Abercrombie & Fitch : Q3 2020 Consolidated Statements of Income and Balance Sheets

Abercrombie & Fitch Co.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)

		Thirteen Weeks Ended			Thirteen Weeks Ended
	October 31, 2020		% of		November 2, 2019		% of
		Net Sales			Net Sales
Net sales	$	819,653	100.0 %	$	863,472	100.0 %
Cost of sales, exclusive of depreciation and amortization		295,220	36.0 %			344,541	39.9 %
Gross profit		524,433	64.0 %			518,931	60.1 %
Stores and distribution expense		346,263	42.2 %			377,697	43.7 %
Marketing, general and administrative expense		121,000	14.8 %			114,075	13.2 %
Flagship store exit (benefits) charges		(8,063)	(1.0)%			285	0.0 %
Asset impairment, exclusive of flagship store exit charges		6,329	0.8 %			12,610	1.5 %
Other operating loss (income), net		288	0.0 %			(215)	0.0 %
Operating income		58,616	7.2 %			14,479	1.7 %
Interest expense, net		8,808	1.1 %			2,922	0.3 %
Income before income taxes		49,808	6.1 %			11,557	1.3 %
Income tax expense		5,779	0.7 %			3,987	0.5 %
Net income		44,029	5.4 %			7,570	0.9 %
Less: Net income attributable to noncontrolling interests		1,758	0.2 %			1,047	0.1 %
Net income attributable to Abercrombie & Fitch Co.	$	42,271	5.2 %	$	6,523	0.8 %
Net income per share attributable to Abercrombie & Fitch Co.:
Basic	$	0.68			$	0.10
Diluted	$	0.66			$	0.10
Weighted-average shares outstanding:
Basic		62,558					63,099
Diluted		63,877					63,911

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Abercrombie & Fitch Co.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)

		Thirty-nine Weeks Ended			Thirty-nine Weeks Ended
	October 31, 2020		% of		November 2, 2019		% of
		Net Sales			Net Sales
Net sales	$	2,003,340	100.0 %	$	2,438,522	100.0 %
Cost of sales, exclusive of depreciation and amortization		791,154	39.5 %			976,868	40.1 %
Gross profit		1,212,186	60.5 %			1,461,654	59.9 %
Stores and distribution expense		978,757	48.9 %			1,110,656	45.5 %
Marketing, general and administrative expense		326,509	16.3 %			341,716	14.0 %
Flagship store exit (benefits) charges		(12,490)	(0.6)%			47,023	1.9 %
Asset impairment, exclusive of flagship store exit charges		57,340	2.9 %			14,987	0.6 %
Other operating income, net		(1,562)	(0.1)%			(465)	0.0 %
Operating loss		(136,368)	(6.8)%			(52,263)	(2.1)%
Interest expense, net		19,277	1.0 %			4,908	0.2 %
Loss before income taxes		(155,645)	(7.8)%			(57,171)	(2.3)%
Income tax expense (benefit)		38,565	1.9 %			(16,931)	(0.7)%
Net loss		(194,210)	(9.7)%			(40,240)	(1.7)%
Less: Net income attributable to noncontrolling interests		2,203	0.1 %			3,534	0.1 %
Net loss attributable to Abercrombie & Fitch Co.	$	(196,413)	(9.8)%	$	(43,774)	(1.8)%
Net loss per share attributable to Abercrombie & Fitch Co.:
Basic	$	(3.14)			$	(0.67)
Diluted	$	(3.14)			$	(0.67)
Weighted-average shares outstanding:
Basic		62,541					64,932
Diluted		62,541					64,932

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Reporting and Use of GAAP and Non-GAAP Measures

The company believes that each of the non-GAAP financial measures presented are useful to investors as they provide a measure of the company's operating performance excluding the effect of certain items which 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. Non-GAAP financial measures should be used supplemental 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.

