Abercrombie & Fitch Co 8-K, filed Mar 3, 2021
Abercrombie & Fitch Co (ANF)
8-K
2021-03-03
For: 2021-03-01
View Original
Added on
April 11, 2026
About this 8-K
Abercrombie & Fitch Co filed this 8-K on March 3, 2021, reporting on events of March 1, 2021.
Items reported
- Item 2.02: Financial results
- Item 4.02: Earlier financial statements no longer reliable
- Item 8.01: Other events
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 1, 2021
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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Item 2.02. Results of Operations and Financial Condition.
On March 2, 2021, Abercrombie & Fitch Co. (the “Company”) issued a news release (the “Release”) reporting the Company’s unaudited financial results for the fourth quarter and fiscal year ended January 30, 2021. A copy of the Release is included as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.
In conjunction with the Release, the Company also made available additional unaudited quarterly financial information for each of the quarters in the fiscal years ended January 30, 2021 and February 1, 2020, along with additional financial information for the fiscal years ended February 2, 2019, February 3, 2018 and January 28, 2017. The additional financial information is included as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated herein by reference.
In conjunction with the Release, the Company also made available an investor presentation of results for the fourth quarter and fiscal year ended January 30, 2021. The presentation, which is available under the “Investors” section of the Company’s website, located at corporate.abercrombie.com, is included as Exhibit 99.3 to this Current Report on Form 8-K and is incorporated herein by reference.
The Company’s management conducted a conference call on March 2, 2021 to review the Company’s financial results for the fourth quarter and fiscal year ended January 30, 2021. A copy of the transcript of the conference call is included as Exhibit 99.4 to this Current Report on Form 8-K and is incorporated herein by reference.
Item 4.02. Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.
The Company has determined that the withdrawal of $50 million of excess funds from assets held in the Company’s irrevocable rabbi trust (the "Rabbi Trust") in March 2020 was incorrectly presented as cash provided by operating activities, rather than cash provided by (used for) investing activities in the Company’s Condensed Consolidated Statements of Cash Flows for the thirteen week, twenty-six week, and thirty-nine week periods ended May 2, 2020, August 1, 2020, and October 31, 2020, respectively (collectively, the “Fiscal 2020 Interim Cash Flow Statements”).
As a result, on March 1, 2021, the Audit and Finance Committee of the Board of Directors of the Company (the “Audit Committee”), after discussion with the Company’s management and with PricewaterhouseCoopers LLP, the Company's independent registered public accounting firm, concluded that the previously issued unaudited condensed consolidated financial statements as of and for the periods ended May 2, 2020, August 1, 2020, and October 31, 2020 included in the Company’s quarterly reports on Form 10-Q filed with the Securities and Exchange Commission (the “SEC”) on June 10, 2020, September 8, 2020, and December 7, 2020, respectively, (collectively, the “Fiscal 2020 Interim Financial Statements”) should no longer be relied upon and are to be restated in order to correct the classification error. Accordingly, the Company will disclose the impact of such restatements on its Fiscal 2020 Interim Financial Statements in conjunction with its Annual Report on Form 10-K for the year ended January 30, 2021 (the “Company’s Fiscal 2020 Form 10-K”), which the Company currently expects to file with the SEC the week of March 29, 2021.
The restatement will correct the presentation of the withdrawal of $50 million of excess funds from the Company’s Rabbi Trust so that it is reported as a cash inflow from investing activity, rather than as a cash inflow from operating activity in each of the Fiscal 2020 Interim Cash Flow Statements included in the Fiscal 2020 Interim Financial Statements. The classification error also affects cash flow information previously presented in the Company’s first quarter through third quarter of fiscal 2020 earnings releases and the investor presentations made available in conjunction therewith, including free cash flow, a non-GAAP metric derived from net cash provided by operating activities, which was previously presented in the Company’s third quarter of fiscal 2020 investor presentation. The classification error did not have an impact on the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), Condensed Consolidated Balance Sheets or Condensed Consolidated Statements of Stockholders’ Equity included within the Fiscal 2020 Interim Financial Statements or on any other financial data that the Company had previously presented in its periodic reports, earnings releases, or investor presentations.
The Company has not filed and does not intend to file amendments to the Company’s previously filed Quarterly Reports on Form 10-Q for the periods affected by the correction of the classification error and restatement of the Company’s Fiscal 2020 Interim Financial Statements as described above. Investors and others should rely on the financial information and other disclosures regarding the restated Fiscal 2020 Interim Financial Statements, to be disclosed in the Company’s Fiscal 2020 Form 10-K and in the Company’s future filings with the SEC (as applicable).
The effects of the classification error on the Fiscal 2020 Interim Cash Flow Statements are shown in the tables below.
| Thirteen Weeks Ended | |||||||||||||||||
| As Originally Reported | As Restated | ||||||||||||||||
| (in thousands) | May 2, 2020 | Adjustment | May 2, 2020 | ||||||||||||||
| Net cash used for operating activities | $ | (90,776) | $ | (50,000) | $ | (140,776) | |||||||||||
| Net cash (used for) provided by investing activities | (46,990) | $ | 50,000 | 3,010 | |||||||||||||
| Net cash provided by financing activities | 171,668 | — | 171,668 | ||||||||||||||
| Effect of foreign currency exchange rates on cash | (3,891) | — | (3,891) | ||||||||||||||
| Net increase in cash and equivalents, and restricted cash and equivalents | $ | 30,011 | — | $ | 30,011 | ||||||||||||
| Cash and equivalents, and restricted cash and equivalents, beginning of period | $ | 692,264 | — | $ | 692,264 | ||||||||||||
| Cash and equivalents, and restricted cash and equivalents, end of period | $ | 722,275 | — | $ | 722,275 | ||||||||||||
| Twenty-six Weeks Ended | |||||||||||||||||
| As Originally Reported | As Restated | ||||||||||||||||
| (in thousands) | August 1, 2020 | Adjustment | August 1, 2020 | ||||||||||||||
| Net cash provided by operating activities | $ | 96,233 | $ | (50,000) | $ | 46,233 | |||||||||||
| Net cash used for investing activities | (75,621) | $ | 50,000 | (25,621) | |||||||||||||
| Net cash provided by financing activities | 71,329 | — | 71,329 | ||||||||||||||
| Effect of foreign currency exchange rates on cash | 1,785 | — | 1,785 | ||||||||||||||
| Net increase in cash and equivalents, and restricted cash and equivalents | $ | 93,726 | — | $ | 93,726 | ||||||||||||
| Cash and equivalents, and restricted cash and equivalents, beginning of period | $ | 692,264 | — | $ | 692,264 | ||||||||||||
| Cash and equivalents, and restricted cash and equivalents, end of period | $ | 785,990 | — | $ | 785,990 | ||||||||||||
| Thirty-nine Weeks Ended | |||||||||||||||||
| As Originally Reported | As Restated | ||||||||||||||||
| (in thousands) | October 31, 2020 | Adjustment | October 31, 2020 | ||||||||||||||
| Net cash provided by operating activities | $ | 158,894 | $ | (50,000) | $ | 108,894 | |||||||||||
| Net cash used for investing activities | (91,748) | $ | 50,000 | (41,748) | |||||||||||||
| Net cash provided by financing activities | 70,129 | — | 70,129 | ||||||||||||||
| Effect of foreign currency exchange rates on cash | 2,269 | — | 2,269 | ||||||||||||||
| Net increase in cash and equivalents, and restricted cash and equivalents | $ | 139,544 | — | $ | 139,544 | ||||||||||||
| Cash and equivalents, and restricted cash and equivalents, beginning of period | $ | 692,264 | — | $ | 692,264 | ||||||||||||
| Cash and equivalents, and restricted cash and equivalents, end of period | $ | 831,808 | — | $ | 831,808 | ||||||||||||
The Company’s management has concluded that in light of the classification error described above, a material weakness exists in the Company's internal control over financial reporting and that the Company’s disclosure controls and procedures were not effective. The Company expects to report a material weakness in its internal control over financial reporting, as well as its related remediation efforts undertaken to address such material weakness, in the Company’s Fiscal 2020 Form 10-K.
The Company’s management and the Audit Committee have discussed the matters disclosed in this Item 4.02 with the Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP.
Item 8.01. Other Events.
As of January 30, 2021, the Company had the authority to repurchase approximately 3.2 million shares under the previously approved June 2019 share repurchase authorization. As announced in the Release, at the meeting of the
Board of Directors of the Company held on February 19, 2021, the Board of Directors of the Company authorized the repurchase of ten million shares of the Company’s Class A Common Stock. This authorization replaced the June 2019 share repurchase authorization, bringing the total number of shares that the Company is authorized to repurchase as of February 19, 2021 to ten million shares.
Following the Company's previously announced decision to temporarily suspend its share repurchase program in light of the impacts of the COVID-19 pandemic, the Company plans to resume share repurchase activity beginning on or after March 4, 2021. The timing and amount of any future share repurchases will depend on various factors, including market and business conditions.
Item 9.01. Financial Statements and Exhibits.
(a) through (c) Not applicable
(d) Exhibits:
The following exhibits are included with this Current Report on Form 8-K:
| Exhibit No. | Description | |||||||
| 99.1 | ||||||||
| 99.2 | ||||||||
| 99.3 | ||||||||
| 99.4 | ||||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Abercrombie & Fitch Co. | |||||||||||
| Dated: March 3, 2021 | By: | /s/ Scott Lipesky | |||||||||
| Scott Lipesky | |||||||||||
| Senior Vice President and Chief Financial Officer | |||||||||||
ABERCROMBIE & FITCH CO. REPORTS FOURTH QUARTER AND FULL YEAR RESULTS
Delivers fourth quarter net income per diluted share of $1.27 and $1.50 on a GAAP and non-GAAP basis, respectively, fueled by record digital sales, gross profit rate expansion and tight expense controls
Ends fiscal 2020 with a significantly transformed business model, with 54% of full-year revenues digitally-derived and a 17% reduction in global store square footage, accounting for 1.1 million gross square feet
New Albany, Ohio, March 2, 2021: Abercrombie & Fitch Co. (NYSE: ANF) today announced results for the fourth quarter and fiscal year ended January 30, 2021. These compare to results for the fourth quarter and fiscal year ended February 1, 2020. Descriptions of the use of non-GAAP financial measures and reconciliations of GAAP and non-GAAP financial measures accompany this release.
Fran Horowitz, Chief Executive Officer, said, “I am proud of our execution in the fourth quarter, where we exceeded initial internal expectations. We listened and remained close to our customer, adjusting our product and messaging to align with their new reality. We drove 34% digital sales growth, expanded gross profit rate by 230 basis points and reduced operating expense during the fourth quarter."
“For the year, we made significant progress on our key transformation initiatives. We leaned into our infrastructure to grow digital to 54% of annual revenues while utilizing our lease flexibility to take approximately 1.1 million gross square feet, or 17%, out of our base, including eight tourist-dependent flagships. At the same time, we continued to make strategic investments to support future growth including: opening smaller, more omni-enabled experiences; adding senior level talent in key areas including marketing, data and analytics and digital; and further building-out regional teams in EMEA and APAC. We remain focused on controlling what we can control and ended 2020 even stronger than we started.”
“As we enter 2021, we are pleased with our start to the first quarter and have proven strategies in place to build on recent successes in product, marketing and digital. Our solid foundation and strong liquidity position enable us to be on the offense as we continue to focus on profitable topline growth, square footage optimization, digital transformation and global market share gains. While the landscape remains uncertain, I am excited about the future and more confident than ever in our ability to drive sustainable long-term operating margin expansion.”
Details related to net income (loss) per diluted share for the fourth quarter and full year are as follows:
| Fourth Quarter | Full Year | |||||||||||||||||||||||||
| 2020 | 2019 | 2020 (1) | 2019 (2) | |||||||||||||||||||||||
| GAAP | $ | 1.27 | $ | 1.29 | $ | (1.82) | $ | 0.60 | ||||||||||||||||||
Excluded items, net of tax effect (3) | (0.23) | (0.01) | (1.10) | (0.13) | ||||||||||||||||||||||
| Adjusted non-GAAP | $ | 1.50 | $ | 1.31 | $ | (0.73) | $ | 0.73 | ||||||||||||||||||
Impact from changes in foreign currency exchange rates (4) | — | 0.17 | — | 0.29 | ||||||||||||||||||||||
| Adjusted non-GAAP constant currency | $ | 1.50 | $ | 1.48 | $ | (0.73) | $ | 1.02 | ||||||||||||||||||
(1)Net loss per diluted share for the full year of fiscal 2020 includes adverse tax impacts of $101 million, or $1.61 per diluted share, related to valuation allowances on deferred tax assets and other tax charges as a result of the COVID-19 pandemic.
(2)Net income per diluted share for the full year of fiscal 2019 includes the adverse impact from flagship store exit charges of $47 million, or $0.53 per diluted share, net of estimated tax effect which is calculated as the difference between the tax provision with and without these charges.
(3)Excluded items consist of certain pre-tax store asset impairment charges and the tax effect of pre-tax excluded items.
(4)The estimated impact from foreign currency is calculated by applying current period exchange rates to prior year results using a 26% tax rate.
A summary of results for the fourth quarter ended January 30, 2021 as compared to the fourth quarter ended February 1, 2020:
•Net sales of $1.1 billion down 5% as compared to last year, reflecting the adverse impact of COVID-19.
•Digital net sales increased 34% to $639 million reflecting robust growth in every month of the quarter.
•Gross profit rate improved 230 basis points to 60.5% on higher average unit retail and slightly lower average unit cost.
•Operating expense, excluding other operating income, was approximately flat and down 3% as compared to last year on a reported and adjusted non-GAAP basis, respectively, reflecting an ongoing focus on managing costs. Operating expense as a percentage of sales deleveraged 260 basis points on a reported basis and 140 basis points on an adjusted non-GAAP basis as compared to last year.
•Operating income of $116 million and $131 million on a reported and adjusted non-GAAP basis, respectively, as compared to $122 million and $125 million last year, on a reported and adjusted non-GAAP basis, respectively.
•Net income per diluted share of $1.27 and $1.50 on a reported and adjusted non-GAAP basis, respectively, as compared to net income per diluted share last year of $1.29 and $1.31 on a reported and adjusted non-GAAP basis, respectively.
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A summary of results for the full year ended January 30, 2021 as compared to the full year ended February 1, 2020:
•Net sales of $3.1 billion down 14% as compared to last year, reflecting the adverse impact of COVID-19.
•Digital net sales increased 39% to approximately $1.7 billion.
•Gross profit rate improved by 110 basis points to 60.5% on higher average unit retail and flat average unit cost.
•Operating expense, excluding other operating income, was down 8% and 11% as compared to last year on a reported and adjusted non-GAAP basis, respectively. Operating expense as a percentage of sales deleveraged 380 basis points on a reported basis and 190 basis points on an adjusted non-GAAP basis as compared to last year. Operating expense reflects $12 million of benefits from flagship store exits this year compared to $47 million of flagship store exit charges last year.
•Operating loss of $20 million and operating income of $52 million on a reported and adjusted non-GAAP basis, respectively. This compares to operating income last year of $70 million and $83 million on a reported and adjusted non-GAAP basis, respectively.
•Net loss per diluted share of $1.82 and $0.73 on a reported and adjusted non-GAAP basis, respectively, as compared to net income per diluted share last year of $0.60 and $0.73 on a reported and adjusted non-GAAP basis, respectively. Net loss per diluted share for the full year of fiscal 2020 includes adverse tax impacts of $101 million, or $1.61 per diluted share, related to valuation allowances on deferred tax assets and other tax charges as a result of the COVID-19 pandemic.
•Generated positive operating cash flows of $405 million during the full year ended January 30, 2021, ending the year with liquidity of approximately $1.3 billion. During the fourth quarter ended January 30, 2021, the Company corrected an error in the presentation of the $50 million withdrawal of the excess funds from the company’s Rabbi Trust assets relative to prior periods. Refer to the "Cash Flow and Capital Allocation" section within this release for further details.
| Net Sales | ||
Net sales by brand and region for the fourth quarter and full year are as follows:
| Fourth Quarter | |||||||||||||||||
| (in thousands) | 2020 | 2019 | % Change | ||||||||||||||
Net sales by brand: (1) | |||||||||||||||||
| Hollister | $ | 655,424 | $ | 710,540 | (8)% | ||||||||||||
Abercrombie | 466,620 | 474,011 | (2)% | ||||||||||||||
| Total company | $ | 1,122,044 | $ | 1,184,551 | (5)% | ||||||||||||
| Net sales by region: | 2020 | 2019 | % Change | ||||||||||||||
| United States | $ | 788,056 | $ | 814,079 | (3)% | ||||||||||||
| EMEA | 235,286 | 255,639 | (8)% | ||||||||||||||
| APAC | 58,868 | 76,059 | (23)% | ||||||||||||||
| Other | 39,834 | 38,774 | 3% | ||||||||||||||
| International | 333,988 | 370,472 | (10)% | ||||||||||||||
| Total company | $ | 1,122,044 | $ | 1,184,551 | (5)% | ||||||||||||
| Full Year | |||||||||||||||||
| (in thousands) | 2020 | 2019 | % Change | ||||||||||||||
Net sales by brand: (1) | |||||||||||||||||
| Hollister | $ | 1,834,349 | $ | 2,158,514 | (15)% | ||||||||||||
| Abercrombie | 1,291,035 | 1,464,559 | (12)% | ||||||||||||||
| Total company | $ | 3,125,384 | $ | 3,623,073 | (14)% | ||||||||||||
| Net sales by region: | 2020 | 2019 | % Change | ||||||||||||||
| United States | $ | 2,127,403 | $ | 2,410,802 | (12)% | ||||||||||||
| EMEA | 709,451 | 822,202 | (14)% | ||||||||||||||
| APAC | 176,636 | 264,895 | (33)% | ||||||||||||||
| Other | 111,894 | 125,174 | (11)% | ||||||||||||||
| International | 997,981 | 1,212,271 | (18)% | ||||||||||||||
| Total company | $ | 3,125,384 | $ | 3,623,073 | (14)% | ||||||||||||
(1) Hollister includes the Hollister and Gilly Hicks by Hollister brands. Abercrombie includes the Abercrombie & Fitch and abercrombie kids brands.
| Financial Position and Liquidity | ||
As of January 30, 2021 the company had:
•Cash and equivalents of $1.1 billion as compared to $671 million last year.
•Inventories of $404 million, a decrease of approximately 7% over last year.
•Long-term gross borrowings under the company's senior secured notes of $350 million (the "Senior Secured Notes") which mature in July 2025 and bear interest at a rate of 8.75% per annum.
•Borrowing available under the senior-secured asset-based revolving credit facility (the "ABL Facility") of $215 million.
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•Liquidity, comprised of cash and equivalents and borrowing available under the ABL Facility, of approximately $1.3 billion. This compares to liquidity of $914 million as of February 1, 2020.
| Cash Flow and Capital Allocation | ||
Details related to the company's cash flows for the full year ended January 30, 2021 are as follows:
•Net cash provided by operating activities of $405 million.
