| Summary of Significant Accounting Policies | NOTE 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents Cash and cash equivalents include investments in money market funds, payments due from banks for third-party credit and debit card transactions for up to five days of sales, cash on hand, and deposits with financial institutions. As of February 3, 2024 and January 28, 2023, amounts due from banks for credit and debit card transactions totaled approximately $9.4 million and $10.1 million, respectively. Outstanding checks not yet presented for payment amounted to $12.5 million and $31.2 million as of February 3, 2024 and January 28, 2023, respectively, and are included in accounts payable on the Consolidated Balance Sheets. Fair Value Measurements Fair value is defined 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. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date. ■ Level 1 - Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets. ■ Level 2 - Valuation is based upon quoted prices for similar assets and liabilities in active markets or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. ■ Level 3 - Valuation is based upon other unobservable inputs that are significant to the fair value measurement. Financial Assets The following table presents the Company's financial assets, recorded in cash and cash equivalents on the Consolidated Balance Sheets, measured at fair value on a recurring basis as of February 3, 2024 and January 28, 2023, aggregated by the level in the fair value hierarchy within which those measurements fall. February 3, 2024 Level 1 Level 2 Level 3 (in thousands) Money market funds $ — $ — $ — January 28, 2023 Level 1 Level 2 Level 3 (in thousands) Money market funds $ 47,792 $ — $ — The money market funds are valued using quoted market prices in active markets. Non-Financial Assets The Company's non-financial assets, which include fixtures, equipment, improvements, right of use assets, and an equity method investment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur indicating the carrying value of these assets may not be recoverable, or annually in the case of indefinite-lived intangibles, an impairment test is required to be performed by the Company. The carrying amounts reflected on the Consolidated Balance Sheets for the remaining cash, cash equivalents, receivables, prepaid expenses, and payables as of February 3, 2024 and January 28, 2023 approximated their fair values. The equity method investment is reflected at cost and is the result of a market participant transaction with WHP whereby the Company received proceeds of $260.0 million and a 40% ownership interest in the Joint Venture in exchange for contributing certain intellectual property to the Joint Venture. The Company reviews its equity method investment by comparing its fair value to its carrying value. If the carrying value of the investment exceeds its fair value and the loss in value is other than temporary, the investment is considered impaired and reduced to fair value, and the impairment is recognized in the period identified. Factors providing evidence of such a loss include changes in the investee's operations or financial condition, significant continuing losses, significant negative economic conditions or a significant decrease in the market value. Impairment charges are recorded in other expense (income), net in the Consolidated Statements of Income and Comprehensive Income. During 2023, the Company recognized an impairment charge of $27.2 million related to its equity method investment. Refer to Note 4 for further discussion regarding the equity method investment impairment. Receivables, Net Receivables, net consist primarily of construction allowances, receivables from the Bank related to the Card Agreement, our franchisees, and third-party resellers of our gift cards, and other miscellaneous receivables. Outstanding receivables are continuously reviewed for collectability. The Company's allowance for estimated credit losses was not significant as of February 3, 2024 or January 28, 2023. Inventories Inventories are principally valued at the lower of cost or net realizable value on a weighted-average cost basis. The Company writes down inventory, the impact of which is reflected in cost of goods sold, buying and occupancy costs in the Consolidated Statements of Income and Comprehensive Income, if the cost of specific inventory items on hand exceeds the amount the Company expects to realize from the ultimate sale or disposal of the inventory. These estimates are based on management's judgment regarding future demand and market conditions and analysis of historical experience. The lower of cost or net realizable value adjustment to inventory as of February 3, 2024 and January 28, 2023 was $15.1 million and $10.3 million, respectively. The Company also records an inventory shrink reserve for estimated merchandise inventory losses between the last physical inventory count and the balance sheet date. This estimate is based on management's analysis of historical results. Advertising Advertising production costs are expensed at the time the promotion first appears in media, stores, or on the website. Total advertising expense was $122.0 million and $134.9 million in 2023 and 2022, respectively. Advertising costs are included in selling, general, and administrative expenses in the Consolidated Statements of Income and Comprehensive Income. Property and Equipment, Net Property and equipment are stated at cost. Depreciation of property and equipment is computed on a straight-line basis, using the following useful lives: Category Depreciable Life Software, including software developed for internal use 3 - 7 years Store related assets and other property and