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

For the transition period from                      to                     .

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

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).) þ 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 September 3, 2010
$.01 Par Value		88,276,729 Shares

 

 

ABERCROMBIE & FITCH CO.

TABLE OF CONTENTS

		Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Thirteen and Twenty-Six Weeks Ended July 31, 2010 and August 1, 2009			3
Condensed Consolidated Balance Sheets July 31, 2010 and January 30, 2010			4
Condensed Consolidated Statements of Cash Flows Twenty-Six Weeks Ended July 31, 2010 and August 1, 2009			5
Notes to Condensed Consolidated Financial Statements			6
Report of Independent Registered Public Accounting Firm			24
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3. Quantitative and Qualitative Disclosures About Market Risk			47
Item 4. Controls and Procedures			49
Part II. Other Information
Item 1. Legal Proceedings			50
Item 1A. Risk Factors			52
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			53
Item 6. Exhibits			54
Exhibit 4.7
Exhibit 4.12
Exhibit 4.14
Exhibit 10.48
Exhibit 15
Exhibit 31.1
Exhibit 31.2
Exhibit 32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

ITEM 1.		FINANCIAL STATEMENTS

ABERCROMBIE & FITCH CO.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)

(Thousands, except share and per share amounts)
(Unaudited)

		Thirteen Weeks Ended								Twenty-Six Weeks Ended
		July 31,				August 1,				July 31,				August 1,
		2010				2009				2010				2009
NET SALES		$	745,798			$	637,221			$	1,433,602			$	1,238,951
Cost of Goods Sold			260,450				212,705				516,838				432,982
GROSS PROFIT			485,348				424,516				916,764				805,969
Stores and Distribution Expense			364,482				332,296				718,892				662,606
Marketing, General and Administrative Expense			95,206				86,666				191,838				173,011
Other Operating Income, Net			(1,900	)			(3,333	)			(2,814	)			(4,657	)
OPERATING INCOME (LOSS)			27,560				8,887				8,848				(24,991	)
Interest Expense (Income), Net			807				(1,779	)			1,632				(3,153	)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES			26,753				10,666				7,216				(21,838	)
Tax Expense (Benefit) from Continuing Operations			7,274				18,856				(435	)			9,456
NET INCOME (LOSS) FROM CONTINUING OPERATIONS		$	19,479			$	(8,190	)		$	7,651			$	(31,294	)
LOSS FROM DISCONTINUED OPERATIONS, Net of Tax		$	—			$	(18,557	)		$	—			$	(54,692	)
NET INCOME (LOSS)		$	19,479			$	(26,747	)		$	7,651			$	(85,986	)
NET INCOME (LOSS) PER SHARE FROM CONTINUING OPERATIONS:
BASIC		$	0.22			$	(0.09	)		$	0.09			$	(0.36	)
DILUTED		$	0.22			$	(0.09	)		$	0.09			$	(0.36	)
NET LOSS PER SHARE FROM DISCONTINUED OPERATIONS:
BASIC		$	—			$	(0.21	)		$	—			$	(0.62	)
DILUTED		$	—			$	(0.21	)		$	—			$	(0.62	)
NET INCOME (LOSS) PER SHARE:
BASIC		$	0.22			$	(0.30	)		$	0.09			$	(0.98	)
DILUTED		$	0.22			$	(0.30	)		$	0.09			$	(0.98	)
WEIGHTED-AVERAGE SHARES OUTSTANDING:
BASIC			88,220				87,878				88,157				87,788
DILUTED			89,386				87,878				89,561				87,788
DIVIDENDS DECLARED PER SHARE		$	0.175			$	0.175			$	0.35			$	0.35
OTHER COMPREHENSIVE INCOME
Foreign Currency Translation Adjustments		$	2,448			$	7,813			$	(2,235	)		$	8,001
Unrealized gain (loss) on Marketable Securities, net of taxes of $(2,128) and $1,118 for the thirteen week periods ended July 31, 2010 and August 1, 2009, respectively, and $(1,965) and $1,595 for the twenty-six week periods ended July 31, 2010 and August 1, 2009, respectively			3,624				(1,905	)			3,346				(2,715	)
Unrealized (loss) gain on derivative financial instruments, net of taxes of $397 and $1,908 for the thirteen week periods ended July 31, 2010 and August 1, 2009, respectively, and $(324) and $2,666 for the twenty-six week periods ended July 31, 2010 and August 1, 2009, respectively			(676	)			(3,249	)			553				(4,539	)
Other Comprehensive Income		$	5,396			$	2,659			$	1,664			$	747
COMPREHENSIVE INCOME (LOSS)		$	24,875			$	(24,088	)		$	9,315			$	(85,239	)

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

ABERCROMBIE & FITCH CO.

CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands)

(Unaudited)

		July 31, 2010				January 30, 2010
ASSETS
CURRENT ASSETS:
Cash and Equivalents		$	613,633			$	680,113
Marketable Securities			—				32,356
Receivables			83,777				90,865
Inventories			480,128				310,645
Deferred Income Taxes			56,025				44,570
Other Current Assets			85,083				77,297
TOTAL CURRENT ASSETS			1,318,646				1,235,846
PROPERTY AND EQUIPMENT, NET			1,204,349				1,244,019
NON-CURRENT MARKETABLE SECURITIES			127,536				141,794
OTHER ASSETS			206,332				200,207
TOTAL ASSETS		$	2,856,863			$	2,821,866
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts Payable		$	205,025			$	150,134
Accrued Expenses			238,425				246,289
Deferred Lease Credits			43,361				43,597
Income Taxes Payable			31,229				9,352
TOTAL CURRENT LIABILITIES			518,040				449,372
LONG-TERM LIABILITIES:
Deferred Income Taxes			47,649				47,142
Deferred Lease Credits			202,949				212,052
Long-Term Debt			75,967				71,213
Other Liabilities			192,561				214,170
TOTAL LONG-TERM LIABILITIES			519,126				544,577
SHAREHOLDERS’ EQUITY:
Class A Common Stock — $0.01 par value: 150,000 shares authorized and 103,300 shares issued at each of July 31, 2010 and January 30, 2010			1,033				1,033
Paid-In Capital			340,752				339,453
Retained Earnings			2,160,506				2,183,690
Accumulated Other Comprehensive Loss, net of tax			(7,309	)			(8,973	)
Treasury Stock, at Average Cost — 15,054 and 15,314 shares at July 31, 2010 and January 30, 2010, respectively			(675,285	)			(687,286	)
TOTAL SHAREHOLDERS’ EQUITY			1,819,697				1,827,917
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	2,856,863			$	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)

		Twenty-Six Weeks Ended
		July 31, 2010				August 1, 2009
OPERATING ACTIVITIES:
Net Income (Loss)		$	7,651			$	(85,986	)
Impact of Other Operating Activities on Cash Flows:
Depreciation and Amortization			112,403				118,391
Non-Cash Charge for Asset Impairment			2,247				51,536
Amortization of Deferred Lease Credits			(23,173	)			(21,796	)
Share-Based Compensation			19,919				17,280
Tax Deficiency from Share-Based Compensation			(2,236	)			(4,937	)
Deferred Taxes			(12,784	)			(28,829	)
Loss on Disposal / Write-off of Assets			1,835				6,171
Lessor Construction Allowances			18,227				18,763
Changes in Assets and Liabilities:
Inventories			(169,453	)			47,850
Accounts Payable and Accrued Expenses			33,628				(370	)
Income Taxes			22,233				(15,391	)
Other Assets and Liabilities			(32,219	)			(55,690	)
NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES			(21,722	)			46,992
INVESTING ACTIVITIES:
Capital Expenditures			(59,754	)			(106,726	)
Purchase of Trust-Owned Life Insurance Policies			(11,583	)			(6,526	)
Proceeds from Sales of Marketable Securities			63,567				18,201
NET CASH USED FOR INVESTING ACTIVITIES			(7,770	)			(95,051	)
FINANCING ACTIVITIES:
Proceeds from Share-Based Compensation			494				1,508
Repayment of Borrowings under Credit Agreement			—				(100,000	)
Proceeds from Borrowings under Credit Agreement			—				36,446
Change in Outstanding Checks and Other			(6,302	)			(17,238	)
Dividends Paid			(30,836	)			(30,712	)
NET CASH USED FOR FINANCING ACTIVITIES			(36,644	)			(109,996	)
EFFECT OF EXCHANGE RATES ON CASH			(344	)			2,417
NET DECREASE IN CASH AND EQUIVALENTS:			(66,480	)			(155,638	)
Cash and Equivalents, Beginning of Period			680,113				522,122
CASH AND EQUIVALENTS, END OF PERIOD		$	613,633			$	366,484
SIGNIFICANT NON-CASH INVESTING ACTIVITIES:
Change in Accrual for Construction in Progress		$	13,512			$	(1,528	)

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.

