Abercrombie & Fitch keeps cash levels high, liquidity at $1.1 billion

By Devika Patel

Knoxville, Tenn., Aug. 27 – Abercrombie & Fitch Co. plans to keep its cash balances high amid the uncertainty stemming from the Covid-19 pandemic.

The company sold a $350 million issue of 8¾% five-year senior secured notes (Ba2/BB-) in June, which helped it raise about $1.1 billion of liquidity at quarter-end, while paying off some near-term maturities.

“Our balance sheet remains strong,” senior vice president and chief financial officer Scott Lipesky said on the company’s second quarter ended Aug. 1 earnings conference call on Thursday.

“We plan on holding higher than average cash balances to preserve flexibility in an uncertain environment,” he said.

The company’s recent debt offering pushed near-term maturities out to 2025, Lipesky said.

“In July, we completed the issuance of $350 million of senior secured notes, which will mature in 2025,” he said.

“These proceeds were used to repay any obligations under the term loan and ABL facility as well as for related fees.

“The transaction extinguished our term loan facility which were set to mature in 2021, improving our near-term liquidity position,” Lipesky said.

The company had excellent operating income and operating cash flow, which helped contributed to the approximately $1.1 billion of liquidity it held at quarter-end.

“We achieved our best second quarter operating income since 2014,” Lipesky said.

“As an unwavering focus maintaining on strong liquidity, we generated $187 million of operating cash flow, ending the quarter with $767 million of cash and equivalents and approximately $1.1 billion of liquidity,” chief executive officer Fran Horowitz said on the call.

“This empowered us to make quick and strategic near-term decisions while continuing to fund critical long-term investments in future growth,” Horowitz said.

The good liquidity led to a “great” balance sheet, Lipesky said.

“We just did a financing last quarter to clear up some near-term maturities, so we’re in a nice position. We have nice flexibility,” he said.

The company’s leader is pleased with its financial flexibility, which it will use to fuel long-term growth.

“We have a solid foundation, [we have] a strong balance sheet and continue to leverage our financial flexibility to invest in the long-term and further strengthen our position as a diversified global omnichannel retailer,” Horowitz said.

Cash and equivalents were $766,721,000 at quarter-end. This compares to cash and equivalents of $671,267,000 as of Feb. 1, 2020 and $499,757,000 as of Aug. 3, 2019.

The company has $295 million of availability under its senior-secured asset-based revolving credit facility.

Net long-term borrowings were $343.25 million at quarter-end. This compares to net long-term borrowings of $231,963,000 as of Feb. 1, 2020 and $251,033,000 as of Aug. 3, 2019.

On June 18, Abercrombie & Fitch Management Co. priced an upsized $350 million issue of five-year senior secured notes at par to yield 8¾%.

Bookrunners were Wells Fargo Securities LLC, J.P Morgan Securities LLC and Morgan Stanley & Co. LLC.

The issue size increased from $300 million.

The yield printed at the tight end of the 8¾% to 9% yield talk. Initial guidance was in the 9% area.

The New Albany, Ohio-based retailer, which is focused on casual wear, earmarked the proceeds to refinance its term loan B, to pay down its revolving credit facility and for general corporate purposes.

On July 2, Abercrombie & Fitch Management repaid all $233 million of outstanding borrowings under its existing senior secured term loan facility and a portion of outstanding borrowings under its senior secured asset-based revolving credit facility using proceeds from the $350 million issue of notes.

The remainder of the revolver was paid with cash on hand.

Proceeds from the note offering were also used to pay expenses in connection with the repayments.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.