ABERCROMBIE & FITCH CO /DE/ANF
ABERCROMBIE & FITCH CO /DE/ Income Taxes Disclosure
INCOME TAXES
One Big Beautiful Bill Act
On July 4, 2025, House Resolution 1, also known as the One Big Beautiful Bill Act (“OBBBA”), was signed into law. The OBBBA includes, among other provisions, changes to U.S. corporate income tax law impacting the taxation of domestic and international business operations, including permanently extending certain expiring provisions of the Tax Cuts and Jobs Act of 2017, restoration of accelerated depreciation on capital expenditures, deductible research and experimental expenditures, and modifications to the international tax framework. The enactment of the OBBBA did not have a material impact on the Company’s consolidated financial statements and disclosures.
Impact of valuation allowances and other tax benefits during Fiscal 2025
During Fiscal 2025, the Company did not recognize income tax benefits on $74.9 million of pre-tax losses, primarily in Switzerland, resulting in adverse tax impacts of $11.9 million.
As of January 31, 2026, the Company had foreign net deferred tax assets of approximately $35.1 million, including $13.2 million, and $11.7 million, in the United Kingdom and China, respectively. While the Company believes that these net deferred tax assets are more-likely-than-not to be realized, it is not a certainty, as the Company continues to evaluate and respond to situations as they emerge. Should circumstances change, the net deferred tax assets may become subject to additional valuation allowances in the future. Additional valuation allowances would result in additional tax expense.
Impact of valuation allowances and other tax benefits during Fiscal 2024
During Fiscal 2024, the Company did not recognize income tax benefits on $53.8 million of pre-tax losses, primarily in Switzerland, resulting in adverse tax impacts of $8.2 million.
As of February 1, 2025, the Company had foreign net deferred tax assets of approximately $35.7 million, including $13.4 million and $8.2 million in the United Kingdom and China, respectively.
Impact of valuation allowances and other tax charges during Fiscal 2023
During Fiscal 2023, the Company did not recognize income tax benefits on $103.0 million of pre-tax losses, primarily in Switzerland, resulting in adverse tax impacts of $15.6 million.
Components of income taxes
Income before income taxes consisted of:
| (in thousands) | Fiscal 2025 | Fiscal 2024 | Fiscal 2023 | ||||||||||||||
Domestic (1) | $ | 754,175 | $ | 757,835 | $ | 526,967 | |||||||||||
| Foreign | (33,403) | 10,842 | (42,668) | ||||||||||||||
| Income before income taxes | $ | 720,772 | $ | 768,677 | $ | 484,299 | |||||||||||
(1) Includes intercompany charges to foreign affiliates for management fees, cost-sharing, royalties and interest and excludes a portion of foreign income that is currently includable on the U.S. federal income tax return.
Income tax expense consisted of:
| (in thousands) | Fiscal 2025 | Fiscal 2024 | Fiscal 2023 | ||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 113,733 | $ | 150,061 | $ | 113,765 | |||||||||||
| State | 38,061 | 40,942 | 32,299 | ||||||||||||||
| Foreign | 12,605 | 15,936 | 7,565 | ||||||||||||||
| Total current | $ | 164,399 | $ | 206,939 | $ | 153,629 | |||||||||||
| Deferred: | |||||||||||||||||
Federal | $ | 33,145 | $ | (11,664) | $ | (9,160) | |||||||||||
| State | 4,716 | (834) | (1,196) | ||||||||||||||
Foreign | 3,517 | 220 | 5,613 | ||||||||||||||
| Total deferred | 41,378 | (12,278) | (4,743) | ||||||||||||||
| Income tax expense | $ | 205,777 | $ | 194,661 | $ | 148,886 | |||||||||||
The Company’s earnings and profits from its foreign subsidiaries could be repatriated to the U.S. without incurring additional federal income tax. The Company determined that the balance of the Company’s undistributed earnings and profits from its foreign subsidiaries as of February 2, 2019, are considered indefinitely reinvested outside of the U.S., and if these funds were to be repatriated to the U.S., the Company would expect to incur an insignificant amount of state income taxes and foreign withholding taxes. The Company accrues for both state income taxes and foreign withholding taxes with respect to earnings and profits earned after February 2, 2019, in such a manner that these funds may be repatriated without incurring additional tax expense.
