Derivative Instruments

9 Months Ended

Oct. 29, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company is exposed to risks associated with changes in foreign currency exchange rates and uses derivative instruments, primarily forward contracts, to manage the financial impacts of these exposures. The Company does not use forward contracts to engage in currency speculation and does not enter into derivative financial instruments for trading purposes.

The Company uses derivative instruments, primarily foreign currency exchange forward contracts designated as cash flow hedges, to hedge the foreign currency exchange rate exposure associated with forecasted foreign-currency-denominated intercompany inventory sales to foreign subsidiaries and the related settlement of the foreign-currency-denominated intercompany receivables. Fluctuations in foreign currency exchange rates will either increase or decrease the Company’s intercompany equivalent cash flows and affect the Company’s U.S. Dollar earnings. Gains or losses on the foreign currency exchange forward contracts that are used to hedge these exposures are expected to partially offset this variability. Foreign currency exchange forward contracts represent agreements to exchange the currency of one country for the currency of another country at an agreed upon settlement date. These foreign currency exchange forward contracts typically have a maximum term

of 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 AOCL into earnings.

The Company also uses foreign currency exchange forward contracts to hedge certain foreign-currency-denominated net monetary assets/liabilities. Examples of monetary assets/liabilities include cash balances, receivables and payables. Fluctuations in foreign currency exchange rates result in transaction gains or losses being recorded in earnings, as GAAP requires that monetary assets/liabilities be remeasured at the spot exchange rate at quarter-end and upon settlement. The Company has chosen not to apply hedge accounting to these instruments because there are no anticipated differences in the timing of gain or loss recognition on the hedging instruments and the hedged items.

As of October 29, 2022, the Company had outstanding the following foreign currency exchange forward contracts that were entered into to hedge either a portion, or all, of forecasted foreign-currency-denominated intercompany inventory transactions, the resulting settlement of the foreign-currency-denominated intercompany accounts receivable, or both:


(in thousands)	Notional Amount (1)
Euro	$	50,728
British pound	58,382
Canadian dollar	2,232
Japanese yen	2,254

(1) Amounts reported are the U.S. Dollar notional amounts outstanding as of October 29, 2022.

The fair value of derivative instruments is valued using quoted market prices of the same or similar instruments, adjusted for counterparty risk. The location and amounts of derivative fair values of foreign currency exchange forward contracts on the Condensed Consolidated Balance Sheets as of October 29, 2022 and January 29, 2022 were as follows:


(in thousands)	Location	October 29, 2022		January 29, 2022		Location	October 29, 2022		January 29, 2022
Derivatives designated as cash flow hedging instruments	Other current assets	$	3,802	$	4,973	Accrued expenses	$	10	$	—
Derivatives not designated as hedging instruments	Other current assets	—		—		Accrued expenses	—		—
Total		$	3,802	$	4,973		$	10	$	—

Information pertaining to derivative gains or losses from foreign currency exchange forward contracts designated as cash flow hedging instruments for the thirteen and thirty-nine weeks ended October 29, 2022 and October 30, 2021 follows:


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
(in thousands)	October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
Gain recognized in AOCL (1)	$	2,723	$	4,589	$	10,447	$	6,818
Gain (loss) reclassified from AOCL to cost of sales, exclusive of depreciation and amortization (2)	3,909		141		$	11,718	$	(3,010)

(1)Amount represents the change in fair value of derivative instruments.

(2)Amount represents gain (loss) reclassified from AOCL to cost of sales, exclusive of depreciation and amortization, on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) when the hedged item affects earnings, which is when merchandise is converted to cost of sales, exclusive of depreciation and amortization.

Substantially all of the unrealized gain will be recognized in costs of sales, exclusive of depreciation and amortization, on the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income over the next twelve months.

Additional information pertaining to derivative gains or losses from foreign currency exchange forward contracts not designated as hedging instruments for the thirteen and thirty-nine weeks ended October 29, 2022 and October 30, 2021 follows:


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
(in thousands)	October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
Gain recognized in other operating income, net	$	504	$	487	$	2,276	$	324