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 July 31, 2010 and for the thirteen and twenty-six week periods ended July 31, 2010 and August 1, 2009 are unaudited and are presented pursuant to the rules and regulations of the U.S. 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.

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 Loss from Discontinued Operations, Net of Tax on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen and twenty-six weeks ended August 1, 2009. Results from discontinued operations were immaterial for the thirteen and twenty-six weeks ended July 31, 2010.

The Condensed Consolidated Financial Statements as of July 31, 2010 and for the thirteen and twenty-six week periods ended July 31, 2010 and August 1, 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 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								Twenty-Six Weeks Ended
(in thousands):		July 31, 2010				August 1, 2009				July 31, 2010				August 1, 2009
United States		$	612,586			$	565,054			$	1,181,376			$	1,107,963
International			133,212				72,167				252,226				130,988
Total		$	745,798			$	637,221			$	1,433,602			$	1,238,951

Long-Lived Assets:

(in thousands):		July 31, 2010				January 30, 2010
United States		$	1,082,033			$	1,137,844
International			222,936				194,461
Total		$	1,304,969			$	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 $10.4 million and $19.9 million for the thirteen and twenty-six week periods ended July 31, 2010, respectively, and $8.3 million and $17.3 million for the thirteen and twenty-six week periods ended August 1, 2009, respectively. The Company also recognized $3.8 million and $7.1 million in tax benefits related to share-based compensation for the thirteen and twenty-six week periods ended July 31, 2010, respectively, and $3.0 million and $6.4 million in tax benefits related to share-based compensation for the thirteen and twenty-six week periods ended August 1, 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 July 31, 2010, the “pool of windfall tax benefits” account had a balance of $83.7 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 was $3.2 million and $1.3 million during the twenty-six week periods ended July 31, 2010 and August 1, 2009, respectively.

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 July 31, 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 stockholder-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 twenty-six weeks ended July 31, 2010. The weighted-average estimated fair value of stock options granted during the twenty-six weeks ended August 1, 2009, and the weighted-average assumptions used in calculating such fair value, on the date of grant, were as follows:

		Twenty-Six Weeks Ended
		August 1, 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 twenty-six weeks ended July 31, 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			(17,556	)			29.34
Forfeited or cancelled			(23,500	)			72.83
Outstanding at July 31, 2010			2,928,805			$	38.14			$	22,075,266				2.9
Stock options exercisable at July 31, 2010			2,681,017			$	35.91			$	20,967,456				2.5
Stock options expected to become exercisable at July 31, 2010			228,976			$	62.36			$	1,011,962				7.4

The total intrinsic value of stock options exercised during the twenty-six weeks ended July 31, 2010 and August 1, 2009 was immaterial.

The grant date fair value of stock options vested during the twenty-six weeks ended July 31, 2010 and August 1, 2009 was $3.7 million and $5.0 million, respectively.

As of July 31, 2010, there was $3.2 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 0.8 years.

Stock Appreciation Rights

The weighted-average estimated fair value of stock appreciation rights granted during the twenty-six weeks ended July 31, 2010 and August 1, 2009, and the weighted-average assumptions used in calculating such fair value, on the date of grant, were as follows:

		Twenty-Six Weeks Ended
		Chairman and Chief								Executive Officers
		Executive								(excluding Chairman and
		Officer								Chief Executive Officer)								All Other Associates
		July 31,				August 1,				July 31,				August 1,				July 31,				August 1,
		2010				2009				2010				2009				2010				2009
Grant date market price		$	44.86			$	20.75			$	44.86			$	25.77			$	44.86			$	25.68
Exercise price		$	44.86			$	25.94			$	44.86			$	25.77			$	44.86			$	25.68
Fair value		$	16.96			$	7.13			$	16.99			$	10.06			$	16.68			$	9.82
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 twenty-six weeks ended July 31, 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			282,700				44.86
Exercised			(5,175	)			25.49
Forfeited or cancelled			(106,500	)			25.73
Outstanding at July 31, 2010			7,224,589			$	33.94			$	41,180,917				6.3
Stock appreciation rights exercisable at July 31, 2010			176,450			$	25.73			$	1,977,447				7.0
Stock appreciation rights expected to become exercisable at July 31, 2010			6,892,857			$	34.05			$	38,614,527				6.2

As of July 31, 2010, there was $62.4 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 1.7 years.