Reconciliation between the statutory federal income tax rate and the effective tax rate is as follows:
| Fiscal 2025 | Fiscal 2024 | Fiscal 2023 | ||||||||||||||||||||||||||||||||||||
Amount | % | Amount | % | Amount | % | |||||||||||||||||||||||||||||||||
U.S. Federal statutory tax rate | $ | 151,362 | 21.0 | % | $ | 161,422 | 21.0 | % | $ | 101,703 | 21.0 | % | ||||||||||||||||||||||||||
State and local income taxes, net of Federal income tax effect (1) | 33,331 | 4.6 | 31,234 | 4.0 | 23,983 | 5.0 | ||||||||||||||||||||||||||||||||
| Foreign tax effects | ||||||||||||||||||||||||||||||||||||||
Switzerland | ||||||||||||||||||||||||||||||||||||||
| Statutory tax rate difference | 9,164 | 1.3 | 6,955 | 0.9 | 12,765 | 2.6 | ||||||||||||||||||||||||||||||||
| Changes in valuation allowances | 5,444 | 0.7 | 4,135 | 0.5 | 7,589 | 1.6 | ||||||||||||||||||||||||||||||||
| Other | 53 | — | 142 | — | (194) | — | ||||||||||||||||||||||||||||||||
| Other foreign jurisdictions | 8,096 | 1.1 | 2,741 | 0.4 | 2,184 | 0.4 | ||||||||||||||||||||||||||||||||
| Tax credits | (2,229) | (0.3) | (1,922) | (0.2) | (3,300) | (0.7) | ||||||||||||||||||||||||||||||||
| Nontaxable or nondeductible items | ||||||||||||||||||||||||||||||||||||||
| Internal Revenue Code Section 162(m) | 3,592 | 0.5 | 5,429 | 0.7 | 6,005 | 1.2 | ||||||||||||||||||||||||||||||||
| Share-based payment awards | (5,059) | (0.7) | (17,833) | (2.3) | (1,843) | (0.4) | ||||||||||||||||||||||||||||||||
| Other | (101) | — | 282 | — | (151) | — | ||||||||||||||||||||||||||||||||
Changes in unrecognized tax benefits | 1,422 | 0.2 | 2,177 | 0.3 | 589 | 0.1 | ||||||||||||||||||||||||||||||||
Other adjustments | 702 | 0.1 | (101) | — | (444) | (0.1) | ||||||||||||||||||||||||||||||||
Effective tax rate | $ | 205,777 | 28.5 | % | $ | 194,661 | 25.3 | % | $ | 148,886 | 30.7 | % | ||||||||||||||||||||||||||
(1) State and local taxes in made up the majority (greater than 50%) of the tax effect in this category.
For certain years, the impact of various tax items on the Company's effective tax rate were amplified on a percentage basis at lower levels of consolidated pre-tax income (loss) in absolute dollars. The effective tax rate remains sensitive to jurisdictional mix. The taxation of non-U.S. operations line items in the table above excludes items related to the Company's non-U.S. operations reported separately in the appropriate corresponding line items.
For Fiscal 2025, Fiscal 2024, and Fiscal 2023, the impact of taxation of non-U.S. operations on the Company's effective income tax rate was related to the Company's jurisdictional mix driven primarily by the Company’s operations within Switzerland.
