A&F(ANF) - 2026 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This part provides the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including statements of operations and comprehensive income, balance sheets, statements of stockholders' equity, and statements of cash flows, along with detailed notes explaining significant accounting policies, revenue recognition, asset impairment, income taxes, borrowings, share-based compensation, derivative instruments, and segment reporting Condensed Consolidated Statements of Operations and Comprehensive Income This section presents the company's unaudited condensed consolidated statements of operations and comprehensive income | Metric (Thousands) | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :----------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Net sales | $1,208,560 | $1,133,974 | $2,305,871 | $2,154,704 | | Operating income | $206,658 | $175,625 | $308,191 | $305,474 | | Net income | $143,388 | $135,379 | $225,127 | $250,457 | | Net income attributable to A&F | $141,383 | $133,168 | $221,796 | $247,018 | | Basic EPS | $2.97 | $2.60 | $4.58 | $4.84 | | Diluted EPS | $2.91 | $2.50 | $4.47 | $4.64 | Condensed Consolidated Balance Sheets This section presents the company's unaudited condensed consolidated balance sheets | Metric (Thousands) | August 2, 2025 | February 1, 2025 | | :----------------- | :------------- | :--------------- | | Cash and equivalents | $572,730 | $772,727 | | Total current assets | $1,489,115 | $1,673,431 | | Total assets | $3,301,941 | $3,299,887 | | Total current liabilities | $1,038,041 | $1,126,944 | | Total long-term liabilities | $956,696 | $821,620 | | Total stockholders' equity | $1,307,204 | $1,351,323 | Condensed Consolidated Statements of Stockholders' Equity This section presents the company's unaudited condensed consolidated statements of stockholders' equity | Metric (Thousands) | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :----------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Balance, beginning of period | $1,202,594 | $1,091,170 | $1,351,323 | $1,049,987 | | Net income | $143,388 | $135,379 | $225,127 | $250,457 | | Purchase of Common Stock | $(50,480) | $(15,000) | $(252,046) | $(30,000) | | Ending balance | $1,307,204 | $1,221,150 | $1,307,204 | $1,221,150 | Condensed Consolidated Statements of Cash Flows This section presents the company's unaudited condensed consolidated statements of cash flows | Metric (Thousands) | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :----------------- | :------------------------- | :------------------------- | | Net cash provided by operating activities | $112,893 | $260,119 | | Net cash used for investing activities | $(31,943) | $(96,649) | | Net cash used for financing activities | $(290,713) | $(326,961) | | Net decrease in cash and equivalents | $(200,063) | $(163,390) | | Cash and equivalents, end of period | $580,332 | $746,295 | Notes to Condensed Consolidated Financial Statements This section provides detailed notes explaining significant accounting policies, revenue recognition, asset impairment, income taxes, borrowings, share-based compensation, derivative instruments, and segment reporting Note 1. NATURE OF BUSINESS This note describes the company's global retail operations, brand families, and geographic segments - A&F is a global, digitally-led omnichannel retailer selling apparel, personal care, and accessories for men, women, and kids[24] - The company manages its business through three reportable geographic segments: Americas, EMEA, and APAC[25] - Key brand families include Abercrombie and Hollister[26] Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the company's key accounting principles, including consolidation, fiscal year, estimates, and recent pronouncements - The company consolidates variable interest entities (VIEs) where it is the primary beneficiary, such as business ventures in the UAE and Kuwait[28] - The fiscal year ends on the Saturday closest to January 31, typically resulting in a 52-week year[29] - Management makes estimates and assumptions in financial statement preparation, which may be affected by global economic conditions like inflation and foreign exchange rates[32] - Recent accounting pronouncements (ASU 2023-09 and ASU 2024-03) are not expected to have a significant impact on the company's consolidated financial statements, other than new disclosure requirements[34] Note 3. INTERCHANGE FEE SETTLEMENT This note details the financial impact of a payment card interchange fee litigation settlement - A $39 million net benefit was recorded in Q2 Fiscal 2025 from a payment card interchange fee litigation settlement[38] - The settlement included a $43 million benefit in selling expense and a $4 million expense in general and administrative expense[38] Note 4. REVENUE RECOGNITION This note explains the company's revenue recognition policies, focusing on contract liabilities and redemptions Contract Liabilities (Thousands) | Contract Liabilities (Thousands) | August 2, 2025 | February 1, 2025 | August 3, 2024 | February 3, 2024 | | :------------------------------- | :------------- | :--------------- | :------------- | :--------------- | | Gift card liability | $35,363 | $45,364 | $39,914 | $41,144 | | Loyalty programs liability | $34,695 | $32,199 | $29,535 | $27,937 | Revenue Recognized (Thousands) | Revenue Recognized (Thousands) | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :----------------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Gift card redemptions/breakage | $28,743 | $32,831 | $59,643 | $63,492 | | Loyalty reward redemptions/breakage | $17,008 | $14,712 | $32,320 | $28,670 | Note 5. NET INCOME PER SHARE This note provides details on the calculation of basic and diluted net income per share Shares (Thousands) | Shares (Thousands) | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :----------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Weighted-average — basic shares | 47,550 | 51,246 | 48,382 | 51,069 | | Dilutive effect of share-based compensation awards | 1,001 | 2,033 | 1,210 | 2,208 | | Weighted-average — diluted shares | 48,551 | 53,279 | 49,592 | 53,277 | Note 6. FAIR VALUE This note describes the company's fair value measurements for assets and liabilities, categorized by input observability - Fair value measurements are categorized into a three-level hierarchy based on input observability: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[42][43] Assets at Fair Value (Thousands) | Assets at Fair Value (Thousands) | Level 1 (Aug 2, 2025) | Level 2 (Aug 2, 2025) | Total (Aug 2, 2025) | Level 1 (Feb 1, 2025) | Level 2 (Feb 1, 2025) | Total (Feb 1, 2025) | | :------------------------------- | :-------------------- | :-------------------- | :------------------ | :-------------------- | :-------------------- | :------------------ | | Cash equivalents | $168,794 | $14,195 | $182,989 | $304,072 | $1,013 | $305,085 | | Derivative instruments | — | $714 | $714 | — | $4,315 | $4,315 | | Rabbi Trust assets | $1,164 | $54,669 | $55,833 | $1,164 | $53,921 | $55,085 | | Restricted cash equivalents | $3,084 | $1,499 | $4,583 | $3,070 | $1,496 | $4,566 | | Total assets | $173,042 | $71,077 | $244,119 | $308,306 | $60,745 | $369,051 | Liabilities at Fair Value (Thousands) | Liabilities at Fair Value (Thousands) | Level 2 (Aug 2, 2025) | Total (Aug 2, 2025) | Level 2 (Feb 1, 2025) | Total (Feb 1, 2025) | | :------------------------------------ | :-------------------- | :------------------ | :-------------------- | :------------------ | | Derivative instruments | $7,110 | $7,110 | — | — | Note 7. PROPERTY AND EQUIPMENT, NET This note presents the carrying amounts of the company's property and equipment, net of depreciation and amortization Property and Equipment (Thousands) | Property and Equipment (Thousands) | August 2, 2025 | February 1, 2025 | | :--------------------------------- | :------------- | :--------------- | | Property and equipment, at cost | $2,743,388 | $2,605,871 | | Less: Accumulated depreciation and amortization | $(2,104,798) | $(2,030,098) | | Property and equipment, net | $638,590 | $575,773 | Note 8. LEASES This note details the company's operating lease costs and future minimum commitments Operating Lease Costs (Thousands) | Operating Lease Costs (Thousands) | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :-------------------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Single lease cost | $76,735 | $64,163 | $146,582 | $124,143 | | Variable lease cost | $45,929 | $45,197 | $94,504 | $91,366 | | Operating lease right-of-use asset impairment | $623 | $472 | $1,072 | $811 | | Sublease income | $(1,048) | $(986) | $(2,036) | $(1,970) | | Total operating lease cost | $122,239 | $108,846 | $240,122 | $214,350 | - The company had minimum commitments of approximately $121.6 million for operating lease contracts not yet commenced as of August 2, 2025[46] Note 9. ASSET IMPAIRMENT This note outlines the company's asset impairment charges, primarily related to store assets Asset Impairment Charges (Thousands) | Asset Impairment Charges (Thousands) | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :----------------------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Operating lease right-of-use asset impairment | $623 | $471 | $1,072 | $810 | | Property and equipment asset impairment | $1,228 | $230 | $1,458 | $757 | | Intangible asset impairment | $922 | — | $922 | — | | Total asset impairment | $2,773 | $701 | $3,452 | $1,567 | - Asset impairment charges for the twenty-six weeks ended August 2, 2025, primarily related to store assets in the EMEA and APAC segments, reducing their carrying amount to approximately $7.4 million[48] Note 10. INCOME TAXES This note discusses the company's effective tax rate, the impact of tax legislation, and valuation allowances - The effective tax rate is subject to variation due to jurisdictional mix of earnings, foreign currency exchange rates, changes in laws, and discrete items[49] - The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, did not have a