UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-12107

ABERCROMBIE & FITCH CO.

(Exact name of Registrant as specified in its charter)

Delaware		31-1469076
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)
6301 Fitch Path, New Albany, Ohio		43054
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (614) 283-6500

Not Applicable

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).) o Yes o No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class A Common Stock		Outstanding at June 4, 2010
$.01 Par Value		88,209,172 Shares

 

 

ABERCROMBIE & FITCH CO.

TABLE OF CONTENTS

		Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Operations and Comprehensive Loss Thirteen Weeks Ended May 1, 2010 and May 2, 2009			3
Condensed Consolidated Balance Sheets May 1, 2010 and January 30, 2010			4
Condensed Consolidated Statements of Cash Flows Thirteen Weeks Ended May 1, 2010 and May 2, 2009			5
Notes to Condensed Consolidated Financial Statements			6
Report of Independent Registered Public Accounting Firm			25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3. Quantitative and Qualitative Disclosures About Market Risk			43
Item 4. Controls and Procedures			46
Part II. Other Information
Item 1. Legal Proceedings			47
Item 1A. Risk Factors			48
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			49
Item 6. Exhibits			50
Exhibit 4.1
Exhibit 10.2
Exhibit 10.3
Exhibit 15
Exhibit 31.1
Exhibit 31.2
Exhibit 32

PART I. FINANCIAL INFORMATION

ITEM 1.		FINANCIAL STATEMENTS

ABERCROMBIE & FITCH CO.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(Thousands, except share and per share amounts)

(Unaudited)

		Thirteen Weeks Ended
		May 1, 2010				May 2, 2009
NET SALES		$	687,804			$	601,729
Cost of Goods Sold			256,388				220,277
GROSS PROFIT			431,416				381,453
Stores and Distribution Expense			354,410				330,310
Marketing, General and Administrative Expense			96,632				86,345
Other Operating Income, Net			(914	)			(1,324	)
OPERATING LOSS			(18,712	)			(33,878	)
Interest Expense (Income), Net			825				(1,374	)
LOSS FROM CONTINUING OPERATIONS BEFORE TAXES			(19,537	)			(32,504	)
Tax Benefit from Continuing Operations			(7,709	)			(9,400	)
NET LOSS FROM CONTINUING OPERATIONS		$	(11,828	)		$	(23,104	)
NET LOSS FROM DISCONTINUED OPERATIONS (net of taxes)		$	—			$	(36,135	)
NET LOSS		$	(11,828	)		$	(59,239	)
NET LOSS PER SHARE FROM CONTINUING OPERATIONS:
BASIC		$	(0.13	)		$	(0.26	)
DILUTED		$	(0.13	)		$	(0.26	)
NET LOSS PER SHARE FROM DISCONTINUED OPERATIONS:
BASIC		$	—			$	(0.41	)
DILUTED		$	—			$	(0.41	)
NET LOSS PER SHARE:
BASIC		$	(0.13	)		$	(0.68	)
DILUTED		$	(0.13	)		$	(0.68	)
WEIGHTED-AVERAGE SHARES OUTSTANDING:
BASIC			88,095				87,697
DILUTED			88,095				87,697
DIVIDENDS DECLARED PER SHARE		$	0.175			$	0.175
OTHER COMPREHENSIVE LOSS
Foreign Currency Translation Adjustments		$	(4,683	)		$	188
Unrealized loss on Marketable Securities, net of taxes of $163 and $477 for the thirteen week periods ended May 1, 2010 and May 2, 2009, respectively			(277	)			(810	)
Unrealized gain (loss) on derivative financial instruments, net of taxes of $(721) and $758 for the thirteen week periods ended May 1, 2010 and May 2, 2009, respectively			1,229				(1,290	)
Other Comprehensive Loss		$	(3,731	)		$	(1,912	)
COMPREHENSIVE LOSS		$	(15,559	)		$	(61,151	)

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

ABERCROMBIE & FITCH CO.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Thousands)

(Unaudited)

		May 1, 2010				January 30, 2010
ASSETS
CURRENT ASSETS:
Cash and Equivalents		$	600,452			$	680,113
Marketable Securities			32,356				32,356
Receivables			91,811				90,865
Inventories			316,447				310,645
Deferred Income Taxes			57,145				44,570
Other Current Assets			86,825				77,297
TOTAL CURRENT ASSETS			1,185,036				1,235,846
PROPERTY AND EQUIPMENT, NET			1,209,345				1,244,019
NON-CURRENT MARKETABLE SECURITIES			140,260				141,794
OTHER ASSETS			203,955				200,207
TOTAL ASSETS		$	2,738,596			$	2,821,866
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts Payable		$	110,123			$	110,212
Outstanding Checks			38,316				39,922
Accrued Expenses			210,289				246,289
Deferred Lease Credits			42,986				43,597
Income Taxes Payable			14,079				9,352
TOTAL CURRENT LIABILITIES			415,793				449,372
LONG-TERM LIABILITIES:
Deferred Income Taxes			46,253				47,142
Deferred Lease Credits			201,682				212,052
Long-term Debt			70,603				71,213
Other Liabilities			203,712				214,170
TOTAL LONG-TERM LIABILITIES			522,250				544,577
SHAREHOLDERS’ EQUITY:
Class A Common Stock — $0.01 par value: 150,000 shares authorized and 103,300 shares issued at each of May 1, 2010 and January 30, 2010			1,033				1,033
Paid-In Capital			333,288				339,453
Retained Earnings			2,156,462				2,183,690
Accumulated Other Comprehensive Loss, net of tax			(12,704	)			(8,973	)
Treasury Stock, at Average Cost — 15,103 and 15,314 shares at May 1, 2010 and January 30, 2010, respectively			(677,526	)			(687,286	)
TOTAL SHAREHOLDERS’ EQUITY			1,800,553				1,827,917
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	2,738,596			$	2,821,866

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

ABERCROMBIE & FITCH CO.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands)

(Unaudited)

		Thirteen Weeks Ended
		May 1, 2010				May 2, 2009
OPERATING ACTIVITIES:
Net Loss		$	(11,828	)		$	(59,239	)
Impact of Other Operating Activities on Cash Flows:
Depreciation and Amortization			56,737				59,676
Non-Cash Charge for Asset Impairment			—				50,731
Amortization of Deferred Lease Credits			(11,655	)			(10,689	)
Share-Based Compensation			9,491				9,008
Tax Deficiency from Share-Based Compensation			(1,821	)			(4,610	)
Deferred Taxes			(14,800	)			(29,363	)
Loss on Disposal / Write-off of Assets			802				3,222
Lessor Construction Allowances			9,941				7,499
Changes in Assets and Liabilities:
Inventories			(6,104	)			97,856
Accounts Payable and Accrued Expenses			(43,882	)			(85,833	)
Income Taxes			4,747				(16,464	)
Other Assets and Liabilities			(37,982	)			(8,790	)
NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES			(46,354	)			13,003
INVESTING ACTIVITIES:
Capital Expenditures			(19,207	)			(58,748	)
Purchase of Trust-Owned Life Insurance Policies			(3,750	)			(3,263	)
Proceeds from Sales of Marketable Securities			8,017				14,600
NET CASH USED FOR INVESTING ACTIVITIES			(14,940	)			(47,411	)
FINANCING ACTIVITIES:
Proceeds from Share-Based Compensation			494				41
Change in Outstanding Checks and Other			(2,098	)			(9,122	)
Dividends Paid			(15,400	)			(15,338	)
NET CASH USED FOR FINANCING ACTIVITIES			(17,004	)			(24,419	)
EFFECT OF EXCHANGE RATES ON CASH			(1,363	)			421
NET DECREASE IN CASH AND EQUIVALENTS:			(79,661	)			(58,406	)
Cash and Equivalents, Beginning of Period			680,113				522,122
CASH AND EQUIVALENTS, END OF PERIOD		$	600,452			$	463,716
SIGNIFICANT NON-CASH INVESTING ACTIVITIES:
Change in Accrual for Construction in Progress		$	5,475			$	(1,401	)

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

ABERCROMBIE & FITCH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

Abercrombie & Fitch Co. (“A&F”), through its wholly-owned subsidiaries (collectively, A&F and its wholly-owned subsidiaries are referred to as the “Company”), is a specialty retailer of high-quality, casual apparel for men, women and kids with an active, youthful lifestyle.

The accompanying Condensed Consolidated Financial Statements include the historical financial statements of, and transactions applicable to, the Company and reflect its assets, liabilities, results of operations and cash flows.

On June 16, 2009, A&F’s Board of Directors approved the closure of the Company’s 29 RUEHL branded stores and related direct-to-consumer operations. The Company completed the closure of the RUEHL branded stores and related direct-to-consumer operations during the fourth quarter of Fiscal 2009. Accordingly, the results of operations of RUEHL are reflected in Net Loss from Discontinued Operations on the Condensed Consolidated Statement of Operations and Comprehensive Loss for the thirteen weeks ended May 2, 2009. Results from discontinued operations were immaterial for the thirteen weeks ended May 1, 2010.

The Company’s fiscal year ends on the Saturday closest to January 31. Fiscal years are designated in the condensed consolidated financial statements and notes by the calendar year in which the fiscal year commences. All references herein to “Fiscal 2010” represent the 52-week fiscal year that will end on January 29, 2011, and to “Fiscal 2009” represent the 52-week fiscal year that ended January 30, 2010.

The Condensed Consolidated Financial Statements as of May 1, 2010 and for the thirteen week periods ended May 1, 2010 and May 2, 2009 are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, these Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto contained in A&F’s Annual Report on Form 10-K for Fiscal 2009 filed on March 29, 2010. The January 30, 2010 condensed consolidated balance sheet data were derived from audited consolidated financial statements, but do not include all disclosures required by accounting principles generally accepted in the United States of America.