Restricted Stock Units

Below is a summary of restricted stock unit activity for the twenty-six weeks ended July 31, 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			397,486				41.85
Vested			(359,039	)			58.69
Forfeited			(129,577	)			53.95
Non-vested at July 31, 2010			1,239,918			$	50.29

The total fair value of restricted stock units granted during the twenty-six weeks ended July 31, 2010 and August 1, 2009 was $16.6 million and $10.8 million, respectively.

The total grant date fair value of restricted stock units vested during the twenty-six weeks ended July 31, 2010 and August 1, 2009 was $21.1 million and $21.2 million, respectively.

As of July 31, 2010, there was $41.0 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 1.2 years.

4. NET INCOME (LOSS) PER SHARE

Net income (loss) per basic share is computed based on the weighted-average number of outstanding shares of Common Stock. Net income (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								Twenty-Six Weeks Ended
		July 31,				August 1,				July 31,				August 1,
		2010				2009				2010				2009
Shares of Common Stock issued			103,300				103,300				103,300				103,300
Treasury shares			(15,080	)			(15,422	)			15,143				(15,512	)
Weighted-Average — basic shares			88,220				87,878				88,157				87,788
Dilutive effect of stock options, stock appreciation rights and restricted stock units			1,166				—				1,404				—
Weighted-Average — diluted shares			89,386				87,878				89,561				87,788
Anti-dilutive shares			5,871	(1)			8,131	(2)			4,812	(1)			8,131	(2)

5. CASH AND EQUIVALENTS

Cash and equivalents consisted of (in thousands):

		July 31, 2010				January 30, 2010
Cash and equivalents:
Cash		$	216,009			$	196,496
Money market funds			397,624				483,617
Total cash and equivalents		$	613,633			$	680,113

6. INVESTMENTS

Investments consisted of (in thousands):

		July 31, 2010				January 30, 2010
Marketable securities — Current:
Trading securities:
Auction rate securities — UBS — student loan backed		$	—			$	20,049
Auction rate securities — UBS — municipal authority bonds			—				12,307
Total trading securities			—				32,356
Marketable securities — Non-Current:
Available-for-sale securities:
Auction rate securities — student loan backed			103,300				118,390
Auction rate securities — municipal authority bonds			24,236				23,404
Total available-for-sale securities			127,536				141,794
Rabbi Trust assets: (1)
Money market funds			302				1,316
Municipal notes and bonds			12,142				18,537
Trust-owned life insurance policies (at cash surrender value)			64,076				51,391
Total Rabbi Trust assets			76,520				71,244
Total investments		$	204,056			$	245,394

At July 31, 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 July 31, 2010 were as follows:

						Temporary				Carrying
(in thousands)		Par Value				Impairment				Value
Available-for-sale securities:
Auction rate securities — student loan backed		$	107,999			$	(4,699	)		$	103,300
Auction rate securities — municipal authority bonds			28,575				(4,339	)			24,236
Total available-for-sale securities		$	136,574			$	(9,038	)		$	127,536

See Note 7, “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 July 31, 2010, the Company had not incurred any credit-related losses on available-for-sale ARS. Furthermore, as of July 31, 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 with a par value of $76.5 million. Pursuant to the UBS Agreement, the remaining ARS covered by the agreement, $37.1 million at par, were acquired by UBS, at par, during the thirteen weeks ended July 31, 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 municipal notes and bonds held in the Rabbi Trust were not material for the thirteen or twenty-six week periods ended July 31, 2010 and August 1, 2009. The change in cash surrender value of the trust-owned life insurance policies held in the Rabbi Trust resulted in realized gains of $0.6 million and $3.1 million for the thirteen weeks ended July 31, 2010 and August 1, 2009, respectively, and realized gains of $1.1 million and $4.3 million for the twenty-six weeks ended July 31, 2010 and August 1, 2009, respectively, recorded in Interest Expense (Income), Net on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

7. 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 July 31, 2010
		(in thousands)
		Level 1				Level 2				Level 3				Total
ASSETS:
Money market funds (1)		$	397,926			$	—			$	—			$	397,926
ARS — available-for-sale — student loan backed			—				—				103,300				103,300
ARS — available-for-sale — municipal authority bonds			—				—				24,236				24,236
Municipal notes and bonds held in the Rabbi Trust			12,142				—				—				12,142
Derivative financial instruments			—				15				—				15
Total assets measured at fair value		$	410,068			$	15			$	127,536			$	537,619

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 include investments in insured student loan backed ARS and insured municipal authority bonds ARS which are available-for-sale.