material impact on the consolidated financial statements[50] - The company did not recognize income tax benefits on $21.8 million and $31.8 million of pretax losses in Switzerland for the thirteen and twenty-six weeks ended August 2, 2025, respectively[51] - An additional valuation allowance of $5.6 million was recorded against net deferred tax assets in Japan during the thirteen and twenty-six weeks ended August 2, 2025[51] Note 11. BORROWINGS This note provides information on the company's ABL Facility and compliance with debt covenants - The ABL Facility is a $500 million senior secured asset-based revolving credit facility, maturing on August 2, 2029[55] - As of August 2, 2025, there were no outstanding borrowings under the ABL Facility[56] - Available borrowing capacity under the ABL Facility was $449.5 million as of August 2, 2025[56][139] - The company was in compliance with all debt covenants as of August 2, 2025[59] Note 12. SHARE-BASED COMPENSATION This note details the company's share-based compensation expense and unrecognized compensation costs Share-Based Compensation (Thousands) | Share-Based Compensation (Thousands) | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :----------------------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Share-based compensation expense | $9,793 | $9,233 | $20,384 | $20,596 | | Income tax benefits | $1,487 | $1,240 | $2,885 | $2,518 | | Income tax discrete benefits realized | $247 | $2,778 | $4,838 | $17,332 | | Employee tax withheld upon issuance of shares | $768 | $2,052 | $34,830 | $67,225 | Unrecognized Compensation Cost (Thousands) | Unrecognized Compensation Cost (Thousands) | Service-based Restricted Stock Units | Performance-based Restricted Stock Units | Market-based Restricted Stock Units | | :--------------------------------------- | :----------------------------------- | :--------------------------------------- | :---------------------------------- | | Unrecognized compensation cost | $55,180 | $12,220 | $7,027 | | Remaining weighted-average period (years) | 1.3 | 0.9 | 1.1 | Note 13. DERIVATIVE INSTRUMENTS This note explains the company's use of foreign currency exchange forward contracts to manage market risk - The company uses foreign currency exchange forward contracts to manage foreign currency exchange rate exposure, primarily for forecasted intercompany inventory sales (cash flow hedges) and foreign-currency-denominated net monetary assets/liabilities[62][63][64] Notional Amount of Foreign Currency Exchange Forward Contracts (Thousands) | Notional Amount of Foreign Currency Exchange Forward Contracts (Thousands) | August 2, 2025 (Cash Flow Hedges) | August 2, 2025 (Monetary Assets/Liabilities) | | :----------------------------------------------------------------------- | :-------------------------------- | :------------------------------------------- | | Euro | $66,284 | $22,310 | | British pound | $88,178 | — | | Canadian dollar | $35,827 | — | Derivative Fair Values (Thousands) | Derivative Fair Values (Thousands) | August 2, 2025 | February 1, 2025 | | :--------------------------------- | :------------- | :--------------- | | Derivatives designated as cash flow hedging instruments (assets) | $714 | $4,315 | | Derivatives designated as cash flow hedging instruments (liabilities) | $6,848 | — | | Derivatives not designated as hedging instruments (liabilities) | $262 | — | | Total assets | $714 | $4,315 | | Total liabilities | $7,110 | — | Note 14. ACCUMULATED OTHER COMPREHENSIVE LOSS This note details the activity and components of accumulated other comprehensive loss AOCL Activity (Thousands) | AOCL Activity (Thousands) | 13 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 3, 2024 | | :------------------------ | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Beginning balance | $(141,029) | $(139,151) | $(137,282) | $(135,968) | | Foreign Currency Translation Adjustment | $2,153 | $12,815 | $3,441 | $1,604 | | Unrealized Gain (Loss) on Derivative Financial Instruments (before reclass) | $(1,239) | $(12,575) | $(587) | $442 | | Reclassified loss from AOCL | $2,328 | $728 | $(527) | $(1,010) | | Ending balance | $(137,828) | $(137,828) | $(134,991) | $(134,991) | Note 15. SEGMENT REPORTING This note provides financial information by geographic segment and brand family - The company's CODM (CEO, COO, CFO) manages business operations and evaluates segment performance based on net sales and operating income/loss for Americas, EMEA, and APAC[68][69][70] Segment Net Sales (Thousands) | Segment Net Sales (Thousands) | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :---------------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Americas | $974,200 | $901,224 | $1,849,004 | $1,721,345 | | EMEA | $197,210 | $199,682 | $382,246 | $364,460 | | APAC | $37,150 | $33,068 | $74,621 | $68,899 | | Total | $1,208,560 | $1,133,974 | $2,305,871 | $2,154,704 | Segment Operating Income (Loss) (Thousands) | Segment Operating Income (Loss) (Thousands) | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :------------------------------------------ | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Americas | $319,829 | $275,120 | $546,789 | $527,467 | | EMEA | $24,530 | $38,040 | $40,564 | $62,541 | | APAC | $(5,967) | $(3,245) | $(10,377) | $(3,567) | | Corporate and other unallocated expenses | $(131,734) | $(134,290) | $(268,785) | $(280,967) | | Total Operating Income | $206,658 | $175,625 | $308,191 | $305,474 | Net Sales by Brand (Thousands) | Net Sales by Brand (Thousands) | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :----------------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Abercrombie | $551,868 | $582,416 | $1,099,815 | $1,153,929 | | Hollister | $656,692 | $551,558 | $1,206,056 | $1,000,775 | | Total | $1,208,560 | $1,133,974 | $2,305,871 | $2,154,704 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, and liquidity. It includes an overview of the business, current trends and outlook, detailed analysis of financial performance, liquidity and capital resources, and discussions of recent accounting pronouncements, critical accounting estimates, and non-GAAP financial measures SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This section highlights the inherent risks and uncertainties associated with forward-looking statements - Forward-looking statements are subject to risks and uncertainties, and actual results may differ from expectations[78] - Key risk factors include global trade policy (tariffs), changes in global economic and financial conditions (inflation), global operations, geopolitical landscape, natural disasters, customer demand, competition, digital/omnichannel initiatives, seasonality, foreign currency fluctuations, tax obligations, cybersecurity, intellectual property, climate change, reputational harm, and litigation[78][80] INTRODUCTION This section introduces the purpose of the Management's Discussion and Analysis, supplementing the financial statements - The MD&A provides an understanding of the Company's results of operations, financial condition, and liquidity, supplementing the Condensed Consolidated Financial Statements[82] OVERVIEW This section provides a general description of the company's global retail business and operational structure - The company is a global, digitally-led omnichannel retailer offering apparel, personal care, and accessories through its own stores, digital channels, and third-party arrangements[83] - Business is managed geographically (Americas, EMEA, APAC) and includes Abercrombie and Hollister brand families[84][85] - Operations are seasonal, with the Fall season (back-to-school and holiday) historically generating the greatest sales activity[86] CURRENT TRENDS AND OUTLOOK This section discusses the company's strategic growth plans, macroeconomic impacts, and operational initiatives - The "Always Forward Plan" guides the company's strategic growth principles, focusing on sustainable and profitable growth[87] - Fiscal 2025 focus areas include executing focused growth plans (marketing, store investments, new geographies, brand playbooks, testing/chase strategies), accelerating an enterprise-wide digital revolution (ERP transformation, cloud migration, digital/technology investments), and operating with financial discipline (agile inventory, pricing strategies, durable balance sheet, consistent free cash flow)[89][90][91][92] - Macroeconomic conditions (volatile interest rates, inflation, geopolitical landscape, foreign exchange) and tariffs (new U.S. universal baseline tariff, country-specific tariffs) continue to impact the global economy and the company's business[93] - The company expects to incur approximately $90 million in net tariff expense (170 basis points as a percent of net sales) in Fiscal 2025, negatively impacting operating profit[93] - Global supply chain disruptions (maritime routes, higher costs, competition) are being monitored, with potential mitigating actions like increased air freight usage[95] - The company is modernizing its global store network, planning approximately 40 net new store openings and 40 remodels/rights-sizes in Fiscal 2025[97][98] - The One Big Beautiful Bill Act (OBBBA) and Pillar Two Model Rules did not have a material impact on the company's effective tax rate for Fiscal 2024 and are not projected to for Fiscal 2025[100][101] Summary of results This section provides a high-level summary of the company's key financial performance metrics Metric | Metric | 13 Weeks Ended Aug 2, 2025 (GAAP) | 13 Weeks Ended Aug 3, 2024 (GAAP) | 26 Weeks Ended Aug 2, 2025 (GAAP) | 26 Weeks Ended Aug 3, 2024 (GAAP) | | :----- | :-------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net sales (in thousands) | $1,208,560 | $1,133,974 | $2,305,871 | $2,154,704 | | Change in net sales | 7 % | 21 % | 7 % | 22 % | | Comparable sales | 3 % | 18 % | 4 % | 19 % | | Operating income (in thousands) | $206,658 | $175,625 | $308,191 | $305,474 | | Operating income margin | 17.1 % | 15.5 % | 13.4 % | 14.2 % | | Net income attributable to A&F (in thousands) | $141,383 | $133,168 | $221,796 | $247,018 | | Net income per share attributable to A&F | $2.91 | $2.50 | $4.47 | $4.64 | Balance Sheet (Thousands) | Balance Sheet (Thousands) | August 2, 2025 | February 1, 2025 | | :------------------------ | :------------- | :--------------- | | Cash and equivalents | $572,730 | $772,727 | | Marketable securities | $30,795 | $116,221 | | Inventories | $592,966 | $575,005 | Cash Flows (Thousands) | Cash Flows (Thousands) | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :--------------------- | :------------------------- | :------------------------- | | Net cash provided by operating activities | $112,893 | $260,119 | | Net cash used for investing activities | $(31,943) | $(96,649) | | Net cash used for financing activities | $(290,713) | $(326,961) | RESULTS OF OPERATIONS This section provides a detailed analysis of the company's financial performance across various income statement line items Net sales This section analyzes the company's net sales performance by period, comparable sales, and brand - Net sales increased 7% for both the thirteen and twenty-six weeks ended August 2, 2025, compared to the prior year[105] - Comparable sales increased 3% for the thirteen weeks and 4% for the twenty-six weeks ended August 2, 2025[105] Net Sales Growth | Net Sales Growth | 13 Weeks Ended Aug 2, 2025 (% Change) | 13 Weeks Ended Aug 2, 2025 (Comparable Sales %) | 26 Weeks Ended Aug 2, 2025 (% Change) | 26 Weeks Ended Aug 2, 2025 (Comparable Sales %) | | :--------------- | :------------------------------------ | :---------------------------------------------- | :------------------------------------ | :---------------------------------------------- | | Americas | 8 % | 5 % | 7 % | 5 % | | EMEA | (1) % | (5) % | 5 % | 0 % | | APAC | 12 % | 1 % | 8 % | 2 % | | Total | 7 % | 3 % | 7 % | 4 % | Net Sales by Brand (Thousands) | Net Sales by Brand (Thousands) | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :----------------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Abercrombie | $551,868 | $582,416 | $1,099,815 | $1,153,929 | | Hollister | $656,692 | $551,558 | $1,206,056 | $1,000,775 | Cost of sales, exclusive of depreciation and amortization This section examines the factors influencing the company's cost of sales as a percentage of net sales - Cost of sales as a percentage of net sales increased by 230 basis points in Q2 Fiscal 2025 and 330 basis points year-to-date[108][109] - This increase was primarily driven by deleverage from single-digit AUR decreases, volume mix, targeted promotions, and higher AUC[108][109] - Adverse tariff impacts (approx. 40 bps in Q2, 20 bps year-to-date) and higher freight costs (120 bps year-to-date) contributed to the increase in AUC[108][109] Selling expense This section analyzes the changes in selling expense as a percentage of net sales and contributing factors - Selling expense as a percentage of net sales decreased by 260 basis points in Q2 Fiscal 2025 and 90 basis points year-to-date[111][112] - This decrease was primarily driven by an approximate 350 basis point benefit in Q2 (190 bps year-to-date) from the favorable payment card interchange fee litigation settlement[111][112] - Partially offsetting factors included increased store occupancy and payrolls costs (approx. 90 bps in Q2, 60 bps year-to-date) and marketing (approx. 40 bps year-to-date)[111][112] General and administrative expense This section discusses the trends and drivers of general and administrative expense as a percentage of net sales - General and administrative expense as a percentage of net sales decreased by 120 basis points in Q2 Fiscal 2025 and 190 basis points year-to-date[114][115] - The decrease was primarily due to a 190 basis point decrease in employee compensation costs in Q2 (200 bps year-to-date)[114][115] - This was partially offset by legal fees related to the Litigation Settlement (approx. 40 bps in Q2, 20 bps year-to-date) and other administrative expenses[114][115] Other operating income, net This section presents the company's other operating income, net, and its impact on overall results Other Operating Income, Net (Thousands) | Other Operating Income, Net (Thousands) | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :------------------------------------ | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Amount | $(369) | $(67) | $3,414 | $(2,025) | | % of Net sales | 0 % | 0 % | 0.1 % | (0.1) % | Operating income This section analyzes the company's operating income performance and its contributing factors by segment - Operating income increased by $31 million in Q2 Fiscal 2025 (160 bps as % of net sales) and $3 million year-to-date (decreased 80 bps as % of net sales)[117][119] - Excluding the Litigation Settlement benefit, adjusted non-GAAP operating income as a percentage of net sales decreased by 160 basis points in Q2 and 250 basis points year-to-date[118][120] - Americas operating income increased by $45 million in Q2 (230 bps as % of region net sales), driven by the Litigation Settlement benefit, partially offset by higher cost of