In the opinion of management, the accompanying Condensed Consolidated Financial Statements reflect all adjustments (which are of a normal recurring nature) necessary to present fairly, in all material respects, the financial position and results of operations and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for Fiscal 2010.

The Condensed Consolidated Financial Statements as of May 1, 2010 and for the thirteen week periods ended May 1, 2010 and May 2, 2009 included herein have been reviewed by PricewaterhouseCoopers LLP, an independent registered public accounting firm, and the report of such firm follows the notes to the condensed consolidated financial statements.

PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 (the “Act”) for their report on the condensed consolidated financial statements because their report is not a “report” or a “part” of a registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Act.

2. SEGMENT REPORTING

The Company determines its operating segments on the same basis that it uses to evaluate performance internally. The operating segments identified by the Company are Abercrombie & Fitch, abercrombie kids, Hollister and Gilly Hicks. The operating segments have been aggregated and are reported as one reportable segment because they have similar economic characteristics and meet the required aggregation criteria. The Company believes its operating segments may be aggregated for financial reporting purposes because they are similar in each of the following areas: class of consumer, economic characteristics, nature of products, nature of production processes, and distribution methods.

Geographic Information

Financial information relating to the Company’s operations by geographic area is as follows:

Net Sales:

Net sales includes net merchandise sales through stores and direct-to-consumer operations, including shipping and handling revenue. Net sales are reported by geographic area based on the location of the customer.

		Thirteen Weeks Ended
(in thousands):		May 1, 2010				May 2, 2009
United States		$	568,790			$	542,908
International			119,014				58,821
Total		$	687,804			$	601,729

Long-Lived Assets:

(in thousands):		May 1, 2010				January 30, 2010
United States		$	1,110,355			$	1,137,844
International			195,956				194,461
Total		$	1,306,311			$	1,332,305

Long-lived assets included in the table above include primarily property and equipment, net, store supplies, and lease deposits.

3. SHARE-BASED COMPENSATION

Financial Statement Impact

The Company recognized share-based compensation expense of $9.5 million and $9.0 million for the thirteen week periods ended May 1, 2010 and May 2, 2009, respectively. The Company also recognized $3.3 million and $3.4 million in tax benefits related to share-based compensation for the thirteen week periods ended May 1, 2010 and May 2, 2009, respectively.

For share-based compensation that is expected to result in a tax deduction, a deferred tax asset is established at the time the Company recognizes share-based compensation expense. The actual tax deduction for share-based compensation generally occurs after an equity award vests or is exercised and is principally measured at the equity award’s intrinsic value at the time of vesting or exercise. If the tax deduction exceeds the recorded deferred tax asset, an excess tax benefit is recorded to a “pool of windfall tax benefits” account, as a component of additional paid-in capital. If the tax deduction is less than the recorded deferred tax asset, a “shortfall” is recorded against the “pool of windfall tax benefits” account to the extent of prior recognized aggregate “windfalls”, with any remaining amount charged to tax expense. As of May 1, 2010, the “pool of windfall tax benefits” account had a balance of $84.1 million, which is sufficient to fully absorb any “shortfall” associated with existing outstanding equity awards.

The Company adjusts share-based compensation expense on a quarterly basis for actual forfeitures and for changes to the estimate of expected award forfeitures based on historical forfeiture experience. The effects of adjustments for forfeitures were immaterial during the thirteen week periods ended May 1, 2010 and May 2, 2009.

A&F issues shares of Class A Common Stock (“Common Stock”) for stock option and stock appreciation right exercises and restricted stock unit vestings from treasury stock. As of May 1, 2010, A&F had sufficient treasury stock available to settle stock options, stock appreciation rights and restricted stock units outstanding without having to repurchase additional shares of Common Stock. Settlement of stock awards in Common Stock also requires that the Company has sufficient shares available in shareholder-approved plans at the applicable time.

For stock appreciation rights where the Company has the option to settle in stock or cash, the Company uses the equity method to account for awards for which it has the intent and ability to settle in shares of Common Stock.

Fair Value Estimates

The Company estimates the fair value of stock options and stock appreciation rights granted using the Black-Scholes option-pricing model, which requires the Company to estimate the expected term of the stock options and stock appreciation rights and expected future stock price volatility over the expected term. Estimates of expected terms, which represent the expected periods of time the Company believes stock options and stock appreciation rights will be outstanding, are based on historical experience. Estimates of expected future stock price volatility are based on the volatility of A&F’s Common Stock price for the most recent historical period equal to the expected term of the stock option or stock appreciation right, as appropriate. The Company calculates the volatility as the annualized standard deviation of the differences in the natural logarithms of the weekly stock closing price, adjusted for stock splits and dividends.

In the case of restricted stock units, the Company calculates the fair value of the restricted stock units granted as the market price of the underlying Common Stock on the date of grant adjusted for anticipated dividend payments during the vesting period.

Stock Options

The Company did not grant any stock options during the thirteen week period ended May 1, 2010. The weighted-average estimated fair value of stock options granted during the thirteen week period ended May 2, 2009, and the weighted-average assumptions used in calculating such fair value, on the date of grant, were as follows:

		Thirteen Weeks Ended
		May 2, 2009
Grant Date Market Price		$	22.87
Exercise price		$	22.87
Fair value		$	8.26
Assumptions:
Price volatility			50	%
Expected term (Years)			4.1
Risk-free interest rate			1.6	%
Dividend yield			1.7	%

Below is a summary of stock option activity for the thirteen weeks ended May 1, 2010:

														Weighted-Average
		Number of				Weighted-Average				Aggregate Intrinsic				Remaining
Stock Options		Shares				Exercise Price				Value				Contractual Life
Outstanding at January 30, 2010			2,969,861			$	38.36
Granted			—				—
Exercised			(15,056	)			29.47
Forfeited or cancelled			—				—
Outstanding at May 1, 2010			2,954,805			$	38.41			$	36,635,251				3.4
Stock options exercisable at May 1, 2010			2,676,067			$	35.80			$	35,099,671				2.9
Stock options expected to become exercisable at May 1, 2010			254,424			$	63.58			$	1,380,267				7.7

The total intrinsic value of stock options exercised during the thirteen weeks ended May 1, 2010 and May 2, 2009 was immaterial.

The grant date fair value of stock options vested during the thirteen weeks ended May 1, 2010 and May 2, 2009 was $3.5 million and $4.3 million, respectively.

As of May 1, 2010, there was $4.1 million of total unrecognized compensation cost, net of estimated forfeitures, related to stock options. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 0.9 years.

Stock Appreciation Rights

The weighted-average estimated fair value of stock appreciation rights granted during the thirteen week periods ended May 1, 2010 and May 2, 2009, and the weighted-average assumptions used in calculating such fair value, on the date of grant, were as follows:

		Thirteen Weeks Ended
										Executive Officers (excluding
		Chairman and Chief Executive								Chairman and Chief Executive
		Officer								Officer)								All Other Associates
		May 1, 2010				May 2, 2009				May 1, 2010				May 2, 2009				May 1, 2010				May 2, 2009
Grant Date Market
Price		$	44.86			$	20.75			$	44.86			$	25.77			$	44.88			$	25.67
Exercise price		$	44.86			$	25.94			$	44.86			$	25.77			$	44.88			$	25.67
Fair value		$	16.96			$	7.13			$	16.99			$	10.06			$	16.69			$	9.83
Assumptions:
Price volatility			50	%			45	%			51	%			52	%			52	%			53	%
Expected term (Years)			4.7				6.2				4.5				4.5				4.1				4.1
Risk-free interest rate			2.3	%			2.3	%			2.3	%			1.6	%			2.1	%			1.6	%
Dividend yield			2.1	%			1.7	%			2.1	%			1.7	%			2.1	%			1.7	%

Below is a summary of stock appreciation rights activity for the thirteen weeks ended May 1, 2010:

														Weighted-Average
		Number of				Weighted-Average				Aggregate				Remaining
Stock Appreciation Rights		Shares				Exercise Price				Intrinsic Value				Contractual Life
Outstanding at January 30, 2010			5,788,867			$	30.88
Granted:
Chairman and Chief Executive Officer			829,697				44.86
Other Executive Officers			435,000				44.86
All Other Associates			282,000				44.88
Exercised			(500	)			22.87
Forfeited or cancelled			(1,500	)			22.87
Outstanding at May 1, 2010			7,333,564			$	33.82			$	77,535,923				6.6
Stock appreciation rights exercisable at May 1, 2010			178,625			$	25.73			$	3,215,355				8.9
Stock appreciation rights expected to become exercisable at May 1, 2010			6,968,340			$	33.93			$	73,016,470				6.5

As of May 1, 2010, there was $67.9 million of total unrecognized compensation cost, net of estimated forfeitures, related to stock appreciation rights. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 1.9 years.

Restricted Stock Units

Below is a summary of restricted stock unit activity for the thirteen weeks ended May 1, 2010:

						Weighted-Average
Restricted Stock Units		Number of Shares				Grant Date Fair Value
Non-vested at January 30, 2010			1,331,048			$	55.45
Granted			362,800				42.63
Vested			(304,171	)			61.39
Forfeited			(44,710	)			46.63
Non-vested at May 1, 2010			1,344,967			$	50.77

The total fair value of restricted stock units granted during the thirteen weeks ended May 1, 2010 and May 2, 2009 was $15.5 million and $9.6 million, respectively.

The total grant date fair value of restricted stock units vested during the thirteen weeks ended May 1, 2010 and May 2, 2009 was $18.7 million and $20.4 million, respectively.

As of May 1, 2010, there was $48.6 million of total unrecognized compensation cost, net of estimated forfeitures, related to non-vested restricted stock units. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 1.3 years.

