| Organization and Summary of Significant Accounting Policies | (1) Organization and Summary of Significant Accounting Policies (a) Description of Business Ollie’s Bargain Outlet Holdings, Inc. and subsidiaries (collectively referenced to as “the Company” or “Ollie’s”) principally buys overproduced, overstocked and closeout merchandise from manufacturers, wholesalers and other retailers. In addition, the Company augments its name-brand closeout deals with directly sourced private label products featuring names exclusive to Ollie’s in order to provide consistently value-priced goods in select key merchandise categories. Since the first store opened in 1982, the Company has grown to 268 retail locations in 20 states as of February 3, 2018. Ollie’s Bargain Outlet retail locations are located in Alabama, Connecticut, Delaware, Florida, Georgia, Indiana, Kentucky, Maryland, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Virginia, and West Virginia. (b) Fiscal Year Ollie’s follows a 52/53-week fiscal year, which ends on the Saturday nearer January 31 of the following calendar year. References to the fiscal year ended February 3, 2018 refer to the 53-week period from January 29, 2017 to February 3, 2018 (“2017”). References to the fiscal year ended January 28, 2017 refer to the 52-week period from January 31, 2016 to January 28, 2017 (“2016”). References to the fiscal year ended January 30, 2016 refer to the 52-week period from February 1, 2015 to January 30, 2016 (“2015”). (c) Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions have been eliminated in consolidation. (d) Use of Estimates The preparation of consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. Actual results could differ from those estimates. (e) Fair Value Disclosures Fair value is defined as the price which the Company would receive to sell an asset or pay to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. In determining fair value, GAAP establishes a three‑level hierarchy used in measuring fair value, as follows: · Level 1 inputs are quoted prices available for identical assets and liabilities in active markets. · Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets and liabilities in active markets or other inputs that are observable or can be corroborated by observable market data. · Level 3 inputs are less observable and reflect the Company’s assumptions. Ollie’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and the Company’s term loan. The carrying amounts of cash, accounts receivable and accounts payable approximate fair value because of their short maturities. The carrying amount of the Company’s term loan facility approximates its fair value because the interest rates are adjusted regularly based on current market conditions. (f) Cash and Cash Equivalents The Company considers cash on hand in stores, bank deposits, credit card receivables, and all highly liquid investments with remaining maturities of three months or less at the date of acquisition to be cash and cash equivalents. Amounts receivable from credit card issuers are typically converted to cash within one to two business days of the original sales transaction. (g) Concentration of Credit Risk A financial instrument which potentially subjects the Company to a concentration of credit risk is cash. Ollie’s currently maintains its day‑to‑day operating cash balances with major financial institutions. The Company’s operating cash balances are in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit. From time to time, Ollie’s invests temporary excess cash in overnight investments with expected minimal volatility, such as money market funds. Although the Company maintains balances which exceed the FDIC insured limit, it has not experienced any losses related to this balance, and Ollie’s believes the credit risk to be minimal. (h) Inventories Inventories are stated at the lower of cost or market determined using the retail inventory method on a first-in, first-out basis. The cost of inventories includes the merchandise cost, transportation costs, and certain distribution and storage costs. Such costs are thereafter expensed as cost of sales upon the sale of the merchandise. The retail inventory method uses estimates for shrinkage and markdowns to calculate ending inventory. These estimates made by management could significantly impact the ending inventory valuation at cost and the resulting gross margin. (i) Property and Equipment Property and equipment are stated at original cost less accumulated depreciation and amortization. Depreciation and amortization are calculated over the estimated useful lives of the related assets, or in the case of leasehold improvements, the lesser of the useful lives or the remaining term of the lease. Expenditures for additions, renewals, and betterments are capitalized; expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed on the straight-line method for financial reporting purposes. The useful lives for the purpose of computing depreciation and amortization are as follows: Software 3 years Automobiles 5 years Computer equipment 5 years Furniture, fixtures, and equipment 7-10 years Buildings 27.5 years Leasehold improvements Lesser of lease term or useful life (j) Goodwill/Intangible Assets The Company amortizes intangible assets over their useful lives unless it determines such lives to be indefinite. Goodwill and intangible assets having indefinite useful lives are not amortized to