A&F(ANF) - 2024 Q2 - Quarterly Report

Store Operations - The Company opened 15 new stores and closed 18 stores in the year-to-date period of Fiscal 2023, with a plan to open approximately 35 new stores and close about 30 stores during Fiscal 2023[93]. Financial Performance - Net sales for the thirteen weeks ended July 29, 2023, were $935,345, a 16.2% increase compared to$ 805,091 for the same period in 2022[98]. - Comparable sales for the same thirteen-week period increased by 13% year-over-year[100]. - Gross profit rate improved to 62.5% for the thirteen weeks ended July 29, 2023, up from 57.9% in the prior year[105]. - Operating income for the thirteen weeks was $89,842, compared to a loss of$ 2,191 in the same period last year[98]. - Net income attributable to Abercrombie & Fitch for the thirteen weeks was $56,894, a significant recovery from a loss of$ 16,834 in the prior year[98]. - For the twenty-six weeks ended July 29, 2023, net sales reached $1,771,339, reflecting a 9.5% increase from$ 1,617,853 in the same period of 2022[100]. - The Americas segment saw a 19% increase in net sales for the thirteen weeks, totaling $731,427[100]. - Cost of sales as a percentage of net sales decreased by approximately 460 basis points to 37.5% for the thirteen weeks ended July 29, 2023[103]. - Marketing, general and administrative expenses remained flat at 15.4% of net sales for the thirteen weeks ended July 29, 2023[108]. - For the twenty-six weeks ended July 29, 2023, adjusted non-GAAP operating income was$ 128,286 thousand, or 7.2% of net sales, compared to a loss of $6,325 thousand (0.4% of net sales) in the same period last year[112]. - The net income per diluted share attributable to Abercrombie & Fitch for the thirteen weeks ended July 29, 2023, was$ 1.10, compared to a loss of $0.33 per share in the prior year[118]. - The Company reported a 10% increase in net sales for the twenty-six weeks ended July 29, 2023, totaling$ 1,771,339 thousand, compared to $1,617,853 thousand for the same period in 2022[143]. Cash Flow and Liquidity - Cash and equivalents increased to$ 617,339 as of July 29, 2023, up from $517,602 at the beginning of the year[98]. - The Company reported a net cash provided by operating activities of$ 216.3 million for the twenty-six weeks ended July 29, 2023, compared to a net cash used of $(259.7) million for the same period in the previous year[132]. - As of July 29, 2023, the Company had cash and cash equivalents of$ 617.3 million, up from $517.6 million at the beginning of Fiscal 2023, indicating a liquidity increase of approximately 19.5%[123]. - The company believes it will have adequate liquidity to fund operating activities for the next 12 months, monitoring financing market conditions for potential amendments to its ABL Facility and Senior Secured Notes[119]. Expenses and Cost Management - Inflationary pressures on labor, cotton, freight, and other raw materials have negatively impacted expenses and margins, with ongoing inflation affecting the ability to maintain satisfactory margins[91]. - The Company emphasizes the importance of balancing investments, inflation, and efficiency efforts to improve profitability[97]. - For the year-to-date period of Fiscal 2023, marketing, general and administration expenses increased by 100 basis points compared to Fiscal 2022, primarily due to higher technology expenses and incentive-based compensation[109]. - Interest expense, net for the thirteen weeks ended July 29, 2023, decreased to$ 1,097 thousand from $6,917 thousand in the same period last year, reflecting higher interest income due to increased balances and rates on deposits[113]. Strategic Initiatives - The Company is focused on executing brand growth plans, accelerating digital transformation, and operating with financial discipline as part of its Always Forward Plan[90]. - The Company is progressing on its multi-year ERP transformation and cloud migration journey to enhance digital capabilities[90]. - The Company aims to maintain lean inventory levels to allow for flexibility in inventory management throughout the year[97]. - The Company is committed to optimizing the Hollister product and brand voice to drive growth in the second half of Fiscal 2023[90]. Risk Management - The Company continues to monitor macroeconomic risks and global geopolitical challenges, including tensions between the United States and China and the situation in Ukraine, which could impact business operations[95]. - The Company has exposure to foreign currency exchange rate risks due to its international operations, which are generally conducted in currencies other than the U.S. Dollar[149]. - The Company has established a program utilizing foreign currency exchange forward contracts to mitigate risks associated with foreign currency transactions[150]. - A hypothetical 10% devaluation of the U.S. Dollar against foreign currencies would decrease the fair values of derivative contracts by approximately$ 17.7 million[152]. Capital Expenditures - Total capital expenditures for Fiscal 2023 are expected to be approximately $160 million, with$ 89.8 million already utilized for capital expenditures year-to-date as of July 29, 2023[122]. Legal and Compliance - The Company is involved in lawsuits and other adversary proceedings, with legal costs generally expensed as incurred[158]. - The Company has not established accruals for certain claims where it is not possible to reasonably estimate the outcome or potential liability[158]. - There were no changes in internal control over financial reporting that materially affected the company's financial reporting during the fiscal quarter ended July 29, 2023[156]. - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at a reasonable level of assurance as of July 29, 2023[155].