4. NET LOSS PER SHARE

Net loss per basic share is computed based on the weighted-average number of outstanding shares of Common Stock. Net loss per diluted share includes the weighted-average effect of dilutive stock options, stock appreciation rights and restricted stock units.

Weighted-Average Shares Outstanding and Anti-dilutive Shares (in thousands):

		Thirteen Weeks Ended
		May 1, 2010				May 2, 2009
Shares of Common Stock issued			103,300				103,300
Treasury shares			(15,205	)			(15,603	)
Weighted-Average — basic shares			88,095				87,697
Dilutive effect of stock options, stock appreciation rights and restricted stock units			—				—
Weighted-Average — diluted shares			88,095				87,697
Anti-dilutive shares			11,633	(1)			11,610	(1)

5. CASH AND EQUIVALENTS AND INVESTMENTS

Cash and equivalents and investments consisted of (in thousands):

		May 1, 2010				January 30, 2010
Cash and equivalents:
Cash		$	184,541			$	196,496
Money market funds			415,911				483,617
Total cash and equivalents			600,452				680,113
Marketable securities — Current:
Trading securities:
Auction rate securities — UBS — student loan backed			20,049				20,049
Auction rate securities — UBS — municipal authority bonds			12,307				12,307
Total trading securities			32,356				32,356
Marketable securities — Non-Current:
Available-for-sale securities:
Auction rate securities — student loan backed			116,856				118,390
Auction rate securities — municipal authority bonds			23,404				23,404
Total available-for-sale securities			140,260				141,794
Rabbi Trust assets: (1)
Money market funds			7,797				1,316
Municipal notes and bonds			12,115				18,537
Trust-owned life insurance policies (at cash surrender value)			55,669				51,391
Total Rabbi Trust assets			75,581				71,244
Total cash and equivalents and investments		$	848,649			$	925,507

At May 1, 2010 and January 30, 2010, the Company’s marketable securities consisted of investment grade auction rate securities (“ARS”) invested in insured student loan backed securities and insured municipal authority bonds, with maturities ranging from 17 to 33 years. Each investment in student loans is insured by (1) the U.S. government under the Federal Family Education Loan Program, (2) a private insurer or (3) a combination of both. The percentage of insurance coverage of the outstanding principal and interest of the ARS varies by security.

The par and carrying values, and related cumulative impairment charges for the Company’s marketable securities as of May 1, 2010 were as follows:

										Other-Than
						Temporary				Temporary-				Carrying
(in thousands)		Par Value				Impairment				Impairment (“OTTI”)				Value
Trading securities:
Auction rate securities — UBS — student loan backed		$	22,100			$	—			$	(2,051	)		$	20,049
Auction rate securities — UBS — municipal authority bonds			15,000				—				(2,693	)			12,307
Total trading securities			37,100				—				(4,744	)			32,356
Available-for-sale securities:
Auction rate securities — student loan backed			126,449				(9,593	)			—				116,856
Auction rate securities — municipal authority bonds			28,575				(5,171	)			—				23,404
Total available-for-sale securities			155,024				(14,764	)			—				140,260
Total		$	192,124			$	(14,764	)		$	(4,744	)		$	172,616

See Note 6, “Fair Value,” for further discussion on the valuation of the ARS.

An impairment is considered to be other-than-temporary if an entity (i) intends to sell the security, (ii) more likely than not will be required to sell the security before recovering its amortized cost basis, or (iii) does not expect to recover the security’s entire amortized cost basis, even if there is no intent to sell the security. As of May 1, 2010, the Company had not incurred any credit-related losses on available-for-sale ARS. Furthermore, as of May 1, 2010, the issuers continued to perform under the obligations, including making scheduled interest payments, and the Company expects that this will continue going forward.

On November 13, 2008, the Company entered into an agreement (the “UBS Agreement”) with UBS AG (“UBS”), a Swiss corporation, relating to ARS (“UBS ARS”) with a par value of $76.5 million, of which $37.1 million, at par value, were still held as of May 1, 2010. By entering into the UBS Agreement, UBS received the right to purchase the UBS ARS at par, at any time, commencing on November 13, 2008 and the Company received the right to sell (“Put Option”) the UBS ARS back to UBS at par, commencing on June 30, 2010. Upon acceptance of the UBS Agreement, the Company no longer had the intent to hold the UBS ARS until maturity. As a result, the impairment could no longer be considered temporary, the UBS ARS were classified as trading securities and any resulting gains or losses were recognized as other-than-temporary impairments in Other Operating Income, Net in the Condensed Consolidated Statements of Operations and Comprehensive Loss. In addition, and simultaneously, the Company elected to apply fair value accounting for the related Put Option and recognized the Put Option as an asset in Other Current Assets. Any gains or losses on the Put Option are recognized in Other Operating Income, Net in the Condensed Consolidated Statements of Operations and Comprehensive Loss. During the thirteen weeks ended May 1, 2010, the Company did not recognize any change to the other-than-temporary impairment related to the UBS ARS. Furthermore, the Company had an immaterial gain related to the Put Option. As the Company has the right to sell the UBS ARS back to UBS on June 30, 2010, the remaining UBS ARS were classified as Current Assets on the Condensed Consolidated Balance Sheet as of May 1, 2010.

The irrevocable rabbi trust (the “Rabbi Trust”) is intended to be used as a source of funds to match respective funding obligations to participants in the Abercrombie & Fitch Co. Nonqualified Savings and Supplemental Retirement Plan I, the Abercrombie & Fitch Co. Nonqualified Savings and Supplemental Retirement Plan II and the Chief Executive Officer Supplemental Executive Retirement Plan. The Rabbi Trust assets are consolidated and recorded at fair value, with the exception of the trust-owned life insurance policies which are recorded at cash surrender value. The Rabbi Trust assets are included in Other Assets on the Condensed Consolidated Balance Sheets and are restricted as to their use as noted above. Net unrealized gains and losses related to the available-for-sale securities held in the Rabbi Trust were not material for the thirteen week periods ended May 1, 2010 and May 2, 2009. The change in cash surrender value of the trust-owned life insurance policies held in the Rabbi Trust resulted in realized gains of $0.5 million and $1.2 million for the thirteen weeks ended May 1, 2010 and May 2, 2009, respectively, recorded in Interest Expense (Income), Net on the Condensed Consolidated Statements of Operations and Comprehensive Loss.

6. FAIR VALUE

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The inputs used to measure fair value are prioritized based on a three-level hierarchy. The three levels of inputs to measure fair value are as follows:

•

Level 1 — inputs are unadjusted quoted prices for identical assets or liabilities that are available in active markets.

•

Level 2 — inputs are other than quoted market prices included within Level 1 that are observable for assets or liabilities, directly or indirectly.

•

Level 3 — inputs to the valuation methodology are unobservable.

The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy. The three levels of the hierarchy and the distribution of the Company’s assets and liabilities, measured at fair value, within it were as follows:

		Assets at Fair Value as of May 1, 2010
		(in thousands)
		Level 1				Level 2				Level 3				Total
ASSETS:
Money market funds(1)		$	423,708			$	—			$	—			$	423,708
ARS — trading — student loan backed			—				—				20,049				20,049
ARS — trading — municipal authority bonds			—				—				12,307				12,307
ARS — available-for-sale — student loan backed			—				—				116,856				116,856
ARS — available-for-sale — municipal authority bonds			—				—				23,404				23,404
UBS Put Option			—				—				4,701				4,701
Municipal bonds held in the Rabbi Trust			12,115				—				—				12,115
Derivative financial instruments			—				1,873				—				1,873
Total assets measured at fair value		$	435,823			$	1,873			$	177,317			$	615,013

The level 2 assets consist of derivative financial instruments, primarily forward foreign exchange contracts. The fair value of forward foreign exchange contracts is determined by using quoted market prices of the same or similar instruments, adjusted for counterparty risk.

The level 3 assets primarily include investments in insured student loan backed ARS and insured municipal authority bonds ARS, which include both the available-for-sale and trading ARS. Additionally, level 3 assets include the Put Option related to the UBS Agreement.

As a result of a lack of liquidity in the current ARS market, the Company measured the fair value of its ARS primarily using a discounted cash flow model as of May 1, 2010. Certain significant inputs into the model are unobservable in the market including the periodic coupon rate adjusted for the marketability discount, market required rate of return and expected term. The coupon rate is estimated using the results of a regression analysis factoring in historical data on the par swap rate and the maximum coupon rate paid in the event of an auction failure. In making the assumption of the market required rate of return, the Company considered the risk-free interest rate and an appropriate credit spread, depending on the type of security and the credit rating of the issuer. The expected term is identified as the time the Company believes the principal will become available to the investor. The Company utilized a term of five years to value its securities. The Company also included a marketability discount which takes into account the lack of activity in the current ARS market.

As of May 1, 2010, approximately 69% of the Company’s ARS were “AAA” rated and approximately 15% of the Company’s ARS were “AA” or “A” rated, with the remaining ARS having an “A-” or “BBB+” rating, in each case as rated by one or more of the major credit rating agencies.

In Fiscal 2008, the Company elected to apply fair value accounting for the Put Option related to the Company’s UBS ARS. The fair value of the Put Option was determined by calculating the present value of the difference between the par value and the fair value of the UBS ARS as of May 1, 2010, adjusted for counterparty risk. The present value was calculated using a discount rate that incorporates an investment grade corporate bond index rate and the credit default swap rate for UBS. The Put Option is recognized as an asset within Other Current Assets on the accompanying Condensed Consolidated Balance Sheet and the corresponding gains and losses within Other Operating Income, Net on the accompanying Condensed Consolidated Statement of Operations and Comprehensive Loss.