equipment 3 - 10 years Furniture, fixtures and equipment 5 - 7 years Leasehold improvements Shorter of lease term or useful life of the asset, typically no longer than 10 years Building improvements 6 - 30 years When a decision is made to dispose of property and equipment prior to the end of its previously estimated useful life, depreciation estimates are revised to reflect the use of the asset over the shortened estimated useful life. The cost of assets sold or retired and the related accumulated depreciation are removed from the accounts with any resulting gain or loss included in other operating income, net, in the Consolidated Statements of Income and Comprehensive Income. Maintenance and repairs are charged to expense as incurred. Major renewals and betterments that extend useful lives are capitalized. Store Asset Impairment Property and equipment, including the right of use assets, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur indicating the carrying value of these assets may not be recoverable, an impairment test is required. These events include, but are not limited to, material adverse changes in projected revenues, present cash flow losses combined with a history of cash flow losses and a forecast that demonstrates significant continuing losses, significant negative economic conditions, a significant decrease in the market value of an asset and store closure or relocation decisions. The reviews are conducted at the store level, the lowest identifiable level of cash flow. Stores that display an indicator of impairment are subjected to an impairment assessment. Such stores are tested for recoverability by comparing the sum of the estimated future undiscounted cash flows to the carrying amount of the asset. This recoverability test requires management to make assumptions and judgments related, but not limited, to management’s expectations for future cash flows from operating the store. ▪ The key assumption used in the undiscounted future store cash flow models is the sales growth rate. An impairment loss may be recognized when these undiscounted future cash flows are less than the carrying amount of the asset group. In the circumstance of impairment, any loss would be measured as the excess of the carrying amount of the asset group over its fair value. Fair value of the store-related assets is determined at the individual store level based on the highest and best use of the asset group. ▪ The key assumptions used in the fair value analysis may include discounted estimates of future store cash flows from operating the store and/or comparable market rents. During 2023 and 2022, the Company recognized impairment charges as follows: 2023 2022 (in thousands) Right of use asset impairment $ 1,939 $ 1,483 Property and equipment asset impairment 1,489 667 Total asset impairment $ 3,428 $ 2,150 Impairment charges are recorded in cost of goods sold, buying and occupancy costs in the Consolidated Statements of Income and Comprehensive Income. Equity Method Investments The Company accounts for its 40% economic interest in the Joint Venture, through which it exercises significant influence but does not have control over the investee, under the equity method. Under the equity method, the Company records its investment in the investee on the balance sheet initially at cost, and subsequently adjusts the carrying amount based on its share of the investee's net income or loss. Royalty distributions received from the investee are recognized as a reduction of the carrying amount of the investment. The Company's share of equity (income) losses and other adjustments associated with this equity method investment is included in royalty income in the Consolidated Statements of Income and Comprehensive Income. The carrying value for the Company's equity investment is reported in equity method investment on the Consolidated Balance Sheets. The Company reports its share of earnings using a one-month lag because results are not available in time for it to record them in the concurrent period. This convention has not historically materially impacted the Company's results. Income Taxes The Company accounts for income taxes using the asset and liability method. Under this method, the amount of taxes currently payable or refundable are accrued, and deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences that currently exist between the tax basis and financial reporting basis of the Company's assets and liabilities. Valuation allowances are established against deferred tax assets when it is more likely than not that the realization of those deferred tax assets will not occur. Deferred tax assets and liabilities are measured using the enacted tax rates in effect in the years when those temporary differences are expected to reverse. The effect on deferred taxes from a change in tax rate is recognized through continuing operations in the period that includes the enactment date of the change. Changes in tax laws and rates could affect recorded deferred tax assets and liabilities in the future. The Company considers all available evidence, both positive and negative, when evaluating whether deferred tax assets are realizable. Such factors include past operating results, taxable income in prior carryback years, future reversal of existing temporary differences, prudent and feasible tax planning strategies and forecasts of future operating income. The past operating results is given more weight than expectations of future profitability, which is inherently uncertain. The assumptions utilized in determining future taxable income require significant judgment and actual operating results in future years could differ from the Company’s current assumptions and estimates. A tax benefit from