Components of deferred income tax assets and deferred income tax liabilities
The effect of temporary differences that give rise to deferred income tax assets (liabilities) were as follows:
| (in thousands) | January 31, 2026 | February 1, 2025 | |||||||||
| Deferred income tax assets: | |||||||||||
| Operating lease liabilities | $ | 292,708 | $ | 241,873 | |||||||
Intangibles, foreign step-up in basis | 66,977 | 58,755 | |||||||||
| Net operating losses (NOL), tax credit and other carryforwards | 111,804 | 91,995 | |||||||||
| Accrued expenses and reserves | 36,150 | 35,402 | |||||||||
| Deferred compensation | 18,759 | 18,275 | |||||||||
| Inventory | 14,069 | 9,996 | |||||||||
| Property and equipment and intangibles | — | 1,129 | |||||||||
| Other | 2,758 | 5,480 | |||||||||
| Valuation allowances | (184,785) | (151,810) | |||||||||
| Total deferred income tax assets | $ | 358,440 | $ | 311,095 | |||||||
| Deferred income tax liabilities: | |||||||||||
| Operating lease right-of-use assets | $ | (272,314) | $ | (223,384) | |||||||
| Prepaid expenses | (2,668) | (2,809) | |||||||||
| Store supplies | (1,866) | (1,835) | |||||||||
| Undistributed profits of non-U.S. subsidiaries | (1,465) | (1,400) | |||||||||
| Property and equipment and intangibles | (35,197) | — | |||||||||
| Other | (5,230) | (2,340) | |||||||||
| Total deferred income tax liabilities | $ | (318,740) | $ | (231,768) | |||||||
| Net deferred income tax assets | $ | 39,700 | $ | 79,327 | |||||||
As of January 31, 2026, the Company had deferred tax assets related to foreign and state NOL and credit carryforwards of $111.2 million and $0.6 million, respectively, that could be utilized to reduce future years’ tax liabilities. If not utilized, a portion of the foreign NOL carryforwards will begin to expire in Fiscal 2026 and a portion of state NOL carryforwards will begin to expire in Fiscal 2034. Some foreign NOLs have an indefinite carryforward period. As of January 31, 2026, the Company did not have any deferred tax assets related to federal NOL and credit carryforwards that could be utilized to reduce future years’ tax liabilities.
The valuation allowances for Fiscal 2025 and 2024 were $184.8 million and $151.8 million, respectively. The valuation allowances as of Fiscal 2025 have been established against deferred tax assets, primarily in Switzerland. All valuation allowances have been reflected through the Consolidated Statements of Operations and Comprehensive Income. The valuation allowances will remain until there is sufficient positive evidence to release them, such positive evidence would include having positive income within the jurisdiction. In such case, the Company will record an adjustment in the period in which a determination is made. The Company continues to review the need for valuation allowances on a quarterly basis.
Share-based compensation
Refer to Note 14, “SHARE-BASED COMPENSATION,” for details on income tax benefits and charges related to share-based compensation awards during Fiscal 2025, Fiscal 2024 and Fiscal 2023.
Other
The Company intends to continue to invest all of the earnings of foreign subsidiaries, as well as its capital in these subsidiaries outside of the U.S., and the Company does not expect to incur any significant additional taxes related to such amounts.
Net cash paid (refunds received) for income taxes consisted of the following:
| (in thousands) | Fiscal 2025 | Fiscal 2024 | Fiscal 2023 | |||||||||||||||||
Federal | $ | 136,869 | $ | 160,554 | $ | 84,791 | ||||||||||||||
State and local jurisdictions | 38,310 | 43,413 | 29,132 | |||||||||||||||||
Foreign | 14,607 | 13,185 | 4,682 | |||||||||||||||||
Net cash paid (refunds received) for income taxes | $ | 189,786 | $ | 217,152 | $ | 118,605 | ||||||||||||||
The IRS is currently conducting an examination of the Company’s U.S. federal income tax returns for Fiscal 2025 and 2024 as part of the IRS’ Compliance Assurance Process program. The IRS examinations for Fiscal 2022 and prior years have been completed. State and foreign returns are generally subject to examination for a period of three to five years after the filing of the respective return. The Company typically has various state and foreign income tax returns in the process of examination, administrative appeals or litigation. The outcome of the examinations is not expected to have a material impact on the Company’s financial statements. The Company believes that some of these audits and negotiations will conclude within the next 12 months and that it is reasonably possible the amount of uncertain income tax positions, including interest, may change by an immaterial amount due to settlement of audits and expiration of statues of limitations.
Refer to Note 2, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Income Taxes,” for discussion regarding significant accounting policies related to the Company’s income taxes.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | Mar 26, 2026 | Showing above |
| 2025 | Mar 31, 2025 | |
| 2024 | Apr 1, 2024 | |
| 2023 | Mar 27, 2023 | |
| 2022 | Mar 28, 2022 | |
| 2021 | Mar 29, 2021 | |
| 2020 | Mar 31, 2020 | |
| 2019 | Apr 1, 2019 | |
| 2018 | Apr 2, 2018 | |
| 2017 | Mar 27, 2017 | |
| 2016 | Mar 28, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.