Two big retailers filed their 10-K reports for 2020 this week: Macy’s ($M) and Abercrombie & Fitch ($ANF).  

As one might expect from retailers, their 2020 numbers weren’t terribly good because of the pandemic. So both firms also reported adjusted net income figures, to account for various one-time expenses related to COVID-19 disruptions.

We decided to analyze and compare those non-GAAP disclosures, to see how one item labeled “adjusted net income” can include very different things, even between two firms that work in the same industry.

Example 1: Macy’s

Macy’s reported $17.34 billion in revenue for 2020, down 29.4 percent from $24.56 billion in 2019. The company also swung from $564 million net income in 2019 to a net loss of $3.94 billion in 2020. Most of that 2020 loss came from a $3.58 billion charge for restructuring, store closing, and other costs.

In the earnings release Macy’s filed on Feb. 23, we can see that the firm reported an adjusted net loss of only $688 million. The reconciliation is in Figure 1, below.

OK — so what does that $3.58 billion restructuring and impairment charge actually entail?

To decipher that number, we had to jump to the Interactive Disclosure tool and read the restructuring note Macy’s included in its 10-K, filed on March 29. There, we can see that most of the charge stemmed from a $3.28 billion impairment to goodwill; plus another $154 million in a restructuring charge that was mostly severance pay; plus assorted other charges. See Figure 2, below.

The other significant portion of Macy’s non-GAAP net income was that $412 million adjustment for taxes. Again, using the Interactive Disclosure viewer to find the details, we can see that Macy’s arrived at the $412 million number through nine separate credits and charges, including a $205 million carryback benefit allowed under the CARES Act.

Example 2: Abercrombie & Fitch

Abercrombie & Fitch, meanwhile, reported $3.12 billion in revenue for 2020, down 13.7 percent from $3.62 billion in 2019. The company swung from $39.36 million net income in 2019 to a net loss of $114 million in 2020.

The adjusted net income numbers are a bit more tricky here. In its earnings release filed on March 3, A&F includes an adjusted operating income in dollars, but the adjusted net income is only reported in earnings per share. See Figure 3, below.

The most important number on this entire table, however, is that Footnote 4 next to the phrase “excluded items.”

What does that mean? In the notes of the earnings release, A&F says: “Excluded items this year consist of pre-tax asset impairment charges which are principally the result of the impact of COVID-19 on store cash flows. Excluded items last year consist of pre-tax asset impairment charges related to certain of the company's flagship stores.”

So Abercrombie had an operating loss of $20.47 million in 2020, and then made an upward adjustment of $72.94 million for “excluded items” that resulted in a non-GAAP, adjusted operating profit of $52.47 million.

To decipher that $72.94 million, we first had to look at Abercrombie’s income statement on the Company-in-Detail page. The $72.94 million was there plain as day, listed as an asset impairment charge. Then we had to open up the Interactive Disclosure database again, and found the Asset Impairment footnote explaining exactly what assets were impaired.

The answer is Figure 4, below. It’s all impairments to operating leases and property, plant and equipment.

Abercrombie also has another footnote explaining the impact of COVID-19, and in that disclosure the company coughs up a $14.8 million write-down of inventory that apparently went out of style during the store closures of early 2020. But that inventory charge is separate from the charges above, and not reflected in the non-GAAP adjusted numbers in Figure 3, either.

So there you have it: two retailers, reporting two non-GAAP numbers to reflect the costs of COVID-19. The details are always in there somewhere, if you know where to look.

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