Summary of Significant Accounting Policies Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 28, 2014 |
Accounting Policies [Abstract] | |
Principles of Consolidation | The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances are eliminated in consolidation. |
Fiscal Year | The Company utilizes a retail calendar whereby the fiscal year ends on the Sunday closest to December 31. Each fiscal year consists of four 13-week quarters, with one extra week added in the fourth quarter every five to six years. |
Accounting Estimates | The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Our significant estimates include assumptions related to the determination of deferred income taxes and any applicable related valuation allowances. Actual results could differ materially from those estimates. |
Foreign Currency Translation | The functional currency of the Company’s U.K. subsidiary is the British Pound Sterling. Assets and liabilities of the subsidiary are translated at the exchange rate in effect at each period-end. Income statement amounts are translated at the average rate of exchange prevailing during the period. Translation adjustments arising from the use of differing exchange rates from period to period are included in accumulated other comprehensive loss within stockholders’ equity (deficit). |
Cash and Cash Equivalents | Cash and cash equivalents include cash and highly-liquid investments with maturities of three months or less from the date of purchase, which are carried at amortized cost. |
The Company maintains the majority of its cash and cash equivalents in accounts with major financial institutions within the United States, generally in the form of demand and money market accounts. Deposits in these institutions may exceed federally insured limits. The Company has not experienced any losses on its deposits of cash and cash equivalents. |
Short-Term Investments | The Company classifies highly-liquid investments with maturities greater than three months but less than one year as short-term investments. Short-term investments are comprised of available-for-sale securities. Available-for-sale securities are recorded at fair value, and unrealized holding gains and losses are recorded as a component of accumulated other comprehensive loss in stockholders' equity (deficit), while realized gains and losses, and other-than-temporary impairments are reported as a component of net income. For the periods presented, realized and unrealized gains and losses on investments were not material. An impairment charge is recorded in the consolidated statements of operations for declines in fair value below the cost of an individual investment that are deemed to be other-than-temporary. The Company assesses whether a decline in value is temporary based on the length of time that the fair market value has been below cost, the severity of the decline, as well as the intent and ability to hold, or plans to sell, the investment. |
Accounts Receivable | The majority of sales are conducted with credit cards and accounts receivable are composed primarily of amounts due from financial institutions related to those credit card sales. The Company does not maintain an allowance for doubtful accounts as payment is typically received within a few business days after the sale. Additionally, the Company includes other receivables, which consist of receivables for amounts owed as a result of tenant improvement allowances. |
Inventories | The Company’s inventories, which consist primarily of apparel, infant gear, toys and other merchandise are stated at the lower of cost or market and valued on an average cost basis. Inventory costs primarily consist of product costs from suppliers, as well as inbound shipping and handling fees. The majority of the Company’s inventories are not purchased until the Company receives a customer order and is subsequently relieved from inventories when it is delivered to the customer. |
Property and Equipment | Property and equipment are stated at cost, less accumulated depreciation. Maintenance and repairs are expensed as incurred. Depreciation is calculated on a straight-line basis over the estimated useful lives of the following asset categories: |
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Asset Category | Depreciation Period |
Computer equipment and capitalized software | 1 to 3 years |
Leasehold improvements | Lesser of 10 years or lease term |
Furniture, machinery and other equipment | 3 to 15 years |
Capitalized Software | The Company capitalizes certain costs to develop its websites and internal-use software and amortizes such costs on a straight-line basis over the estimated useful life of the software once it is available for use. Capitalization of such costs begins when the preliminary project stage is completed, management with the relevant authority authorizes and commits to the funding of the software project, and it is probable that the project will be completed and the software will be used to perform the function intended. |
Capitalized software costs, net of accumulated amortization, totaled $3.6 million and $2.7 million as of December 28, 2014 and December 29, 2013, respectively, and are included in property and equipment—net in the accompanying consolidated balance sheets. Amortization expense related to capitalized software costs was $1.7 million, $1.0 million, and $0.6 million for the fiscal years ended December 28, 2014, December 29, 2013, and December 30, 2012, respectively, and is included in selling, general, and administrative expenses in the accompanying consolidated statements of operations. |
Impairment of Long-Lived Assets | The Company reviews the carrying value of its long-lived assets, including property and equipment and definite-lived intangible assets, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. To the extent the estimated future cash inflows attributable to the assets, less estimated future cash outflows, are less than the carrying amount, an impairment loss would be recognized. |
Fair Value of Financial Instruments | The carrying amounts for the Company’s cash, cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short maturities. |
Income Taxes | The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized by applying the statutory tax rates in effect in the years in which the differences between the financial reporting and tax filing bases of existing assets and liabilities are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. |
The Company utilizes a two-step approach to recognizing and measuring uncertain income tax positions (tax contingencies). The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes. |
The Company’s policy is to recognize interest and/or penalties related to all tax positions in income tax expense. To the extent that accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision in the period that such determination is made. |
Certain Risks and Concentrations | The Company is subject to certain risks and concentrations, including dependence on third-party technology providers and hosting services, exposure to risks associated with online commerce security, consumer credit risk, and credit card fraud, as well as the interpretation of state and local laws and regulations in regards to the collection and remittance of sales and use taxes and occupancy taxes. The Company also depends upon third-party service providers for processing customer orders. |