In addition, at times the company provides comparable sales, defined as the percentage year-over-year change in the aggregate of: (1) sales for stores that have been open as the same brand at least one year and whose square footage has not been expanded or reduced by more than 20% within the past year, with prior year's net sales converted at the current year's foreign currency exchange rate to remove the impact of foreign currency rate fluctuation, and (2) direct-to-consumer sales with prior year's net sales converted at the current year's foreign currency exchange rate to remove the impact of foreign currency rate fluctuation.

The company also 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. The effect from foreign currency, calculated on a constant currency basis, is determined by applying current year average exchange rates to prior year results and is net of the year-over-year impact from hedging. The per diluted share effect from foreign currency is calculated using a 26% tax rate.

At times, the company may also refer to certain non-GAAPstore-level metrics, including 4-wall operating margins. Store-level 4- wall operating margins exclude certain components of the company's results of operations, including but not limited to, amounts related to marketing, depreciation and amortization related to home-office and IT assets, distribution center expense, direct-to- consumer expense, and other corporate overhead expenses that are considered normal operating costs as well as all asset impairment and flagship store exit charges. This measure also excludes certain product costs related to direct-to-consumer, wholesale, licensing and franchise operations as well as variances from estimated freight and import costs, and provisions for inventory shrink and lower of cost or net realizable value. In addition, this metric excludes revenue other than store sales and does not include gift card breakage. As such, store-level4-wall operating margins is not indicative of the overall results of the company and does not accrue directly to the benefit of shareholders because of these exclusions. The company provides store- level 4-wall operating margins on occasion because it believes that it provides a meaningful supplement to the company's operating results.

Abercrombie & Fitch Co.

Schedule of Non-GAAP Financial Measures

Thirteen Weeks Ended October 31, 2020

(in thousands, except per share data)

(Unaudited)

		GAAP (1)			Excluded items			Adjusted
						non-GAAP
Asset impairment, exclusive of flagship store exit charges (2)	$	6,329	$	6,329	$	-
Operating income		58,616			(6,329)			64,945
Income before income taxes		49,808			(6,329)			56,137
Income tax expense (3)		5,779			(369)			6,148
Net income attributable to Abercrombie & Fitch Co.	$	42,271	$	(5,960)	$	48,231
Net income per diluted share attributable to Abercrombie & Fitch Co.	$	0.66	$	(0.09)	$	0.76
Diluted weighted-average shares outstanding:		63,877						63,877

(1)	"GAAP" refers to accounting principles generally accepted in the United States of America.

1. Excluded items consist of pre-tax store asset impairment charges of $6.3 million, which are principally the result of the impact of COVID-19 on store cash flows.
2. The tax effect of excluded items is the difference between the tax provision calculated on a GAAP basis and an adjusted non-GAAP basis.

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Abercrombie & Fitch Co.

Schedule of Non-GAAP Financial Measures

Thirteen Weeks Ended November 2, 2019

(in thousands, except per share data)

(Unaudited)

		GAAP (1)			Excluded items			Adjusted
						non-GAAP
Asset impairment, exclusive of flagship store exit charges (2)	$	12,610			10,468	$	2,142
Operating income		14,479			(10,468)			24,947
Income before income taxes		11,557			(10,468)			22,025
Income tax expense (3)		3,987			(2,485)			6,472
Net income attributable to Abercrombie & Fitch Co.	$	6,523	$	(7,983)	$	14,506
Net income per diluted share attributable to Abercrombie & Fitch Co.	$	0.10	$	(0.12)	$	0.23
Diluted weighted-average shares outstanding:		63,911						63,911

1. "GAAP" refers to accounting principles generally accepted in the United States of America.
2. Excluded items consist of pre-tax store asset impairment charges of $10.5 million related to certain of the company's international Abercrombie & Fitch flagship stores.
3. The tax effect of excluded items is the difference between the tax provision calculated on a GAAP basis and an adjusted non-GAAP basis.

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