•Net cash used for investing activities of $52 million. Capital expenditures were $102 million in fiscal 2020 as compared to $203 million in fiscal 2019.
•Net cash provided by financing activities of $70 million, reflecting the issuance of the Senior Secured Notes of $350 million which were used, along with existing cash on hand, to repay outstanding borrowings under the credit facilities.
Depreciation and amortization was $166 million for fiscal 2020 as compared to $174 million in fiscal 2019.
During the fourth quarter ended January 30, 2021, an error relating to the cash flow presentation of the $50 million withdrawal of the excess funds from the company’s Rabbi Trust assets was identified in the year-to-date cash flows presented in each of the fiscal 2020 interim periods. The year-to-date cash flows presented in fiscal 2020 interim periods incorrectly classified such withdrawal as a cash inflow from operating activities, rather than a cash inflow from investing activities. The fiscal 2020 annual cash flow statement reflects the correct presentation.
| Returns to Shareholders | ||
Following the company's decision to suspend its share repurchase and dividend programs in light of COVID-19 during fiscal 2020, the company now plans to resume share repurchase activity.
As of January 30, 2021, the Company had the authority to repurchase approximately 3.2 million shares as part of the A&F Board of Directors’ previously approved June 2019 share repurchase authorization. On February 19, 2021, the A&F Board of Directors replaced the then existing share repurchase authorization with a new 10.0 million share authorization, bringing total shares available for purchase as of February 19, 2021 to 10.0 million shares. The timing and amount of repurchases will depend on various factors, including market and business conditions.
The company returned $28 million to shareholders during fiscal 2020 through share repurchases and dividends.
| Global Store Network Optimization Update | ||
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 eight flagship locations during fiscal 2020. This leaves the company with seven operating flagships at the end of fiscal 2020, down from 15 at the beginning of the year. In addition, the company closed 129 non-flagship locations, resulting in 137 total store closures during fiscal 2020. These actions reduced total company gross square footage by approximately 1.1 million gross square feet, or 17%, as compared to fiscal 2019 year-end.
The company continues to thoughtfully open new stores and invest in smaller omni-enabled store experiences that align with local customer shopping preferences as stores are a critical part of the omnichannel brand experience. During fiscal 2020, the company opened 15 new store locations, remodeled 4 store locations and right-sized an additional 6 store locations.
The company continues to review opportunities to further optimize its global square footage through a combination of mall-based and flagship store closures and the rightsizing of legacy store formats. The actions taken in fiscal 2020, combined with ongoing digital sales growth, will continue to transform the company's operating model and reposition the company for the future.
| Conference Call | ||
Today at 8:30 AM, ET, the company will conduct a conference call. To listen to the conference call, dial (800) 289-0571 or go to corporate.abercrombie.com. The international call-in number is (323) 794-2093. This call will be recorded and made available by dialing the replay number (888) 203-1112 or the international number (719) 457-0820 followed by the conference ID number 1719266 or through corporate.abercrombie.com. A presentation of fourth quarter and full year results will be available in the “Investors” section at corporate.abercrombie.com at approximately 7:30 AM, ET, today.
| Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 | ||
A&F cautions that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this Press Release or made by management or spokespeople of A&F 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
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“estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” and similar expressions may identify forward-looking statements. Except as may be required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements. The following factors, in addition to those disclosed in “ITEM 1A. RISK FACTORS” of A&F’s Annual Report on Form 10-K for the fiscal year ended February 1, 2020, and in A&F’s subsequently filed quarterly reports on Form 10-Q, in some cases have affected, and in the future could affect, the company’s financial performance and could cause actual results for fiscal 2020 and beyond to differ materially from those expressed or implied in any of the forward-looking statements included in this Press Release or otherwise made by management: the current outbreak of the novel coronavirus, or COVID-19, has materially adversely impacted and disrupted, and may continue to materially adversely impact and cause disruption to, our business, financial performance and condition, operating results, liquidity and cash flows; the spread of the COVID-19 outbreak has caused significant disruptions in the United States and global economy, the extent of the impact and duration of which is not yet known and any future outbreak of any other highly infectious or contagious disease could have a similar impact; 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 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; 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 or civil unrest could have a material adverse impact on our business; 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; 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; 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, or effectively manage succession could have a material adverse impact on our business; 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.
| About Abercrombie & Fitch Co. | ||
Abercrombie & Fitch Co. (NYSE: ANF) is a leading, global specialty retailer of apparel and accessories for men, women and kids through four brands. Abercrombie & Fitch believes that every day should feel as exceptional as the start of the long weekend. Since 1892, the brand has been a specialty retailer of quality apparel, outerwear and fragrance - designed to inspire our global customers to feel confident, be comfortable and face their Fierce. The quintessential retail brand of the global teen consumer, Hollister Co. believes in liberating the spirit of an endless summer inside everyone. At Hollister, summer isn’t just a season, it’s a state of mind. Hollister creates carefree style designed to make all teens feel celebrated and comfortable in their own skin, so they can live in a summer mindset all year long, whatever the season. A global specialty retailer of quality, comfortable, made-to-play favorites, abercrombie kids sees the world through kids’ eyes, where play is life and every day is an opportunity to be anything and better everything. Hollister also carries an intimates brand, Gilly Hicks by Hollister, which offers intimates, loungewear and sleepwear. Its products are designed to invite everyone to embrace who they are underneath it all.
The brands share a commitment to offering products of enduring quality and exceptional comfort that allow consumers around the world to express their own individuality and style. The company operates over 730 stores under these brands across North America, Europe, Asia and the Middle East, as well as the e-commerce sites www.abercrombie.com and www.hollisterco.com.
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| Investor Contact: | Media Contact: | |||||||
| Pamela Quintiliano | Mackenzie Gusweiler | |||||||
| Abercrombie & Fitch Co. | Abercrombie & Fitch Co. | |||||||
| (614) 283-6751 | (614) 283-6192 | |||||||
| Investor_Relations@anfcorp.com | Public_Relations@anfcorp.com | |||||||
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| Abercrombie & Fitch Co. | |||||||||||||||||||||||
| Condensed Consolidated Statements of Operations | |||||||||||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| Thirteen Weeks Ended | Thirteen Weeks Ended | ||||||||||||||||||||||
| January 30, 2021 | % of Net Sales | February 1, 2020 | % of Net Sales | ||||||||||||||||||||
| Net sales | $ | 1,122,044 | 100.0 | % | $ | 1,184,551 | 100.0 | % | |||||||||||||||
| Cost of sales, exclusive of depreciation and amortization | 443,025 | 39.5 | % | 495,287 | 41.8 | % | |||||||||||||||||
| Gross profit | 679,019 | 60.5 | % | 689,264 | 58.2 | % | |||||||||||||||||
| Stores and distribution expense | 412,827 | 36.8 | % | 440,587 | 37.2 | % | |||||||||||||||||
| Marketing, general and administrative expense | 137,334 | 12.2 | % | 122,899 | 10.4 | % | |||||||||||||||||
| Flagship store exit charges | 854 | 0.1 | % | 234 | 0.0 | % | |||||||||||||||||
| Asset impairment, exclusive of flagship store exit charges | 15,597 | 1.4 | % | 4,148 | 0.4 | % | |||||||||||||||||
| Other operating income, net | (3,492) | (0.3) | % | (935) | (0.1) | % | |||||||||||||||||
| Operating income | 115,899 | 10.3 | % | 122,331 | 10.3 | % | |||||||||||||||||
| Interest expense, net | 8,997 | 0.8 | % | 2,829 | 0.2 | % | |||||||||||||||||
| Income before income taxes | 106,902 | 9.5 | % | 119,502 | 10.1 | % | |||||||||||||||||
| Income tax expense | 21,646 | 1.9 | % | 34,302 | 2.9 | % | |||||||||||||||||
| Net income | 85,256 | 7.6 | % | 85,200 | 7.2 | % | |||||||||||||||||
| Less: Net income attributable to noncontrolling interests | 2,864 | 0.3 | % | 2,068 | 0.2 | % | |||||||||||||||||
| Net income attributable to Abercrombie & Fitch Co. | $ | 82,392 | 7.3 | % | $ | 83,132 | 7.0 | % | |||||||||||||||
| Net income per share attributable to Abercrombie & Fitch Co.: | |||||||||||||||||||||||
| Basic | $ | 1.32 | $ | 1.32 | |||||||||||||||||||
| Diluted | $ | 1.27 | $ | 1.29 | |||||||||||||||||||
| Weighted-average shares outstanding: | |||||||||||||||||||||||
| Basic | 62,581 | 62,916 | |||||||||||||||||||||
| Diluted | 64,788 | 64,198 | |||||||||||||||||||||
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| Abercrombie & Fitch Co. | |||||||||||||||||||||||
| Condensed Consolidated Statements of Operations | |||||||||||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| Fifty-Two Weeks Ended | Fifty-Two Weeks Ended | ||||||||||||||||||||||
| January 30, 2021 | % of Net Sales | February 1, 2020 | % of Net Sales | ||||||||||||||||||||
| Net sales | $ | 3,125,384 | 100.0 | % | $ | 3,623,073 | 100.0 | % | |||||||||||||||
| Cost of sales, exclusive of depreciation and amortization | 1,234,179 | 39.5 | % | 1,472,155 | 40.6 | % | |||||||||||||||||
| Gross profit | 1,891,205 | 60.5 | % | 2,150,918 | 59.4 | % | |||||||||||||||||
| Stores and distribution expense | 1,391,584 | 44.5 | % | 1,551,243 | 42.8 | % | |||||||||||||||||
| Marketing, general and administrative expense | 463,843 | 14.8 | % | 464,615 | 12.8 | % | |||||||||||||||||
| Flagship store exit (benefit) charges | (11,636) | (0.4) | % | 47,257 | 1.3 | % | |||||||||||||||||
| Asset impairment, exclusive of flagship store exit charges | 72,937 | 2.3 | % | 19,135 | 0.5 | % | |||||||||||||||||
| Other operating income, net | (5,054) | (0.2) | % | (1,400) | 0.0 | % | |||||||||||||||||
| Operating (loss) income | (20,469) | (0.7) | % | 70,068 | 1.9 | % | |||||||||||||||||
| Interest expense, net | 28,274 | 0.9 | % | 7,737 | 0.2 | % | |||||||||||||||||
| (Loss) income before income taxes | (48,743) | (1.6) | % | 62,331 | 1.7 | % | |||||||||||||||||
| Income tax expense | 60,211 | 1.9 | % | 17,371 | 0.5 | % | |||||||||||||||||
| Net (loss) income | (108,954) | (3.5) | % | 44,960 | 1.2 | % | |||||||||||||||||
| Less: Net income attributable to noncontrolling interests | 5,067 | 0.2 | % | 5,602 | 0.2 | % | |||||||||||||||||
| Net (loss) income attributable to Abercrombie & Fitch Co. | $ | (114,021) | (3.6) | % | $ | 39,358 | 1.1 | % | |||||||||||||||
| Net (loss) income per share attributable to Abercrombie & Fitch Co.: | |||||||||||||||||||||||
| Basic | $ | (1.82) | $ | 0.61 | |||||||||||||||||||
| Diluted | $ | (1.82) | $ | 0.60 | |||||||||||||||||||
| Weighted-average shares outstanding: | |||||||||||||||||||||||
| Basic | 62,551 | 64,428 | |||||||||||||||||||||
| Diluted | 62,551 | 65,778 | |||||||||||||||||||||
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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, 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-GAAP store-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 of 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-level 4-wall operating margin 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 January 30, 2021 | |||||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
GAAP (1) | Excluded items | Adjusted non-GAAP | |||||||||||||||
Asset impairment, exclusive of flagship store exit charges (2) | $ | 15,597 | $ | 15,597 | $ | — | |||||||||||
| Operating income | 115,899 | (15,597) | 131,496 | ||||||||||||||
| Income before income taxes | 106,902 | (15,597) | 122,499 | ||||||||||||||
Income tax expense (3) | 21,646 | (664) | 22,310 | ||||||||||||||
Net income attributable to Abercrombie & Fitch Co. | $ | 82,392 | $ | (14,933) | $ | 97,325 | |||||||||||
| Net income per diluted share attributable to Abercrombie & Fitch Co. | $ | 1.27 | $ | (0.23) | $ | 1.50 | |||||||||||
| Diluted weighted-average shares outstanding: | 64,788 | 64,788 | |||||||||||||||
(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 $15.6 million, which are principally the result of the impact of COVID-19 on store cash flows.
(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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| Abercrombie & Fitch Co. | |||||||||||||||||
| Schedule of Non-GAAP Financial Measures | |||||||||||||||||
| Thirteen Weeks Ended February 1, 2020 | |||||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
GAAP (1) | Excluded items | Adjusted non-GAAP | |||||||||||||||
Asset impairment, exclusive of flagship store exit charges (2) | $ | 4,148 | $ | 2,284 | $ | 1,864 | |||||||||||
| Operating income | 122,331 | (2,284) | 124,615 | ||||||||||||||
Income before income taxes (2) | 119,502 | (2,284) | 121,786 | ||||||||||||||
Income tax expense (3) | 34,302 | (1,528) | 35,830 | ||||||||||||||
Net income attributable to Abercrombie & Fitch Co. | $ | 83,132 | $ | (756) | $ | 83,888 | |||||||||||
| Net income per diluted share attributable to Abercrombie & Fitch Co. | $ | 1.29 | $ | (0.01) | $ | 1.31 | |||||||||||
| Diluted weighted-average shares outstanding: | 64,198 | 64,198 | |||||||||||||||
(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 $2.3 million related to certain of the company’s 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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| Abercrombie & Fitch Co. | |||||||||||||||||
| Schedule of Non-GAAP Financial Measures | |||||||||||||||||
| Fifty-Two Weeks Ended January 30, 2021 | |||||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
GAAP (1) | Excluded items | Adjusted non-GAAP | |||||||||||||||
Asset impairment, exclusive of flagship store exit charges (2) | $ | 72,937 | $ | 72,937 | $ | — | |||||||||||
| Operating (loss) income | (20,469) | (72,937) | 52,468 | ||||||||||||||
| (Loss) income before income taxes | (48,743) | (72,937) | 24,194 | ||||||||||||||
Income tax expense (3) | 60,211 | (4,299) | 64,510 | ||||||||||||||
| Net loss attributable to Abercrombie & Fitch Co. | $ | (114,021) | $ | (68,638) | $ | (45,383) | |||||||||||
| Net loss per diluted share attributable to Abercrombie & Fitch Co. | $ | (1.82) | $ | (1.10) | $ | (0.73) | |||||||||||
| Diluted weighted-average shares outstanding: | 62,551 | 62,551 | |||||||||||||||
(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 $72.9 million, which are principally the result of the impact of COVID-19 on store cash flows.
(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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| Abercrombie & Fitch Co. | |||||||||||||||||
| Schedule of Non-GAAP Financial Measures | |||||||||||||||||
| Fifty-Two Weeks Ended February 1, 2020 | |||||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
GAAP (1) | Excluded Items | Adjusted Non-GAAP | |||||||||||||||
Asset impairment, exclusive of flagship store exit charges (2) | $ | 19,135 | $ | 12,752 | $ | 6,383 | |||||||||||
| Operating income | 70,068 | (12,752) | 82,820 | ||||||||||||||
| Income before income taxes | 62,331 | (12,752) | 75,083 | ||||||||||||||
Income tax expense (3) | 17,371 | (4,013) | 21,384 | ||||||||||||||
| Net income attributable to Abercrombie & Fitch Co. | $ | 39,358 | $ | (8,739) | $ | 48,097 | |||||||||||
| Net income per diluted share attributable to Abercrombie & Fitch Co. | $ | 0.60 | $ | (0.13) | $ | 0.73 | |||||||||||
| Diluted weighted-average shares outstanding: | 65,778 | 65,778 | |||||||||||||||
(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 $12.8 million related to certain of the company's 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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| Abercrombie & Fitch Co. | |||||||||||||||||
| Reconciliation of Constant Currency Financial Measures | |||||||||||||||||
| Thirteen Weeks Ended January 30, 2021 | |||||||||||||||||
| (in thousands, except percentage and basis point changes and per share data) | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| Net sales | 2020 | 2019 | % Change | ||||||||||||||
GAAP (1) | $ | 1,122,044 | $ | 1,184,551 | (5)% | ||||||||||||
Impact from changes in foreign currency exchange rates (2) | — | 19,511 | (2)% | ||||||||||||||
| Net sales on a constant currency basis | $ | 1,122,044 | $ | 1,204,062 | (7)% | ||||||||||||
| Gross profit | 2020 | 2019 | BPS Change (3) | ||||||||||||||
GAAP (1) | $ | 679,019 | $ | 689,264 | 230 | ||||||||||||
Impact from changes in foreign currency exchange rates (2) | — | 19,199 | (60) | ||||||||||||||
| Gross profit on a constant currency basis | $ | 679,019 | $ | 708,463 | 170 | ||||||||||||
| Operating income | 2020 | 2019 | BPS Change (3) | ||||||||||||||
GAAP (1) | $ | 115,899 | $ | 122,331 | — | ||||||||||||
Excluded items (4) | (15,597) | (2,284) | (120) | ||||||||||||||
| Adjusted non-GAAP | $ | 131,496 | $ | 124,615 | 120 | ||||||||||||
Impact from changes in foreign currency exchange rates (2) | — | 15,104 | (110) | ||||||||||||||
| Adjusted non-GAAP on a constant currency basis | $ | 131,496 | $ | 139,719 | 10 | ||||||||||||
| Net income per diluted share attributable to Abercrombie & Fitch Co. | 2020 | 2019 | $ Change | ||||||||||||||
GAAP (1) | $ | 1.27 | $ | 1.29 | $(0.02) | ||||||||||||
Excluded items, net of tax (4) | (0.23) | (0.01) | (0.22) | ||||||||||||||
| Adjusted non-GAAP | $ | 1.50 | $ | 1.31 | $0.19 | ||||||||||||
Impact from changes in foreign currency exchange rates (2) | — | 0.17 | (0.17) | ||||||||||||||
| Adjusted non-GAAP on a constant currency basis | $ | 1.50 | $ | 1.48 | $0.02 | ||||||||||||
(1) “GAAP” refers to accounting principles generally accepted in the United States of America.
(2) The estimated impact from foreign currency is determined by applying current period exchange rates to prior year results and is net of the year-over-year impact from hedging. The per diluted share estimated impact from foreign currency is calculated using a 26% tax rate.
(3) The estimated basis point change has been rounded based on the percentage change.
