Derivative Financial Instruments

9 Months Ended

Nov. 02, 2019

Summary of Derivative Instruments [Abstract]

Derivative Instruments

Derivative Financial Instruments

The earnings of the Company's wholly owned foreign businesses are subject to exchange rate risk as substantially all their merchandise is sourced through U.S. dollar transactions. The Company uses foreign currency forward contracts designated as cash flow hedges to mitigate this foreign currency exposure for its Canadian and U.K. businesses. These forward contracts currently have a maximum term of 18 months. Amounts are reclassified from accumulated other comprehensive income upon the sale of the hedged merchandise to the customer. These gains and losses are recognized in Costs of Goods Sold, Buying and Occupancy in the Consolidated Statements of Income (Loss).

The Company uses foreign currency forward contracts to mitigate the impact of fluctuations in foreign currency exchange rates relative to recognized payable balances denominated in non-functional currencies. The fair value of these non-designated foreign currency forward contracts is not significant as of November 2, 2019.

The following table provides the U.S. dollar notional amount of outstanding foreign currency derivative financial instruments as of November 2, 2019, February 2, 2019 and November 3, 2018:

	November 2, 2019		February 2, 2019		November 3, 2018
	(in millions)
Notional Amount	$	130	$	147	$	198

The following table provides a summary of the fair value and balance sheet classification of outstanding derivative financial instruments designated as foreign currency cash flow hedges as of November 2, 2019, February 2, 2019 and November 3, 2018:

	November 2, 2019		February 2, 2019		November 3, 2018
	(in millions)
Other Current Assets	$	1	$	2	$	3
Accrued Expenses and Other	1		—		—

The following table provides a summary of the pre-tax financial statement effect of the gains and losses on derivative financial instruments designated as foreign currency cash flow hedges for the third quarter and year-to-date 2019 and 2018:

	Third Quarter					Year-to-Date
	2019			2018		2019			2018
	(in millions)
Gain (Loss) Recognized in Accumulated Other Comprehensive Income	$	(2	)	$	1	$	2		$	11
(Gain) Loss Reclassified from Accumulated Other Comprehensive Income into Costs of Goods Sold, Buying and Occupancy Expense	(1		)	—		(4		)	3

The Company estimates that $1 million of net gains included in accumulated other comprehensive income as of November 2, 2019 related to foreign currency forward contracts designated as cash flow hedges will be reclassified into earnings within the following 12 months. Actual amounts ultimately reclassified depend on the exchange rates in effect when derivative contracts that are currently outstanding mature.