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Fair Value Measurements | 6 Months Ended
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Aug. 03, 2024
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair Value Measurements Authoritative guidance defines fair value as 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 guidance establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels as follows: Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that can be accessed at the measurement date. Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e. interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). Level 3—Unobservable inputs that reflect assumptions about what market participants would use in pricing the asset or liability. These inputs are based on the best information available, including the Company’s own data. The following presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis (in thousands):
|  | Fair Value Measurements |  | Fair Value Measurements
|  | at Aug 3, 2024 |  | at Feb 3, 2024
Recurring Fair Value Measures |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange currency contracts |  | $ | — |  |  | $ | 990 |  |  | $ | — |  |  | $ | 990 |  |  | $ | — |  |  | $ | 2,278 |  |  | $ | — |  |  | $ | 2,278 |
2028 Bond Hedge |  | — |  |  | — |  |  | 86,446 |  |  | 86,446 |  |  | — |  |  | — |  |  | 85,918 |  |  | 85,918 |
Interest rate swap |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 797 |  |  | — |  |  | 797 |
Total |  | $ | — |  |  | $ | 990 |  |  | $ | 86,446 |  |  | $ | 87,436 |  |  | $ | — |  |  | $ | 3,075 |  |  | $ | 85,918 |  |  | $ | 88,993 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange currency contracts |  | $ | — |  |  | $ | 1,015 |  |  | $ | — |  |  | $ | 1,015 |  |  | $ | — |  |  | $ | 1,702 |  |  | $ | — |  |  | $ | 1,702 |
Embedded derivative |  | — |  |  | — |  |  | 18,900 |  |  | 18,900 |  |  | — |  |  | — |  |  | 16,390 |  |  | 16,390 |
Deferred compensation obligations |  | — |  |  | 18,580 |  |  | — |  |  | 18,580 |  |  | — |  |  | 17,164 |  |  | — |  |  | 17,164 |
Total |  | $ | — |  |  | $ | 19,595 |  |  | $ | 18,900 |  |  | $ | 38,495 |  |  | $ | — |  |  | $ | 18,866 |  |  | $ | 16,390 |  |  | $ | 35,256 |
Foreign exchange currency contracts may be entered into by the Company to hedge the future payment of inventory and intercompany transactions by non-U.S. subsidiaries. Periodically, the Company may also use foreign exchange currency contracts to hedge the translation and economic exposures related to its net investments in certain of its international subsidiaries. The fair values of the Company’s foreign exchange currency contracts are based on quoted foreign exchange forward rates at the reporting date. The fair values of the Company’s interest rate swaps are based upon inputs corroborated by observable market data. Deferred compensation obligations to employees are adjusted based on changes in the fair value of the underlying employee-directed investments. Fair value of these obligations is based upon inputs corroborated by observable market data. The fair values of the embedded derivative and the 2028 Bond Hedge related to the Additional 2028 Notes were initially measured based on the observed transactions. Subsequent fair values are measured using a binomial lattice model utilizing observable inputs (e.g. the Company’s stock price) and unobservable inputs (e.g. the expected volatility and instrument specific credit spread) that cause the valuation measurements to be classified as Level 3. The following assumptions were used within the model:
Valuation Assumptions |  | Aug 3, 2024 |  | Feb 3, 2024
Expected volatility |  | 30 | % |  | 30 | %
Risk-free interest rate |  | 3.7 | % |  | 4.1 | %
Credit spread |  | 2.7 | % |  | 4.3 | %
Dividend yield |  | 5.3 | % |  | 5.2 | %
Term to maturity |  | 3.7 years |  | 4.2 years
Stock price |  | $ | 22.43 |  |  | $ | 22.86 |
As of August 3, 2024, if the expected volatility were increased to 40%, keeping all other inputs constant, the fair value of the embedded derivative would increase from $18.9 million to $24.4 million and the fair value of the 2028 Bond Hedge would increase from $86.4 million to $111.7 million. If the expected volatility were decreased to 20%, the fair value of the embedded derivative would decrease from $18.9 million to $13.2 million and the fair value of the 2028 Bond Hedge would decrease from $86.4 million to $60.3 million. If the credit spread increased from 2.7% to 3.7%, keeping all other inputs constant, the fair value of the embedded derivative would increase from $18.9 million to $19.7 million and the fair value of the 2028 Bond Hedge would increase from $86.4 million to $90.0 million. If the credit spread decreased from 2.7% to 1.7%, the fair value of the embedded derivative would decrease from $18.9 million to $18.1 million and the fair value of the 2028 Bond Hedge would decrease from $86.4 million to $82.8 million. The following presents a reconciliation of the Company’s financial assets and liabilities measured at fair value as of August 3, 2024, using significant unobservable inputs (Level 3), and the change in fair value recorded in other income (expense), net in the consolidated statements of income (loss) (in thousands):
| Embedded Derivative |  | 2028 Bond Hedge
Balance as of February 3, 2024 | $ | (16,390) |  |  | $ | 85,918 |
Initial bifurcation of embedded derivative | (6,538) |  |  | — |
Purchase of Additional 2028 Bond Hedge | — |  |  | 6,538 |
Gain (loss) on fair value remeasurement | 4,028 |  |  | (6,010) |
Balance as of August 3, 2024 | $ | (18,900) |  |  | $ | 86,446 |
The Company included €8.0 million ($8.7 million) and €7.1 million ($7.7 million) in other assets in the Company’s condensed consolidated balance sheets related to its investment in certain private equity funds as of August 3, 2024 and February 3, 2024, respectively. The Company uses net asset value per share as a practical expedient to measure the fair value of this investment and has not included this investment in the fair value hierarchy as disclosed above. As of August 3, 2024, the Company had an unfunded commitment to invest an additional €3.7 million ($4.0 million) in the private equity funds. The fair values of the Company’s debt instruments (see Note 10) are based on the amount of future cash flows associated with each instrument discounted using the Company’s incremental borrowing rate. As of August 3, 2024 and February 3, 2024, the carrying value was not materially different from fair value, as the interest rates on the Company’s debt approximated rates currently available to the Company. The fair value of the Company’s Notes (see Note 11) is determined based on inputs that are observable in the market and have been classified as Level 2 in the fair value hierarchy. The carrying amount of the Company’s