(4) Excluded items this year consist of pre-tax asset impairment charges which are principally the result of the impact of COVID-19 on store cash flows. Excluded items last year consist of pre-tax asset impairment charges related to certain of the company's flagship stores.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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| Abercrombie & Fitch Co. | |||||||||||||||||
| Reconciliation of Constant Currency Financial Measures | |||||||||||||||||
| Fifty-two Weeks Ended January 30, 2021 | |||||||||||||||||
| (in thousands, except percentage and basis point changes and per share data) | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| Net sales | 2020 | 2019 | % Change | ||||||||||||||
GAAP (1) | $ | 3,125,384 | $ | 3,623,073 | (14)% | ||||||||||||
Impact from changes in foreign currency exchange rates (2) | — | 22,459 | (1)% | ||||||||||||||
| Net sales on a constant currency basis | $ | 3,125,384 | $ | 3,645,532 | (14)% | ||||||||||||
| Gross profit | 2020 | 2019 | BPS Change (3) | ||||||||||||||
GAAP (1) | $ | 1,891,205 | $ | 2,150,918 | 110 | ||||||||||||
Impact from changes in foreign currency exchange rates (2) | — | 26,522 | (30) | ||||||||||||||
| Gross profit on a constant currency basis | $ | 1,891,205 | $ | 2,177,440 | 80 | ||||||||||||
| Operating (loss) income | 2020 | 2019 | BPS Change (3) | ||||||||||||||
GAAP (1) | $ | (20,469) | $ | 70,068 | (260) | ||||||||||||
Excluded items (4) | (72,937) | (12,752) | (200) | ||||||||||||||
| Adjusted non-GAAP | $ | 52,468 | $ | 82,820 | (60) | ||||||||||||
Impact from changes in foreign currency exchange rates (2) | — | 20,325 | (50) | ||||||||||||||
| Adjusted non-GAAP on a constant currency basis | $ | 52,468 | $ | 103,145 | (110) | ||||||||||||
| Net (loss) income per diluted share attributable to Abercrombie & Fitch Co. | 2020 | 2019 | $ Change | ||||||||||||||
GAAP (1) | $ | (1.82) | $ | 0.60 | $(2.42) | ||||||||||||
Excluded items, net of tax (4) | (1.10) | (0.13) | (0.97) | ||||||||||||||
| Adjusted non-GAAP | $ | (0.73) | $ | 0.73 | $(1.46) | ||||||||||||
Impact from changes in foreign currency exchange rates (2) | — | 0.29 | (0.29) | ||||||||||||||
| Adjusted non-GAAP on a constant currency basis | $ | (0.73) | $ | 1.02 | $(1.75) | ||||||||||||
(1) “GAAP” refers to accounting principles generally accepted in the United States of America.
(2) The estimated impact from foreign currency is determined by applying current period exchange rates to prior year results and is net of the year-over-year impact from hedging. The per diluted share estimated impact from foreign currency is calculated using a 26% tax rate.
(3) The estimated basis point change has been rounded based on the percentage change.
(4) Excluded items this year consist of pre-tax asset impairment charges which are principally the result of the impact of COVID-19 on store cash flows. Excluded items last year consist of pre-tax asset impairment charges related to certain of the company's flagship stores.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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| Abercrombie & Fitch Co. | |||||||||||||||||
| Condensed Consolidated Balance Sheets | |||||||||||||||||
| (in thousands) | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
January 30, 2021 | February 1, 2020 | ||||||||||||||||
| Assets | |||||||||||||||||
| Current assets: | |||||||||||||||||
| Cash and equivalents | $ | 1,104,862 | $ | 671,267 | |||||||||||||
| Receivables | 83,857 | 80,251 | |||||||||||||||
| Inventories | 404,053 | 434,326 | |||||||||||||||
| Other current assets | 68,857 | 78,905 | |||||||||||||||
| Total current assets | 1,661,629 | 1,264,749 | |||||||||||||||
| Property and equipment, net | 550,587 | 665,290 | |||||||||||||||
| Operating lease right-of-use assets | 893,989 | 1,230,954 | |||||||||||||||
| Other assets | 208,697 | 388,672 | |||||||||||||||
| Total assets | $ | 3,314,902 | $ | 3,549,665 | |||||||||||||
| Liabilities and stockholders’ equity | |||||||||||||||||
| Current liabilities: | |||||||||||||||||
| Accounts payable | $ | 289,396 | $ | 219,919 | |||||||||||||
| Accrued expenses | 396,365 | 302,214 | |||||||||||||||
| Short-term portion of operating lease liabilities | 248,846 | 282,829 | |||||||||||||||
| Income taxes payable | 24,792 | 10,392 | |||||||||||||||
| Total current liabilities | 959,399 | 815,354 | |||||||||||||||
| Long-term liabilities: | |||||||||||||||||
| Long-term portion of operating lease liabilities | $ | 957,588 | $ | 1,252,634 | |||||||||||||
| Long-term portion of borrowings, net | 343,910 | 231,963 | |||||||||||||||
| Other liabilities | 104,693 | 178,536 | |||||||||||||||
| Total long-term liabilities | 1,406,191 | 1,663,133 | |||||||||||||||
Total Abercrombie & Fitch Co. stockholders' equity | 936,628 | 1,058,810 | |||||||||||||||
| Noncontrolling interests | 12,684 | 12,368 | |||||||||||||||
| Total stockholders' equity | 949,312 | 1,071,178 | |||||||||||||||
| Total liabilities and stockholders’ equity | $ | 3,314,902 | $ | 3,549,665 | |||||||||||||
14
| Abercrombie & Fitch Co. | |||||||||||
| Condensed Consolidated Statements of Cash Flows | |||||||||||
| (in thousands, except per share data) | |||||||||||
| (Unaudited) | |||||||||||
| Fifty-Two Weeks Ended | |||||||||||
| January 30, 2021 | February 1, 2020 | ||||||||||
| Operating activities | |||||||||||
Net cash provided by operating activities (1) | $ | 404,918 | $ | 300,685 | |||||||
| Investing activities | |||||||||||
| Purchases of property and equipment | $ | (101,910) | $ | (202,784) | |||||||
Withdrawal of Rabbi Trust assets (1) | 50,000 | — | |||||||||
Net cash used for investing activities (1) | $ | (51,910) | $ | (202,784) | |||||||
| Financing activities | |||||||||||
| Proceeds from issuance of senior secured notes | $ | 350,000 | $ | — | |||||||
| Proceeds from borrowings under the asset-based senior secured credit facility | 210,000 | — | |||||||||
| Repayment of term loan facility borrowings | (233,250) | (20,000) | |||||||||
| Repayment of borrowings under the asset-based senior secured credit facility | (210,000) | — | |||||||||
| Payment of debt issuance costs and fees | (7,318) | — | |||||||||
| Purchases of common stock | (15,172) | (63,542) | |||||||||
| Dividends paid | (12,556) | (51,510) | |||||||||
| Other financing activities | (11,987) | (12,821) | |||||||||
| Net cash provided by (used for) financing activities | $ | 69,717 | $ | (147,873) | |||||||
| Effect of foreign currency exchange rates on cash | $ | 9,168 | $ | (3,593) | |||||||
| Net increase (decrease) in cash and equivalents, and restricted cash and equivalents | $ | 431,893 | $ | (53,565) | |||||||
| Cash and equivalents, and restricted cash and equivalents, beginning of period | $ | 692,264 | $ | 745,829 | |||||||
| Cash and equivalents, and restricted cash and equivalents, end of period | $ | 1,124,157 | $ | 692,264 | |||||||
(1) During the fourth quarter ended January 30, 2021, an error relating to the cash flow presentation of the $50 million withdrawal of the excess funds from the company’s Rabbi Trust assets was identified in the year-to-date cash flows presented in each of the fiscal 2020 interim periods. The year-to-date cash flows presented in fiscal 2020 interim periods incorrectly classified such withdrawal as a cash inflow from operating activities, rather than a cash inflow from investing activities. The fiscal 2020 annual cash flow statement reflects the correct presentation.
15
Abercrombie & Fitch Co.
Store Count Activity
| Thirteen Weeks Ended January 30, 2021 | |||||||||||||||||||||||||||||||||||
Hollister (1) | Abercrombie (2) | Total (3) | |||||||||||||||||||||||||||||||||
| United States | International | United States | International | United States | International | ||||||||||||||||||||||||||||||
October 31, 2020 (4) | 388 | 154 | 256 | 55 | 644 | 209 | |||||||||||||||||||||||||||||
| New | — | 1 | — | 1 | — | 2 | |||||||||||||||||||||||||||||
| Closed | (41) | (5) | (66) | (8) | (107) | (13) | |||||||||||||||||||||||||||||
| January 30, 2021 | 347 | 150 | 190 | 48 | 537 | 198 | |||||||||||||||||||||||||||||
| Fifty-Two Weeks Ended January 30, 2021 | |||||||||||||||||||||||||||||||||||
Hollister (1) | Abercrombie (2) | Total (3) | |||||||||||||||||||||||||||||||||
| United States | International | United States | International | United States | International | ||||||||||||||||||||||||||||||
February 1, 2020 (4) | 392 | 155 | 257 | 53 | 649 | 208 | |||||||||||||||||||||||||||||
| New | 3 | 3 | 4 | 5 | 7 | 8 | |||||||||||||||||||||||||||||
| Closed | (48) | (8) | (71) | (10) | (119) | (18) | |||||||||||||||||||||||||||||
| January 30, 2021 | 347 | 150 | 190 | 48 | 537 | 198 | |||||||||||||||||||||||||||||
(1) Hollister includes the Hollister and Gilly Hicks by Hollister brands. Locations with Gilly Hicks carveouts within Hollister stores are represented as a single store count. Excludes 9 international franchise stores as of each of January 30, 2021, October 31, 2020, and February 1, 2020. Excludes 12 Company operated temporary stores as of January 30, 2021, 13 as of October 31, 2020, and 15 as of February 1, 2020.
(2) Abercrombie includes the company's Abercrombie & Fitch and abercrombie kids brands. Locations with abercrombie kids carveouts within Abercrombie & Fitch stores are represented as a single store count. Excludes 10 international franchise stores as of January 30, 2021, 8 international franchise stores as of October 31, 2020, and 7 international franchise stores as of February 1, 2020. Excludes 2 Company operated temporary stores as of January 30, 2021, 3 as of October 31, 2020, and 6 as of February 1, 2020.
(3) This store count excludes one international third-party operated multi-brand outlet store as of January 30, 2021.
(4) Prior period numbers have been revised due to a change in the temporary store definition to only include store leases with original terms of 18 months or less.
16
| Abercrombie & Fitch Co. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial Information | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except per share data and store data) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fiscal 2019 | Fiscal 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2016 | 2017 (1) | 2018 | Q1 | Q2 | Q3 | Q4 | 2019 | Q1 | Q2 | Q3 | Q4 | 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 3,326,740 | $ | 3,492,690 | $ | 3,590,109 | $ | 733,972 | $ | 841,078 | $ | 863,472 | $ | 1,184,551 | $ | 3,623,073 | $ | 485,359 | $ | 698,328 | $ | 819,653 | $ | 1,122,044 | $ | 3,125,384 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of sales, exclusive of depreciation and amortization | 1,298,172 | 1,408,848 | 1,430,193 | 289,882 | 342,445 | 344,541 | 495,287 | 1,472,155 | 221,214 | 274,720 | 295,220 | 443,025 | 1,234,179 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross profit | 2,028,568 | 2,083,842 | 2,159,916 | 444,090 | 498,633 | 518,931 | 689,264 | 2,150,918 | 264,145 | 423,608 | 524,433 | 679,019 | 1,891,205 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stores and distribution expense | 1,562,703 | 1,540,032 | 1,536,216 | 356,612 | 376,347 | 377,697 | 440,587 | 1,551,243 | 322,124 | 310,370 | 346,263 | 412,827 | 1,391,584 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Marketing, general and administrative expense | 453,202 | 471,914 | 484,863 | 111,947 | 115,694 | 114,075 | 122,899 | 464,615 | 108,257 | 97,252 | 121,000 | 137,334 | 463,843 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Flagship store exit charges (benefits) | 15,757 | 2,393 | 5,806 | 1,744 | 44,994 | 285 | 234 | 47,257 | (543) | (3,884) | (8,063) | 854 | (11,636) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset impairment, exclusive of flagship store exit charges | 7,930 | 14,391 | 11,580 | 1,662 | 715 | 12,610 | 4,148 | 19,135 | 42,928 | 8,083 | 6,329 | 15,597 | 72,937 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other operating (income) loss, net | (26,212) | (16,938) | (5,915) | (617) | 367 | (215) | (935) | (1,400) | 506 | (2,356) | 288 | (3,492) | (5,054) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating income (loss) | 15,188 | 72,050 | 127,366 | (27,258) | (39,484) | 14,479 | 122,331 | 70,068 | (209,127) | 14,143 | 58,616 | 115,899 | (20,469) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 18,666 | 16,889 | 10,999 | 616 | 1,370 | 2,922 | 2,829 | 7,737 | 3,371 | 7,098 | 8,808 | 8,997 | 28,274 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Loss) income before income taxes | (3,478) | 55,161 | 116,367 | (27,874) | (40,854) | 11,557 | 119,502 | 62,331 | (212,498) | 7,045 | 49,808 | 106,902 | (48,743) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income tax (benefit) expense | (11,196) | 44,636 | 37,559 | (9,588) | (11,330) | 3,987 | 34,302 | 17,371 | 31,533 | 1,253 | 5,779 | 21,646 | 60,211 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | 7,718 | 10,525 | 78,808 | (18,286) | (29,524) | 7,570 | 85,200 | 44,960 | (244,031) | 5,792 | 44,029 | 85,256 | (108,954) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Less: Net income attributable to noncontrolling interests | 3,762 | 3,431 | 4,267 | 869 | 1,618 | 1,047 | 2,068 | 5,602 | 117 | 328 | 1,758 | 2,864 | 5,067 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) attributable to Abercrombie & Fitch Co. | $ | 3,956 | $ | 7,094 | $ | 74,541 | $ | (19,155) | $ | (31,142) | $ | 6,523 | $ | 83,132 | $ | 39,358 | $ | (244,148) | $ | 5,464 | $ | 42,271 | $ | 82,392 | $ | (114,021) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Fiscal 2019 | Fiscal 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2016 | 2017 (1) | 2018 | Q1 | Q2 | Q3 | Q4 | 2019 | Q1 | Q2 | Q3 | Q4 | 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) per share attributable to Abercrombie & Fitch Co.: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basic | $ | 0.06 | $ | 0.10 | $ | 1.11 | $ | (0.29) | $ | (0.48) | $ | 0.10 | $ | 1.32 | $ | 0.61 | $ | (3.90) | $ | 0.09 | $ | 0.68 | $ | 1.32 | $ | (1.82) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Diluted | $ | 0.06 | $ | 0.10 | $ | 1.08 | $ | (0.29) | $ | (0.48) | $ | 0.10 | $ | 1.29 | $ | 0.60 | $ | (3.90) | $ | 0.09 | $ | 0.66 | $ | 1.27 | $ | (1.82) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted-average shares outstanding: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basic | 67,878 | 68,391 | 67,350 | 66,540 | 65,156 | 63,099 | 62,916 | 64,428 | 62,541 | 62,527 | 62,558 | 62,581 | 62,551 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Diluted | 68,284 | 69,403 | 69,137 | 66,540 | 65,156 | 63,911 | 64,198 | 65,778 | 62,541 | 63,286 | 63,877 | 64,788 | 62,551 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Hollister comparable sales (2) | 0 | % | 8 | % | 5 | % | 2 | % | 0 | % | (2) | % | (2) | % | (1) | % | Not provided | Not provided | Not provided | Not provided | Not provided | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Abercrombie comparable sales (2) (3) | (11) | % | (2) | % | 1 | % | 1 | % | 0 | % | 3 | % | 8 | % | 3 | % | Not provided | Not provided | Not provided | Not provided | Not provided | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comparable sales (2) | (5) | % | 3 | % | 3 | % | 1 | % | 0 | % | 0 | % | 1 | % | 1 | % | Not provided | Not provided | Not provided | Not provided | Not provided | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares outstanding | 67,758 | 68,195 | 66,227 | 66,637 | 63,146 | 62,757 | 62,786 | 62,786 | 62,284 | 62,365 | 62,384 | 62,399 | 62,399 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number of stores - end of period (4) | 898 | 868 | 861 | 857 | 864 | 882 | 857 | 857 | 853 | 854 | 853 | 735 | 735 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gross square feet - end of period (4) | 7,007 | 6,710 | 6,566 | 6,503 | 6,477 | 6,558 | 6,314 | 6,314 | 6,285 | 6,296 | 6,235 | 5,232 | 5,232 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(1) Fiscal 2017 was a fifty-three week year. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(2) Comparable sales are calculated on a constant currency basis and exclude revenue other than store and online sales. The Company did not provide comparable sales results for fiscal 2020 due to widespread temporary store closures as a result of COVID-19. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(3) Abercrombie includes the Company's Abercrombie & Fitch and abercrombie kids brands. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(4) Prior period numbers have been revised due to a change in the temporary store definition to only include store leases with original terms of 18 months or less. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1
INVESTOR PRESENTATION: FOURTH QUARTER 2020
2 SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 A&F cautions that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this presentation or made by management or spokespeople of A&F 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," and similar expressions may identify forward-looking statements. Except as may be required by applicable law, we assume no obligation to publicly update or revise our forward-looking statements. The factors disclosed in "ITEM 1A. RISK FACTORS" of A&F's Annual Report on Form 10-K for the fiscal year ended February 1, 2020, and in A&F's subsequently filed quarterly reports on Form 10-Q, in some cases have affected, and in the future could affect, the company's financial performance and could cause actual results for the 2020 fiscal year and beyond to differ materially from those expressed or implied in any of the forward-looking statements included in this presentation or otherwise made by management. OTHER INFORMATION The following presentation includes certain adjusted non-GAAP financial measures. Additional details about non-GAAP financial measures and a reconciliation of GAAP financial measures to non-GAAP financial measures is included in the news release issued by the company on March 2, 2021 which is available in the "Investors" section of the company's website, located at corporate.abercrombie.com. As used in the presentation, "GAAP" refers to accounting principles generally accepted in the United States of America. As used in the presentation, "Abercrombie" refers to the company's Abercrombie & Fitch and abercrombie kids brands and "Hollister" refers to the company's Hollister and Gilly Hicks by Hollister brands. Sub-totals and totals may not foot due to rounding. Net income (loss) and net income (loss) per share financial measures included herein are attributable to Abercrombie & Fitch Co., excluding net income attributable to noncontrolling interests.