sales and store occupancy[121] - EMEA operating income decreased by $14 million in Q2 (670 bps as % of region net sales) due to lower comparable AUR and deleverage on store and fulfillment expenses[121] - APAC operating loss increased by $3 million in Q2 (630 bps as % of region net sales) due to deleverage on higher store and distribution expenses[121] Interest income, net This section discusses the changes in net interest income and the factors influencing it - Interest income, net, decreased by $2.7 million in Q2 Fiscal 2025 and $1.0 million year-to-date[122][123] - This was due to a reduction in interest income from lower balances on time deposits and money market accounts[122][123] - The decrease was partially offset by lower interest expense in Fiscal 2025 due to the redemption of the 8.75% Senior Secured Notes on July 15, 2024[122][123] Income tax expense This section details the company's income tax expense and effective tax rate, along with influencing factors Income Tax Expense (Thousands) | Income Tax Expense (Thousands) | 13 Weeks Ended Aug 2, 2025 | Effective Tax Rate | 13 Weeks Ended Aug 3, 2024 | Effective Tax Rate | 26 Weeks Ended Aug 2, 2025 | Effective Tax Rate | 26 Weeks Ended Aug 3, 2024 | Effective Tax Rate | | :----------------------------- | :------------------------- | :----------------- | :------------------------- | :----------------- | :------------------------- | :----------------- | :------------------------- | :----------------- | | Income tax expense | $65,744 | 31.4 % | $45,449 | 25.1 % | $92,321 | 29.1 % | $65,243 | 20.7 % | - The change in effective tax rate was due to jurisdictional mix, lower tax benefits on share-based compensation, and an additional valuation allowance in Japan[124] Net income attributable to A&F This section presents the company's net income attributable to A&F, both GAAP and adjusted non-GAAP Net Income Attributable to A&F (Thousands) | Net Income Attributable to A&F (Thousands) | 13 Weeks Ended Aug 2, 2025 | % of Net sales | 13 Weeks Ended Aug 3, 2024 | % of Net sales | 26 Weeks Ended Aug 2, 2025 | % of Net Sales | 26 Weeks Ended Aug 3, 2024 | % of Net Sales | | :--------------------------------------- | :------------------------- | :------------- | :------------------------- | :------------- | :------------------------- | :------------- | :------------------------- | :------------- | | Net income attributable to A&F | $141,383 | 11.7 % | $133,168 | 11.7 % | $221,796 | 9.6 % | $247,018 | 11.5 % | | Adjusted non-GAAP net income attributable to A&F | $112,758 | 9.3 % | $133,168 | 11.7 % | $193,171 | 8.4 % | $247,018 | 11.5 % | Net income per share attributable to A&F This section provides the company's net income per diluted share attributable to A&F, including GAAP and adjusted non-GAAP figures Net Income Per Diluted Share Attributable to A&F | Net Income Per Diluted Share Attributable to A&F | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :----------------------------------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | GAAP | $2.91 | $2.50 | $4.47 | $4.64 | | Adjusted non-GAAP | $2.32 | $2.50 | $3.90 | $4.64 | | Adjusted non-GAAP on a constant currency basis | $2.32 | $2.53 | $3.90 | $4.60 | EBITDA AND ADJUSTED EBITDA This section presents the company's EBITDA and Adjusted EBITDA, along with their respective percentages of net sales EBITDA (Thousands) | EBITDA (Thousands) | 13 Weeks Ended Aug 2, 2025 | % of Net sales | 13 Weeks Ended Aug 3, 2024 | % of Net sales | 26 Weeks Ended Aug 2, 2025 | % of Net sales | 26 Weeks Ended Aug 3, 2024 | % of Net sales | | :----------------- | :------------------------- | :------------- | :------------------------- | :------------- | :------------------------- | :------------- | :------------------------- | :------------- | | Net income | $143,388 | 11.9 % | $135,379 | 11.9 % | $225,127 | 9.8 % | $250,457 | 11.6 % | | EBITDA | $244,082 | 20.2 % | $214,980 | 19.0 % | $384,191 | 16.7 % | $382,518 | 17.8 % | | Adjusted EBITDA | $205,508 | 17.0 % | $214,980 | 19.0 % | $345,617 | 15.0 % | $382,518 | 17.8 % | - Adjusted EBITDA, excluding the litigation settlement, decreased by 200 basis points in Q2 Fiscal 2025 and 280 basis points year-to-date, indicating a decline in core financial performance[128][156] LIQUIDITY AND CAPITAL RESOURCES This section discusses the company's liquidity position, capital requirements, and funding strategies Overview This section provides a general assessment of the company's liquidity and primary cash needs - The company believes it has adequate liquidity to fund operating activities for the next twelve months[129] - Primary cash requirements include investments in the business, inventory acquisition, compensation, marketing, technology, leases, and taxes[131] - Total capital expenditures for Fiscal 2025 are expected to be approximately $225 million, with $116.9 million invested year-to-date[132] - Total liquidity as of August 2, 2025, was approximately $1.0 billion, comprising $572.7 million in cash and equivalents and incremental borrowing available under