The table below includes a roll forward of the Company’s level 3 assets and liabilities from January 30, 2010 to May 1, 2010. When a determination is made to classify an asset or liability within level 3, the determination is based upon the lack of significance of the observable parameters to the overall fair value measurement. However, the fair value determination for level 3 financial assets and liabilities may include observable components.

										Available-for-				Available-for-
		Trading ARS -				Trading ARS -				sale ARS -				sale ARS -
(in thousands)		Student Loans				Muni Bonds				Student Loans				Muni Bonds				Put Option				Total
Fair value, January 30, 2010		$	20,049			$	12,307			$	118,390			$	23,404			$	4,640			$	178,790
Redemptions			—				—				(1,650	)			—				—				(1,650	)
Tranfers (out)/in			—				—				—				—				—				—
Gains and losses, net:
Reported in Net Loss			—				—				—				—				61				61
Reported in Other Comprehensive Loss			—				—				116				—				—				116
Fair value, May 1, 2010		$	20,049			$	12,307			$	116,856			$	23,404			$	4,701			$	177,317

7. INVENTORIES

Inventories are principally valued at the lower of average cost or market utilizing the retail method. The Company determines market value as the anticipated future selling price of the merchandise less a normal margin. An initial markup is applied to inventory at cost in order to establish a cost-to-retail ratio. Permanent markdowns, when taken, reduce both the retail and cost components of inventory on-hand so as to maintain the already established cost-to-retail relationship. At first and third fiscal quarter end, the Company reduces inventory value by recording a valuation reserve that represents the estimated future anticipated selling price decreases necessary to sell-through the current season inventory. At second and fourth fiscal quarter end, the Company reduces inventory value by recording a valuation reserve that represents the estimated future selling price decreases necessary to sell-through any remaining carryover inventory from the season then ending. The valuation reserve was $38.7 million, $11.4 million and $35.3 million at May 1, 2010, January 30, 2010 and May 2, 2009, respectively.

Additionally, as part of inventory valuation, inventory shrinkage estimates based on historical trends from actual physical inventories, are made that reduce the inventory value for lost or stolen items. The Company performs physical inventories on a periodic basis and adjusts the shrink reserve accordingly. The shrink reserve was $5.5 million, $8.1 million and $12.1 million at May 1, 2010, January 30, 2010 and May 2, 2009, respectively.

The inventory balance, net of the above mentioned reserves, was $316.4 million, $310.6 million and $274.7 million at May 1, 2010, January 30, 2010 and May 2, 2009, respectively.

8. PROPERTY AND EQUIPMENT, NET

Property and equipment, net, consisted of (in thousands):

		May 1, 2010				January 30, 2010
Property and equipment, at cost		$	2,380,096			$	2,362,492
Accumulated depreciation and amortization			(1,170,751	)			(1,118,473	)
Property and equipment, net		$	1,209,345			$	1,244,019

Long-lived assets, primarily comprised of property and equipment, are reviewed periodically for impairment or whenever events or changes in circumstances indicate that full recoverability of net asset balances through future cash flows is in question. Factors used in the evaluation include, but are not limited to, management’s plans for future operations, recent operating results and projected cash flows.

Store related assets are considered Level 3 assets in the fair value hierarchy and the fair values were determined at the store level, primarily using a discounted cash flow model. The estimation of future cash flows from operating activities requires significant estimates of factors that include future sales, gross margin performance and operating expenses. In instances where the discounted cash flow analysis indicated a negative value at the store level, the market exit price based on historical experience was used to determine the fair value by asset type. The Company had store related assets measured at fair value of $19.3 million on the Condensed Consolidated Balance Sheet at January 30, 2010.

9. DEFERRED LEASE CREDITS

Deferred lease credits are derived from payments received from landlords to wholly or partially offset store construction costs and are classified between current and long-term liabilities. The amounts, which are amortized over the life of the related leases, consisted of the following (in thousands):

		May 1, 2010				January 30, 2010
Deferred lease credits		$	545,042			$	546,191
Amortized deferred lease credits			(300,374	)			(290,542	)
Total deferred lease credits, net		$	244,668			$	255,649

10. INCOME TAXES

The provision for income taxes is based on the current estimate of the annual effective tax rate adjusted to reflect the impact of items discrete to the thirteen weeks ended May 1, 2010. The effective tax rate for continuing operations for the thirteen weeks ended May 1, 2010 was a 39.5% benefit as compared to a 28.9% benefit for the Fiscal 2009 comparable period. The tax benefit associated with the loss from continuing operations increased during the thirteen weeks ended May 1, 2010 primarily due to a net reduction in reserves resulting from the settlement of tax audits and the net release of valuation allowances. The tax benefit for the thirteen weeks ended May 2, 2009 was reduced by a net increase in tax reserves and the establishment of a valuation allowance.

Cash payments of income taxes made during the thirteen weeks ended May 1, 2010 and May 2, 2009 were approximately $3.6 million and $17.8 million, respectively.

The Company recorded a valuation allowance against deferred tax assets arising from net operating losses of certain foreign subsidiaries and from realized and unrealized U.S. operations’ investment losses. A portion of net operating loss carryovers begin expiring in Fiscal 2011, some of which have an indefinite carry forward period.

As of May 1, 2010 and January 30, 2010, the valuation allowance totaled $1.1 million and $1.3 million, respectively. No other valuation allowances have been provided for deferred tax assets because management believes that it is more likely than not the full amount of net deferred tax assets will be realized in the future.

11. LONG-TERM DEBT

On April 15, 2008, the Company entered into a syndicated unsecured credit agreement (as previously amended by Amendment No. 1 to Credit Agreement made as of December 29, 2008, the “Credit Agreement”) under which up to $450 million was available. On June 16, 2009, the Company amended the Credit Agreement and, as a result, revised the ratio requirements, as further discussed below, and also reduced the amount available from $450 million to $350 million (as amended, the “Amended Credit Agreement”). As stated in the Amended Credit Agreement, the primary purposes of the agreement are for trade and stand-by letters of credit in the ordinary course of business, as well as to fund working capital, capital expenditures, acquisitions and investments, and other general corporate purposes.

The Amended Credit Agreement has several borrowing options, including interest rates that are based on: (i) a Base Rate, plus a margin based on the Leverage Ratio, payable quarterly; (ii) an Adjusted Eurodollar Rate (as defined in the Amended Credit Agreement) plus a margin based on the Leverage Ratio, payable at the end of the applicable interest period for the borrowing and, for interest periods in excess of three months, on the date that is three months after the commencement of the interest period; or (iii) an Adjusted Foreign Currency Rate (as defined in the Amended Credit Agreement) plus a margin based on the Leverage Ratio, payable at the end of the applicable interest period for the borrowing and, for interest periods in excess of three months, on the date that is three months after the commencement of the interest period. The Base Rate represents a rate per annum equal to the higher of (a) PNC Bank’s then publicly announced prime rate or (b) the Federal Funds Effective Rate (as defined in the Amended Credit Agreement) as then in effect plus ¹/2 of 1.0%. The facility fees payable under the Amended Credit Agreement are based on the Company’s Leverage Ratio (i.e., the ratio, on a consolidated basis, of (a) the sum of total debt (excluding trade letters of credit) plus 600% of forward minimum rent commitments to (b) consolidated earnings before interest, taxes, depreciation, amortization and rent with the further adjustments to be discussed in the following paragraphs (“Consolidated EBITDAR”) for the trailing four-consecutive-fiscal-quarter periods. The facility fees accrue at a rate of 0.25% to 0.625% per annum based on the Leverage Ratio for the most recent determination date. The Amended Credit Agreement did not have a utilization fee as of May 1, 2010. The Amended Credit Agreement requires that the Leverage Ratio not be greater than 3.75 to 1.00 at the end of each testing period. The Amended Credit Agreement also required that the Coverage Ratio for A&F and its subsidiaries on a consolidated basis of (i) Consolidated EBITDAR for the trailing four-consecutive-fiscal-quarter period to (ii) the sum of, without duplication, (x) net interest expense for such period, (y) scheduled payments of long-term debt due within twelve months of the date of determination and (z) the sum of minimum rent and contingent store rent, not be less than 1.65 to 1.00 at May 1, 2010. The minimum Coverage Ratio varies over time based on the terms set forth in the Amended Credit Agreement. The Amended Credit Agreement amended the definition of Consolidated EBITDAR to add back the following items, among others: (a) recognized losses arising from investments in certain ARS to the extent such losses do not exceed a defined level of impairments for those investments; (b) non-cash charges in an amount not to exceed $50 million related to the closure of RUEHL branded stores and related direct-to-consumer operations; (c) non-recurring cash charges in an aggregate amount not to exceed $61 million related to the closure of RUEHL branded stores and related direct-to-consumer operations; (d) additional non-recurring non-cash charges in an amount not to exceed $20 million in the aggregate over the trailing four fiscal quarter period; and (e) other non-recurring cash charges in an amount not to exceed $10 million in the aggregate over the trailing four fiscal quarter period. The Amended Credit Agreement also limits the Company’s consolidated capital expenditures to $325 million in Fiscal 2010, plus $99.5 million representing the unused portion of the allowable capital expenditures from Fiscal 2009. The Company was in compliance with the applicable ratio requirements and other covenants at May 1, 2010.

The terms of the Amended Credit Agreement include customary events of default such as payment defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency, the occurrence of a defined change in control, or the failure to observe the negative covenants and other covenants related to the operation and conduct of the business of A&F and its subsidiaries. Upon an event of default, the lenders will not be obligated to make loans or other extensions of credit and may, among other things, terminate their commitments to the Company, and declare any then outstanding loans due and payable immediately.