TABLE OF CONTENTS Safe Harbor and Other Information 2 Company Overview 4 Response to COVID-19 7 Q4 2020 and Full Year Results 11 Financial Position, Liquidity & Capital Allocation 19 Global Store Network Optimization 25 Focus Areas 30 Appendix 32
4 COMPANY OVERVIEW
5 GILLY HICKS BY HOLLISTER Hollister also carries an intimates brand, Gilly Hicks by Hollister, which offers intimates, loungewear and sleepwear. Its products are designed to invite everyone to embrace who they are underneath it all. HOLLISTER The quintessential apparel brand of the global teen consumer, Hollister Co. believes in liberating the spirit of an endless summer inside everyone. At Hollister, summer isn’t just a season, it’s a state of mind. Hollister creates carefree style designed to make all teens feel celebrated and comfortable in their own skin, so they can live in a summer mindset all year long, whatever the season. ABERCROMBIE & FITCH Abercrombie & Fitch believes that every day should feel as exceptional as the start of the long weekend. Since 1892, the brand has been a specialty retailer of quality apparel, outerwear and fragrance - designed to inspire our global customers to feel confident, be comfortable and face their Fierce. ABERCROMBIE KIDS A global specialty retailer of quality, comfortable, made-to-play favorites, abercrombie kids sees the world through kids’ eyes, where play is life and every day is an opportunity to be anything and better everything. COMPANY OVERVIEW OUR GLOBAL BRANDS
6 FISCAL 2020 DIGITAL SALES WERE ROUGHLY $1.7 BILLION, 54% OF TOTAL NET SALES COMPANY OVERVIEW GLOBAL, OMNICHANNEL RETAILER THE COMPANY'S PRODUCTS ARE SOLD GLOBALLY, PRIMARILY THROUGH ITS COMPANY-OWNED STORE AND DIGITAL CHANNELS, AS WELL AS THROUGH VARIOUS THIRD-PARTY ARRANGEMENTS 20 CAPABILITY TO SHIP TO OVER 110 COUNTRIES INTERNATIONAL THIRD-PARTY OPERATED STORES COMPANY-OPERATED RETAIL STORES WHOLESALE PARTNERSHIPS, PRIMARILY INTERNATIONAL COUNTRIES WITH SHIP- FROM-STORE & 10 WITH PURCHASE-ONLINE-PICK- UP-IN-STORE CAPABILITIES NEW REGIONAL HEADQUARTERS INTRODUCED DURING FISCAL 2019 IN LONDON AND SHANGHAI 12 735 8 2 110 32% OF FISCAL 2020 NET SALES WERE DERIVED INTERNATIONALLY Information provided on this slide is as of January 30, 2021 unless otherwise specified. $1.7B
7 RESPONSE TO COVID-19
8 OPTIMIZING OUR GLOBAL STORE NETWORK • Rightsizing store fleet and adapting to the evolving role of the store as customers' shopping preferences shift ENHANCING DIGITAL AND OMNI-CHANNEL CAPABILITIES • Creating best-in-class customer experiences while growing profitably across channels INCREASING THE SPEED AND EFFICIENCY OF OUR CONCEPT-TO-CUSTOMER PRODUCT LIFE CYCLE • Investing in capabilities to position supply chain for greater speed, agility and flexibility • Utilizing data and analytics to offer the right product at the right time and the right price IMPROVING OUR CUSTOMER ENGAGEMENT THROUGH OUR LOYALTY PROGRAMS AND MARKETING OPTIMIZATION • Leveraging data, including our loyalty programs, to engage with customers across channels • Driving more efficient and effective marketing spend THE FOLLOWING TRANSFORMATION INITIATIVES HAVE CREATED THE FOUNDATION TO ALLOW US TO QUICKLY RESPOND TO COVID-19: 1 2 3 4 RESPONSE TO COVID-19 OUR PREVIOUSLY-STATED TRANSFORMATION INITIATIVES
9 FOCUSING ON THE WELL-BEING OF ASSOCIATES AND CUSTOMERS • Requiring associates to use face coverings, depending on geographic region • Encouraging or requiring customers to use face coverings, depending on geographic region • Conducting associate wellness checks in accordance with local government direction • Enhancing cleaning routines • Implementing various measures to encourage social distancing, including managing occupancy limits • Installing plexiglass barriers in the majority of store locations • Encouraging contactless payment options, where available • Opening fitting rooms where permissible, with additional cleaning procedures for clothing that has been tried on • Removing returned merchandise from the sales floor for a period of time where mandated by local government • Reducing store hours in select locations • Continuing to offer Purchase-Online-Pickup-in-Store, including curbside pick-up at a majority of U.S. locations • Maximizing work-from-home and digital collaboration alternatives to minimize in-person meetings whenever possible OPTIMIZING DIGITAL OPERATIONS • Following recommended cleaning and distancing measures in the company's distribution centers to continue digital operations and mitigate shipping delays • Added a pop-up distribution center and additional carriers to help with anticipated digital demand during the holiday season • Focusing on a seamless digital checkout experience for customers • Working cross-functionally and developing plans on how to best leverage in-store inventory • Offered flexible return dates as stores reopened and extended our return policy to cover the period of store closures PRESERVING LIQUIDITY AND MANAGING CASH FLOWS • Partnering with merchandise and non-merchandise vendors in regards to payment terms • Reevaluating budgeted expenses to better align operating costs with expected sales • Tightly managing inventories • Borrowed $210M under the ABL Facility in March 2020, which was repaid in July 2020 along with the Term Loan Facility, using proceeds from the issuance of the Senior Secured Notes and existing cash on hand • Withdrew $50M from the overfunded Rabbi Trust assets, which represented the majority of excess funds • Temporarily suspended the company's share repurchase and dividend programs, although the company plans to resume share repurchase activities • Assessing government policy and economic stimulus responses to COVID-19 RESPONSE TO COVID-19 HOW WE ARE NAVIGATING COVID-19 Policies and procedures are rapidly evolving in response to the COVID-19 pandemic. Information provided on this slide has been updated as of March 1, 2021.
10 We plan to follow the guidance of local governments when evaluating whether further store closures will be necessary and to determine when we can reopen temporarily closed stores. Stores that are currently open may have reduced operating hours. RESPONSE TO COVID-19 640 STORES, 87% OF STORE FLEET, CURRENTLY OPEN* HOLLISTER 84% open ABERCROMBIE 93% open 420 11 35 12 220 CANADA 65% open UNITED STATES 100% open EUROPE 28% open MIDDLE EAST 100% open ASIA 100% open 46 *Figures presented are number of stores open as of March 1, 2021. Excludes international third-party operated stores and temporary stores with initial lease terms of less than 18 months. 536
11 Q4 2020 AND FULL YEAR RESULTS
12 “I am proud of our execution in the fourth quarter, where we exceeded initial internal expectations. We listened and remained close to our customer, adjusting our product and messaging to align with their new reality. We drove 34% digital sales growth, expanded gross profit rate by 230 basis points and reduced operating expense during the fourth quarter." “For the year, we made significant progress on our key transformation initiatives. We leaned into our infrastructure to grow digital to 54% of annual revenues while utilizing our lease flexibility to take approximately 1.1 million gross square feet, or 17%, out of our base, including eight tourist-dependent flagships. At the same time, we continued to make strategic investments to support future growth including: opening smaller, more omni-enabled experiences; adding senior level talent in key areas including marketing, data and analytics and digital; and further building-out regional teams in EMEA and APAC. We remain focused on controlling what we can control and ended 2020 even stronger than we started.” “As we enter 2021, we are pleased with our start to the first quarter and have proven strategies in place to build on recent successes in product, marketing and digital. Our solid foundation and strong liquidity position enable us to be on the offense as we continue to focus on profitable topline growth, square footage optimization, digital transformation and global market share gains. While the landscape remains uncertain, I am excited about the future and more confident than ever in our ability to drive sustainable long-term operating margin expansion.” FRAN HOROWITZ, CHIEF EXECUTIVE OFFICER Q4 2020 AND FULL YEAR RESULTS CEO COMMENTARY
13 SIGNIFICANT ITEMS IMPACTING RESULTS • Net sales for the fourth quarter and full year decreased 5% and 14%, respectively, as compared to last year, driven by the adverse impact of COVID-19 on store sales • Store occupancy expense for the fourth quarter and full year decreased $54M and $117M, respectively, as compared to last year, reflecting the impact of COVID-19, including rent concessions and temporary store closures • Store payroll expense for the fourth quarter and full year decreased $16M and $92M, respectively, as compared to last year, reflecting the impact of COVID-19 • Shipping and fulfillment expense for the fourth quarter and full year increased $36M and $67M, respectively, as compared to last year, driven by year-over- year digital sales growth • Asset impairment charges for the fiscal 2020 fourth quarter and full year of $16M and $73M, respectively, reflecting the impact of COVID-19 • For the full year of fiscal 2020 the company recognized adverse tax impacts of $101M, or $1.61 per diluted share, related to valuation allowances on deferred tax assets and other tax charges as a result of the COVID-19 pandemic. (1) Adjusted non-GAAP results exclude the effect of certain items set out of page 33. (2) The estimated impact from foreign currency is calculated by applying current period exchange rates to prior year results using a 26% tax rate. Q4 2020 Q4 2019 FY 2020 FY 2019 GAAP $ 1.27 $ 1.29 $ (1.82) $ 0.60 EXCLUDED ITEMS, NET OF TAX EFFECT (1) (0.23) (0.01) (1.10) (0.13) ADJUSTED NON-GAAP $1.50 $1.31 $(0.73) $0.73 IMPACT FROM FOREIGN CURRENCY EXCHANGE RATES (2) — 0.17 — 0.29 ADJUSTED NON-GAAP ON A CONSTANT CURRENCY BASIS $1.50 $1.48 $(0.73) $1.02 Q4 2020 AND FULL YEAR RESULTS NET INCOME (LOSS) PER SHARE
14 Q4 2020 RESULTS NET SALES ABERCROMBIE $467M DOWN 2% TO LAST YEAR 41.6% OF TOTAL NET SALES HOLLISTER $655M DOWN 8% TO LAST YEAR 58.4% OF TOTAL NET SALES EMEA $235M DOWN 8% TO LAST YEAR 21.0% OF TOTAL NET SALES UNITED STATES $788M DOWN 3% TO LAST YEAR 70.2% OF TOTAL NET SALES TOTAL COMPANY NET SALES DOWN 5% TO $1.1B DIGITAL SALES UP 34% TO LAST YEAR, RESULTING IN Q4 2020 DIGITAL SALES OF $639M, OR 57% OF TOTAL NET SALES APAC $59M DOWN 23% TO LAST YEAR 5.2% OF TOTAL NET SALES OTHER $40M UP 3% TO LAST YEAR 3.6% OF TOTAL NET SALES
15 FULL YEAR RESULTS NET SALES ABERCROMBIE $1.3B DOWN 12% TO LAST YEAR 41.3% OF TOTAL NET SALES HOLLISTER $1.8B DOWN 15% TO LAST YEAR 58.7% OF TOTAL NET SALES EMEA $709M DOWN 14% TO LAST YEAR 22.7% OF TOTAL NET SALES UNITED STATES $2.1B DOWN 12% TO LAST YEAR 68.1% OF TOTAL NET SALES TOTAL COMPANY NET SALES DOWN 14% TO $3.1B DIGITAL SALES UP 39% TO LAST YEAR, RESULTING IN FULL YEAR DIGITAL SALES OF ROUGHLY $1.7B, OR 54% OF TOTAL NET SALES APAC $177M DOWN 33% TO LAST YEAR 5.7% OF TOTAL NET SALES OTHER $112M DOWN 11% TO LAST YEAR 3.6% OF TOTAL NET SALES
16 GAAP NON-GAAP* Q4 2020 RESULTS OPERATING EXPENSE * Q4 non-GAAP operating expense is presented on an adjusted non-GAAP basis, and excludes the effect of certain items set out of page 33. (1) Includes operating lease costs, other landlord charges, utilities, depreciation and other occupancy expense. (2) Includes selling payroll, store management and support, other store expense, direct-to-consumer expense, and distribution center costs. (3) Rounded based on reported percentages. (in thousands) Q4 2020 % OF NET SALES Q4 2019 % OF NET SALES Δ BPS (3) STORE OCCUPANCY (1) $103,657 9.2% $157,307 13.3% (410) ALL OTHER (2) 309,170 27.6% 283,280 23.9% 370 STORES AND DISTRIBUTION 412,827 36.8% 440,587 37.2% (40) MARKETING, GENERAL & ADMINISTRATIVE 137,334 12.2% 122,899 10.4% 180 FLAGSHIP STORE EXIT CHARGES 854 0.1% 234 0.0% 10 ASSET IMPAIRMENT, EXCLUSIVE OF FLAGSHIP STORE EXIT CHARGES 15,597 1.4% 4,148 0.4% 100 TOTAL $566,612 50.5% $567,868 47.9% 260 (in thousands) Q4 2020 % OF NET SALES Q4 2019 % OF NET SALES Δ BPS (3) STORE OCCUPANCY (1) $103,657 9.2% $157,307 13.3% (410) ALL OTHER (2) 309,170 27.6% 283,280 23.9% 370 STORES AND DISTRIBUTION 412,827 36.8% 440,587 37.2% (40) MARKETING, GENERAL & ADMINISTRATIVE 137,334 12.2% 122,899 10.4% 180 FLAGSHIP STORE EXIT CHARGES 854 0.1% 234 0.0% 10 ASSET IMPAIRMENT, EXCLUSIVE OF FLAGSHIP STORE EXIT CHARGES — 0.0% 1,864 0.2% (20) TOTAL $551,015 49.1% $565,584 47.7% 140
17 GAAP NON-GAAP* FULL YEAR RESULTS OPERATING EXPENSE * Non-GAAP operating expense is presented on an adjusted non-GAAP basis, and excludes the effect of certain items set out of page 33. (1) Includes operating lease costs, other landlord charges, utilities, depreciation and other occupancy expense. (2) Includes selling payroll, store management and support, other store expense, direct-to-consumer expense, and distribution center costs. (3) Rounded based on reported percentages. (in thousands) 2020 % OF NET SALES 2019 % OF NET SALES Δ BPS (3) STORE OCCUPANCY (1) $496,269 15.9% $613,709 16.9% (100) ALL OTHER (2) 895,315 28.6% 937,534 25.9% 270 STORES AND DISTRIBUTION 1,391,584 44.5% 1,551,243 42.8% 170 MARKETING, GENERAL & ADMINISTRATIVE 463,843 14.8% 464,615 12.8% 200 FLAGSHIP STORE EXIT (BENEFITS) CHARGES (11,636) (0.4)% 47,257 1.3% (170) ASSET IMPAIRMENT, EXCLUSIVE OF FLAGSHIP STORE EXIT CHARGES 72,937 2.3% 19,135 0.5% 180 TOTAL $1,916,728 61.3% $2,082,250 57.5% 380 (in thousands) 2020 % OF NET SALES 2019 % OF NET SALES Δ BPS (3) STORE OCCUPANCY (1) $496,269 15.9% $613,709 16.9% (100) ALL OTHER (2) 895,315 28.6% 937,534 25.9% 270 STORES AND DISTRIBUTION 1,391,584 44.5% 1,551,243 42.8% 170 MARKETING, GENERAL & ADMINISTRATIVE 463,843 14.8% 464,615 12.8% 200 FLAGSHIP STORE EXIT (BENEFITS) CHARGES (11,636) (0.4)% 47,257 1.3% (170) ASSET IMPAIRMENT, EXCLUSIVE OF FLAGSHIP STORE EXIT CHARGES — 0.0% 6,383 0.2% (20) TOTAL $1,843,791 59.0% $2,069,498 57.1% 190
18 Q4 2020 AND FULL YEAR RESULTS INCOME STATEMENT (1) Gross profit is derived from cost of sales, exclusive of depreciation and amortization. Q4 GAAP FULL YEAR GAAP (in thousands) Q4 2020 % OF NET SALES Q4 2019 % OF NET SALES 2020 % OF NET SALES 2019 % OF NET SALES NET SALES $1,122,044 100.0% $1,184,551 100.0% $3,125,384 100.0% $3,623,073 100.0% GROSS PROFIT (1) 679,019 60.5% 689,264 58.2% 1,891,205 60.5% 2,150,918 59.4% OPERATING EXPENSE 566,612 50.5% 567,868 47.9% 1,916,728 61.3% 2,082,250 57.5% OTHER OPERATING INCOME, NET (3,492) (0.3)% (935) (0.1)% (5,054) (0.2)% (1,400) 0.0% OPERATING INCOME (LOSS) 115,899 10.3% 122,331 10.3% (20,469) (0.7)% 70,068 1.9% INTEREST EXPENSE, NET 8,997 0.8% 2,829 0.2% 28,274 0.9% 7,737 0.2% INCOME (LOSS) BEFORE INCOME TAXES 106,902 9.5% 119,502 10.1% (48,743) (1.6)% 62,331 1.7% INCOME TAX EXPENSE 21,646 1.9% 34,302 2.9% 60,211 1.9% 17,371 0.5% NET INCOME (LOSS) $82,392 7.3% $83,132 7.0% $(114,021) (3.6)% $39,358 1.1% NET INCOME (LOSS) PER SHARE BASIC $1.32 $1.32 $(1.82) $0.61 DILUTED $1.27 $1.29 $(1.82) $0.60 WEIGHTED-AVERAGE SHARES BASIC 62,581 62,916 62,551 64,428 DILUTED 64,788 64,198 62,551 65,778
19 FINANCIAL POSITION, LIQUIDITY & CAPITAL ALLOCATION
20 FINANCIAL POSITION, LIQUIDITY & CAPITAL ALLOCATION FINANCIAL POSITION AND LIQUIDITY SUMMARY CASH & EQUIVALENTS $1.1B AS COMPARED TO $671M LAST YEAR SHORT-TERM BORROWINGS NO BORROWINGS OUTSTANDING UNDER ABL FACILITY $215M OF BORROWING AVAILABLE UNDER ABL FACILITY GROSS LONG-TERM BORROWINGS $350M OUTSTANDING AS COMPARED TO $233M LAST YEAR INVENTORIES $404M DOWN 7% FROM LAST YEAR * Liquidity is comprised of cash and equivalents and borrowing available under the ABL Facility.