the ABL Facility[133] Share repurchases This section details the company's share repurchase programs and activity - A new $1.3 billion share repurchase program (2025 Authorization) was approved in March 2025, replacing a prior $500 million program[134] - During the year-to-date period ended August 2, 2025, the company repurchased approximately 3.2 million shares for $250 million[135] - As of August 2, 2025, $1.1 billion remained under the 2025 Authorization[135] Credit facility This section describes the company's ABL Facility, its capacity, and outstanding borrowings - The ABL Facility is a senior secured asset-based revolving credit facility of up to $500 million[138] - As of August 2, 2025, there were no outstanding borrowings, and $449.5 million in borrowing capacity was available[138][139] Income taxes This section discusses the company's tax policies regarding undistributed foreign earnings and cash held by foreign affiliates - Undistributed earnings and profits from foreign subsidiaries as of February 2, 2019, are indefinitely reinvested[140] - Earnings after February 2, 2019, are accrued for state and foreign withholding taxes, allowing for repatriation without significant additional federal income tax[140] - As of August 2, 2025, $209.1 million of the company's $572.7 million cash and equivalents were held by foreign affiliates[140] Analysis of cash flows This section analyzes the company's cash flow activities from operations, investing, and financing - Net cash provided by operating activities decreased from $260.1 million in 2024 to $112.9 million in 2025 (26 weeks ended), due to increased cash outflows for payables and higher inventory costs, partially offset by increased net sales[141] - Net cash used for investing activities decreased from $96.6 million in 2024 to $31.9 million in 2025, primarily due to proceeds from marketable securities maturities ($85 million) partially offsetting capital expenditures ($117 million)[142] - Net cash used for financing activities decreased from $327.0 million in 2024 to $290.7 million in 2025, mainly due to lower share repurchases and debt redemption in the prior year[143][144] Contractual obligations This section outlines the company's significant contractual obligations and any recent changes - Contractual obligations include operating leases, merchandise inventory purchase orders, unrecognized tax benefits, retirement obligations, and other agreements[145] - No material changes in contractual obligations since February 1, 2025, except for normal business fluctuations in merchandise inventory and lease obligations[146] RECENT ACCOUNTING PRONOUNCEMENTS This section reviews the impact of recent accounting pronouncements on the company's financial statements - The company reviews recent accounting pronouncements quarterly and has determined that those not discussed are not applicable or not expected to have a material impact on its consolidated financial statements[147] CRITICAL ACCOUNTING ESTIMATES This section confirms that there have been no significant changes to the company's critical accounting policies and estimates - No significant changes in critical accounting policies and estimates since the end of Fiscal 2024[148] NON-GAAP FINANCIAL MEASURES This section defines and explains the company's use of non-GAAP financial measures Comparable sales This section defines comparable sales as a non-GAAP measure and explains its utility for investors - Comparable sales measure year-over-year percentage change in net sales for qualifying stores and digital channels, adjusted for constant currency[150] - This metric helps investors understand revenue attributable to existing locations versus new/closed stores[150] Excluded item This section identifies specific items excluded from non-GAAP adjustments, such as litigation settlements - Excluded items for non-GAAP adjustments include the settlement of claims to resolve payment card interchange fee litigation (for selling expense and operating income) and related legal fees (for general and administrative expense)[152] Financial information on a constant currency basis This section explains the calculation and purpose of presenting financial information on a constant currency basis - Financial information on a constant currency basis removes the impact of foreign currency exchange rate fluctuations to enhance understanding of underlying business trends and operating performance[153] - The effect is calculated by applying current period exchange rates to prior year results, net of hedging impact, with a 26% effective tax rate for per diluted share effect[153] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, including those related to investment securities, interest rates, and foreign currency exchange rates, and the strategies employed to manage these risks INVESTMENT SECURITIES This section discusses the company's exposure to interest rate risk from cash equivalents and marketable securities - Cash equivalents and short-term marketable securities have short maturities (three months