remaining financial instruments, which principally include cash and cash equivalents, trade receivables, accounts payable and accrued expenses, approximates fair value due to the relatively short maturity of such instruments. Long-Lived Assets Long-lived assets, such as property and equipment and operating lease ROU assets, are reviewed for impairment quarterly or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The majority of the Company’s long-lived assets relate to its retail operations, which consist primarily of regular retail and flagship locations. The Company considers each individual regular retail location as an asset group for impairment testing, which is the lowest level at which individual cash flows can be identified. The Company also evaluates impairment risk for retail locations that are expected to be closed in the foreseeable future. The Company has flagship locations that are used as a regional marketing tool to build brand awareness and promote the Company’s current product. Provided the flagship locations continue to meet the appropriate criteria, impairment for these locations is tested at a reporting unit level similar to goodwill since they do not have separately identifiable cash flows. An asset is considered to be impaired if the Company determines that the carrying value may not be recoverable based upon its assessment of the asset’s ability to continue to generate earnings from operations and positive cash flow in future periods or if significant changes in the Company’s strategic business objectives and utilization of the assets occurred. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows adjusted for lease payments, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the estimated fair value. The Company uses estimates of market participant rents to calculate fair value of ROU assets and discounted future cash flows of the asset group to quantify fair value for other long-lived assets. These nonrecurring fair value measurements are considered Level 3 inputs as defined above. The impairment loss calculations require management to apply judgment in estimating future cash flows and the discount rates that reflect the risk inherent in future cash flows. Future expected cash flows for assets in regular retail locations are based on management’s estimates of future cash flows over the remaining lease period or expected life, if shorter. For expected location closures, the Company will evaluate whether it is necessary to shorten the useful life for any of the assets within the respective asset group. The Company will use this revised useful life when estimating the asset group’s future cash flows. The Company considers historical trends, expected future business trends and other factors when estimating the future cash flow for each regular retail location. The Company also considers factors such as the following: the Russia-Ukraine war, including the related sanctions and trade restrictions imposed on Russia; the local environment for each regular retail location, including mall traffic and competition; the Company’s ability to successfully implement strategic initiatives; and the ability to control variable costs such as cost of sales and payroll and, in some cases, renegotiate lease costs. As discussed further in Note 1, macroeconomic conditions, including declines in consumer spending, inflation, higher interest rates, foreign exchange rate fluctuations and the impact of the ongoing wars in Ukraine and Gaza continued to negatively impact the Company’s financial results during the three and six months ended August 3, 2024 and July 29, 2023, and could continue to impact the Company’s operations in ways the Company is not able to predict today. The Company has made reasonable assumptions and judgments to determine the fair value of the assets tested based on the facts and circumstances that were available as of the reporting date. If actual results are not consistent with the assumptions and judgments used in estimating future cash flows and asset fair values, there may be additional exposure to future impairment losses that could be material to the Company’s results of operations. The Company recorded asset impairment charges of $2.3 million and $3.4 million during the three and six months ended August 3, 2024, respectively. The Company recorded asset impairment charges of $2.6 million and $4.6 million during the three and six months ended July 29, 2023, respectively. The Company recognized $2.0 million and $2.9 million in impairment of property and equipment during the three and six months ended August 3, 2024, respectively, related to certain retail locations primarily in the Americas and Europe driven by under-performance and expected store closures. The Company recognized $2.5 million and $4.5 million in impairment of property and equipment related to certain retail locations primarily in Americas and Europe during the three and six months ended July 29, 2023, respectively. The Company recognized $0.3 million and $0.5 million impairment charges on ROU assets during the three and six months ended August 3, 2024, respectively, and immaterial impairment charges on ROU assets during each of the three and six months ended July 29, 2023, respectively. Goodwill Goodwill is tested annually for impairment or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. This determination is made at the reporting unit level which may be either an operating segment or one level below an operating segment if discrete financial information is available. Two or more reporting units within an operating segment may be aggregated for impairment testing if they have similar economic characteristics. During the three months ended August 3, 2024, the Company assessed qualitative factors and determined that it is not more likely than not that the fair values of its reporting units are less than their carrying amounts.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 107 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-107 Reference 2: http://www.xbrl.org/2003/role/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 100 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-100 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (c)(3) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2E -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2E Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (e) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (d) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 11: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (g) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 12: http://www.xbrl.org/2003/role/disclosureRef -Topic 940 -SubTopic 820 -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147478119/940-820-50-1 + Details
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