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 July 31, 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 July 31, 2010, approximately 76% of the Company’s ARS were “AAA” rated, approximately 11% of the Company’s ARS were “AA” rated, and approximately 13% were “A-” rated, in each case as rated by one or more of the major credit rating agencies.

The table below includes a roll-forward of the Company’s level 3 assets and liabilities from January 30, 2010 to July 31, 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			(22,100	)			(15,000	)			(20,100	)			—				(4,640	)			(61,840	)
Tranfers (out)/in			—				—				—				—				—				—
Gains and losses, net:
Reported in Net Income			—				—				—				—								—
Reported in Other Comprehensive Income			2,051				2,693				5,010				832				—				10,586
Fair value, July 31, 2010		$	—			$	—			$	103,300			$	24,236			$	—			$	127,536

8. 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 future permanent markdowns 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 future permanent markdowns necessary to sell-through any remaining carryover inventory from the season then ending. The valuation reserve was $20.6 million, $11.4 million and $7.2 million at July 31, 2010, January 30, 2010 and August 1, 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 $7.9 million, $8.1 million and $12.4 million at July 31, 2010, January 30, 2010 and August 1, 2009, respectively.

The inventory balance, net of the above mentioned reserves, was $480.1 million, $310.6 million and $325.6 million at July 31, 2010, January 30, 2010 and August 1, 2009, respectively.

9. PROPERTY AND EQUIPMENT, NET

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

		July 31, 2010				January 30, 2010
Property and equipment, at cost		$	2,423,128			$	2,362,492
Accumulated depreciation and amortization			(1,218,779	)			(1,118,473	)
Property and equipment, net		$	1,204,349			$	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.

In the second quarter of Fiscal 2010, as a result of a strategic review the Company conducted of under-performing stores, the Company determined that a number of stores are expected to be closed prior to lease expiration, which caused a triggering event requiring the Company to evaluate the related long-lived assets for impairment. Associated with these expected closures, the Company incurred a non-cash, pre-tax asset impairment charge of $2.2 million, included in stores and distribution expense, for the thirteen weeks ended July 31, 2010.

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 has store related assets measured at fair value of $16.7 million and $19.3 million on the Condensed Consolidated Balance Sheet at July 31, 2010 and January 30, 2010, respectively.

10. 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):

		July 31, 2010				January 30, 2010
Deferred lease credits		$	556,839			$	546,191
Amortized deferred lease credits			(310,529	)			(290,542	)
Total deferred lease credits, net		$	246,310			$	255,649

11. 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 discrete items. The effective tax rate from continuing operations for the thirteen weeks ended July 31, 2010 was 27.2% expense as compared to a 176.8% expense for the Fiscal 2009 comparable period. The effective tax rate from continuing operations from the twenty-six weeks ended July 31, 2010 was a 6.0% benefit compared to 43.3% expense for the twenty-six weeks ended August 1, 2009. The second quarter Fiscal 2010 rate was favorably impacted by provision-to-return adjustments for certain jurisdictions and the resolution of open tax matters, including the Company’s Advanced Pricing Agreement negotiation that was before the U.S. Competent Authority. The second quarter Fiscal 2009 rate was adversely impacted by a true-up of the estimated annual effective tax rate.

Cash payments of income taxes made during the thirteen weeks ended July 31, 2010 and August 1, 2009 were approximately $14.3 million and $1.0 million, respectively. Cash payments of income taxes made during the twenty-six weeks ended July 31, 2010 and August 1, 2009 were approximately $17.9 million and $18.8 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 July 31, 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 that the full amount of the net deferred tax assets will be realized in the future.

12. 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 July 31, 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 July 31, 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 July 31, 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 $10.4 million and $35.9 million were outstanding on July 31, 2010 and January 30, 2010, respectively. Stand-by letters of credit totaling approximately $14.0 million and $14.1 million were outstanding on July 31, 2010 and January 30, 2010, respectively. The stand-by letters of credit are set to expire primarily during the first quarter of Fiscal 2011. To date, no beneficiary has drawn upon the stand-by letters of credit.

