Abercrombie & Fitch 2014 Annual Report Download - page 29

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29
Other Operating Income, Net
Other operating income, net was $15.2 million for Fiscal 2014 compared to other operating income, net of $23.1 million for Fiscal
2013. Other operating income, net included income of $10.2 million related to insurance recoveries and $5.8 million related to
gift card breakage, partially offset by losses of $2.0 million related to foreign currency transactions for Fiscal 2014, compared to
income of $9.0 million related to insurance recoveries, income of $8.8 million related to gift card breakage and gains of $2.9
million related to foreign currency transactions for Fiscal 2013.
Operating Income
Operating income was $113.5 million for Fiscal 2014 compared to operating income of $80.8 million for Fiscal 2013. Adjusted
non-GAAP operating income was $191.7 million for Fiscal 2014 compared to adjusted non-GAAP operating income of $222.9
million for Fiscal 2013, excluding pre-tax charges for Gilly Hicks restructuring, asset impairment, store closures, lease terminations,
CEO transition costs, corporate governance matters, and the profit improvement initiative for Fiscal 2014 and Fiscal 2013 of $78.2
million and $142.1 million, respectively. The decrease in adjusted non-GAAP operating income excluding the specified charges
was primarily driven by the deleveraging effect of negative comparable store sales, both U.S. and international, and investment
in direct-to-consumer operations partially offset by expense reductions primarily related to the Company's profit improvement
initiative.
U.S. Stores operating income was $261.4 million for Fiscal 2014 compared to $194.6 million for Fiscal 2013. The increase in
U.S. Stores operating income for Fiscal 2014 was primarily due to a year-over-year decrease of $88.8 million in charges related
to the restructuring of the Gilly Hicks brand, the Company's profit improvement initiative and asset impairment, as well as expense
reductions related to the Company's profit improvement initiative, partially offset by a 9% decrease in comparable U.S. Stores
sales, which had a deleveraging effect.
International Stores operating income was $204.3 million for Fiscal 2014 compared to $249.3 million for Fiscal 2013. The decrease
in International Stores operating income for Fiscal 2014 was primarily due to an 18% decrease in comparable International Stores
sales, which had a deleveraging effect and incremental charges of $10.3 million for Fiscal 2014 as compared to Fiscal 2013 related
to the restructuring of the Gilly Hicks brand and asset impairment, partially offset by expense reductions primarily related to the
Company's profit improvement initiative and net opening of 7 stores.
Direct-to-Consumer operating income was $269.6 million for Fiscal 2014 compared to $295.0 million for Fiscal 2013. The decrease
in Direct-to-Consumer operating income was primarily due to increased digital marketing and shipping expenses, partially offset
by a 7% increase in Direct-to-Consumer net sales.
Operating loss not attributable to a segment ("Other") was $621.8 million for Fiscal 2014 compared to $658.0 million for Fiscal
2013. The decrease in Other operating loss was attributable to expense reductions primarily related to the Company's profit
improvement initiative, which was partially offset by incremental charges of $14.3 million related to certain corporate governance
matters, asset impairment and the Company's profit improvement initiative.
Interest Expense, Net and Tax Expense
Interest expense was $18.3 million, partially offset by interest income of $3.9 million, for Fiscal 2014, compared to interest
expense of $11.1 million, partially offset by interest income of $3.6 million, for Fiscal 2013. The increase in interest expense was
primarily due to a higher principal balance and interest rate on debt outstanding in Fiscal 2014.
The effective tax rate was 47.7% for Fiscal 2014 compared to 25.5% for Fiscal 2013. The increase in effective tax rate for Fiscal
2014 was primarily driven by an unfavorable change in the mix of earnings on a jurisdictional basis, a $6.1 million valuation
allowance established in Fiscal 2014 for net operating loss carryforwards for which the Company has determined based on the
currently available evidence it is more likely than not that the associated deferred tax asset will not be realized, as well as a benefit
of $6.7 million in Fiscal 2013 resulting from the settlement of certain state tax audits and other discrete matters.
Excluding the effect of excluded charges, detailed in the GAAP to non-GAAP financial measures reconciliation provided under
"OVERVIEW," the Company's effective tax rate was 36.7% for Fiscal 2014 compared to 30.1% for Fiscal 2013.