The Amended Credit Agreement will mature on April 12, 2013. Trade letters of credit totaling approximately $29.2 million and $35.9 million were outstanding on May 1, 2010 and January 30, 2010, respectively. Stand-by letters of credit totaling approximately $16.4 million and $14.1 million were outstanding on May 1, 2010 and January 30, 2010, respectively. The stand-by letters of credit are set to expire primarily during the fourth quarter of Fiscal 2010. To date, no beneficiary has drawn upon the stand-by letters of credit.

The Company had $49.0 million and $50.9 million outstanding under the Amended Credit Agreement as of May 1, 2010, and January 30, 2010, respectively. The amounts outstanding under the Amended Credit Agreement as of May 1, 2010 and January 30, 2010 were denominated in Japanese Yen. As of May 1, 2010 and January 30, 2010, the Company also had $21.6 million and $20.3 million, respectively, of long-term debt related to the landlord financing obligation for certain leases where the Company is deemed the owner of the project for accounting purposes, as substantially all of the risk of ownership during construction of a leased property is held by the Company. The landlord financing obligation is amortized over the life of the related lease.

As of May 1, 2010, the carrying value of the Company’s long-term debt approximated fair value. Total interest expense was $1.9 million and $0.8 million for the thirteen week periods ended May 1, 2010 and May 2, 2009, respectively. The average interest rate for the long-term debt recorded under the Amended Credit Agreement was 2.6% for the thirteen week period ended May 1, 2010.

On March 6, 2009, the Company entered a secured, uncommitted demand line of credit (the “UBS Credit Line”) under which up to $26.3 million was available at May 1, 2010. The amount available under the UBS Credit Line is subject to adjustment from time-to-time based on the market value of the Company’s UBS ARS as determined by UBS. The UBS Credit Line is to be used for general corporate purposes. Being a demand line of credit, the UBS Credit Line does not have a stated maturity date. The UBS Credit Line will expire upon the exercise of the put option related to the UBS ARS, or at the bank’s discretion, as stated in the unsecured, uncommitted demand line of credit agreement.

As security for the payment and performance of the Company’s obligations under the UBS Credit Line, the UBS Credit Line provides that the Company grants a security interest to UBS Bank USA, as lender, in each account of the Company at UBS Financial Services Inc. that is identified as a Collateral Account (as defined in the UBS Credit Line), as well as any and all money, credit balances, securities, financial assets and other investment property and other property maintained from time-to-time in any Collateral Account, any over-the-counter options, futures, foreign exchange, swap or similar contracts between the Company and UBS Financial Services Inc. or any of its affiliates, any and all accounts of the Company at UBS Bank USA or any of its affiliates, any and all supporting obligations and other rights relating to the foregoing property, and any and all interest, dividends, distributions and other proceeds of any of the foregoing property, including proceeds of proceeds.

Because certain of the Collateral consists of ARS (as defined in the UBS Credit Line), the UBS Credit Line provides further that the interest rate payable by the Company will reflect any changes in the composition of such ARS Collateral (as defined in the UBS Credit Line) as may be necessary to cause the interest payable by the Company under the UBS Credit Line to equal the interest or dividend rate payable to the Company by the issuer of any ARS Collateral.

The terms of the UBS Credit Line include customary events of default such as payment defaults, the failure to maintain sufficient collateral, the failure to observe any covenant or material representation, bankruptcy and insolvency, cross-defaults to other indebtedness and other stated events of default. Upon an event of default, the obligations under the UBS Credit Line will become immediately due and payable. No borrowings were outstanding under the UBS Credit Line as of May 1, 2010.

12. DERIVATIVES

The Company is exposed to risks associated with the effect of changes in foreign currency rates and uses derivatives, primarily forward contracts, to manage the financial impacts of these exposures. As of May 1, 2010 and January 30, 2010, all outstanding derivative instruments were designated as hedges and qualified for hedge accounting treatment. The Company does not use forward contracts to engage in currency speculation and does not enter into derivative financial instruments for trading purposes.

In order to qualify for hedge accounting treatment, a derivative must be considered highly effective at offsetting changes in either the hedged item’s cash flows or fair value. Additionally, the hedge relationship must be documented to include the risk management objective and strategy, the hedging instrument, the hedged item, the risk exposure, and how hedge effectiveness will be assessed prospectively and retrospectively. The extent to which a hedging instrument has been and is expected to continue to be effective at achieving offsetting changes in fair value or cash flows is assessed and documented at least quarterly. Any hedge ineffectiveness is reported in current period earnings and hedge accounting is discontinued if it is determined that the derivative is not highly effective.

For derivatives that either do not qualify for hedge accounting or are not designated as hedges, all changes in the fair value of the derivative are recognized in earnings. For qualifying cash flow hedges, the effective portion of the change in the fair value of the derivative is recorded as a component of Other Comprehensive Loss (“OCI”) and recognized in earnings when the hedged cash flows affect earnings. The ineffective portion of the derivative gain or loss, as well as changes in the fair value of the derivative’s time value are recognized in current period earnings. The effectiveness of the hedge is assessed based on changes in fair value attributable to changes in spot prices. The changes in the fair value of the derivative contract related to the changes in the difference between the spot price and the forward price are excluded from the assessment of hedge effectiveness and are also recognized in current period earnings. If the cash flow hedge relationship is terminated, the derivative gains or losses that are deferred in OCI will be recognized in earnings when the hedged cash flows occur. However, for cash flow hedges that are terminated because the forecasted transaction is not expected to occur in the original specified time period, or a two-month period thereafter, the derivative gains or losses are immediately recognized in earnings. The Company recognized a gain of $0.7 million reclassified into earnings as a result of the de-designation cash flow hedges as of May 1, 2010.

The Company uses derivative instruments, primarily forward contracts designated as cash flow hedges, to hedge the foreign currency exposure associated with forecasted foreign-currency-denominated inter-company inventory sales to foreign subsidiaries and the related settlement of the foreign-currency-denominated inter-company receivable. Fluctuations in exchange rates will either increase or decrease the Company’s U.S. dollar equivalent cash flows and affect the Company’s U.S. dollar earnings. Gains or losses on the foreign exchange forward contracts that are used to hedge these exposures are expected to partially offset this variability. Foreign exchange forward contracts represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon settlement date. As of May 1, 2010, the maximum length of time over which forecasted foreign-currency-denominated inter-company inventory sales were hedged was twelve months. The sale of the inventory to the Company’s customers will result in the reclassification of related derivative gains and losses that are reported in Accumulated Other Comprehensive Loss. Substantially all of the remaining unrealized gains or losses related to foreign-currency-denominated inter-company inventory sales that have occurred as of May 1, 2010 will be recognized in costs of goods sold over the following two months at the values at the date the inventory was sold to the respective subsidiary.

The Company nets derivative assets and liabilities on the Condensed Consolidated Balance Sheet to the extent that master netting arrangements meet the specific accounting requirements set forth by U.S. generally accepted accounting principles.

As of May 1, 2010, the Company had the following outstanding foreign exchange forward contracts that were entered into to hedge forecasted foreign-currency-denominated inter-company inventory sales and the resulting settlement of the foreign-currency-denominated inter-company accounts receivable:

		Notional Amount(1)
Canadian Dollar		$	22,957
British Pound		$	62,542
Euro		$	7,095

The location and amounts of derivative fair values on the Condensed Consolidated Balance Sheets as of May 1, 2010 and January 30, 2010 were as follows:

Balance Sheet

Asset Derivatives

Balance Sheet

Liability Derivatives

(in thousands)

Location

May 1, 2010

January 30, 2010

Location

May 1, 2010

January 30, 2010

Derivatives Designated as Hedging Instruments:

Foreign Exchange Forward Contracts

Other Current Assets

$

1,873

$

1,348

Accrued Expenses

$

—

$

—

Refer to Note 6, “Fair Value” for further discussion of the determination of the fair value of derivatives.

The location and amounts of derivative gains and losses for the thirteen weeks ended May 1, 2010 and May 2, 2009 on the Condensed Consolidated Statement of Operations and Comprehensive Loss are as follows:

Location of

(Loss) Gain

Amount of Gain (Loss)

Reclassified from

Amount of (Loss) Gain

Location of Gain (Loss)

Recognized in Earnings on

Amount of Gain (Loss)

Accumulated

Reclassified from

Recognized in Earnings

Derivative (Ineffective

Recognized in OCI on

OCI into

Accumulated OCI into

on Derivative

Portion and Amount

Derivative Contracts

Earnings

Earnings (Effective

(Ineffective Portion and

Excluded from

(Effective Portion)

(Effective

Portion)

Amount Excluded from

Effectiveness Testing)

(a)

Portion)

(b)

Effectiveness Testing)

(c)

Thirteen Weeks Ended

(in thousands)

May 1, 2010

May 2, 2009

May 1, 2010

May 2, 2009

May 1, 2010

May 2, 2009

Derivatives in Cash Flow Hedging Relationships

Foreign Exchange Forward Contracts

$

1,094

$

(612

)

Cost of Goods Sold

$

(856

)

$

1,436

Other Operating Income, Net

$

135

$

(234

)

13. DISCONTINUED OPERATIONS

On June 16, 2009, A&F’s Board of Directors approved the closure of the Company’s 29 RUEHL branded stores and related direct-to-consumer operations. The Company completed the closure of the RUEHL branded stores and related direct-to-consumer operations during the fourth quarter of Fiscal 2009. Accordingly, the results of operations of RUEHL are reflected in Net Loss from Discontinued Operations on the Condensed Consolidated Statement of Operations and Comprehensive Loss for the thirteen weeks ended May 2, 2009. Results from discontinued operations were immaterial for the thirteen weeks ended May 1, 2010.