The Company had $53.2 million and $50.9 million outstanding under the Amended Credit Agreement as of July 31, 2010, and January 30, 2010, respectively. The amounts outstanding under the Amended Credit Agreement as of July 31, 2010 and January 30, 2010 were denominated in Japanese Yen. As of July 31, 2010 and January 30, 2010, the Company also had $22.8 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 July 31, 2010, the carrying value of the Company’s long-term debt approximated fair value. Total interest expense was $1.9 million and $2.0 million for the thirteen week periods ended July 31, 2010 and August 1, 2009, respectively, and $3.8 million and $2.8 million for the twenty-six weeks ended July 31, 2010 and August 1, 2009, respectively. The average interest rate for the long-term debt recorded under the Amended Credit Agreement was 2.7% for the thirteen and twenty-six week periods ended July 31, 2010.

On March 6, 2009, the Company entered a secured, uncommitted demand line of credit (the “UBS Credit Line”). The amount available under the UBS Credit Line was subject to adjustment from time-to-time based on the market value of the Company’s UBS ARS as determined by UBS. As a result of UBS acquiring the remaining UBS ARS originally purchased by the Company through UBS and described further in Note 6, “Investments”, the Company terminated the secured, uncommitted demand line of credit with UBS, during the thirteen weeks ended July 31, 2010.

13. DERIVATIVES

The Company is exposed to risks associated with the effect of changes in foreign currency exchange rates and uses derivatives, primarily forward contracts, to manage the financial impacts of these exposures. As of July 31, 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 Income (“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 during the twenty-six weeks ended July 31, 2010. There was no gain or loss reclassified into earnings during the thirteen weeks ended July 31, 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 intercompany 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 July 31, 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 Income (Loss). Substantially all of the remaining unrealized gains or losses related to foreign-currency-denominated inter-company inventory sales that have occurred as of July 31, 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 July 31, 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		$	13,072
British Pound		$	30,829
Euro		$	11,029
Japanese Yen		$	8,379

The location and amounts of derivative fair values on the Condensed Consolidated Balance Sheets as of July 31, 2010 and January 30, 2010 were as follows:

				Asset Derivatives										Liability Derivatives
		Balance Sheet		July 31,				January 30,				Balance Sheet		July 31,				January 30,
(in thousands)		Location		2010				2010				Location		2010				2010
Derivatives Designated as Hedging Instruments:
Foreign Exchange Forward Contracts		Other Current Assets		$	15			$	1,348			Accrued Expenses		$	—			$	—

Refer to Note 7, “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 July 31, 2010 and August 1, 2009 on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) are as follows:

Location of Gain

Location of (Loss)

(Loss)

Amount of

Gain

Amount of (Loss) Gain

Reclassified from

Gain (Loss)

Recognized in

Recognized in Earnings on

Amount of Gain (Loss)

Accumulated

Reclassified from

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)

July 31, 2010

August 1, 2009

July 31, 2010

August 1, 2009

July 31, 2010

August 1, 2009

Derivatives in Cash Flow Hedging Relationships

Foreign Exchange Forward Contracts

$

386

$

(5,550

)

Cost of Goods Sold

$

1,459

$

(393

)

Other Operating Income, Net

$

(7

)

$

236

Twenty-Six Weeks Ended

(in thousands)

July 31, 2010

August 1, 2009

July 31, 2010

August 1, 2009

July 31, 2010

August 1, 2009

Derivatives in Cash Flow Hedging Relationships

Foreign Exchange Forward Contracts

$

1,480

$

(6,162

)

Cost of Goods Sold

$

603

$

1,043

Other Operating Income, Net

$

128

$

2

14. 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 Loss from Discontinued Operations, Net of Tax on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen and twenty-six weeks ended August 1, 2009. Results from discontinued operations were immaterial for the thirteen and twenty-six weeks ended July 31, 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 July 31, 2010 related to the closure of RUEHL branded stores and related direct-to-consumer operations (in millions):

		Twenty-Six Weeks Ended
		July 31, 2010
Beginning Balance		$	46.1
Interest Accretion / Other, Net			(0.3	)
Cash Payments			(20.5	)
Ending Balance(1)		$	25.3

(1)

Ending balance primarily reflects the net present value of obligations due under signed lease termination agreements and obligations due under a lease, for which no agreement exists, less estimated sublease income. As of July 31, 2010, there were $19.5 million of lease termination charges recorded as a current liability in Accrued Expenses and $5.8 million of lease termination charges recorded as a long-term liability in Other Liabilities on the Condensed Consolidated Balance Sheet.

15. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

Effective February 2, 2003, the Company established a Chief Executive Officer Supplemental Executive Retirement Plan (the “SERP”) to provide additional retirement income to its Chairman and Chief Executive Officer (“CEO”). Subject to service requirements, the CEO will receive a monthly benefit equal to 50% of his final average compensation (as defined in the SERP) for life. The final average compensation used for the calculation is based on actual compensation, base salary and cash incentive compensation, averaged over the last 36 consecutive full calendar months ending before the CEO’s retirement. The Company recorded expense of $2.0 million and $1.9 million for the thirteen and twenty-six weeks ended July 31, 2010, respectively, associated to the SERP. The Company recorded expense of $0.6 million and income of $0.1 million for the thirteen and twenty-six weeks ended August 1, 2009, respectively, associated to the SERP.

The expense for the thirteen weeks ended July 31, 2010, included an expense of $2.1 million to correct a cumulative under accrual of the SERP relating to prior periods, primarily Fiscal 2008. The Company does not believe this correction was material to the periods affected.

16. 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 then continued 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, 2010 trial date previously set by the Court. On July 20, 2010, the trial court vacated the trial date and defendants then moved to decertify the putative class.

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, 2010, the parties reached an agreement in principle to settle the consolidated cases as a class action, subject to Court approval. Under the agreement in principal, the entire settlement payment of $12 million will be paid by A&F’s insurers. A hearing will be held on September 24, 2010 to enable the District Court to determine whether the proposed settlement is fair, reasonable and adequate and should be approved and effected and whether the class action should therefore be dismissed.

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 argued and is awaiting decision. 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.

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 July 31, 2010 and the related condensed consolidated statements of operations and comprehensive income (loss) for each of the thirteen and twenty-six week periods ended July 31, 2010 and August 1, 2009 and the condensed consolidated statements of cash flows for the twenty-six week periods ended July 31, 2010 and August 1, 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

September 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 and direct-to-consumer operations 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 second quarter of Fiscal 2010, net sales increased 17% to $745.8 million from $637.2 million in the second quarter of Fiscal 2009. Operating income was $27.6 million in the second quarter of Fiscal 2010, compared to $8.9 million in the second quarter of Fiscal 2009. The Company had net income of $19.5 million in the second quarter of Fiscal 2010 compared to a net loss of $26.7 million in the second quarter of Fiscal 2009. Net income per diluted share was $0.22 in the second quarter of Fiscal 2010 compared to net loss per basic and diluted share of $0.30 in the second quarter of Fiscal 2009. Fiscal 2010 second quarter net income per diluted share included a non-cash asset impairment charge associated with expected store closures of $0.02 per diluted share. Fiscal 2009 second quarter net loss per basic and diluted share included a net loss of $0.21 per basic and diluted share from discontinued operations. Results from discontinued operations were immaterial for the second quarter of Fiscal 2010.

During the Fiscal 2010 year-to-date period, net sales increased 16% to $1.434 billion from $1.239 billion in Fiscal 2009. Operating income was $8.8 million in the Fiscal 2010 year-to-date period, compared to an operating loss of $25.0 million in Fiscal 2009. The Company had net income of $7.7 million in the Fiscal 2010 year-to-date period compared to a net loss of $86.0 million in Fiscal 2009. Net income per diluted share was $0.09 in the Fiscal 2010 year-to-date period compared to net loss per basic and diluted share of $0.98 in Fiscal 2009. Fiscal 2010 year-to-date net income per diluted share included a non-cash asset impairment charge associated with expected store closures of $0.02 per diluted share. Fiscal 2009 year-to-date net loss per basic and diluted share included a net loss of $0.62 per basic and diluted share from discontinued operations. Results from discontinued operations were immaterial for the Fiscal 2010 year-to-date period.