or less for cash equivalents, less than twelve months for marketable securities), so interest rate changes are not expected to materially affect their fair value[157] - Rabbi Trust assets, primarily trust-owned life insurance policies, generated realized gains of $0.4 million (13 weeks) and $0.7 million (26 weeks) ended August 2, 2025, recorded in interest income, net[158] INTEREST RATE RISK This section details the company's management of interest rate risk, particularly concerning its debt facilities - The company eliminated interest rate risk associated with its 8.75% Senior Secured Notes by redeeming them on July 15, 2024[160] - Future interest rate risk will be influenced by gross borrowings under the ABL Facility and changes in its interest rate terms[160] FOREIGN CURRENCY EXCHANGE RATE RISK This section describes the company's exposure to foreign currency fluctuations and its hedging strategies - The company is exposed to foreign currency exchange rate risk from international operations and transactions, including intercompany inventory sales and foreign-currency-denominated assets/liabilities[161][162] - Foreign currency exchange forward contracts are used, primarily as cash flow hedges, to partially offset these risks, not for speculation[162] - A hypothetical 10% devaluation of the U.S. dollar would decrease derivative contract fair values by approximately $17.4 million, which would be largely offset by changes in the underlying hedged items[163] Item 4. Controls and Procedures This section details the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting DISCLOSURE CONTROLS AND PROCEDURES This section confirms the effectiveness of the company's disclosure controls and procedures - A&F's disclosure controls and procedures were evaluated and deemed effective at a reasonable level of assurance as of August 2, 2025[165] CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING This section reports on any material changes in the company's internal control over financial reporting - No material changes in internal control over financial reporting occurred during the fiscal quarter ended August 2, 2025[166] PART II. OTHER INFORMATION This part provides information on legal proceedings, risk factors, equity security sales, and other disclosures Item 1. Legal Proceedings This section outlines the company's involvement in various legal proceedings, its policy for accruing liabilities for probable losses, and the inherent uncertainties in estimating potential liabilities - The company is a defendant in various lawsuits and adversary proceedings, ranging from individual to class actions[168] - Estimated liabilities are established for probable and estimable losses, but a range of reasonably possible losses cannot be estimated for all matters[168] - Actual liabilities may differ from recorded amounts due to uncertainties in settlement negotiations and court approvals[168] Item 1A. Risk Factors This section states that there have been no material changes to the company's risk factors since its Fiscal 2024 Form 10-K - No material changes to the company's risk factors since the Fiscal 2024 Form 10-K[170] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on the company's share repurchase activities during the second quarter of Fiscal 2025 under its new $1.3 billion authorization - No unregistered sales of equity securities occurred during the second quarter of Fiscal 2025[171] Period (fiscal month) | Period (fiscal month) | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | | :-------------------- | :------------------------------- | :--------------------------- | :--------------------------------------------------------------------------------------- | | May 4, 2025 - May 31, 2025 | 417 | $79.35 | $1,100,039,825 | | June 1, 2025 - July 5, 2025 | 382,129 | $79.93 | $1,070,079,572 | | July 6, 2025 - August 2, 2025 | 226,714 | $89.05 | $1,050,048,833 | | Total | 609,260 | $83.33 | $1,050,048,833 | - The company repurchased 609,260 shares of Common Stock during the thirteen weeks ended August 2, 2025, under the $1.3 billion 2025 Authorization[171] Item 5. Other Information This section confirms that there were no changes to Rule 10b5-1 or non-Rule 10b5-1 trading arrangements by directors or officers during the reported period - No changes to Rule 10b5-1 or non-Rule 10b5-1 trading arrangements by directors or officers during the thirteen weeks ended August 2, 2025[172] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including corporate governance documents, executive certifications, and XBRL data files - Exhibits include Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, Certifications by CEO and CFO (pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350), and Inline XBRL documents[173] Signatures This section provides the official signatures of the company's authorized officers for the report - The report was signed by Robert J. Ball, Senior Vice President, Chief Financial Officer, and Joseph Frericks, Senior Vice President, Corporate Controller, on September 5, 2025[176]