dividend amount, if at all, 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. There can be no assurance that the Company will declare and pay dividends in the future or, if dividends are paid, that they will be in amounts similar to past dividends.
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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 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 Consolidated Balance Sheet, net of the unamortized fees. During Fiscal 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 repayment premium of$4.7 million and the write-off of unamortized fees of$0.6 million . As ofJanuary 29, 2022 , the Company had$307.7 million of gross indebtedness outstanding under the Senior Secured Notes. OnApril 29, 2021 , A&F Management, in A&F Management's capacity as the lead borrower, and the other borrowers and guarantors party thereto, amended and restated in its entirety the Credit Agreement, dated as ofAugust 7, 2014 , as amended onSeptember 10, 2015 and as further amended onOctober 19, 2017 (as amended and restated, the "Amended and Restated Credit Agreement"), among A&F Management, the other borrowers and guarantors party thereto, the lenders party thereto,Wells Fargo Bank, National Association , as administrative agent for the lenders, and the other parties thereto. The Amended and Restated Credit Agreement continues to provide for a senior secured revolving credit facility of up to$400.0 million (the "ABL Facility"), and (i) extends the maturity date of the ABL Facility fromOctober 19, 2022 toApril 29, 2026 ; and (ii) modifies the required fee on undrawn commitments under the ABL Facility from 0.25% per annum to either 0.25% or 0.375% per annum (with the ultimate amount dependent on the conditions detailed in the Amended and Restated Credit Agreement).
The Company did not have any borrowings outstanding under the ABL Facility as of
Details regarding borrowing available to the Company under the ABL Facility as ofJanuary 29, 2022 follow: (in thousands) January 29, 2022 Borrowing base $ 279,105 Less: Outstanding stand-by letters of credit (814) Borrowing capacity 278,291 Less: Minimum excess availability (1) (30,000)
Borrowing available under the ABL Facility $ 248,291
(1) The Company must maintain excess availability equal to the greater of 10%
of the loan cap or
Refer to Note 13, " BORROWINGS ," for additional information.
Income taxes
The Company's earnings and profits from its foreign subsidiaries may be repatriated to theU.S. , without incurring additionalU.S. 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 may be repatriated without incurring additional tax expense. As ofJanuary 29, 2022 ,$380.6 million of the Company's$823.1 million of cash and equivalents were held by foreign affiliates. The Company is not dependent on dividends from its foreign affiliates to fund itsU.S. operations or to fund investing and financing cash flow activities.
Refer to Note 12, " INCOME TAXES ," for additional details regarding the impact certain events related to the Company's income taxes had on the Company's Consolidated Financial Statements.
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Table of Contents Analysis of cash flows
The table below provides certain components of the Company's Consolidated Statements of Cash Flows for Fiscal 2021 and Fiscal 2020:
(in thousands) Fiscal 2021 Fiscal 2020 Cash and equivalents, and restricted cash and equivalents,$ 1,124,157 $ 692,264 beginning of period Net cash provided by operating activities 277,782 404,918 Net cash used for investing activities (96,979) (51,910) Net cash (used for) provided by financing activities (446,898) 69,717
Effects of foreign currency exchange rate changes on cash (23,694)
9,168
Net (decrease) increase in cash and equivalents, and restricted cash and equivalents
$ (289,789) $ 431,893 Cash and equivalents, and restricted cash and equivalents,$ 834,368 $ 1,124,157 end of period
Operating activities - For Fiscal 2021 the Company recognized higher cash receipts as compared to Fiscal 2020 as a result of the 19% 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 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 Fiscal 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 Fiscal 2021. While the Company has been successful in obtaining certain rent abatements and landlord concessions of rent payable during Fiscal 2021 as a result of COVID-19 store closures, the Company continues to engage with its landlords to find a mutually beneficial and agreeable path forward for certain of its other leases. Investing activities - For Fiscal 2021, net cash outflows for investing activities were used for capital expenditures of$97.0 million as compared to$101.9 million in Fiscal 2020. In addition, Fiscal 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 - For Fiscal 2021, net cash used by financing activities primarily consisted of the repurchase of approximately 10.2 million shares of A&F's Common stock in the open market with a market value of approximately$377 million . In addition, the Company repurchased$42.3 million of its outstanding Senior Secured Notes at a premium of$4.7 million . For Fiscal 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 the ABL Facility, with the remaining net proceeds used towards fees and expenses in connection with such repayments and the offering. In addition, the Company repurchased approximately 1.4 million shares of A&F's Common Stock with a market value of approximately$15.2 million and paid dividends of$12.6 million during Fiscal 2020, prior to the Company's decision to temporarily suspend its share repurchase and dividend programs in light of COVID-19. -------------------------------------------------------------------------------- Table of Contents Contractual obligations As ofJanuary 29, 2022 , the Company's contractual obligations were as follows: Payments due by period (in thousands) Total Less than 1 year 1-3 years 3-5 years More than 5 years Operating lease obligations (1)$ 1,064,468 $ 266,893