an uncertain tax position may be recognized when it is more-likely-than-not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold to be recognized. The Company recognizes tax liabilities for uncertain tax positions and adjusts these liabilities when the Company's judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense and the effective tax rate in the period in which the new information becomes available. Interest and penalties related to unrecognized tax benefits are recognized within income tax expense in the Consolidated Statements of Income and Comprehensive Income. Accrued interest and penalties are included within other long-term liabilities on the Consolidated Balance Sheets. The income tax liability was $2.6 million and $8.0 million as of February 3, 2024 and January 28, 2023, respectively, and is included in accrued expenses on the Consolidated Balance Sheets. The Company may be subject to periodic audits by the Internal Revenue Service ("IRS") and other taxing authorities. These audits may challenge certain of the Company's tax positions, such as the timing and amount of deductions and allocation of taxable income to various jurisdictions. Self-Insurance The Company is generally self-insured in the United States for medical, workers' compensation and general liability benefits up to certain stop-loss limits. Such costs are accrued based on known claims and estimates of incurred but not reported (“IBNR”) claims. IBNR claims are estimated using historical claim information and actuarial estimates. The accrued liability for self-insurance is included in accrued expenses on the Consolidated Balance Sheets. Revenue Recognition All revenues are recognized in net sales in the Consolidated Statements of Income and Comprehensive Income. The following is information regarding the Company's major product categories and sales channels: 2023 2022 (in thousands) Apparel $ 1,678,831 $ 1,667,833 Accessories and other 120,042 144,356 Other revenue 55,484 51,993 Total net sales $ 1,854,357 $ 1,864,182 2023 2022 (in thousands) Retail $ 1,370,374 $ 1,314,647 Outlet 428,499 497,542 Other revenue 55,484 51,993 Total net sales $ 1,854,357 $ 1,864,182 Merchandise returns are reflected in the accounting records of the channel where they are physically returned. Other revenue consists primarily of revenue earned from our private label credit card agreement, shipping and handling revenue related to eCommerce activity, sell-off revenue related to marked-out-of-stock inventory sales to third parties, revenue from gift card breakage and revenue from franchise agreements. Revenue related to the Company’s international franchise operations was not material for any period presented and, therefore, is not reported separately from domestic revenue. Merchandise Sales The Company recognizes sales for in-store purchases at the point-of-sale. Revenue related to eCommerce transactions is recognized upon shipment based on the fact that control transfers to the customer at that time. The Company has made a policy election to treat shipping and handling as costs to fulfill the contract, and as a result, any amounts received from customers are included in the transaction price allocated to the performance obligation of providing goods with a corresponding amount accrued within cost of goods sold, buying and occupancy costs in the Consolidated Statements of Income and Comprehensive Income for amounts paid to applicable carriers. Associate discounts on merchandise purchases are classified as a reduction of net sales. Net sales excludes sales tax collected from customers and remitted to governmental authorities. The Company also sells merchandise to multiple franchisees pursuant to different franchise agreements. Revenues may consist of sales of merchandise and/or royalties. Revenues from merchandise sold to franchisees are recorded at the time title transfers to the franchisees. Royalty revenue is based upon a percentage of the franchisee’s net sales to third parties and is earned when such sales to third parties occur. Loyalty Program The Company maintains a customer loyalty program in which customers earn points toward rewards for qualifying purchases and other marketing activities. Upon reaching specified point values, customers are issued a reward, which they may redeem on merchandise purchases at the Company’s stores or on its website. Generally, rewards earned must be redeemed within 60 days from the date of issuance. The Company defers a portion of merchandise sales based on the estimated standalone selling price of the points earned. This deferred revenue is recognized as certificates are redeemed or expire. To calculate this deferral, the Company makes assumptions related to card holder redemption rates based on historical experience. The loyalty liability is included in deferred revenue on the Consolidated Balance Sheets. 2023 2022 (in thousands) Beginning balance loyalty deferred revenue $ 9,939 $ 10,918 Reduction in revenue (revenue recognized) 407 (979) Ending balance loyalty deferred revenue $ 10,346 $ 9,939 Sales Returns Reserve The Company reduces net sales and provides a reserve for projected merchandise returns based on prior experience. Merchandise returns are often resalable merchandise and are refunded by issuing the same payment tender as the original purchase. The sales returns reserve was $11.4 million and $9.0 million as of February 3, 2024 and January 28, 2023, respectively, and is included in accrued expenses on the Consolidated Balance Sheets. The asset related to projected returned merchandise is included in other assets on the Consolidated Balance Sheets. Gift Cards The Company sells gift cards in its stores, on its eCommerce website and through third parties. These