21 (in thousands) NET CASH PROVIDED BY OPERATING ACTIVITIES CAPITAL EXPENDITURES FREE CASH FLOW (2) FY 2015 $315,755 $143,199 $172,556 FY 2016 $185,169 $140,844 $44,325 FY 2017 $287,658 $107,001 $180,657 FY 2018 $352,933 $152,393 $200,540 FY 2019 $300,685 $202,784 $97,901 FY 2020 (1) $404,918 $101,910 $303,008 (1) During the fourth quarter ended January 30, 2021, an error relating to the cash flow presentation of the $50 million withdrawal of the excess funds from the company’s Rabbi Trust assets was identified in the year-to-date cash flows presented in each of the fiscal 2020 interim periods. The year-to- date cash flows presented in fiscal 2020 interim periods incorrectly classified such withdrawal as a cash inflow from operating activities, rather than a cash inflow from investing activities. The fiscal 2020 annual cash flow statement reflects the correct presentation. (2) Free cash flow is a non-GAAP measure and is computed by subtracting capital expenditures from net cash provided by operating activities, both of which are disclosed in the table above, preceding the measure of free cash flow. FINANCIAL POSITION, LIQUIDITY & CAPITAL ALLOCATION CASH FLOW SUMMARY FULL YEAR ENDED (in thousands) JANUARY 30, 2021 (1) FEBRUARY 1, 2020 NET CASH PROVIDED BY OPERATING ACTIVITIES $404,918 $300,685 NET CASH USED FOR INVESTING ACTIVITIES $(51,910) $(202,784) NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES $69,717 $(147,873) •
22 FINANCIAL POSITION, LIQUIDITY & CAPITAL ALLOCATION SHARE REPURCHASES AND DIVIDENDS SHARE REPURCHASES (in thousands, except for average cost) NUMBER OF SHARES COST AVERAGE COST DIVIDENDS TOTAL FY 2015 2,461 $50,033 $20.33 $55,145 $105,178 FY 2016 — $— $— $54,066 $54,066 FY 2017 — $— $— $54,392 $54,392 FY 2018 2,932 $68,670 $23.42 $53,714 $122,384 FY 2019 3,957 $63,542 $16.06 $51,510 $115,052 FY 2020 1,397 $15,172 $10.86 $12,556 $27,728 In order to preserve liquidity and increase financial flexibility in light of COVID-19, during fiscal 2020 the company suspended its share repurchase and dividend programs. The company now plans to resume share repurchase activity. As of January 30, 2021, the Company had the authority to repurchase approximately 3.2 million shares as part of the A&F Board of Directors’ previously approved June 2019 share repurchase authorization. On February 19, 2021, the A&F Board of Directors replaced the then existing share repurchase authorization with a new 10.0 million share authorization, bringing total shares available for purchase as of February 19, 2021 to 10.0 million shares. (in thousands) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 ENDING SHARES OUTSTANDING 67,348 67,758 68,195 66,227 62,786 62,399
23 FINANCIAL POSITION, LIQUIDITY & CAPITAL ALLOCATION BALANCE SHEET (in thousands) JANUARY 30, 2021 FEBRUARY 1, 2020 CASH AND EQUIVALENTS $1,104,862 $671,267 RECEIVABLES 83,857 80,251 INVENTORIES 404,053 434,326 OTHER CURRENT ASSETS 68,857 78,905 TOTAL CURRENT ASSETS $1,661,629 $1,264,749 PROPERTY AND EQUIPMENT, NET 550,587 665,290 OPERATING LEASE RIGHT-OF-USE ASSETS 893,989 1,230,954 OTHER ASSETS 208,697 388,672 TOTAL ASSETS $3,314,902 $3,549,665 ACCOUNTS PAYABLE $289,396 $219,919 ACCRUED EXPENSES 396,365 302,214 SHORT-TERM PORTION OF OPERATING LEASE LIABILITIES 248,846 282,829 INCOME TAXES PAYABLE 24,792 10,392 TOTAL CURRENT LIABILITIES $959,399 $815,354 LONG-TERM PORTION OF OPERATING LEASE LIABILITIES 957,588 1,252,634 LONG-TERM BORROWINGS, NET 343,910 231,963 OTHER LIABILITIES 104,693 178,536 TOTAL LONG-TERM LIABILITIES $1,406,191 $1,663,133 TOTAL ABERCROMBIE & FITCH CO. STOCKHOLDERS EQUITY 936,628 1,058,810 NONCONTROLLING INTEREST 12,684 12,368 TOTAL STOCKHOLDERS' EQUITY $949,312 $1,071,178 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,314,902 $3,549,665
24 YEAR TO DATE PERIOD ENDED (in thousands) JANUARY 30, 2021 (1) FEBRUARY 1, 2020 NET CASH PROVIDED BY OPERATING ACTIVITIES (1) $404,918 59 $300,685 PURCHASES OF PROPERTY AND EQUIPMENT (101,910) (202,784) WITHDRAWAL OF RABBI TRUST ASSETS (1) 50,000 — NET CASH USED FOR INVESTING ACTIVITIES (1) $(51,910) $(202,784) PROCEEDS FROM ISSUANCE OF SENIOR SECURED NOTES 350,000 — PROCEEDS FROM BORROWINGS UNDER THE ABL FACILITY 210,000 — REPAYMENT OF TERM LOAN FACILITY BORROWINGS (233,250) (20,000) REPAYMENT OF ABL FACILITY BORROWINGS (210,000) — PAYMENT OF DEBT ISSUANCE COSTS AND FEES (7,318) — PURCHASES OF COMMON STOCK (15,172) (63,542) DIVIDENDS PAID (12,556) (51,510) OTHER FINANCING ACTIVITIES (11,987) (12,821) NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES $69,717 $(147,873) EFFECT OF FOREIGN CURRENCY EXCHANGE RATES ON CASH 9,168 (3,593) NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS, AND RESTRICTED CASH AND EQUIVALENTS $431,893 $(53,565) CASH AND EQUIVALENTS, AND RESTRICTED CASH AND EQUIVALENTS, BEGINNING OF PERIOD $692,264 $745,829 CASH AND EQUIVALENTS, AND RESTRICTED CASH AND EQUIVALENTS, END OF PERIOD $1,124,157 $692,264 FINANCIAL POSITION, LIQUIDITY & CAPITAL ALLOCATION STATEMENT OF CASH FLOWS (1) During the fourth quarter ended January 30, 2021, an error relating to the cash flow presentation of the $50 million withdrawal of the excess funds from the company’s Rabbi Trust assets was identified in the year-to-date cash flows presented in each of the fiscal 2020 interim periods. The year-to-date cash flows presented in fiscal 2020 interim periods incorrectly classified such withdrawal as a cash inflow from operating activities, rather than a cash inflow from investing activities. The fiscal 2020 annual cash flow statement reflects the correct presentation.
25 GLOBAL STORE NETWORK OPTIMIZATION
26 NEW STORE OPENINGS & CLOSINGS* GLOBAL STORE NETWORK OPTIMIZATION 735 STORES AS OF Q4 2020 * Prior period numbers have been revised due to a change in the temporary store definition to only include store leases with original terms of 18 months or less. (1) Store count excludes one international third-party operated multi-brand outlet store as of January 30, 2021. (2) Locations with Gilly Hicks carveouts within Hollister stores are represented as a single store count. Excludes 9 international franchise stores as of each of January 30, 2021 and February 1, 2020. Excludes 12 Company-operated temporary stores as of January 30, 2021 and 15 as of February 1, 2020. (3) Locations with abercrombie kids carveouts within Abercrombie & Fitch stores are represented as a single store count. Excludes 10 international franchise stores as of January 30, 2021, and 7 international franchise stores as of February 1, 2020. Excludes 2 Company-operated temporary stores as of January 30, 2021 and 6 as of February 1, 2020. TOTAL COMPANY (1) TOTAL UNITED STATES CANADA EUROPE ASIA MIDDLE EAST END OF Q4 2019 857 649 18 129 51 10 OPENINGS 15 7 — 6 — 2 PERMANENT CLOSINGS (137) (119) (1) (12) (5) — END OF Q4 2020 735 537 17 123 46 12 HOLLISTER (2) TOTAL UNITED STATES CANADA EUROPE ASIA MIDDLE EAST END OF Q4 2019 547 392 10 109 30 6 OPENINGS 6 3 — 3 — — PERMANENT CLOSINGS (56) (48) — (5) (3) — END OF Q4 2020 497 347 10 107 27 6 ABERCROMBIE (3) TOTAL UNITED STATES CANADA EUROPE ASIA MIDDLE EAST END OF Q4 2019 310 257 8 20 21 4 OPENINGS 9 4 — 3 — 2 PERMANENT CLOSINGS (81) (71) (1) (7) (2) — END OF Q4 2020 238 190 7 16 19 6
27 GLOBAL STORE NETWORK OPTIMIZATION GROSS SQUARE FOOTAGE REDUCED 28% SINCE 2015 HOLLISTER ABERCROMBIE TOTAL COMPANY (in thousands) U.S. INTERNATIONAL U.S. INTERNATIONAL U.S. INTERNATIONAL TOTAL FY 2015 2,856 1,183 2,634 619 5,490 1,802 7,292 FY 2020 2,309 1,219 1,311 393 3,620 1,612 5,232 % CHANGE (19)% 3% (50)% (37)% (34)% (11)% (28)%
28 FISCAL 2020 STORE OPTIMIZATION ACTIVITY Q4 2020 STORE FLEET DETAIL GLOBAL STORE NETWORK OPTIMIZATION STORE FLEET DETAIL 48% OF GLOBAL FLEET IN UPDATED FORMATS HOLLISTER ABERCROMBIE TOTAL COMPANY # OF STORES % OF FLEET # OF STORES % OF FLEET # OF STORES % OF FLEET LEGACY STORES 199 40% 123 52% 322 44% UPDATED FORMATS 285 57% 69 29% 354 48% OUTLETS 12 2% 40 17% 52 7% FLAGSHIPS 1 —% 6 3% 7 1% TOTAL 497 100% 238 100% 735 100% HOLLISTER ABERCROMBIE TOTAL NEW STORES 6 9 15 REMODELS 4 — 4 RIGHT-SIZES 4 2 6 NEW EXPERIENCES 14 11 25 PERMANENT CLOSURES (56) (81) (137) Total stores FY16 FY17 FY18 FY19(1) FY20 (1) Prior period numbers have been revised due to a change in the temporary store definition to only include store leases with original terms of 18 months or less.
29 GLOBAL STORE NETWORK OPTIMIZATION FLAGSHIP STORE FLEET FLAGSHIP STORE CLOSURES/ LEASE EXPIRATIONS The company ended fiscal 2019 with 15 flagships after closing five flagship locations since the beginning of fiscal 2017. In fiscal 2019, the combined 4-wall operating margin of the 15 flagships remaining at the end of fiscal 2019 adversely impacted operating margin by 60 basis points and comparable sales by 50 basis points. The company exited the following flagship stores in fiscal 2020: • A&F Dublin, Ireland • A&F Düsseldorf, Germany • A&F Brussels, Belgium • A&F Fukuoka, Japan • A&F London, United Kingdom • A&F Madrid, Spain • A&F Munich, Germany • A&F Paris, France In fiscal 2019, the combined-4 wall operating margin of these eight flagships adversely impacted operating margin by 10 basis points and comparable sales by 20 basis points. Longer-term, this continued progress on the company's square footage optimization initiative will enable the company to redirect resources to drive global omnichannel growth across its brands. These actions align with the company's multi-year strategy of reducing dependence on tourist-driven locations to reposition within key markets and deliver a better omnichannel experience to local customers. (1) P&L IMPACT OF FLAGSHIP STORES Adverse impact to FY 2019 operating margin: FY 2020 Expirations: 10 BPS FY 2021 Expirations: 10 BPS FY 2023+ Expirations: 40 BPS (1) Includes the A&F 5th Avenue, New York City, A&F Hamburg, Germany and A&F Singapore locations. (2) Includes the A&F Amsterdam, Netherlands and the A&F Shanghai, China locations. (3) Includes the Hollister 5th Avenue, New York City and the A&F Ginza, Japan locations. (2) (3)
30 FOCUS AREAS
31 WE ARE EXCITED ABOUT OUR RECENT RESULTS AND THE LONG-TERM GLOBAL GROWTH OPPORTUNITY ACROSS ALL FOUR BRANDS We enter 2021 on the offense while working towards recapturing lost sales due to COVID-19. While we continue to operate in an uncertain environment, we will focus on what we can control, including, but not limited to, the following: ACCELERATING DIGITAL, DATA AND TECHNOLOGY INVESTMENTS TO INCREASE AGILITY AND IMPROVE CUSTOMER EXPERIENCE INCREASING OUR MARKETING INVESTMENTS TO BUILD ON THE MOMENTUM WE SEE ACROSS BRANDS AND GEOGRAPHIES CONTINUING TO FOCUS RESOURCES ON GILLY HICKS BY HOLLISTER GROWTH OPTIMIZING SQUARE FOOTAGE WHILE BEING OPPORTUNISTIC IN GLOBAL STORE EXPANSION CONTINUING IMPORTANT CORPORATE SOCIAL RESPONSIBILITY WORK WITH OUR ASSOCIATES, PARTNERS AND OTHER THOUGHT LEADERS FOCUS AREAS OUR FOCUS AREAS FOR 2021
32 APPENDIX
33 EXCLUDED ITEMS (in thousands) Q1 2019 Q2 2019 Q3 2019 Q4 2019 FY 2019 ASSET IMPAIRMENT $— $— $10,468 $2,284 $12,752 TAX EFFECT (1) — — (2,485) (1,528) (4,013) TOTAL EXCLUDED ITEMS $— $— $7,983 $756 $8,739 (in thousands) Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 ASSET IMPAIRMENT $42,928 $8,083 $6,329 $15,597 $72,937 TAX EFFECT (1) (4,432) 1,166 (369) (664) (4,299) TOTAL EXCLUDED ITEMS $38,496 $9,249 $5,960 $14,933 $68,638 (1) The tax effect of excluded items is the difference between the tax provision calculation on a GAAP basis and an adjusted non-GAAP basis.
34 Q4 RECONCILIATION OF ADJUSTED NON-GAAP RESULTS Q4 2020 GAAP EXCLUDED ITEMS Q4 2020 NON-GAAP ASSET IMPAIRMENT, EXCLUSIVE OF FLAGSHIP STORE EXIT CHARGES $15,597 $15,597 $— OPERATING INCOME 115,899 (15,597) 131,496 INCOME BEFORE INCOME TAXES 106,902 (15,597) 122,499 INCOME TAX EXPENSE (1) 21,646 (664) 22,310 NET INCOME $82,392 $(14,933) $97,325 NET INCOME PER DILUTED SHARE $1.27 $(0.23) $1.50 DILUTED WEIGHTED-AVERAGE SHARES OUTSTANDING 64,788 64,788 Q4 2019 GAAP EXCLUDED ITEMS Q4 2019 NON-GAAP ASSET IMPAIRMENT, EXCLUSIVE OF FLAGSHIP STORE EXIT CHARGES $4,148 $2,284 $1,864 OPERATING INCOME 122,331 (2,284) 124,615 INCOME BEFORE INCOME TAXES 119,502 (2,284) 121,786 INCOME TAX EXPENSE (1) 34,302 (1,528) 35,830 NET INCOME $83,132 $(756) $83,888 NET INCOME PER DILUTED SHARE $1.29 $(0.01) $1.31 DILUTED WEIGHTED-AVERAGE SHARES OUTSTANDING 64,198 64,198 (1) The tax effect of excluded items, calculated as the difference between the tax provision on a GAAP basis and an adjusted non-GAAP basis.
35 FULL YEAR RECONCILIATION OF ADJUSTED NON-GAAP RESULTS FY 2020 GAAP EXCLUDED ITEMS FY 2020 NON-GAAP ASSET IMPAIRMENT, EXCLUSIVE OF FLAGSHIP STORE EXIT CHARGES $72,937 $72,937 $— OPERATING (LOSS) INCOME (20,469) (72,937) 52,468 (LOSS) INCOME BEFORE INCOME TAXES (48,743) (72,937) 24,194 INCOME TAX EXPENSE (1) 60,211 (4,299) 64,510 NET LOSS $(114,021) $(68,638) $(45,383) NET LOSS PER DILUTED SHARE $(1.82) $(1.10) $(0.73) DILUTED WEIGHTED-AVERAGE SHARES OUTSTANDING 62,551 62,551 (1) The tax effect of excluded items, calculated as the difference between the tax provision on a GAAP basis and an adjusted non-GAAP basis. FY 2019 GAAP EXCLUDED ITEMS FY 2019 NON-GAAP ASSET IMPAIRMENT, EXCLUSIVE OF FLAGSHIP STORE EXIT CHARGES $19,135 $12,752 $6,383 OPERATING INCOME 70,068 (12,752) 82,820 INCOME BEFORE INCOME TAXES 62,331 (12,752) 75,083 INCOME TAX EXPENSE (1) 17,371 (4,013) 21,384 NET INCOME $39,358 $(8,739) $48,097 NET INCOME PER DILUTED SHARE $0.60 $(0.13) $0.73 DILUTED WEIGHTED-AVERAGE SHARES OUTSTANDING 65,778 65,778
36 Q4 RECONCILIATION OF CONSTANT CURRENCY RESULTS NET SALES Q4 2020 Q4 2019 Δ % GAAP $1,122,044 $1,184,551 (5)% IMPACT FROM CHANGES IN FOREIGN CURRENCY EXCHANGE RATES (1) — 19,511 (2)% NON-GAAP CONSTANT CURRENCY BASIS $1,122,044 $1,204,062 (7)% GROSS PROFIT Q4 2020 Q4 2019 Δ BPS (2) GAAP $679,019 $689,264 230 IMPACT FROM CHANGES IN FOREIGN CURRENCY EXCHANGE RATES (1) — 19,199 (60) NON-GAAP CONSTANT CURRENCY BASIS $679,019 $708,463 170 OPERATING INCOME Q4 2020 Q4 2019 Δ BPS (2) GAAP $115,899 $122,331 — EXCLUDED ITEMS (3) (15,597) (2,284) (120) ADJUSTED NON-GAAP $131,496 $124,615 120 IMPACT FROM CHANGES IN FOREIGN CURRENCY EXCHANGE RATES (1) — 15,104 (110) ADJUSTED NON-GAAP CONSTANT CURRENCY BASIS $131,496 $139,719 10 NET INCOME PER DILUTED SHARE Q4 2020 Q4 2019 Δ $ GAAP $1.27 $1.29 $(0.02) EXCLUDED ITEMS, NET OF TAX (3) (0.23) (0.01) (0.22) ADJUSTED NON-GAAP $1.50 $1.31 $0.19 IMPACT FROM CHANGES IN FOREIGN CURRENCY EXCHANGE RATES (1) — 0.17 (0.17) ADJUSTED NON-GAAP CONSTANT CURRENCY BASIS $1.50 $1.48 $0.02 (1) The impact from foreign currency is determined by applying current period exchange rates to prior year results and is net of the year-over-year impact from hedging. The per diluted share impact from foreign currency is calculated using a 26% tax rate. (2) The estimated basis point impact has been rounded based on the percentage change. (3) Excludes the effect of certain items set out on page 33.