Revenue Recognition | The Company generates net sales from sales of women's, children’s and men's apparel, children's merchandise and other product categories such as kitchen accessories and home décor, and from shipping and handling charges to the Company’s customers. The Company also generates net sales from the sale of services events, which are primarily electronic vouchers or access codes for the Company’s customers to redeem directly with the vendor. Net sales of services events have not been material to date. |
The Company recognizes revenue when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed or determinable; and (4) collectability is reasonably assured. For product sales, these criteria are met when the customer orders an item through the Company’s sites via the electronic shopping cart, funds are collected from the customer and the item is fulfilled in one of the Company or third-party fulfillment centers, shipped and delivered to the customer. Revenue from product sales is generally recorded at the gross amount as the Company is the primary obligor in the arrangement with the customer, has latitude in establishing the products available for sale and the price to the customer, is responsible for ensuring the delivery of the product to the customer and assume inventory and credit risk. For services sales, these criteria are met when the customer orders an item through the Company’s sites via the electronic shopping cart, funds are collected from the customer and the voucher or access code is downloaded from the Company’s sites. Revenue from services sales is generally recorded at the net amount, or the commission earned on the voucher, as the Company is acting as an agent on behalf of the vendor. The vendor is ultimately responsible for fulfilling the customer order directly with the customer and assumes the inventory risk. To date, services revenue has not been material. The Company defers revenue when cash is collected from the customer prior to the satisfaction of the revenue recognition criteria. |
To encourage customers to purchase the Company’s products and services, the Company periodically provides incentive offers. Generally, these promotions include dollar-off and percentage-off discounts to be applied against current purchases. The Company also grants merchandise credits to participants in the Company’s referral program when the customer referral results in a sale. Merchandise credits issued through the referral program typically expire in 18 months. The Company records these discounts and merchandise credits as reductions of the sale price at the date the promotion is redeemed similar to a coupon. Additionally, the Company provides customers merchandise credits to be applied against future purchases in instances in which the customer is unsatisfied with an order. In these instances, the Company has established a sales return reserve based on the Company’s historical experience. To date, these reserves have not been significant. |
Gift cards and merchandise credits issued in lieu of a cash refund are recorded as a liability upon purchase of the gift card or issuance of the merchandise credit and do not expire. The Company reduces the liability for gift cards and merchandise credits when redeemed by a customer. If a gift card or merchandise credit is not redeemed, the Company recognizes revenue when the likelihood of its redemption becomes remote. The Company has not recognized revenue related to unredeemed gift cards and merchandise credits. |
The Company has procedures in place to detect and prevent credit card fraud as the Company has exposure to losses from fraudulent charges. Due to the insignificant losses related to chargebacks, the Company records such losses as incurred. |
Taxes collected from customers are accounted for on a net basis and are excluded from net sales. |
Cost of Sales | Cost of sales consists of the purchase price of merchandise sold to customers, inbound and outbound shipping and handling costs, shipping supplies and fulfillment costs. Fulfillment costs represent those costs incurred in operating and staffing the fulfillment centers, including costs attributed to receiving, inspecting, picking, packaging and preparing customer orders for shipment. Cost of sales also includes direct and indirect labor for fulfillment center oversight, including payroll and related benefit costs and stock-based compensation expense. |
Marketing | Marketing expenses are expensed as incurred and consist primarily of targeted online marketing costs, such as display advertising, keyword search campaigns, search engine optimization and social media and offline marketing costs such as television, radio and print advertising. Marketing expenses also include payroll and related benefit costs and stock-based compensation expense for employees involved in marketing activities. Marketing expenses are primarily related to growing and retaining the customer base. |
Selling, General and Administrative Expenses | Selling, general and administrative expenses (“SG&A”) consist primarily of payroll and related benefit costs and stock-based compensation expense for employees involved in general corporate functions including merchandising, studio, technology and customer service, as well as costs associated with the use by these functions of facilities and equipment, including depreciation, rent and occupancy. Also included in SG&A is rent and depreciation related to fulfillment centers. |
Stock-Based Compensation | The Company measures compensation cost for all stock options and restricted stock unit awards granted at their grant date estimated fair value. Stock-based compensation expense, net of estimated forfeitures, is recognized on a straight-line basis over the vesting period for each award. The fair value of stock option awards is estimated on the grant date using the Black-Scholes option valuation model. The fair value of each restricted stock unit award is based on the estimated fair market value of the Company’s common stock on the date of the award. |
Recent Accounting Pronouncements Adopted | In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar tax Loss, or a Tax Credit Carryforward Exists ("ASU 2013-11").The amendments in this update require an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows: To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The amendments in this update do not require new recurring disclosures. For public entities, ASU 2013-11 is effective for annual and interim periods beginning after December 15, 2013. The Company adopted ASU 2013-11 in the first quarter of 2014 and it did not have a material impact on the Company's consolidated financial statements or related disclosures. |
Recent accounting guidance not yet adopted |
In May 2014, the FASB issued an Accounting Standard Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The guidance is effective for annual and interim reporting periods beginning after December 15, 2016, with early adoption prohibited. The Company is currently evaluating the impact ASU 2014-09 will have on its consolidated financial statements. |
In August 2014, the FASB issued ASU 2014-15 related to going concern. The new guidance explicitly requires that management assess an entity's ability to continue as a going concern and may require additional detailed disclosures. ASU 2014-15 is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Though permitted, the Company does not plan to early adopt. The Company does not believe that this standard will have a significant impact on its consolidated financial statements. |