gift cards do not expire or lose value over periods of inactivity. The Company accounts for gift cards by recognizing a liability at the time a gift card is sold. The gift card liability balance was $32.2 million and $25.6 million as of February 3, 2024 and January 28, 2023, respectively, and is included in deferred revenue on the Consolidated Balance Sheets. As part of the acquisition of Bonobos, the Company acquired $7.5 million in gift card liability. Refer to Note 5 for further discussion regarding the acquisition. During 2023 and 2022, the Company recognized approximately $12.0 million and $13.9 million of revenue that was previously included in the beginning gift card contract liability, respectively. The Company recognizes revenue from gift cards when they are redeemed by the customer. The Company also recognizes income on unredeemed gift cards, referred to as “gift card breakage.” Gift card breakage is recognized proportionately using a time-based attribution method from issuance of the gift card to the time when it can be determined that the likelihood of the gift card being redeemed is remote and that there is no legal obligation to remit unredeemed gift cards to relevant jurisdictions. The gift card breakage rate is based on historical redemption patterns. Gift card breakage is included within the other revenue component of net sales in the Consolidated Statements of Income and Comprehensive Income. 2023 2022 (in thousands) Beginning gift card liability $ 25,604 $ 25,066 Issuances and acquired 39,575 30,780 Redemptions (30,105) (27,303) Gift card breakage (2,913) (2,939) Ending gift card liability $ 32,161 $ 25,604 Private Label Credit Card The Company has an agreement with Comenity Bank (the “Bank”) to provide customers with private label credit cards (the “Card Agreement”) which was amended on August 28, 2017 to extend the term of the arrangement through December 31, 2024. Each private label credit card bears the logo of the Express brand and can only be used at the Company’s store locations and eCommerce channel. The Bank is the sole owner of the accounts issued under the private label credit card program and absorbs the losses associated with non-payment by the private label card holders and a portion of any fraudulent usage of the accounts. Pursuant to the Card Agreement, the Company receives amounts from the Bank during the term based on a percentage of private label credit card sales and is also eligible to receive incentive payments for the achievement of certain performance targets. These funds are recorded within the other revenue component of net sales in the Consolidated Statements of Income and Comprehensive Income. The Company also receives reimbursement funds from the Bank for certain expenses the Company incurs. These reimbursement funds are used by the Company to fund marketing and other programs associated with the private label credit card. The reimbursement funds received related to private label credit cards are recorded within the other revenue component of net sales in the Consolidated Statements of Income and Comprehensive Income. In connection with the Card Agreement, the Bank agreed to pay the Company a $20.0 million refundable payment which the Company recognized upon receipt as deferred revenue within other long-term liabilities in the Consolidated Balance Sheets and began to recognize into income on a straight-line basis commencing January 2018. As of February 3, 2024, the deferred revenue balance of $2.6 million will be recognized over the remaining term of the amended Card Agreement within the other revenue component of net sales in the Consolidated Statements of Income and Comprehensive Income. 2023 2022 (in thousands) Beginning balance refundable payment liability $ 5,516 $ 8,394 Recognized in revenue (2,878) (2,878) Ending balance refundable payment liability $ 2,638 $ 5,516 Cost of Goods Sold, Buying and Occupancy Costs Cost of goods sold, buying and occupancy costs, includes merchandise costs, freight, inventory shrinkage, royalties paid to the Joint Venture and other gross margin related expenses. Buying and occupancy expenses primarily include payroll, benefit costs, and other operating expenses for the buying departments (merchandising, design, manufacturing and planning and allocation), distribution, eCommerce fulfillment, rent, common area maintenance, real estate taxes, utilities, maintenance and depreciation for stores. Selling, General, and Administrative Expenses Selling, general, and administrative expenses include all operating costs not included in cost of goods sold, buying and occupancy costs, with the exception of proceeds received from insurance claims and gain/loss on disposal of assets, which are included in other operating income, net. These costs include payroll and other expenses related to operations at our corporate home office, store expenses other than occupancy, and marketing expenses. Royalty Income Royalty income consists of our share of equity income associated with our equity investment with WHP discussed in Note 4 . Other Operating Income, Net Other operating income, net primarily consists of gains/losses on disposal of assets, excess proceeds from the settlement of insurance claims and the write off of certain costs associated with aborted debt negotiations. Gain on Transaction with WHP Gain on transaction with WHP primarily consists of proceeds from the sale of majority interest of intellectual property to the Joint Venture, the equity method investment and the premium paid on the common shares by WHP in 2022 discussed in Note 4 . Other Expense (Income), Net Other expense (income), net primarily consists of the impairment of the Company's equity method investment discussed in Note 4 . |