37 FULL YEAR RECONCILIATION OF CONSTANT CURRENCY RESULTS NET SALES FY 2020 FY 2019 Δ % GAAP $3,125,384 $3,623,073 (14)% IMPACT FROM CHANGES IN FOREIGN CURRENCY EXCHANGE RATES (1) — 22,459 (1)% NON-GAAP CONSTANT CURRENCY BASIS $3,125,384 $3,645,532 (14)% GROSS PROFIT FY 2020 FY 2019 Δ BPS (2) GAAP $1,891,205 $2,150,918 110 IMPACT FROM CHANGES IN FOREIGN CURRENCY EXCHANGE RATES (1) — 26,522 (30) NON-GAAP CONSTANT CURRENCY BASIS $1,891,205 $2,177,440 80 OPERATING (LOSS) INCOME FY 2020 FY 2019 Δ BPS (2) GAAP $(20,469) $70,068 (260) EXCLUDED ITEMS (3) (72,937) (12,752) (200) ADJUSTED NON-GAAP $52,468 $82,820 (60) IMPACT FROM CHANGES IN FOREIGN CURRENCY EXCHANGE RATES (1) — 20,325 (50) ADJUSTED NON-GAAP CONSTANT CURRENCY BASIS $52,468 $103,145 (110) NET (LOSS) INCOME PER DILUTED SHARE FY 2020 FY 2019 Δ $ GAAP $(1.82) $0.60 $(2.42) EXCLUDED ITEMS, NET OF TAX (3) (1.10) (0.13) (0.97) ADJUSTED NON-GAAP $(0.73) $0.73 $(1.46) IMPACT FROM CHANGES IN FOREIGN CURRENCY EXCHANGE RATES (1) — 0.29 (0.29) ADJUSTED NON-GAAP CONSTANT CURRENCY BASIS $(0.73) $1.02 $(1.75) (1) The impact from foreign currency is determined by applying current period exchange rates to prior year results and is net of the year-over-year impact from hedging. The per diluted share impact from foreign currency is calculated using a 26% tax rate. (2) The estimated basis point impact has been rounded based on the percentage change. (3) Excludes the effect of certain items set out on page 33.
REFINITIV STREETEVENTS EDITED TRANSCRIPT ANF.N - Q4 2020 Abercrombie & Fitch Co Earnings Call EVENT DATE/TIME: MARCH 02, 2021 / 1:30PM GMT REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.
C O R P O R A T E P A R T I C I P A N T S Fran Horowitz Abercrombie & Fitch Co. - CEO & Director Pamela Nagler Quintiliano Abercrombie & Fitch Co. - VP of IR Scott D. Lipesky Abercrombie & Fitch Co. - Senior VP & CFO C O N F E R E N C E C A L L P A R T I C I P A N T S Dana Lauren Telsey Telsey Advisory Group LLC - CEO & Chief Research Officer Dylan Douglas Carden William Blair & Company L.L.C., Research Division - Analyst Janet Joseph Kloppenburg JJK Research Associates, Inc. - President Janine M. Stichter Jefferies LLC, Research Division - Equity Analyst Kate Bridget Fitzsimons RBC Capital Markets, Research Division - Assistant VP Kelly Crago Citigroup Inc., Research Division - VP Marni Shapiro The Retail Tracker - Co-Founder Matthew Robert Boss JPMorgan Chase & Co, Research Division - MD and Senior Analyst Mauricio Serna Vega UBS Investment Bank, Research Division - Analyst Ryan Vaughan Needham & Company, LLC - Principal Sarah Goldberg Robert W. Baird & Co. Incorporated, Research Division - Research Analyst Susan Kay Anderson B. Riley Securities, Inc., Research Division - Analyst P R E S E N T A T I O N Operator Good day, everyone, and welcome to the Abercrombie & Fitch Fourth Quarter Year-End Fiscal Year 2020 Earnings Call. Today's conference is being recorded. (Operator Instructions) At this time, I'd like to turn the call over to Ms. Pam Quintiliano. Please go ahead, ma'am. Pamela Nagler Quintiliano - Abercrombie & Fitch Co. - VP of IR Thank you. Good morning, and welcome to our fourth quarter 2020 earnings call. Joining me today on the call are Fran Horowitz, Chief Executive Officer; and Scott Lipesky, Chief Financial Officer. Earlier this morning, we issued our fourth quarter earnings release, which is available on our website at corporate.abercrombie.com under the Investors section. Also available on our website is an investor presentation. Please keep in mind that any forward-looking statements made on the call are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions we mentioned today. A detailed discussion of these factors and uncertainties is contained in the company's filings with the Securities and Exchange Commission. 2 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 02, 2021 / 1:30PM, ANF.N - Q4 2020 Abercrombie & Fitch Co Earnings Call
In addition, we will be referring to certain non-GAAP financial measures during the call. Additional details and a reconciliation of GAAP to adjusted non-GAAP financial measures are included in the release issued earlier this morning. With that, I will turn the call over to Fran. Fran Horowitz - Abercrombie & Fitch Co. - CEO & Director Good morning, everyone, and welcome to our fourth quarter earnings call. I hope you, your families and your loved ones are safe and healthy. Looking back on 2020, I am proud of our accomplishments and the positive change we drove. Despite the difficult operating environment, we grew digital penetration to 54% of revenue from 33% last year, removed 1.1 million gross square feet or 17% from our global base, expanded our gross profit rate by 110 basis points and fortified our balance sheet to end the year with $1.3 billion of liquidity. Today, I can confidently say that we are closer to our customers and stronger, faster and smarter than ever before. Importantly, our brand positioning, product execution and financial strength has enabled us to enter 2021 on the offense. Before turning to fourth quarter results, I want to take a moment to thank our global store, distribution center and home office associates as well as our partners for their unprecedented level of creativity and resiliency. There is no other group I would rather be on, with this -- on this journey with. Now onto the fourth quarter. Our results exceeded our internal expectations. Total company revenues declined 5%. This was at the high end of our upwardly revised plan provided in January for a 5% to 7% decline, and reflected a solid finish to the quarter. Results were driven by digital, which grew 34% to $639 million or 57% of sales. We continue to realize significant year-over-year improvements in traffic to our website and app and delivered our highest ever quarterly digital sales and best digital gross margin rate in 8 years. Digital strength was offset by ongoing weakness in stores. We ended the quarter with 88% of our global-based opened, as multiple countries across EMEA reentered lockdowns, including our largest international market, the U.K.. This compared to 97% open at the end of Q3. Among our open stores, we continued to experience reduced hours and capacity restrictions. Across channels, our customers respond to product newness and messaging. We realized higher year-over-year AUR for the third consecutive quarter driven by on-trend products, lean inventories and lower promotional intensity, including over the Black Friday period and into the Christmas peak. We continue to utilize our agile supply chain to buy as close to need, ending the quarter with inventories down 7% on our 5% revenue decline. These factors all contributed to gross profit rate expansion of 230 basis points. Overall, we were very pleased with our fourth quarter performance, especially in light of continued disruptions across stores, factories and our transportation network. While the holiday season was uniquely challenging, I was proud how we navigated. Listening to our customer has been paramount to our success. Today, all 4 brands have clearly defined edit points, and our product voice experience are more aligned than ever before. Our new and existing customers have been responding, with our average transaction value up year-over-year. Reflecting dramatic digital growth, we estimate that new to file customers in the channel grew over 35%. Turning to brand performance. We continue to be pleased with results of Hollister, which achieved another quarter of double-digit digital expansion. This was offset by ongoing store challenges. Hollister are more impacted than our other brands given its larger global store base, including over 110 locations in EMEA and its lower digital penetration. Despite these challenges, Hollister realized improvements in average transaction value. Our focus on assortment architecture, high-margin must-haves and our top 30 items continue to pay off, allowing us to pull back on promotions and expand our gross profit rate. For girls, fleece top and knit bottoms were standouts, our guy also responded well to soft and cozy offerings, with strength in sweatshirt and sweatpants. 3 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 02, 2021 / 1:30PM, ANF.N - Q4 2020 Abercrombie & Fitch Co Earnings Call
At Gilly Hicks, we had another impressive quarter of double-digit sales growth and more than 100% digital growth year-over-year. Customers responded well to updated assortments, including cozy tops, bottoms and our loungelette match backs. Our active collection, Gilly Go, also continued to resonate, and as we shared last quarter, we have dedicated additional resources to this important global growth vehicle. Throughout the fourth quarter, we continued our productive partnership with social media stars, Charli and Dixie D'Amelio, integrated assistance across our in-house marketing campaign, including their own gift guide, which drove incremental sales. We also launched 2 new co-created products and offered Charli's new book online, which generated buzz and quickly sold out. During the fourth quarter alone, Charli and Dixie's 36 social posts for Hollister resulted in over 200 million impressions and views. Post holiday, we had a third collaboration. We are thrilled with our ongoing relationship, which has yielded quantifiable positive results and bring a new audience to Hollister. Looking ahead, we are excited to find new ways to expand our relationships with Charli and Dixie. At A&F Adults, which caters to young millennial, we reduced our promotions, leading to gross profit rate expansion. Results benefited from double digit digital sales growth, where we achieved record volumes in over 2/3 of our categories. In addition, we also experienced sequential improvement in store sales. Women's continue to outperform as our team confidently pushed boundaries and set trends with each new delivery. While most categories registered sales improvements over last year, knits, sweaters, outerwear and jeans led the way, with our customers responding well to elevated fashion content. Across genders, our SoftAF and 96 Hour collections continue to resonate and gain traction as we look ahead we see opportunity to build on both franchises. At Abercrombie Kids, we experienced continued double-digit digital growth and increased interest in soft and cozy fabrics, like sherpa polar fleece and faux fur. Capitalized on the trend, we introduced our SooSoft collection for the holiday. We also introduced The Abercrombie family collection, featuring matching outfits for the whole family, including sweatshirts and band tees. Turning to marketing. Adults and Kids focused on expanding our Abercrombie family, establishing ourselves as an industry leader with best-in-class social selling and continuing to lean into our purpose and value. At A&F, we successfully doubled down on social selling, which accelerated and was a positive contributor to the quarter. Our vast influencer and affiliate network proved to be extremely powerful. With our A&F Women's high-rise super skinny named the #1 Jeans in 2020 across the LIKEtoKNOWit app, which is one of the most popular social shopping apps in the world. In fact, I'm pleased to announce that later this month, A&F will be receiving the first-ever Influencer Marketers of the Year award by rewardStyle and LIKEtoKNOWit. Congrats to the team. Q4 also proved to be an opportunity to expand on Abercrombie's purpose and values. Following the recent launch of the Abercrombie Equity Project, the brand's social and racial justice initiative, we announced our partnership with The Steve Fund, the nation's leading nonprofit organization specifically devoted to the mental health and emotional well-being of young people of color. Recently, Hollister and A&F offered their first-ever Black History Month collections, which were codesigned by our associates and affiliates and modeled by members of our BIPOC and Allies associate resource group, with the net proceeds donated to our philanthropic partners at The Academy Group, the Steve Fund and The Conscious Kid. Today, we are celebrating the second annual World Teen Mental Wellness Day, a global event that Hollister created in partnership with the National Day Calendar to disrupt the stigma surrounding teen mental health. In support, Charli and Dixie will be surprising high schoolers with a virtual pop-up mental health discussion. This is a great example of the community that we are fostering and how we are listening closely to our customer while living by our values. 4 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 02, 2021 / 1:30PM, ANF.N - Q4 2020 Abercrombie & Fitch Co Earnings Call
We also remain committed to our environmental and social sustainability efforts and have made many advancements this year as we work towards our longer-term goals. We've provided training to our third-party factory workers in Cambodia, India, Vietnam and Bangladesh on a variety of topics, including life skills, antihuman trafficking and health and safety management, and confirmed 100% commitment of our third-party Tier 1 Cambodia factories into the P.A.C.E. program. Recently, we also executed a 100% renewable electricity contract for our Ohio corporate office and DC's to begin in 2023 that will support our goal of reducing total Scope 1 and 2 greenhouse gas emissions by 2030. As it relates to our product, we adopted eco wash for the majority of our jeans and continue to partner with the Better Cotton Initiative. We are excited by our progress, but recognize that there is much work left to do. We will continue to support the communities we serve as we work to create the future we can all be confident about. In addition to our focus on corporate and social responsibility, we've also been hard at work on our transformation initiatives. Global store network optimization has and continues to be a top priority. Since I joined the company in 2015, we've introduced new productive prototype across brands, while proactively removing 2 million underproductive gross square feet or roughly 28% of our total company square footage. As we remain on our path to strategically refine our global footprint, we have increased our digital penetration from 24% in 2015 to 54% of net sales in fiscal 2020. The majority of store closures have been in A&F with the customer over indexes to digital on our legacy flagship and mall fleet is older, larger and more expensive than that of Hollister. In fiscal 2020, we took out [a total] (added by company after the call) 1.1 million gross square feet or 17% of the base, reflecting the closure of 137 locations. We closed 129 non-flagship stores, removing roughly 850,000 gross square feet. This included 73 A&F stores or approximately 25% of space and 56 Hollister stores or 10% of the space. The closed A&F locations averaged 8,300 gross square feet or close to double our preferred prototype of 4,500 gross square feet. We also closed 8 A&F flagships, including the 7 discussed on our Q3 call and 1 additional in Dublin, Ireland, ahead for this natural lease expiration this month. As we move into 2021, our principles have not changed. Aligning square footage with digital penetration is the most important lever to maintain and improve profitability as we continue to transform from a store led to a digitally led business model. And while the role of the store continues to evolve, our commitment to our customer is resolute. They've made it very clear. They want us to have a physical presence, but that experience needs to be seamless with our digital platform user-friendly and efficient. Reflecting on our ongoing journey as well as the broader product evolution of the retail landscape, we purposefully keep our lease terms flexible, with 50% of our leases up for renewal on a rolling 2-year basis. This gives us the ongoing ability to refine our base by segmenting, relocating or rightsizing legacy, larger format flagships and mall-based locations, while continuing to find the right spaces to provide our customers with exciting and authentically on-brand, new omnichannel experiences. With our financial strength and digital penetration, we remain disciplined with our approach and look forward to working with our global landlord partners to find spaces that are the right size, right location and right economics. Hand in hand with our store optimization strategy is our digital and omni transformation initiatives. We have thoughtful plans in place to continue to invest in digital and omni capabilities and enhancements to create best-in-class customer experiences while growing profitably across channels. Turning to our supply chain initiatives. As COVID reshaped the customer behaviors, we flexed our model to fulfill elevated digital demand and utilize data and analytics to offer the right products at the right time and the right price. In 2021, we will continue on that path as we reposition our West Coast distribution center to a larger, more automated facility that will increase capacity and improve speed to customers. Last, but certainly not least, regarding brand positioning and customer engagement, we are leveraging data, including our loyalty programs, to engage with customers across channels and drive more efficient and effective marketing spend. We also have made key investments in senior talent, including building our user experience and data and analytics teams. 5 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 02, 2021 / 1:30PM, ANF.N - Q4 2020 Abercrombie & Fitch Co Earnings Call
Before I turn it over to Scott, I'll summarize our mindset as we head into 2021. Building on momentum from recent results, we are pleased with our start to the first quarter and are optimistic about the long-term global growth opportunity we see across all 4 brands, including significant runway domestically and in EMEA and APAC, where we are realizing an increasing impact from our growing regional teams. We are on the offense as we work towards recapturing sales lost due to COVID-19, while we continue to operate in an uncertain environment, we will focus on what we can control. Specifically, we are planning to: accelerate digital data and technology investments to increase facility and improve the customer experience; strategically invest in marketing to build on the momentum across brands and geographies; continue to focus resources on Gilly Hicks growth; optimize global store footage and be opportunistic in domestic and international store expansion and build sales on our important CSR work with our associates, partners and other thought leaders. Following a surreal 2020, I am excited for our future and more confident than ever that we are on the right path to deliver profitable growth in 2021 and beyond. And with that, I will turn it over to Scott. Scott D. Lipesky - Abercrombie & Fitch Co. - Senior VP & CFO I'd like to first reiterate Fran's thanks to our global teams and vendor partners for their hard work in 2020 to help make A&F an even stronger company for the future. Turning to our results. I'll start by covering Q4 and full year 2020 and finish with thoughts on 2021. For Q4, we delivered net sales of $1.1 billion, down 5% to last year. As expected, this year's pattern was different than the past, with the peaks lower and the troughs shallower. Net sales declined 8% for Hollister, which includes Gilly Hicks; and 2% for Abercrombie, which includes Kids. By region, net sales declined 3% in the U.S.; 8% in EMEA; and 23% in our smallest region, APAC. In U.S., store traffic declines were consistent with Q3 levels, while EMEA worsened due to renewed lockdowns. Globally, soft store traffic was partially offset by ongoing year-over-year improvements in conversion and average transaction value and 34% of digital sales growth. Looking specifically at reopened store performance. Fourth quarter global store productivity was roughly 75% of prior year levels. By region, reopened store productivity was 75% in the U.S. and 70% in EMEA and APAC. As of yesterday, all stores were open in the U.S. and APAC, while roughly 1/3 of our stores were open in EMEA. We continue to be encouraged by the impact of our growing on-the-ground teams in both EMEA and APAC, which are focused on localizing our product and messaging. As we continue to get closer to our customer, we are offering region-specific assortments such as our Lunar New Year collection in APAC, which was very well received. Moving on to gross profits. Our rate of 60.5% was up 230 basis points to last year. Results were driven by higher AUR, with promotions below last year across brands and slightly lower AUC. Turning to inventory. We are comfortable with our positioning, having entered Q1 with inventories current and down 7% to last year. Since the onset of COVID, we have transformed our inventory management mindset, which is something we will carry into the future. With the ongoing disruption across the transportation network, we will continue to pivot and react to ensure we are delivering newness in a timely manner. I'll now cover the rest of our Q4 results on an adjusted non-GAAP basis. Excluded from our non-GAAP results this quarter are $60 million of pretax asset impairment charges principally attributable to COVID. These charges adversely impacted results by $0.23. Last year, we excluded $2 million of pretax asset impairment charges related to certain flagships, which adversely impacted results by $0.01. 6 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 02, 2021 / 1:30PM, ANF.N - Q4 2020 Abercrombie & Fitch Co Earnings Call
Operating expense, excluding other operating income, was $551 million versus $566 million last year and deleveraged 140 basis points. Stores and distribution expense decreased on a dollar and rate basis driven by a decline in store payroll and store occupancy, including the recognition of executed COVID-related rent abatements and partially offset by increased shipping and fulfillment expense on elevated shipping costs and higher digital sales. Marketing, general and administrative expenses rose on a dollar and rate basis, primarily driven by increased performance-based compensation, partially offset by lower non-customer-facing controllable expenses and in-store marketing costs. As always, we remain focused on tightly managing expenses. We made good progress on our cost base in 2020, putting us in a position to fund key customer-facing areas in 2021. Operating income was $131 million compared to $125 million last year and included a $15 million benefit from FX. The effective tax rate was approximately 18%. Net income per diluted share on an adjusted non-GAAP basis was $1.50 compared to $1.31 last year or $1.48 on a constant currency basis. Turning to fiscal 2020 results. The full year excludes approximately $73 million of pretax asset impairment charges principally attributable to COVID. These charges adversely impacted results by $1.10. Last year, we excluded $13 million of pretax asset impairment charges related to certain flagships, which adversely impacted results by $0.13. Net sales were $3.1 billion, down 14% to 2019, with Hollister declining 15% and Abercrombie declining 12%. By region, net sales declined 12% in the U.S., 14% in EMEA and 33% in APAC. Global store traffic was below last year, impacting volumes and was partially offset by ongoing digital sales growth. Digital sales grew 39% to a record $1.7 billion or 54% of annual revenues versus 33% last year. Gross profit rate was 60.5%, up 110 basis points from last year on higher AUR and relatively flat AUC. Operating expense, excluding other operating income, was $1.8 billion compared to $2.1 billion last year. Although expenses were down on a dollar basis, operating leverage declined 190 basis points due to reduction in net sales. Stores and distribution expense decreased on a dollar basis driven by the same factors I described for Q4. This year's results also included a $12 million benefit related to the exit of certain flagship stores compared to $47 million of charges last year primarily related to the exit of our Hollister Soho flagship. Marketing, general and administrative expenses decreased slightly on a dollar basis, with lower noncustomer-facing controllable expenses and in-store marketing costs, partially offset by increased performance-based compensation. Operating income was $52 million, down from $83 million last year and included a $20 million benefit from FX. Due to COVID, the effective tax rate for the year was adversely impacted by the establishment of additional valuation allowances and other tax charges. These tax impacts adversely impacted EPS by $1.61. Net loss per diluted share was $0.73 compared to net income per diluted share of $0.73 last year and included a $0.29 benefit from FX. We exited the year in a strong financial position with cash and cash equivalents of $1.1 billion and total liquidity of approximately $1.3 billion. For the year, we had capital expenditures of $102 million, with $57 million attributable to stores and the remainder from digital, technology and maintenance needs. On store fleet, we closed 137 locations in fiscal 2020, including 8 flagships and 129 nonflagships, reducing gross square footage by approximately 1.1 million square feet or 17%. Of that amount, approximately 240,000 is related to flagships and 850,000 related to nonflagships. 7 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 02, 2021 / 1:30PM, ANF.N - Q4 2020 Abercrombie & Fitch Co Earnings Call