369,153 325,963 26,754 5,342 11,094
Long-term debt obligations (3) 307,730 - - 307,730 -
Other obligations (4) 172,944 42,221 75,295 33,176 22,252
Total $ 1,914,295 $ 635,077 $ 469,795 $ 585,093 $ 224,330
(1)Operating lease obligations consist of the Company's future undiscounted
operating lease payments, including future fixed lease payments associated with
closed flagship stores. Operating lease obligations do not include variable
payments related to both lease and nonlease components, such as contingent rent
payments made by the Company based on performance, and payments related to
taxes, insurance, and maintenance costs. Total variable lease cost was $110.9
million in Fiscal 2021. Refer to Note 2, " SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - Leases ," and Note 8, " LEASES ," for further discussion.
(2)Purchase obligations primarily consist of non-cancelable purchase orders for
merchandise to be delivered during Fiscal 2022 and commitments for fabric
expected to be used during upcoming seasons. In addition, purchase obligations
include agreements to purchase goods or services, including, but not limited to,
information technology, digital and marketing contracts, as well as estimated
obligations related to the Company's 13-year, 100% renewable energy supply
agreement for its global home office and Company-owned distribution centers
which is expected to begin in the Company's fiscal year ending January 28, 2023 .
(3)Long-term debt obligations consist of principal payments under the Senior Secured Notes. Refer to Note 13, " BORROWINGS ," for further discussion.
(4)Other obligations consists of: interest payments related to the Senior Secured Notes assuming normally scheduled principal payments; estimated asset retirement obligations; accrued rent related to stores where the Company suspended payments in light of COVID-19 temporary store closures and continues to engage with its landlords on a agreeable path forward; the amount of the employer-paid portion of social security taxes deferred in light of COVID-19; payments from the Supplemental Executive Retirement Plan; known and scheduled payments related to the Company's deferred compensation and supplemental retirement plans; tax payments associated with the provisional, mandatory one-time deemed repatriation tax on accumulated foreign earnings, net payable over eight years pursuant to the Act; and minimum contractual obligations related to leases signed but not yet commenced, primarily related to the Company's stores. Refer to Note 8, " LEASES ," Note 12, " INCOME TAXES ," Note 13, " BORROWINGS ," and Note 17, " SAVINGS AND RETIREMENT PLANS ," for further discussion. Due to uncertainty as to the amounts and timing of future payments, tax related to uncertain tax positions, including accrued interest and penalties, of$1.2 million as ofJanuary 29, 2022 is excluded from the contractual obligations table. Deferred taxes are also excluded in the contractual obligations table. For further discussion, refer to Note 12, " INCOME TAXES ." As ofJanuary 29, 2022 , the Company had recorded$2.8 million and$42.3 million of obligations related to its deferred compensation and supplemental retirement plans in accrued expenses and other liabilities on the Consolidated Balance Sheet, respectively. Amounts payable with known payment dates of$14.2 million have been classified in the contractual obligations table based on those scheduled payment dates. However, it is not reasonably practicable to estimate the timing and amounts for the remainder of these obligations, therefore, those amounts have been excluded in the contractual obligations table. A&F had historically paid quarterly dividends on its Common Stock. Due to the fact that the dividend program is currently suspended and given the payment of future dividends are subject to determination and approval by A&F's Board of Directors, there are no amounts included in the contractual obligations table related to dividends.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company describes its significant accounting policies in Note 2, " SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ." 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's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts. Since actual results may differ from those estimates, the Company revises its estimates and assumptions as new information becomes available. The Company believes the following policies are the most critical to the portrayal of the Company's financial condition and results of operations.
