ABERCROMBIE & FITCH CO /DE/
For the period ended Feb 1, 2025. Filed Mar 31, 2025.
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FY2025 · Filed Mar 31, 2025
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Critical Accounting Estimates
The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts. Since actual results may differ from those estimates, the Company revises its estimates and assumptions as new information becomes available. Note 2, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,”describes the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. The estimates and assumptions discussed below include those that the Company believes are the most critical to the portrayal of the Company’s financial condition and results of operations.
| Policy | Effect if Actual Results Differ from Assumptions |
|---|---|
| Inventory Valuation | |
| The Company reviews inventories on a quarterly basis. The Company reduces the inventory valuation when the carrying cost of specific inventory items on hand exceeds the amount expected to be realized from the ultimate sale or disposal of the goods, through a lower of cost and net realizable value (“LCNRV”) adjustment.The LCNRV adjustment reduces inventory to its net realizable value based on the Company’s consideration of multiple factors and assumptions, expected sell-off activity, composition and aging of inventory, historical recoverability experience and risk of obsolescence from changes in economic conditions or customer preferences. | The Company does not expect material changes to the underlying assumptions used to measure the LCNRV estimate as of February 1, 2025. However, actual results could vary from estimates and could significantly impact the ending inventory valuation at cost, as well as gross profit.An increase or decrease in the LCNRV adjustment of 10% would have affected pre-tax income by approximately $2.9 million for Fiscal 2024. |
| Income Taxes | |
| The provision for income taxes is determined using the asset and liability approach. Tax laws often require items to be included in tax filings at different times than the items are being reflected in the financial statements. A current liability is recognized for the estimated taxes payable for the current year. Deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. Deferred taxes are adjusted for enacted changes in tax rates and tax laws. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. | The Company does not expect material changes in the judgments, assumptions or interpretations used to calculate the tax provision for Fiscal 2025. However, changes in these judgments, assumptions or interpretations may occur, and should those changes be significant, they could have a material impact on the Company’s income tax provision. As of the end of Fiscal 2024, the Company had recorded valuation allowances of $151.8 million, of which $147.9 million relates to Switzerland. |
| Long-lived Assets | |
| Long-lived assets, primarily operating lease right-of-use assets, leasehold improvements, furniture, fixtures and equipment, are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset group might not be recoverable. These include, but are not limited to, material declines in operational performance, a history of losses, an expectation of future losses, adverse market conditions and store closure or relocation decisions. On at least a quarterly basis, the Company reviews for indicators of impairment at the individual store level, the lowest level for which cash flows are identifiable.Stores that display an indicator of impairment are subjected to an impairment assessment. The Company’s impairment assessment requires management to make assumptions and judgments related, but not limited, to management’s expectations for future operations and projected cash flows. The key assumption used in the Company’s undiscounted future store cash flow models is estimated sales growth rate.An impairment loss may be recognized when these undiscounted future cash flows are less than the carrying amount of the asset group. In the circumstance of impairment, any loss would be measured as the excess of the carrying amount of the asset group over its fair value. Fair value of the Company’s store-related assets is determined at the individual store level based on the highest and best use of the asset group. The key assumptions used in the Company’s fair value analysis is comparable market rents. | Store assets that were tested for impairment as of February 1, 2025 and not impaired, had long-lived assets with a net book value of $8.8 million, which included $8.1 million of operating lease right-of-use assets as of February 1, 2025.Store assets that were previously impaired as of February 1, 2025, had a remaining net book value of $77.6 million, which included $68.8 million of operating lease right-of-use assets, as of February 1, 2025.If actual results are not consistent with the estimates and assumptions used in assessing impairment or measuring impairment losses, there may be a material impact on the Company’s financial condition or results of operation. |
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