As we transform to a digitally led business model, it is more important than ever that our stores are the right size and have the right economics to support profitable growth into the future. The majority of the stores closed this year were significantly oversized compared to our current prototypes. It was time to close and look to reposition into smaller spaces in certain markets to support the omnichannel experience. Regarding flagships, we entered fiscal 2020 with 15 and are exiting with 7. Brussels, Madrid and Fukuoka closed due to natural lease expirations. London, Paris, Munich and Düsseldorf closed as a result of early exits discussed last quarter. The last store in Dublin has been closed due to renewed COVID restrictions and will not reopen ahead of its lease expiration in March 2021. We remain committed to these markets and have opened or are currently looking for locations that better align with where our customers shop. Please refer to our investor presentation for further details related to the flagships. Looking ahead, we have roughly 280 locations up for renewal in 2021. We will continue to be thoughtful with our approach to the fleet and continue to see more opportunity to close and rightsize our U.S. Abercrombie fleet. We remain committed to stores as they are a critical part of the omnichannel experience. We plan to build on the 25 new global experiences we delivered in fiscal 2020, which included 15 new stores, 4 remodels and 6 right sizes. As of the end of 2020, approximately half of our global fleet is in a modern format, with a higher percentage of Hollister stores, which introduced its updated prototypes earlier. I'll finish up with how we're approaching 2021. Reflecting ongoing global uncertainty, we will continue to conservatively manage inventories, optimize our DTC capacity for digital demand, position the business to chase and tightly manage expenses. We will also put some of the savings realized in 2020 back to work in customer-facing areas. For the year, we are planning to make progress recouping COVID-driven sales losses, although there is too much uncertainty regarding ongoing store operating restrictions, the consumer recovery and supply chain constraints to provide an outlook today. For gross profit rate, we will continue to manage inventory tightly with the goal of maintaining and potentially building on 2020 progress. For OpEx, we expect to see incremental occupancy savings on top of levels reported in 2020, reflecting the aforementioned store closures and rent negotiations. We also expect to see offsets as certain expenses come back as we lap COVID-related closures and target the acceleration of marketing, digital and data investments. Regarding capital allocation, we expect to carry cash and liquidity above minimum levels in the first half as we manage through continued store closures and restrictions. That said, we are committed to putting cash to work. As always, we will prioritize investments in the business, including capital and OpEx investments. CapEx currently is planned at approximately $100 million for the year, with around half of that related to digital and technology. We will continue to evaluate other growth opportunities, including launching new brands and/or acquiring brands to expand our portfolio. We will continue to look at ways to delever the balance sheet by paying down debt, if the economics work. We've increased our share repurchase authorization to a total of 10 million shares from the previous authorization of 3.2 million shares. Our dividend remains suspended. Therefore, we will focus on share repurchases, pending market conditions, share price and our ability to accelerate investments in the business. For the first quarter, we are planning as follows. Net sales will be up 30% to 40% to Q1 2020 sales of $485 million. We currently do not expect an increase in government-mandated store closures from today's levels, and we do not have clarity on when certain countries may reopen in Europe. Gross profit rate to be up at least 500 basis points from 54.4% last year. As we lap 2020 COVID-related inventory impacts, we are cautiously optimistic in our ability to drive AUR improvements through lower promotion and clearance activity and to realize potential FX benefits. 8 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 02, 2021 / 1:30PM, ANF.N - Q4 2020 Abercrombie & Fitch Co Earnings Call
Operating expense, excluding other operating income, is planned up in the low single digits to last year's adjusted non-GAAP level of $430 million, reflecting lower occupancy, offset by the return of certain 2020 COVID-related savings, higher fulfillment costs and higher marketing and digital project spend. With that, operator, we are ready for questions. Q U E S T I O N S A N D A N S W E R S Operator (Operator Instructions) We'll take our first caller, Dana Telsey, with the Telsey Advisory Group. Dana Lauren Telsey - Telsey Advisory Group LLC - CEO & Chief Research Officer As you think about 2021, Scott, how much of the savings that you had in 2020 comes back into the fold as you grow? And then you mentioned that you would look at acquisitions or other brands. What are you looking for that would enhance the portfolio? And just lastly, on port congestion, what are you seeing and how you're planning inventories going forward? Scott D. Lipesky - Abercrombie & Fitch Co. - Senior VP & CFO Okay. Let's go. All right. On the first question, so 2021, how much savings, we made great progress on the cost base. We started talking about this in Q1 when COVID hit. We really took a different lens as we look at every expense in the company and made great progress, made significant progress on store occupancy, and that's one where we'll make some additional progress as we go into 2020, but there will be expenses that come back. We had furloughs in our stores as we went through the store closures. Hopefully, that will come back as we reopen. And hopefully, all of our stores are open this year. So we'll see that come back. And then we'll continue to see ongoing fulfillment expense as we continue to see nice digital -- nice strong digital business. But then we're going to make some strategic investments. We're going to continue to increase our marketing spend as we go through the year. We love what our teams are doing from a marketing perspective. The product is right. They're connecting that message to the product better than we ever have. So we're going to make investments there. And then the last piece is we'll continue to invest in digital and data. As you can imagine, we have great opportunities there long term. Okay. I will pivot the acquisition of other brands. Yes, this is one opportunity that we have. When you take a step back and look at the financial position that we've come into the year with, $1.1 billion in cash, $1.3 billion in liquidity, it gives us the flexibility that we were looking for as we went throughout 2020. Looking at the balance sheet, it is strong. This is one opportunity we have as a company, whether it's acquire brands or launch brands due to that financial flexibility. It's about driving growth, and we feel like we have growth with our core brands, specifically each brand in the U.S. as well as Europe, recapturing that. And APAC is a significant white space opportunity for us. But if we can fold in other brands or build other new brands, that could be an additional accelerant. Okay. Last piece here. The port issues, it is a very difficult situation in the port. I think everybody sees the article. It seems like there's one per day now, whenever you open up The Wall Street Journal in the morning. 9 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 02, 2021 / 1:30PM, ANF.N - Q4 2020 Abercrombie & Fitch Co Earnings Call
So it is a challenge. There's no doubt about that. I think everyone sees what's happening in the port on the West Coast here in the U.S. There's an imbalance around the world of containers, so that's been a challenge. There's a difficult air market out there, but all we can do is read and react. We have an amazing transportation team that is managing this day by day. The focus of this team has changed dramatically as we've gone throughout 2020. First, it was slowing down transportation, then it was trying to deal with the supply chain constraints on the shipping to customers in Q4. And now it's really transportation of products around the world. So we'll read and react. We have great partnerships around the world. We'll flex those as much as we can. Our goal is to deliver on a timely basis. Fran Horowitz - Abercrombie & Fitch Co. - CEO & Director Just to underscore, Dana, just on that last one. A shout out to as Scott did to our team that managed through some challenges from deliveries in 2020. And we are prepared for whatever comes at us. They're agile, they're nimble. They did a terrific job in 2020, and we expect to see the same in '21. Operator Our next question comes from the line of Paul Lejuez with Citi. Kelly Crago - Citigroup Inc., Research Division - VP This is Kelly Crago on for Paul. I guess, first, could you just dig in a little bit further here on the assumed comps? Is it fair to say that given the significant reduction in square footage that total comps overall were pretty close to positive? Or maybe in the U.S., that's a fair statement? And any color by brand would be helpful. Scott D. Lipesky - Abercrombie & Fitch Co. - Senior VP & CFO Kelly, we haven't talked in comps this year. Our -- the majority of our stores closed here in late January, so we've been talking in total net sales, and that's been very, very close to comp for us. So nothing much to add there. In terms of brands performance, not too much to add there outside of what we put in the release. Abercrombie outperformed Hollister a bit in the quarter. The U.S. continues to outperform Europe, as you could imagine, with the renewed lockdowns across Europe. So I'd say things are playing out consistently as we've gone through the back half. Fran Horowitz - Abercrombie & Fitch Co. - CEO & Director Yes. Just as a quick reminder. Hollister has a larger store bases and Abercrombie has a larger digitally penetrated business. And so that's also influencing the business because of the majority of stores were closed in Europe, as Scott mentioned. Kelly Crago - Citigroup Inc., Research Division - VP Yes. And I guess then, why exactly is Hollister sort of less digital focused? I would assume that customer was a pretty digital-oriented customers. Just a bigger picture about Hollister that has kind of consistently underperformed A&F here even pre-COVID. So could you just talk about what you think is happening in that business that perhaps you need to address going forward? What progress have you made so far and where overall margins you think that will shake out in F '21 relative to peak Hollister? 10 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 02, 2021 / 1:30PM, ANF.N - Q4 2020 Abercrombie & Fitch Co Earnings Call
Fran Horowitz - Abercrombie & Fitch Co. - CEO & Director So to start off, Kelly, we are very pleased with our Hollister business. The product and the marketing is resonating incredibly well with our consumer. In 2019, I think is what you're referencing, we had a renewed focus on our top 30 and our key items. The teams went for that, and we're seeing really strong success in those items. The difference is the size of the store base, and Hollister has a larger store base than Abercrombie does. And the kids, they are very digitally savvy, the Hollister teen customer, but they also socially like to go to the mall. So our expectation, as we head into future that both digital brands -- both digital parts of the business will grow as they certainly did through 2020, and that was across brands and regions. So we are very pleased with where we are with Hollister. Scott D. Lipesky - Abercrombie & Fitch Co. - Senior VP & CFO Yes. I'll just close it up on the last piece of margins. All brands are performing quite well from an AUR perspective and expanding gross margin, so that's our expectation go forward. We continue to have opportunity across our brands to recapture some of that margin that we've lost over the years, and that really starts with product, and it starts with lean inventory and strong inventory management. That's what we're focused on. And so hopefully, we can build on the progress we made in '21 -- or in 2020 as we move through 2021. Kelly Crago - Citigroup Inc., Research Division - VP Got it. And just last question. Thanks for the update on the flagship exposure. Is there any way you could quantify what the drag of those 8 stores that you closed this year were on the P&L? And I think you've mentioned one more opportunity in F '21 to close flagships, just want to make sure I'm right about that. Any other opportunities you see in the near future? And where ultimately -- are we getting out of every single flagship or where that ultimately lands? Scott D. Lipesky - Abercrombie & Fitch Co. - Senior VP & CFO Long term, we'll likely get out of the large majority of flagships. There might be 1 or 2 that hang with us across the Europe base. This year, we've closed 8. We talked about 7 on our last call. We've had 1 more that we added there in Dublin, Ireland due to renewed lockdowns in Ireland. We closed that store a month or 2 back, and it will not reopen ahead of its expiration this month. The collection of those stores had a drag of about 10 basis points on our op margins, and that's looking at 2019 levels. Clearly, things are a little tougher here in stores in 2020, but we haven't updated that at this point. But we're excited about the opportunity this is -- for us. It frees up expense dollars. It gets rid of some pretty big boxes and lets us reposition in these markets to more local areas. I'd like to say we can spread more bets across these markets versus having one giant store in a very tourist heavy -- a tourist-dependent location. So we like what this does for the fleet, and we're right now looking for locations in each of these markets. Operator Next question comes from Ryan Vaughan with Needham. 11 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 02, 2021 / 1:30PM, ANF.N - Q4 2020 Abercrombie & Fitch Co Earnings Call
Ryan Vaughan - Needham & Company, LLC - Principal And great job on the quarter and the year. Two questions for you. One, great to see the store square footage rationalization. I think, Fran, I heard you say 8,300 with the average store size, and your prototypes are 4,500. Can you just touch on the improved productivity that either you're seeing or you expect to see with the smaller store size? And then number two, Scott, you sit on $1.1 billion of cash. You're going to generate a lot of free cash flow this year. Just with the explosion online, $1.7 billion, does the platform today, with the distribution and infrastructure, is it set up and ready for $2 billion, $2.5 billion over, call it, the next couple of years? Scott D. Lipesky - Abercrombie & Fitch Co. - Senior VP & CFO Okay. I'll kick off with the second one and then kick it over to Fran for the first. So yes, great cash balance coming into the year, $1.1 billion. It was nice to see our infrastructure supports the big growth that we saw in 2020. Didn't expect that sitting on the first tee there in March of last year, but it was amazing to see that flex up as we saw the growth in 2020. As we go forward, we are expanding into a new facility on the West Coast in the U.S. That was planned at the beginning of 2020, and we'll open that facility here later in 2020. So that's part of expanding our infrastructure to make sure we can keep up with this demand. We're always looking at the transportation network and the DC network globally to make sure that we can fulfill our customers' needs. We'll continue to do that. We're constantly studying. And if we need to add capacity, we have the financial flexibility to do that, and we'll do it in a smart way, profitability wise. Fran Horowitz - Abercrombie & Fitch Co. - CEO & Director Well, regarding the productivity of the stores, we have opened, over the past couple of years, several hundred new and really exciting prototypes for both brands. We're seeing strong customer acceptance to them. They're smaller. They're omni-enabled. They're efficient. And as we head into 2021. we will continue to be opportunistic about finding some of those opportunities. Operator The next question will come from Susan Anderson with B. Riley Securities. Susan Kay Anderson - B. Riley Securities, Inc., Research Division - Analyst Nice job on the quarter and managing through the year. I was wondering if you could give some more color on the OpEx side for first quarter. How much will FX benefit? And then occupancy, I think, deleveraged significantly last year. Then with those other items being higher, I guess, how much of the deleverage in OpEx can you get back from first quarter of '20? Scott D. Lipesky - Abercrombie & Fitch Co. - Senior VP & CFO Susan, I'll grab this one. Yes, Q1 is going to be a very interesting OpEx and so was the full year. Lots of things were happening. But the good thing about Q1, yes, we'll continue to see some nice pickup in store occupancy. As you can imagine, with the store closures, the rent negotiations that we have done last year, we'll continue to see a nice pickup year-over-year in Q1. 12 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 02, 2021 / 1:30PM, ANF.N - Q4 2020 Abercrombie & Fitch Co Earnings Call
Store payroll is one where we'll start to see some expenses come back in. With the closure of the stores in mid-March last year, many of our employees went on furlough there towards the end of March, so we picked up that month of benefits OpEx-wise in April. So we'll see that come in, we hope. That means the stores are open. And we'll also increase some investments in marketing and in some digital projects. So all in, we're looking at that as an up low single digits to last year's $430 million. There's going to be some wild swings in there, but the great thing is when you take a step back is that we're reducing the fixed cost side of our business by taking out that occupancy and increasing that variable side when we talk about adding back store payroll, fulfillment expense as well as marketing. Susan Kay Anderson - B. Riley Securities, Inc., Research Division - Analyst Great. That's helpful. And then I'm curious on Gilly Hicks. If you can maybe talk about what percent of Hollister Gilly Hicks is now. Not sure if it's gotten to any significant size, but then how big do you think it can be longer term? And maybe if you could give some color on your plans to drive the growth there in 2021. Fran Horowitz - Abercrombie & Fitch Co. - CEO & Director So we're excited about the customer response to Gilly, both from a product and a messaging perspective as well as to some of the new categories that we launched this year, like the Gilly Go has been really well received. We have not discussed what percentage Gilly is yet at the Hollister business. Obviously, it's a smaller percentage, so we have not discussed at this point. But nonetheless, super excited about how the brand is resonating. We decided to -- I would say, relaunch Gilly. It was based on a lot of feedback from our consumer and our associates and strong affinity for the brand. So we're excited about where we're headed, and we're going to continue to have new offerings. And we'll continue to update you this year as those things come to stay. Scott D. Lipesky - Abercrombie & Fitch Co. - Senior VP & CFO Yes. Just one thing to add. We're excited about the investments we've been making in Gilly. We're building our teams. We're building our marketing plans. This is a global opportunity, as Fran always says. And we're excited to see the future ahead for Gilly. Operator Next, we'll go to Jay Sole with UBS. Mauricio Serna Vega - UBS Investment Bank, Research Division - Analyst This is Mauricio Serna on behalf of Jay Sole. I just wanted to ask a couple of questions. If you could provide some color on your performance so far in February maybe compared to 2019 levels. And then if you could talk a little bit more about digital growth has been exceptional over the last year. How has that translated into the profitability of the business? I know you don't disclose the margins compared to stores, but just to get a sense of whether that has made the business more leverageable (inaudible) fulfillment costs. 13 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 02, 2021 / 1:30PM, ANF.N - Q4 2020 Abercrombie & Fitch Co Earnings Call