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Effect if Actual Results Differ from
Policy Assumptions
Inventory Valuation
The Company reviews inventories on a quarterly basis. The Company does not expect material
The Company reduces the inventory valuation when the changes to the underlying assumptions used
carrying cost of specific inventory items on hand to measure the LCNRV estimate as of
exceeds the amount expected to be realized from the January 29, 2022 . However, actual results
ultimate sale or disposal of the goods, through a lower could vary from estimates and could
of cost and net realizable value ("LCNRV") adjustment. significantly impact the ending inventory
valuation at cost, as well as gross profit.
The LCNRV adjustment reduces inventory to its net
realizable value based on the Company's consideration An increase or decrease in the LCNRV
of multiple factors and assumptions, including demand adjustment of 10% would have affected
forecasts, current sales volumes, expected sell-off pre-tax loss by approximately $1.7 million
activity, composition and aging of inventory, for Fiscal 2021.
historical recoverability experience and risk of obsolescence from changes in economic conditions or customer preferences. Valuation of deferred tax assets The provision for income taxes is determined using the The Company does not expect material asset and liability approach. Tax laws often require changes in the judgments, assumptions or items to be included in tax filings at different times interpretations used to calculate the tax than the items are being reflected in the financial provision for Fiscal 2022. However, changes statements. Deferred taxes represent the future tax in these judgments, assumptions or consequences expected to occur when the reported interpretations may occur and should those amounts of assets and liabilities are recovered or changes be significant, they could have a paid. Valuation allowances are recorded in certain material impact on the Company's income tax jurisdictions to reduce deferred tax assets when it is provision. As of the end of Fiscal 2021, more likely than not that a tax benefit will not be the Company had recorded valuation realized. allowances of$110.1 million Effect if Actual Results Differ from Policy Assumptions Long-lived Assets Long-lived assets, primarily operating lease Store assets that were tested for right-of-use assets, leasehold improvements, furniture, impairment as ofJanuary 29, 2022 and not fixtures and equipment, are tested for recoverability impaired, had long-lived assets with a net whenever events or changes in circumstances indicate book value of$60.6 million , which included that the carrying amount of the long-lived asset group$53.6 million of operating lease might not be recoverable. These include, but are not right-of-use assets as ofJanuary 29, 2022 . limited to, material declines in operational performance, a history of losses, an expectation of Store assets that were previously impaired future losses, adverse market conditions and store as ofJanuary 29, 2022 , had a remaining net closure or relocation decisions. On at least a book value of$80.9 million , which included quarterly basis, the Company reviews for indicators of$73.5 million of operating lease impairment at the individual store level, the lowest right-of-use assets, as ofJanuary 29 , level for which cash flows are identifiable. 2022. Stores that display an indicator of impairment are While the Company If actual results are not subjected to an impairment assessment. The Company's consistent with the estimates and impairment assessment requires management to make assumptions used in assessing impairment or assumptions and judgments related, but not limited, to measuring impairment losses, there may be a management's expectations for future operations and material impact on the Company's financial projected cash flows. The key assumption used in the condition or results of operation. Company's undiscounted future store cash flow models is estimated sales growth rate. An impairment loss may be recognized when these undiscounted future cash flows are less than the carrying amount of the asset group. In the circumstance of impairment, any loss would be measured as the excess of the carrying amount of the asset group over its fair value. Fair value of the Company's store-related assets is determined at the individual store level based on the highest and best use of the asset group. The key assumptions used in the Company's fair value analysis are estimated sales growth and comparable market rents. Leases The Company's lease right-of-use assets represent the The Company does not expect material Company's right to use an underlying asset for the changes to the underlying assumptions used lease term. The Company's lease liabilities represent to measure its lease liabilities as of the Company's obligation to make lease payments arisingJanuary 29, 2022 . from the lease. On the lease commencement date, the Company recognizes an asset for the right to use a An increase or decrease of 10% in the leased asset and a liability based on the present value Company's weighted-average discount rate as of remaining lease payments over the lease term on the ofJanuary 29, 2022 , would impact both the Consolidated Balance Sheets. Company's
total assets and total
liabilities by less than 1% and would not
In measuring the Company's lease liabilities, the have a material impact on the Company's
remaining lease payments are discounted to present pre-tax loss for Fiscal 2021.