earnings, but instead are subject to annual impairment testing or more frequently if events or circumstances indicate that the value of goodwill or intangible assets having indefinite useful lives might be impaired. Goodwill and intangible assets having indefinite useful lives are tested for impairment annually in the fiscal month of October. The Company has the option to evaluate qualitative factors to determine if it is more likely than not that the carrying amount of its sole reporting unit or its nonamortizing intangible assets (consisting of a tradename) exceed their implied respective fair value and whether it is necessary to perform a quantitative analysis to determine impairment. As part of this qualitative assessment, the Company weighs the relative impact of factors that are specific to its sole reporting unit or its nonamortizing intangible assets as well as industry, regulatory and macroeconomic factors that could affect the inputs used to determine the fair value of the assets. If management determines a quantitative goodwill impairment test is required, the test is performed by determining the fair value of the Company’s sole reporting unit. Fair value is determined utilizing a combination of valuation methods including both the income approach (using a discounted cash flow analysis) and market approaches (including prior transaction method and comparable public company multiples). The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after the allocation is the implied fair value of the reporting unit’s goodwill. An impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. For 2017, 2016 and 2015, the Company completed a qualitative impairment test of its goodwill and determined that no impairment of goodwill existed. If management determines a quantitative analysis of intangible assets having indefinite useful lives is required, the test is performed using the discounted cash flow method based on management’s projections to determine the fair value of the asset, specifically, the Company’s tradename. An impairment loss is recognized for any excess of the carrying amount of the asset over the implied fair value of that asset. For 2017, 2016 and 2015, the Company completed a qualitative impairment test of its tradename and determined that no impairment of the asset existed. Intangible assets with determinable useful lives are amortized over their estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. (k) Impairment of Long-Lived Assets Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. (l) Stock-Based Compensation The Company measures the cost of employee services received in exchange for share-based compensation based on the grant date fair value of the employee stock award. For stock option awards, the Company estimates grant date fair value using the Black-Scholes option pricing model. For restricted stock unit awards, grant date fair value is determined based on the closing trading value of the Company’s stock on the date of grant. In both cases, stock-based compensation is recorded on a straight-line basis over the vesting period for the entire award. (m) Revenue Recognition Ollie’s recognizes retail sales in its stores when merchandise is sold and the customer takes possession of merchandise. Net sales are presented net of returns and sales tax. The Company provides an allowance for estimated retail merchandise returns based on prior experience. The following table provides a reconciliation of the activity related to the Company’s sales returns allowance (in thousands): Fiscal year ended February 3, 2018 January 28, 2017 January 30, 2016 Beginning balance $ 339 $ 247 $ 247 Provisions 39,421 34,995 30,835 Sales returns (39,421 ) (34,903 ) (30,835 ) Ending balance $ 339 $ 339 $ 247 (n) Cost of Sales Cost of sales includes merchandise costs, inventory markdowns, shrinkage and transportation, distribution and warehousing costs, including depreciation. (o) Selling, General and Administrative Expenses Selling, general and administrative expenses (“SG&A”) are comprised of payroll and benefits for stores, field support and support center employees. SG&A also include marketing and advertising expense, occupancy costs for stores and the store support center, insurance, corporate infrastructure and other general expenses. (p) Advertising Costs Advertising costs primarily consist of newspaper circulars, email campaigns, media broadcasts and prominent advertising at professional and collegiate sporting events and are expensed the first time the advertising occurs. Advertising expense for 2017, 2016 and 2015 was $32.4 million, $28.0 million and $25.8 million, respectively. (q) Operating Leases Other than one store location, which is owned, the Company leases its store locations, distribution centers and office facilities. Many of the lease agreements contain rent holidays, rent escalation clauses and contingent rent provisions – or some combination of these items. For leases of store locations and the store support centers, the Company recognizes rent expense in SG&A. For leases of distribution centers, the Company recognizes rent expense within cost of sales. All rent expense is recorded on a straight-line basis over the accounting lease term, which includes lease renewals determined to be reasonably assured. Additionally, the commencement date of the accounting lease term reflects the earlier of the date the Company becomes legally obligated for the lease payments