Costs associated with exit or disposal activities are recorded when the liability is incurred. Below is a roll forward of the liabilities recognized on the Condensed Consolidated Balance Sheet as of May 1, 2010 related to the closure of RUEHL branded stores and related direct-to-consumer operations (in millions):

		Thirteen Weeks Ended
		May 1, 2010
Beginning Balance, January 30, 2010		$	46.1
Interest Accretion			0.3
Cash Payments / Other			(19.5	)
Ending Balance, May 1, 2010(1)		$	26.9

14. CONTINGENCIES

A&F is a defendant in lawsuits and other adversary proceedings arising in the ordinary course of business. Legal costs incurred in connection with the resolution of claims and lawsuits are generally expensed as incurred, and the Company establishes reserves for the outcome of litigation where it deems appropriate to do so under applicable accounting rules. Actual liabilities may exceed the amounts reserved, and there can be no assurance that final resolution of these matters will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows. The Company’s identified contingencies include the following matters:

On June 23, 2006, Lisa Hashimoto, et al. v. Abercrombie & Fitch Co. and Abercrombie & Fitch Stores, Inc., was filed in the Superior Court of the State of California for the County of Los Angeles. In that action, plaintiffs alleged, on behalf of a putative class of California store managers employed in Hollister and abercrombie kids stores, that they were entitled to receive overtime pay as “non-exempt” employees under California wage and hour laws. The complaint seeks injunctive relief, equitable relief, unpaid overtime compensation, unpaid benefits, penalties, interest and attorneys’ fees and costs. The defendants answered the complaint on August 21, 2006, denying liability. On June 23, 2008, the defendants settled all claims of Hollister and abercrombie kids store managers who served in stores from June 23, 2002 through April 30, 2004, but continued to oppose the plaintiffs’ remaining claims. On January 29, 2009, the Court certified a class consisting of all store managers who served at Hollister and abercrombie kids stores in California from May 1, 2004 through the future date upon which the action concludes. The parties are continuing to litigate the claims of that putative class. On May 24, 2010, plaintiffs filed a notice that they did not intend to continue to pursue their claim that members of the class did not exercise independent managerial judgment and discretion. They also asked the Court to vacate the August 9 trial date previously set by the Court.

On September 2, 2005, a purported class action, styled Robert Ross v. Abercrombie & Fitch Company, et al., was filed against A&F and certain of its officers in the United States District Court for the Southern District of Ohio on behalf of a purported class of all persons who purchased or acquired shares of A&F’s Common Stock between June 2, 2005 and August 16, 2005. In September and October of 2005, five other purported class actions were subsequently filed against A&F and other defendants in the same Court. All six securities cases allege claims under the federal securities laws related to sales of Common Stock by certain defendants and to a decline in the price of A&F’s Common Stock during the summer of 2005, allegedly as a result of misstatements attributable to A&F. Plaintiffs seek unspecified monetary damages. On November 1, 2005, a motion to consolidate all of these purported class actions into the first-filed case was filed by some of the plaintiffs. A&F joined in that motion. On March 22, 2006, the motions to consolidate were granted, and these actions (together with the federal court derivative cases described in the following paragraph) were consolidated for purposes of motion practice, discovery and pretrial proceedings. A consolidated amended securities class action complaint (the “Complaint”) was filed on August 14, 2006. On October 13, 2006, all defendants moved to dismiss that Complaint. On August 9, 2007, the Court denied the motions to dismiss. On September 14, 2007, defendants filed answers denying the material allegations of the Complaint and asserting affirmative defenses. On October 26, 2007, plaintiffs moved to certify their purported class. After briefing and argument, the motion was submitted on March 24, 2009, and granted on May 21, 2009. On June 5, 2009, defendants petitioned the Sixth Circuit for permission to appeal the class certification order and on August 24, 2009, the Sixth Circuit granted leave to appeal. On May 26, 2010, after mediation which commenced on May 17, the parties reached an agreement in principle to settle the consolidated cases as a class action, subject to Court approval. The entire settlement payment of $12 million will be paid by A&F’s insurers.

On September 16, 2005, a derivative action, styled The Booth Family Trust v. Michael S. Jeffries, et al., was filed in the United States District Court for the Southern District of Ohio, naming A&F as a nominal defendant and seeking to assert claims for unspecified damages against nine of A&F’s present and former directors, alleging various breaches of the directors’ fiduciary duty and seeking equitable and monetary relief. In the following three months, four similar derivative actions were filed (three in the United States District Court for the Southern District of Ohio and one in the Court of Common Pleas for Franklin County, Ohio) against present and former directors of A&F alleging various breaches of the directors’ fiduciary duty allegedly arising out of the same matters alleged in the Ross case and seeking equitable and monetary relief on behalf of A&F. In March of 2006, the federal court derivative actions were consolidated with the Ross actions for purposes of motion practice, discovery and pretrial proceedings. A consolidated amended derivative complaint was filed in the federal proceeding on July 10, 2006. On February 16, 2007, A&F announced that its Board of Directors had received a report of the Special Litigation Committee established by the Board to investigate and act with respect to claims asserted in the derivative lawsuit, which concluded that there was no evidence to support the asserted claims and directed the Company to seek dismissal of the derivative cases. On September 10, 2007, the Company moved to dismiss the federal derivative cases on the authority of the Special Litigation Committee report. On March 12, 2009, the Company’s motion was granted and, on April 10, 2009, plaintiffs filed an appeal from the order of dismissal. Plaintiffs appeal has been fully briefed and has been set for argument on June 10, 2010. The state court has stayed further proceedings in the state-court derivative action until resolution of the consolidated federal derivative cases.

The Company intends to defend the aforesaid matters vigorously, as appropriate. The Company is unable to quantify the potential exposure of the aforesaid matters. However, the Company’s assessment of the current exposure could change in the event of the discovery of additional facts with respect to legal matters pending against the Company or determinations by judges, juries, administrative agencies or other finders of fact that are not in accordance with the Company’s evaluation of the claims.

15. SUBSEQUENT EVENT

On May 26, 2010, the Company entered into an agreement in principle with the litigants in the federal securities law litigation styled Robert Ross vs. Abercrombie & Fitch Company, et al. Pursuant to the agreement in principle, the parties have agreed to settle all outstanding claims, as a class action, for $12 million, including all attorneys’ fees and other costs and expenses. The full settlement amount is to be paid by the Company’s insurers during the second quarter of Fiscal 2010. The agreement in principle is subject to definitive documentation, notice to the class and final approval by the United States District Court for the Southern District of Ohio.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and
Shareholders of Abercrombie & Fitch Co.:

We have reviewed the accompanying condensed consolidated balance sheet of Abercrombie & Fitch Co. and its subsidiaries as of May 1, 2010 and the related condensed consolidated statements of operations and comprehensive loss for the thirteen week periods ended May 1, 2010 and May 2, 2009 and the condensed consolidated statements of cash flows for the thirteen week periods ended May 1, 2010 and May 2, 2009. These interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of January 30, 2010, and the related consolidated statements of operations and comprehensive income, of shareholders’ equity and of cash flows for the year then ended (not presented herein), and in our report dated March 29, 2010, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of January 30, 2010, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

/s/ PricewaterhouseCoopers LLP
Columbus, Ohio

June 8, 2010

ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company’s fiscal year ends on the Saturday closest to January 31. Fiscal years are designated in the condensed consolidated financial statements and notes by the calendar year in which the fiscal year commences. All references herein to “Fiscal 2010” represent the 52-week fiscal year that will end on January 29, 2011, and to “Fiscal 2009” represent the 52-week fiscal year that ended January 30, 2010.

The Company is a specialty retailer that operates stores and direct-to-consumer operations selling casual sportswear apparel, including knit and woven shirts, graphic t-shirts, fleece, jeans and woven pants, shorts, sweaters, outerwear, personal care products and accessories for men, women and kids under the Abercrombie & Fitch, abercrombie kids and Hollister brands. In addition, the Company operates stores under the Gilly Hicks brand offering bras, underwear, personal care products, sleepwear and at-home products for women.

Abercrombie & Fitch is rooted in East Coast traditions and Ivy League heritage, the essence of privilege and casual luxury. Abercrombie & Fitch is a combination of classic and sexy creating an atmosphere that is confident and just a bit provocative. abercrombie kids directly follows in the footsteps of its older sibling, Abercrombie & Fitch. abercrombie kids has an energetic attitude and is popular, wholesome and athletic — the signature of All-American cool. Hollister is young, spirited, with a sense of humor and brings Southern California to the world. Gilly Hicks is the cheeky cousin of Abercrombie & Fitch, inspired by the free spirit of Sydney, Australia. Gilly Hicks is classic and vibrant, always confident and is the All-American brand with a Sydney sensibility.

RESULTS OF OPERATIONS

During the first quarter of Fiscal 2010, net sales increased 14% to $687.8 million from $601.7 million in the first quarter of Fiscal 2009. The operating loss was $18.7 million in the first quarter of Fiscal 2010, compared to an operating loss of $33.9 million in the first quarter of Fiscal 2009. The Company had a net loss of $11.8 million in the first quarter of Fiscal 2010 compared to a net loss of $59.2 million in the first quarter of Fiscal 2009. Net loss per basic and diluted share was $0.13 in the first quarter of Fiscal 2010 compared to net loss per basic and diluted share of $0.68 in the first quarter of Fiscal 2009. The Fiscal 2009 first quarter net loss per basic and diluted share included a net loss of $0.41 per basic and diluted share from discontinued operations. Results from discontinued operations were immaterial for the first quarter of Fiscal 2010.

Net cash used for operating activities was $46.4 million for the thirteen weeks ended May 1, 2010. The Company used $19.2 million of cash for capital expenditures. The Company also paid dividends totaling $15.4 million during the thirteen weeks ended May 1, 2010. As of May 1, 2010, the Company had $600.5 million in cash and equivalents, and outstanding debt and letters of credit of $94.6 million, compared to $463.7 million in cash and equivalents, and outstanding debt and letters of credit of $143.0 million as of May 2, 2009.