value using a discount rate. 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 the lease 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 estimates its incremental borrowing rate on
a quarterly basis, based on the rate of interest that
the Company would have to pay to borrow, on a
collateralized basis over a similar term, an amount
equal to the lease payments in a similar economic
environment.
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NON-GAAP FINANCIAL MEASURES
This Annual Report on Form 10-K includes discussion of certain financial
measures on both a GAAP and a non-GAAP basis. The Company believes that each of
the non-GAAP financial measures presented in this " ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS " is
useful to investors as it provides a meaningful basis to evaluate the Company's
operating performance excluding the effect of certain items that the Company
believes do not reflect its future operating outlook, such as certain asset
impairment charges related to the Company's flagship stores and significant
impairments primarily attributable to the COVID-19 pandemic, therefore
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) 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 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. Historically, management had used comparable sales to understand the drivers of year-over-year changes in net sales as well as a performance metric for certain performance-based restricted stock units. The Company believes comparable sales can be 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 2021.
Excluded items
The following financial measures are disclosed on a GAAP basis and on an adjusted non-GAAP basis excluding the following items, as applicable:
Financial measures (1) Excluded items Asset impairment, exclusive of flagship store Certain asset impairment charges exit charges Operating (loss) income Certain asset impairment charges Income tax expense (2) Tax effect of pre-tax excluded items Net (loss) income and net (loss) income 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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Table of Contents Financial information on a constant currency basis The Company provides certain financial information on a constant currency basis to enhance investors' understanding of underlying business trends and operating performance by removing the impact of foreign currency exchange rate fluctuations. Management also uses financial information on a constant currency basis to award employee performance-based compensation. The effect from foreign currency exchange rates, calculated on a constant currency basis, is determined by applying the current period's foreign currency exchange rates to the prior year's results and is net of the year-over-year impact from hedging. The per diluted share effect from foreign currency exchange rates is calculated using a 26% effective tax rate.
A reconciliation of financial metrics on a constant currency basis to GAAP for Fiscal 2021 and Fiscal 2020 is as follows:
(in thousands, except change in net sales, gross profit rate, operating margin and per share data) Net sales Fiscal 2021 Fiscal 2020 % Change GAAP$ 3,712,768 $ 3,125,384 19% Impact from changes in foreign currency exchange rates - (25,927) 1% Net sales on a constant currency basis$ 3,712,768 $ 3,151,311 18% Gross profit Fiscal 2021 Fiscal 2020 BPS Change (1) GAAP$ 2,311,995 $ 1,891,205 180 Impact from changes in foreign currency exchange rates - 13,865 0
Gross profit on a constant currency basis
180
Operating (loss) income Fiscal 2021 Fiscal 2020 BPS Change (1)
GAAP $ 343,084 $ (20,469) 990
Excluded items (2) (12,100) (72,937) 200
Adjusted non-GAAP $ 355,184 $ 52,468 790
Impact from changes in foreign currency exchange
rates - (1,399) 10
Adjusted non-GAAP on a constant currency basis
800
Net (loss) income per diluted share attributable
to A&F Fiscal 2021 Fiscal 2020 $ Change
GAAP $ 4.20 $ (1.82) $6.02
Excluded items, net of tax (2) (0.15) (1.10) 0.95
Adjusted non-GAAP $ 4.35 $ (0.73) $5.08
Impact from changes in foreign currency exchange
rates - 0.01 (0.01)
Adjusted non-GAAP on a constant currency basis
(0.74)$5.09 (1) The estimated basis point change has been rounded based on the percentage of net sales change. (2) Refer to " RESULTS OF OPERATIONS ," for details on excluded items. The tax effect of excluded items is calculated as the difference between the tax provision on a GAAP basis and an adjusted non-GAAP basis.
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