or the date the Company takes possession of the building for initial construction and setup. The excess rent expense over the actual cash paid for rent is accounted for as deferred rent. Leasehold improvement allowances received from landlords and other lease incentives are recorded as deferred rent liabilities and are recognized in SG&A on a straight-line basis over the accounting lease term. (r) Pre-Opening Costs Pre-opening costs (costs of opening new stores and distribution facilities, including grand opening promotions, payroll, travel, training, and store setup costs, as well as store closing costs) are expensed as incurred. (s) Debt Issuance Costs and Original Issue Discount Debt issuance costs and original issue discount are amortized to interest expense using the effective interest method over the life of the related debt. As of February 3, 2018 and January 28, 2017, debt issuance costs, net of accumulated amortization, were $1.5 million and $2.8 million, respectively, and original issue discount, net of accumulated amortization, was $15,000 and $0.1 million, respectively. The amortization expense for debt issuance costs was $0.6 million, $0.7 million and $1.3 million and the amortization expense for the original issue discount was $17,000, $25,000 and $0.4 million for 2017, 2016 and 2015, respectively. The write-off of unamortized debt issuance and original issue discount costs recorded in loss on extinguishment of debt on the consolidated statements of income totaled $0.8 million, $0.0 million and $6.7 million for 2017, 2016 and 2015, respectively. (t) Self‑Insurance Liabilities Under a number of the Company's insurance programs, which include the Company's employee health insurance program, its workers' compensation and general liability insurance programs, the Company is liable for a portion of its losses. (u) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Ollie’s files consolidated federal and state income tax returns. For tax years prior to 2014, the Company is no longer subject to U.S. federal income tax examinations. State income tax returns are filed in various state tax jurisdictions, as appropriate, with varying statutes of limitation and remain subject to examination for varying periods up to three to four years depending on the state. (v) Earnings per Common Share Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding, after giving effect to the potential dilution, if applicable, from the assumed exercise of stock options into shares of common stock as if those stock options were exercised and the assumed lapse of restrictions on restricted stock units. The following table summarizes those effects for the diluted earnings per common share calculation (in thousands, except per share amounts): Fiscal year ended February 3, 2018 January 28, 2017 January 30, 2016 Net income $ 127,594 $ 59,764 $ 35,839 Weighted average number of common shares outstanding – Basic 61,353 60,160 53,835 Incremental shares from the assumed exercise of outstanding stock options and vesting of restricted stock units 3,597 2,255 1,961 Weighted average number of common shares outstanding – Diluted 64,950 62,415 55,796 Earnings per common share – Basic $ 2.08 $ 0.99 $ 0.67 Earnings per common share – Diluted $ 1.96 $ 0.96 $ 0.64 The effect of the weighted average assumed exercise of stock options outstanding totaling 126,899, 81,616 and 651,400 as of February 3, 2018, January 28, 2017 and January 30, 2016, respectively, were excluded from the calculation of diluted weighted average common shares outstanding because the effect would have been antidilutive. The effect of weighted average non-vested restricted stock units outstanding totaling 10,169, 0 and 0 as of February 3, 2018, January 28, 2017 and January 30, 2016, respectively, were excluded from the calculation of diluted weighted average common shares outstanding because the effect would have been antidilutive. (w) Recent Accounting Pronouncements Revenue In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers , which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. In preparation for adoption of ASU 2014-09, the Company evaluated applicable revenue streams and compared current accounting practices to those required under the new standard. As a result of these efforts, the Company has identified certain impacts to the presentation and timing of revenue recognition of sales attributed to the Company’s customer loyalty program and gift card breakage. In addition, the new standard requires a change in the presentation of the Company’s sales return reserve on its balance sheet, which is currently recorded on a net basis. The new guidance requires the reserve to be established at the gross sales value with an asset established for the value of the merchandise returned. The Company has implemented appropriate changes to its business processes, systems and controls to support recognition and disclosure under ASU 2014-09. The Company adopted ASU 2014-09 as of February 4, 2018, using the modified retrospective transition method and recognizing the cumulative effect of initially applying the new standard as a decrease of $5.6 million to the opening balance of retained earnings . Prior periods will not be retrospectively adjusted. Leases In February 2016, the FASB issued ASU 2016-02, Leases Stock Compensation In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting , which was intended to simplify the accounting for share |