Fran Horowitz - Abercrombie & Fitch Co. - CEO & Director We are pleased with our start to the quarter, coming off with some nice momentum for the fourth quarter where our product and our messaging continues to resonate with the consumer. It's the smallest month of the quarter, and we still certainly have some unknowns ahead of us, but we're pleased with where we are. Scott can you kick into the second? Scott D. Lipesky - Abercrombie & Fitch Co. - Senior VP & CFO Yes. On the second piece, we've been pleased with the profitability we've seen over the last 3 quarters. The way we've gotten there is really the path that you would expect. We've reduced store occupancy. We've seen digital fulfillment flex up. And the nice kicker is that we've been able to expand gross margin. So the profitability has been solid, and we're pleased with the way that's transpired here in the back half. And that's the formula we're going to take into the future. We want to continue to reduce the fixed side of the business around store occupancy and try to make the model more variable. And so we feel that we can be profitable. We can be more profitable as we become a digitally led business model, and that's what we're focused on. We feel that we're building the right P&L for that. We're building the right cost structure. Great progress made in 2020, and we look to take that into 2021 and beyond. Mauricio Serna Vega - UBS Investment Bank, Research Division - Analyst Great. And if I may, just one last one. I mean, how should we think about, I mean, your view on the reopening of the stores that remain closed in EMEA region? Scott D. Lipesky - Abercrombie & Fitch Co. - Senior VP & CFO I wish we knew when these stores will reopen. Clearly, out of our control, and what we're doing right now is the same playbook that we've used throughout the past, almost a year now sadly. As when stores close, we quickly shift to digital. We work to keep that inventory moving in-store through ship from store or click and collect or pop-ins. So that's a playbook. We'll continue to leverage that playbook until the stores, hopefully, stay open for the long term. Operator And next, we'll go to Matt Boss with JPMorgan. Matthew Robert Boss - JPMorgan Chase & Co, Research Division - MD and Senior Analyst Maybe, Fran, how do you feel about the brand positioning today at Hollister versus Abercrombie? And with that, I guess, my question is, where do you think the largest opportunity by category is to gain market share as we exit the pandemic at each of the 2 concepts? Fran Horowitz - Abercrombie & Fitch Co. - CEO & Director Matt, so I feel better than ever about where our brand position is at Hollister and A&F. We've worked for the past several years solidifying both of those positions. And the Hollister is really the global teen consumer, and A&F is appealing to that young millennials. So we are very steadfast with where we are. 14 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 02, 2021 / 1:30PM, ANF.N - Q4 2020 Abercrombie & Fitch Co Earnings Call
The teams are doing a great job being close to the customer. And really, our product is resonating, and so is our marketing. The first categories go -- gosh, there's so many opportunities. I would tell you that, today, our Abercrombie women's denim business is terrific. She is responding to all the new fashion that we're putting out there. There's a shift now in denim and in fashion, which is exciting for that category. The skinny jean is becoming less important. It has to be a balance, but we think it's less important with straight jeans, and the different rises are becoming even more important. So denim certainly has been and continues to be an opportunity for us. We had a strong -- another good example. Abercrombie Women's has a strong outerwear business coming out of fourth quarter. Outerwear has always been a must-win category for us. So as we head to '21, across brands, lots of opportunities. Just one last one, dresses. Our Abercrombie Women's dress business in '20 was very strong. Once we get into the back half, and there's opportunities for our consumer to be even more social, we expect that business to continue to grow. So lots of exciting opportunity. Matthew Robert Boss - JPMorgan Chase & Co, Research Division - MD and Senior Analyst And then maybe, Scott, to -- as a follow-up. On gross margin, 2-part questions. What's your comfort with inventory on hand, is number one? And then as we think about the product margin puts and takes, I guess, what's the best way to peg gross margin this year as we think about 2019 was 59.5 basically, and 2018 was 60 and change? What's the best way to think about gross margin this year as we think about some of the puts and takes? Scott D. Lipesky - Abercrombie & Fitch Co. - Senior VP & CFO All right. On the first part, yes, we are comfortable with inventory coming into the quarter. We were down 7% coming into the quarter on sales down 5%. We continue to have lower clearance levels than last year. We are in chase mode across our brands and genders, and we're very excited about that. On the margin puts and takes, it will be an interesting year in 2021. There's a lot of things happening out there in the market. We've already discussed transportation. Cotton has come up a little bit more recently. But then on the other -- and those would be headwinds, I would say. And then on the other side, the supply-demand dynamics, I would say, are still tilted in the favor of the retailer as demand is still down in apparel in general across the market. A lot of volume has fallen out of the market. Hopefully, we can recoup some of that across the industry and across our company in 2021. But the way we're thinking about margin, big picture, is we did 60.5% in 2020. The way we're thinking about 2021 is we want to maintain that and hopefully build on top of that 60.5%. With inventory in the right place, Fran just mentioned, the brand positioning is in a great place. Our product and messaging is in a great place. And we want to leverage all of that to continue to push AURs higher. Fran Horowitz - Abercrombie & Fitch Co. - CEO & Director And yes, I just want to underscore the first part of that question. Inventory management was probably one of the best learnings that we took out of 2020 from COVID. And tightly managing our inventory and staying really close with our team to make sure that we are agile and nimble and how we're reacting to the business is a very important learning as we head into '21, and one that we're going to stay very diligent to. 15 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 02, 2021 / 1:30PM, ANF.N - Q4 2020 Abercrombie & Fitch Co Earnings Call
Operator (Operator Instructions) We'll take our next caller, Janine Stichter with Jefferies. Janine M. Stichter - Jefferies LLC, Research Division - Equity Analyst I wanted to dig a bit deeper into the inventory comments about the change in mindset you've had from COVID. Maybe just talk a little bit about some of the back-end workings around the supply chain, where you've gotten quicker and how that's enabled you to chase better into the inventory that you need. Fran Horowitz - Abercrombie & Fitch Co. - CEO & Director Keeping our team very fluid when they think about their open-to-buy and their inventory management has been the biggest one. It's something that we focused on candidly, Janine, before COVID, but really excelled as we headed into the year. Scott and I would normally work with the team, for example, on a monthly basis. We got into weekly inventory meetings with the team because there was so much happening and changing all at once, working very closely with our sourcing team who has set us up in 17 countries around the world to be incredibly agile and how we can react to the business. Regarding chase, it's a part of how we run the business. We buy product every -- literally every single week, and we see the results after the previous week. So it's just ingrained in what we do. Janine M. Stichter - Jefferies LLC, Research Division - Equity Analyst All right. And then just a follow-up on the remodels. It sounds like you're planning to do more new experiences this year. Any update on the remodel performance at Hollister and also how it compares to Abercrombie? Scott D. Lipesky - Abercrombie & Fitch Co. - Senior VP & CFO We delivered, yes, 25 new experiences in 2020. We will do more than that in 2021. We continue to work through opportunities, closing our stores, reopening in some of these markets. So there will be more to come as we go through the year there. The remodel performance, 2020 was a tough measuring stick with the impact of the stores with COVID, but we are still as positive as ever on the remodels. We need our stores to be in this more modernized, smaller, digitally enabled format because that's what the customer demands. And as we shift to become a digitally led model, then these stores are there to support that digital business. So we're building our formats to make sure that they can do that. Fran Horowitz - Abercrombie & Fitch Co. - CEO & Director What's exciting is heading into '21, the offense and the balance sheet that we have. We will continue to be opportunistic globally when the right size, right location spaces become available. Operator We'll take our next question from Kate Fitzsimons with RBC Capital. 16 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 02, 2021 / 1:30PM, ANF.N - Q4 2020 Abercrombie & Fitch Co Earnings Call
Kate Bridget Fitzsimons - RBC Capital Markets, Research Division - Assistant VP And congratulations on a nice quarter. I guess, I wanted to circle back to earlier comments that were made about the promotional environment. Scott, you said inventories far below demand. I guess, at a higher level, Fran or Scott, in your experience, when was the last time you saw the environment this rational with demand really outpacing inventories? Just be curious on your perspective there. And then, Fran, in your prepared comments, you noted, again, analytics, data, clear focuses for the business into 2021. What are some investments that you are making in the coming quarters to allow us to get that much closer to the customer? Maybe give us an update on some of the loyalty initiatives. That would be helpful. Fran Horowitz - Abercrombie & Fitch Co. - CEO & Director I will start off with the first question. So the answer is it's been a long time. That -- as I mentioned earlier today, man, the outperformance of the inventory has been a really big win for us. That's also coupled with the fact that we're seeing very strong product acceptance. And as you mentioned, the closeness to our consumer is certainly helping us identify what those opportunities are, but the opportunity is to take those learnings as we head into '21. So it's been rational. It's exciting. Fourth quarter tends to be the most promotional quarter of the year, yet we were able to reduce our promotions and even during the Black Friday week and in through holiday peak. So a big one, very exciting opportunity for us. The second part, let's see. Regarding getting closer to our customer, as we did mention, we're building up those teams. We're building up our user experience team, our data analytics team, we're using those opportunities to continue to get closer to the customer. We've got a strong customer insights team that helps us talk to our consumer on a consistent basis. So very strong in our social channels and digitally where we can also have constant conversations with our consumer. Scott D. Lipesky - Abercrombie & Fitch Co. - Senior VP & CFO We have a continued opportunity to evolve our digital experience. That's where we'll continue to invest dollars. We'll also be building, and we're modernizing our data infrastructure to enable that. It gives us a quicker customer feedback loop that we can then react in a more agile way whenever we're updating our experience. So excited about the infrastructure that we're building. Again, this is necessary as we continue to shift this model to a digitally led business model, and we're excited about the opportunities ahead. Operator Your next question comes from Janet Kloppenburg with JJK Research Associates. Janet Joseph Kloppenburg - JJK Research Associates, Inc. - President A couple of questions. Scott, what's happening with the inventory in Europe that maybe is trapped or maybe you moved to the digital channel? Just wondering what's going on there and if you think that the mid-March opening schedules that they're talking about in the U.K. are realistic. Also on occupancy, Scott, it was down I think about 400 basis points in the fourth quarter. Should we look for that tailwind in the first, second and third of this year, offset by an equal level of payroll and marketing hikes? Just want to understand how that balances out. And Fran, for APAC, business is accelerating there for many brands. And I'm just -- I know you've opened an office in Shanghai. Maybe you could give us a perspective on what's going on in that region and the outlook. 17 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 02, 2021 / 1:30PM, ANF.N - Q4 2020 Abercrombie & Fitch Co Earnings Call
Fran Horowitz - Abercrombie & Fitch Co. - CEO & Director Yes. I think we'll start backwards, Janet. Regarding APAC, it is our smallest, and it's our newest region. And as you mentioned, we did open up an office. We put some really terrific talent in there. I'm excited how we're getting closer to the customer. That team is in charge of product and pricing and messaging. And we're making progress. We have an opportunity for brand awareness in that particular region, and we're working hard on improving that. We did do a Lunar New Year collection this year through that team, which was very successful and well received by the consumer. So I continue to be optimistic about that region as we head into the future. Scott D. Lipesky - Abercrombie & Fitch Co. - Senior VP & CFO All right. I'll start with inventory in EMEA, comfortable with those levels. Our teams, throughout the pandemic, have been holding back on allocations to stores knowing that we don't know what's coming the next day. And so we've been working through that. Many of these countries have been locked down kind of pre-Christmas, so we've been living through this for a while. So we've rightsized that inventory in stores and flexing up in digital. The mid-March reopening, who knows, I would say, is my answer. Clearly, out of our control. We'll react as we learn more. Hopefully, things are going in the right way. It seems like the vaccine distributions in the U.K. are going well, but we only see what you see. So we'll react whenever we learn more. Occupancy, as we think about 2021, in total, we should continue to see some progress versus 2020 levels. It will be a little bit different as we go throughout the quarter. I'm not going to go into detail there, but likely a bigger opportunity here as we step into Q1 as some of those abatements that we saw, as we've gone through the closures in 2020 hit towards the back end. So we should see a nice benefit here in Q1 versus last year. Operator Your next question comes from the line of Mark Altschwager with Baird. Sarah Goldberg - Robert W. Baird & Co. Incorporated, Research Division - Research Analyst This is Sarah Goldberg on for Mark. First, I was hoping you'd give an updated view on the longer-term EBIT margin potential of the business given all of the learnings over the past year and changes to the store fleet. And then secondly, just a positive update on the social selling front. If you could just elaborate further on the steps you're taking there and maybe some trends you're seeing on the customer acquisition cost in the channel. Fran Horowitz - Abercrombie & Fitch Co. - CEO & Director Sarah, regarding our EBIT margin potential, we are still committed to the 5.8%. We are excited, to your point, about the progress that we were able to make in 2020. We've not put a date out there on that because '21 still has a lot of uncertainty to it as we manage through continued closures and the inconsistency in the business. So our eye is still on that number, just not with a set date at this point. Social selling, incredibly, incredibly exciting for us. In fact, we're using it in all of our brands today. Abercrombie has had a very successful quarter, particularly as we built into these affiliates to sell our products on Instagram and other social channels. It's a very exciting new way to do business. Another great example at Hollister is our partnership with Charli and Dixie and how well that product has resonated to them selling on their social channel. So it's a new way to do business. It's very exciting for us. 18 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 02, 2021 / 1:30PM, ANF.N - Q4 2020 Abercrombie & Fitch Co Earnings Call
Operator And next, we'll go to Marni Shapiro with Retail Tracker. Marni Shapiro - The Retail Tracker - Co-Founder Congratulations. The stores have been just so much fun to be on a regular basis lately. Could you just talk a little bit about, I guess, 2 things. Regional trends, are you seeing in regions where restrictions are less onerous? Are you seeing a change in her behavior already in what she's buying? And is that helping to inform how you set the stores in other regions? And then could you just also talk about -- I think the company hit 54%, is that right, DTC for the year? Fran Horowitz - Abercrombie & Fitch Co. - CEO & Director Yes. Marni Shapiro - The Retail Tracker - Co-Founder And does that imply that -- that's amazing. I guess, not surprising the stores closed as well. But I guess, does that imply Abercrombie was higher than that? And what should that -- I guess, post-COVID, which is so hard to really look at. But in your mind, what should that shake out at? Fran Horowitz - Abercrombie & Fitch Co. - CEO & Director So we are incredibly excited about our digital business, Marni. The investments that we made prior to COVID that we were able to lean into this year to drive those results is super exciting. We are going to learn this year. The customer is going to teach us as we go into more consistent store openings and some of these restrictions being lifted. So we are a digitally led business to 54%. We're going to continue to make those investments, but we're going to learn a lot this year is the answer to that. Regarding regional trends, the U.S. business has been and continues to be our strongest business and more consistent with our -- with the stores open. EMEA, obviously, as Scott discussed a couple of times this morning, anticipating those stores to reopen at some point during the quarter. Marni Shapiro - The Retail Tracker - Co-Founder Are you not seeing regional differences within the U.S., though? Scott D. Lipesky - Abercrombie & Fitch Co. - Senior VP & CFO Not dramatic. When you look at some of the states that are a little, I'd say, more open, like the Texas and the Florida, you're seeing different dynamics there. You do see some strength in some of the stores, but you also see, Florida specifically, there's still not a lot of international tourism coming into those key markets. So in some of those giant malls, they're still down pretty dramatically because you're missing that international tourists. Now the local customer is there maybe a little bit stronger than some of the other places. In Texas, similar, some of those border stores where there's less movement across the border will have some impacts versus the local customers. 19 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 02, 2021 / 1:30PM, ANF.N - Q4 2020 Abercrombie & Fitch Co Earnings Call
So the good thing is the digital business has remained strong across all these regions, and our teams are managing kind of a store by store. It's been kind of a roller coaster as each of these stores open and markets go hot and cold. So that's all we can do is read and react. And hopefully, at some point, we'll get to a point where the capacity restrictions are lifted or softened a little bit, and that will give us a better feel. Operator And we'll take our last question from Dylan Carden with William Blair. Dylan Douglas Carden - William Blair & Company L.L.C., Research Division - Analyst Just curious, Scott, you kind of quantified the drag from the flagship closings. Any way you could do either sales or EBIT margin drag from the stores you closed this year? Do you have that handy and probably... Scott D. Lipesky - Abercrombie & Fitch Co. - Senior VP & CFO Yes, sorry. We have not provided that number at this point, so what I would say is that we're happy with the progress we made this year on occupancy. The stores that we have closed are underproductive versus other stores. The majority of the Abercrombie stores are oversized, and a majority of the stores are less productive than the rest of the fleets. And so it was a good time for us to close some of these larger stores and put us in -- put ourselves in a position to hopefully quickly react in some of these markets and reopen smaller digitally enabled stores. So the right time for us to make this move as we continue to flex up digital. We'll see -- as the market starts to normalize, when people come back out and go back to the malls, we'll see where the productivity shakes out. But we firmly believe we're doing the right thing for the fleets as we continue to balance the P&L between occupancy and fulfillment expense. Dylan Douglas Carden - William Blair & Company L.L.C., Research Division - Analyst Sure. And I guess, the natural follow-up there is, I guess, more of a clarification. When you talk about kind of filling in some of these markets where you've closed stores, does that go beyond just the flagship? And is that a way, particularly on the Abercrombie side, to kind of more efficiently build out some of the new prototype stores? Did I get that right thinking there? Scott D. Lipesky - Abercrombie & Fitch Co. - Senior VP & CFO Exactly, exactly. You nailed it. In some of these markets, we've been talking for years that we haven't made as much progress rightsizing the Abercrombie & Fitch fleet, so we are going to try to accelerate that process. We've closed these stores, some of these larger stores. We're willing and able financially to reopen in some of these markets, but we need to have the right location at the right economics. So we continue to talk to our landlords about opportunities as we go forward. And we're hopeful that some of these moves will help us accelerate that evolution for that brand. Dylan Douglas Carden - William Blair & Company L.L.C., Research Division - Analyst Okay. Great. And can I just squeeze one more here, sorry. I'm just curious. You spoke to strong margins -- strong margin improvement on the digital side this quarter. Was that just a factor of scale in gross margin? Are there some tangible things kind of behind the scenes that allowed that to be more profitable business going forward? 20 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 02, 2021 / 1:30PM, ANF.N - Q4 2020 Abercrombie & Fitch Co Earnings Call
Scott D. Lipesky - Abercrombie & Fitch Co. - Senior VP & CFO Those are by far the 2 biggest levers in that business. The -- and there is a fixed cost base, and then the rest is pretty much variable. It's nice to see the gross margin. That flows right to the bottom line and then just balancing the fulfillment expense. But again, leveraging those expenses, as you said, those are the 2 ways to grow it. Operator All right. With no further questions, I'd like to turn the call back over to Fran for any additional or closing remarks. Fran Horowitz - Abercrombie & Fitch Co. - CEO & Director All right. Thank you all for participating in our call today. We look forward to sharing more with you on our progress on our first quarter earnings call. Operator And that does conclude today's conference. We thank everyone again for their participation. D I S C L A I M E R Refinitiv reserves the right to make changes to documents, content, or other information on this web site without obligation to notify any person of such changes. In the conference calls upon which Event Transcripts are based, companies may make projections or other forward-looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking statement based on a number of important factors and risks, which are more specifically identified in the companies' most recent SEC filings. Although the companies may indicate and believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realized. THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES REFINITIV OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. ©2021, Refinitiv. All Rights Reserved. 13616865-2021-03-02T21:11:17.713 21 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 02, 2021 / 1:30PM, ANF.N - Q4 2020 Abercrombie & Fitch Co Earnings Call