Due to seasonal variations in the retail industry, the results of operations for any current period are not necessarily indicative of the results expected for the full fiscal year. The seasonality of the Company’s operations may also lead to significant fluctuations in certain asset and liability accounts.

The following data represents the amounts shown in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Loss for the thirteen week periods ended May 1, 2010 and May 2, 2009, expressed as a percentage of net sales:

		Thirteen Weeks Ended
		May 1, 2010				May 2, 2009
NET SALES			100.0	%			100.0	%
Cost of Goods Sold			37.3	%			36.6	%
GROSS PROFIT			62.7	%			63.4	%
Stores and Distribution Expense			51.5	%			54.9	%
Marketing, General and Administrative Expense			14.0	%			14.3	%
Other Operating Income, Net			(0.1	)%			(0.2	)%
OPERATING LOSS			(2.7	)%			(5.6	)%
Interest Expense (Income), Net			0.1	%			(0.2	)%
Loss from Continuing Operations before Taxes			(2.8	)%			(5.4	)%
Tax Benefit for Continuing Operations			(1.1	)%			(1.6	)%
Net Loss from Continuing Operations			(1.7	)%			(3.8	)%
Net Loss from Discontinued Operations (net of taxes)			—				(6.0	)%
NET LOSS			(1.7	)%			(9.8	)%

Financial Summary

The following summarized financial and statistical data compare the thirteen week period ended May 1, 2010 to the thirteen week period ended May 2, 2009:

		Thirteen Weeks Ended
		May 1, 2010				May 2, 2009
Net sales by brand (in millions)		$	687.8			$	601.7
Abercrombie & Fitch		$	303.7			$	264.7
abercrombie		$	78.7			$	69.1
Hollister		$	298.2			$	262.4
Gilly Hicks		$	7.2			$	5.5
Increase (decrease) in net sales from prior year			14	%			(24	)%
Abercrombie & Fitch			15	%			(26	)%
abercrombie			14	%			(28	)%
Hollister			14	%			(21	)%
Gilly Hicks			31	%			80	%
Increase (decrease) in comparable store sales*			1	%			(29	)%
Abercrombie & Fitch			3	%			(26	)%
abercrombie			6	%			(33	)%
Hollister			(2	)%			(32	)%
Net store sales per average store (in thousands)		$	555			$	497
Abercrombie & Fitch		$	764			$	658
abercrombie		$	333			$	293
Hollister		$	510			$	474
Net store sales per average gross square foot		$	78			$	70
Abercrombie & Fitch		$	85			$	74
abercrombie		$	71			$	64
Hollister		$	75			$	70
Change in transactions per average store			16	%			(27	)%
Abercrombie & Fitch			14	%			(23	)%
abercrombie			17	%			(27	)%
Hollister			16	%			(29	)%
Change in average store transaction value			(4	)%			(4	)%
Abercrombie & Fitch			2	%			(5	)%
abercrombie			(3	)%			(7	)%
Hollister			(7	)%			(1	)%
Change in average units per store transaction			7	%			(4	)%
Abercrombie & Fitch			2	%			(4	)%
abercrombie			6	%			(2	)%
Hollister			8	%			(4	)%
Change in average unit retail sold, including DTC			(10	)%			0	%
Abercrombie & Fitch			(2	)%			1	%
abercrombie			(8	)%			(5	)%
Hollister			(14	)%			3	%

CURRENT TRENDS AND OUTLOOK

In the first quarter of Fiscal 2010, the Company continued to focus on the key long-term drivers of the business. The Company’s objective in Fiscal 2010 and subsequent years is to increase its operating margin back towards historical levels, which the Company believes will require a combination of several factors.

First, returning gross margin to historic levels. The Company believes the factors in achieving this will be optimizing its average unit retails, achieving further reductions in average unit cost, and benefiting from international operations with higher gross margins. During the first quarter, the gross margin rate decreased 70 basis points primarily due to the 10% decrease in average unit retail, which would have been somewhat greater adjusted for selling mix. The Company expects some further gross margin erosion in the second quarter. Going forward, the Company also expects some pressure on gross margin from higher raw material prices, particularly cotton.

Second, improvements in domestic productivity levels and the closure of underperforming stores. Overall domestic sales increased 5% for the quarter combining store and direct-to-consumer sales. Abercrombie & Fitch tourist and high volume stores performed more strongly than the rest of the chain and this is a significant consideration in the review of the domestic footprint of the brand. The Company is in the process of reviewing underperforming stores and, to the extent it does not foresee a recovery for applicable stores, plans to address these stores through a combination of natural lease expirations, rent relief negotiations with landlords and, potentially, early closures of certain underperforming stores.

Third, the Company continues with its plans for international openings in Fiscal 2010 and is seeking to accelerate its international growth beyond that. In Fiscal 2010, the Company remains on track to open Abercrombie & Fitch flagship stores in Fukuoka and Copenhagen and a Hollister Epic store on Fifth Avenue in New York. The Company currently plans to open approximately 25 international mall-based Hollister stores in Fiscal 2010 as well as one Abercrombie & Fitch store in Canada. In addition, the Company plans to open its first Gilly Hicks store in the United Kingdom in the fourth quarter of Fiscal 2010.

The Company is also focusing significant attention on improving the productivity of its Gilly Hicks brand, which the Company believes is a necessary precursor to expanding the store count for the brand and having a path to profitability.

The Company is also focusing on growth opportunities in its direct-to-consumer business.

Finally, the Company will continue to maintain tight control over expenses and to seek greater efficiencies in its operations.

In Fiscal 2010, the Company will continue to concentrate on protecting the brands, while seeking to drive improvement in its domestic business, and continue its international growth.

FIRST QUARTER RESULTS

Net Sales

Net sales for the first quarter of Fiscal 2010 were $687.8 million, an increase of 14% from net sales of $601.7 million during the first quarter of Fiscal 2009. The net sales increase was attributable to a 1% increase in comparable store sales, a 42% increase in the direct-to-consumer business, and new stores, primarily international.

Abercrombie & Fitch comparable store sales increased 3%, with women’s decreasing by a low single digit and men’s increasing by a high single digit. abercrombie kids comparable store sales increased 6%, with girls increasing by a mid single digit and guys increasing by a high single digit. Hollister comparable store sales decreased 2%, with bettys decreasing by a mid single digit and dudes increasing by a mid single digit.

On a regional basis, comparable store sales for the United Kingdom were the strongest performing region while Canada and the Midwest U.S. regions were the weakest. Within the U.S., flagship and tourist stores outperformed the non-tourist stores.

Across all brands, the masculine categories continue to out-pace the feminine categories. From a merchandise classification standpoint, for the male business, woven shirts, knit tops and fleece were stronger performing categories while graphic tees was a weaker performing category. In the female business, dresses, woven shirts and graphic tees were stronger performing categories while knit tops and sweaters were weaker performing categories.

Direct-to-consumer net merchandise sales for the first quarter of Fiscal 2010 were $68.8 million, an increase of 42% from Fiscal 2009 first quarter direct-to-consumer net merchandise sales of $48.5 million. Shipping and handling revenue for the corresponding periods was $11.3 million in Fiscal 2010 and $8.4 million in Fiscal 2009. The direct-to-consumer business, including shipping and handling revenue, accounted for 11.6% of total net sales in the first quarter of Fiscal 2010 compared to 9.5% in the first quarter of Fiscal 2009.

Gross Profit

Gross profit for the first quarter of Fiscal 2010 was $431.4 million compared to $381.5 million for the comparable period in Fiscal 2009. The gross profit rate (gross profit divided by net sales) for the first quarter of Fiscal 2010 was 62.7%, down 70 basis points from the first quarter of Fiscal 2009 rate of 63.4%. The decrease in the gross profit rate was primarily driven by a 10% decrease in average unit retail. Adjusted for selling mix, the reduction in average unit retail was somewhat greater.

Stores and Distribution Expense

Stores and distribution expense for the first quarter of Fiscal 2010 was $354.4 million compared to $330.3 million for the comparable period in Fiscal 2009. The stores and distribution expense rate (stores and distribution expense divided by net sales) for the first quarter of Fiscal 2010 was 51.5% compared to 54.9% in the first quarter of Fiscal 2009. The decrease in stores and distribution expense rate was primarily driven by lower store occupancy costs as a percentage of net sales.

Marketing, General and Administrative Expense

Marketing, general and administrative expense during the first quarter of Fiscal 2010 was $96.6 million compared to $86.3 million during the same period in Fiscal 2009, a 12% increase. For the first quarter of Fiscal 2010, the marketing, general and administrative expense rate (marketing, general and administrative expense divided by net sales) was 14.0% compared to 14.3% for the first quarter of Fiscal 2009. The increase in marketing, general and administrative expense was primarily due to higher net legal expenses, incentive compensation and marketing expenses.

Other Operating Income, Net

First quarter other operating income for Fiscal 2010 was $0.9 million compared to $1.3 million for the first quarter of Fiscal 2009. The decrease was driven by net losses from foreign currency transactions in the first quarter of Fiscal 2010 compared to net gains from foreign currency transactions in the first quarter of Fiscal 2009.

Interest Expense (Income), Net and Tax Benefit from Continuing Operations

First quarter interest income was $1.1 million in Fiscal 2010, offset by interest expense of $1.9 million, compared to interest income of $2.2 million, offset by interest expense of $0.8 million in the first quarter of Fiscal 2009. The decrease in interest income was primarily the result of a lower average rate of return on investments. The increase in interest expense was due primarily to imputed interest expense related to certain store lease transactions and higher fees associated with the unsecured amended credit agreement.