Net cash used for operating activities was $21.7 million for the twenty-six weeks ended July 31, 2010. In addition, the Company used $59.8 million of cash for capital expenditures and paid dividends totaling $30.8 million during the twenty-six weeks ended July 31, 2010. As of July 31, 2010, the Company had $613.6 million in cash and equivalents and outstanding debt and letters of credit of $77.6 million, compared to $366.5 million in cash and equivalents and outstanding debt and letters of credit of $79.6 million as of August 1, 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 Income (Loss) for the thirteen and twenty-six week periods ended July 31, 2010 and August 1, 2009, expressed as a percentage of net sales:

		Thirteen Weeks Ended								Twenty-Six Weeks Ended
		July 31, 2010				August 1, 2009				July 31, 2010				August 1, 2009
NET SALES			100.0	%			100.0	%			100.0	%			100.0	%
Cost of Goods Sold			34.9	%			33.4	%			36.1	%			34.9	%
GROSS PROFIT			65.1	%			66.6	%			63.9	%			65.1	%
Stores and Distribution Expense			48.9	%			52.1	%			50.1	%			53.5	%
Marketing, General and Administrative Expense			12.8	%			13.6	%			13.4	%			14.0	%
Other Operating Income, Net			(0.3	)%			(0.5	)%			(0.2	)%			(0.4	)%
OPERATING INCOME (LOSS)			3.7	%			1.4	%			0.6	%			(2.0	)%
Interest Expense (Income), Net			0.1	%			(0.3	)%			0.1	%			(0.3	)%
Income (Loss) from Continuing Operations before Taxes			3.6	%			1.7	%			0.5	%			(1.8	)%
Tax Expense from Continuing Operations			1.0	%			3.0	%			0.0	%			0.8	%
Net Income (Loss) from Continuing Operations			2.6	%			(1.3	)%			0.5	%			(2.5	)%
Net Loss from Discontinued Operations (net of taxes)			—				(2.9	)%			—				(4.4	)%
NET INCOME (LOSS)			2.6	%			(4.2	)%			0.5	%			(6.9	)%

Financial Summary

The following summarized financial and statistical data compare the thirteen and twenty-six week periods ended July 31, 2010 to the thirteen and twenty-six week periods ended August 1, 2009:

		Thirteen Weeks Ended								Twenty-Six Weeks Ended
		July 31, 2010				August 1, 2009				July 31, 2010				August 1, 2009
Net sales by brand (in millions)		$	745.8			$	637.2			$	1,433.6			$	1,239.0
Abercrombie & Fitch		$	335.6			$	285.3			$	639.3			$	550.0
abercrombie		$	79.1			$	71.4			$	157.8			$	140.6
Hollister		$	322.2			$	274.3			$	620.4			$	536.7
Gilly Hicks		$	8.9			$	6.2			$	16.1			$	11.7
Increase (decrease) in net sales from prior year			17	%			(24	)%			16	%			(24	)%
Abercrombie & Fitch			18	%			(26	)%			16	%			(26	)%
abercrombie			11	%			(25	)%			12	%			(26	)%
Hollister			17	%			(22	)%			16	%			(21	)%
Gilly Hicks			44	%			48	%			38	%			61	%
Increase (decrease) in comparable store sales*			5	%			(30	)%			3	%			(30	)%
Abercrombie & Fitch			8	%			(27	)%			6	%			(26	)%
abercrombie			3	%			(29	)%			4	%			(31	)%
Hollister			2	%			(33	)%			0	%			(32	)%
Net store sales per average store (in thousands)		$	610			$	532			$	1,165			$	1,029
Abercrombie & Fitch		$	858			$	718			$	1,621			$	1,376
abercrombie		$	340			$	306			$	673			$	600
Hollister		$	557			$	502			$	1,067			$	976
Net store sales per average gross square foot		$	85			$	75			$	163			$	145
Abercrombie & Fitch		$	96			$	81			$	181			$	155
abercrombie		$	72			$	66			$	143			$	130
Hollister		$	81			$	74			$	156			$	144
Change in transactions per average store			19	%			(22	)%			18	%			(24	)%
Abercrombie & Fitch			17	%			(22	)%			16	%			(22	)%
abercrombie			16	%			(20	)%			16	%			(23	)%
Hollister			20	%			(23	)%			18	%			(26	)%
Change in average store transaction value			(4	)%			(9	)%			(4	)%			(6	)%
Abercrombie & Fitch			2	%			(7	)%			2	%			(6	)%
abercrombie			(4	)%			(9	)%			(3	)%			(8	)%
Hollister			(8	)%			(7	)%			(7	)%			(5	)%