The effective tax rate for continuing operations for the first quarter of Fiscal 2010 was a 39.5% benefit, compared to a 28.9% benefit for the first quarter of Fiscal 2009. The tax benefit associated with the loss from continuing operations increased in Fiscal 2010 primarily due to a net reduction in reserves resulting from the settlement of tax audits and the net release of valuation allowances. The tax benefit in Fiscal 2009 was reduced by a net increase in tax reserves and the establishment of a valuation allowance.

Net Loss from Discontinued Operations

The Company completed the closure of its RUEHL branded stores and related direct-to-consumer operations in the fourth quarter of Fiscal 2009. Accordingly, the after-tax operating results appear in Net Loss from Discontinued Operations on the Condensed Consolidated Statement of Operations and Comprehensive Loss for the thirteen weeks ended May 2, 2009. Net loss from discontinued operations, net of tax, was $36.1 million for thirteen weeks ended May 2, 2009.

Refer to Note 13, “Discontinued Operations” of the Notes to Condensed Consolidated Financial Statements for further discussion.

Net Loss and Net Loss per Share

Net loss for the first quarter of Fiscal 2010 was $11.8 million compared to a net loss of $59.2 million for the first quarter of Fiscal 2009. Net loss per basic and diluted share for the first quarter of Fiscal 2010 was $0.13 compared to net loss per basic and diluted share of $0.68 for the same period of Fiscal 2009. Net loss per basic and diluted share for the first quarter of Fiscal 2009 included a net loss of $0.41 per basic and diluted share from discontinued operations.

FINANCIAL CONDITION

Liquidity and Capital Resources

The Company had $600.5 million in cash and equivalents available as of May 1, 2010, as well as an additional $301.0 million available (less outstanding letters of credit of $45.6 million) under its unsecured Amended Credit Agreement (as amended in June 2009) and $26.3 million available under the UBS Credit Line, both described in Note 11, “Long-Term Debt” of the Notes to Condensed Consolidated Financial Statements. The unsecured Amended Credit Agreement contains financial covenants that require the Company to maintain a minimum coverage ratio and a maximum leverage ratio and also limits the Company’s consolidated capital expenditures to $325 million in Fiscal 2010, plus the $99.5 million representing the unused portion of the allowable expenditures from Fiscal 2009, all defined in the Amended Credit Agreement. If circumstances occur that would lead to the Company failing to meet the covenants under the Amended Credit Agreement and the Company is unable to obtain a waiver or amendment, an event of default would result and the lenders could declare outstanding borrowings immediately due and payable. The Company believes it is likely that it would either obtain a waiver or amendment in advance of a default, or would have sufficient cash available to repay borrowings in the event a waiver was not obtained.

A summary of the Company’s working capital position and capitalization follows (in thousands):

		May 1, 2010				January 30, 2010
Working capital		$	769,243			$	786,474
Capitalization:
Shareholders’ equity		$	1,800,553			$	1,827,917

Operating Activities

Net cash used for operating activities was $46.4 million for the thirteen weeks ended May 1, 2010, compared to a source of cash of $13.0 million for the thirteen weeks ended May 2, 2009. The increase in cash used for operating activities was primarily driven by an increase in inventory. The increase in inventory was partially off-set by a decrease in the use of cash related to accounts payable and accrued expenses primarily due to the timing of receipts and higher direct-to-consumer inventory, but consistent with the overall increase in sales in the first quarter of Fiscal 2010.

Investing Activities

Cash outflows for investing activities for the thirteen week period ended May 1, 2010 were primarily for capital expenditures related to new store construction and information technology investments (see the discussion in “Capital Expenditures and Lessor Construction Allowances”). The decrease in capital expenditures compared to Fiscal 2009 primarily related to the timing of new flagship and domestic mall-based store openings. For the thirteen week periods ended May 1, 2010 and May 2, 2009, the Company also had cash outflows for investing activities related to the purchase of rabbi trust assets and cash inflows for investing activities related to the sale of marketable securities.

Financing Activities

Financing activities for the thirteen week period ended May 1, 2010 consisted of cash outflows of $15.4 million related to the payment of the $0.175 per share quarterly dividends on March 16, 2010.

As of May 1, 2010, approximately 11.3 million shares were available for repurchase as part of the August 15, 2005 and November 20, 2007 A&F Board of Directors’ authorizations to repurchase 6.0 million shares and 10.0 million shares, respectively, of A&F’s Common Stock. A&F did not repurchase any shares of A&F’s Common Stock during the thirteen weeks ended May 1, 2010.

The Company had $49.0 million and $50.9 million of debt outstanding under its unsecured Amended Credit Agreement on May 1, 2010 and January 30, 2010, respectively. The debt outstanding as of May 1, 2010 and January 30, 2010 was denominated in Japanese Yen. The average interest rate for the thirteen weeks ended was 2.6%. As of May 1, 2010, the Company had an additional $301.0 million available (less outstanding letters of credit) under its unsecured Amended Credit Agreement.

The Amended Credit Agreement requires that the Leverage Ratio not be greater than 3.75 to 1.00 at the end of each testing period. The Amended Credit Agreement also requires that the Coverage Ratio for A&F and its subsidiaries on a consolidated basis of (i) Consolidated EBITDAR for the trailing four-consecutive-fiscal-quarter period to (ii) the sum of, without duplication, (x) net interest expense for such period, (y) scheduled payments of long-term debt due within twelve months of the date of determination and (z) the sum of minimum rent and contingent store rent, not be less than 1.65 to 1.00 at May 1, 2010. The minimum Coverage Ratio varies over time based on the terms set forth in the Amended Credit Agreement. On June 16, 2009, the definition of Consolidated EBITDAR was amended for the purpose of the Amended Credit Agreement, to add back the following items, among others, (a) recognized losses arising from investments in certain auction rate securities to the extent such losses do not exceed a defined level of impairments for those investments, (b) non-cash charges in an amount not to exceed $50 million related to the closure of RUEHL branded stores and related direct-to-consumer operations, (c) non-recurring cash charges in an aggregate amount not to exceed $61 million related to the closure of RUEHL branded stores and related direct-to-consumer operations, (d) additional non-recurring non-cash charges in an amount not to exceed $20 million in the aggregate over the trailing four fiscal quarter period and (e) other non-recurring cash charges in an amount not to exceed $10 million in the aggregate over the trailing four fiscal quarter period. The Amended Credit Agreement also limits the Company’s consolidated capital expenditures to $325 million in Fiscal 2010, plus $99.5 million representing the unused portion of the allowable capital expenditures from Fiscal 2009. The Company was in compliance with the applicable ratio requirements and other covenants at May 1, 2010.

The unsecured Amended Credit Agreement is more fully described in Note 11, “Long-Term Debt” of the Notes to Condensed Consolidated Financial Statements.

Trade letters of credit totaling approximately $29.2 million and $35.9 million were outstanding on May 1, 2010 and January 30, 2010, respectively. Stand-by letters of credit totaling approximately $16.4 million and $14.1 million were outstanding on May 1, 2010 and January 30, 2010, respectively. The stand-by letters of credit are set to expire primarily during the fourth quarter of Fiscal 2010. To date, no beneficiary has drawn upon the stand-by letters of credit.

Off-Balance Sheet Arrangements

As of May 1, 2010, the Company did not have any off-balance sheet arrangements.

Contractual Obligations

The Company’s contractual obligations consist primarily of letters of credit outstanding, operating leases, purchase orders for merchandise inventory, unrecognized tax benefits, certain retirement obligations, lease deposits and other agreements to purchase goods and services that are legally binding and that require minimum quantities to be purchased. These contractual obligations impact the Company’s short- and long-term liquidity and capital resource needs. During the thirteen weeks ended May 1, 2010, changes to the contractual obligations from those as of January 30, 2010 included the payment of $19.5 million in previously accrued charges related to the closure of RUEHL branded stores and related direct-to-consumer operations. There were no other material changes in contractual obligations as of May 1, 2010, with the exception of those obligations which occurred in the normal course of business (primarily changes in the Company’s merchandise inventory-related purchases and lease obligations, which fluctuate throughout the year as a result of the seasonal nature of the Company’s operations).

First Quarter Store Count and Gross Square Feet

Store count and gross square footage by brand for the thirteen weeks ended May 1, 2010 and May 2, 2009, respectively, were as follows:

		Abercrombie & Fitch				abercrombie				Hollister				Gilly Hicks				Total
Store Activity
January 30, 2010			346				209				525				16				1,096
New			2				1				4				—				7
Remodels/Conversions (net activity)			—				—				—				—				—
Closed			(1	)			(1	)			(1	)			—				(3	)
May 1, 2010			347				209				528				16				1,100
Gross Square Feet (thousands)
January 30, 2010			3,110				979				3,597				161				7,847
New			13				13				29				—				55
Remodels/Conversions (net activity)			(4	)			—				(4	)			—				(8	)
Closed			(8	)			(4	)			(7	)			—				(19	)
May 1, 2010			3,111				988				3,615				161				7,875
Average Store Size			8,965				4,727				6,847				10,063				7,159

		Abercrombie & Fitch				abercrombie				Hollister				Gilly Hicks				Total
Store Activity
January 31, 2009			356				212				515				14				1,097
New			—				2				1				2				5
Remodels/Conversions (net activity)			—				—				—				—				—
Closed			(2	)			(2	)			(1	)			—				(5	)
May 2, 2009			354				212				515				16				1,097
Gross Square Feet (thousands)
January 31, 2009			3,164				976				3,474				146				7,760
New			—				14				7				15				36
Remodels/Conversions (net activity)			—				—				—				—				—
Closed			(20	)			(9	)			(6	)			—				(35	)
May 2, 2009			3,144				981				3,475				161				7,761
Average Store Size			8,881				4,627				6,748				10,063				7,075