| Revenue | Note 6 – Revenue Revenue Recognition Adoption and Practical Expedients We adopted and applied the new revenue guidance
in Accounting Standards Codification 606 (“ASC 606”) as of February 4, 2018 using the modified retrospective transition
approach. Based on this approach, the condensed consolidated financial statements for prior periods were not restated and are reported
under the prior revenue guidance in effect for the periods presented. We elected the practical expedient to treat shipping and
handling activities associated with freight charges that occur after control of the product transfers to the customer as fulfillment
activities. These costs are expensed as incurred and included in cost of sales in our condensed consolidated statements of income.
We also elected the practical expedient for sales tax collected, which allows us to exclude from our transaction price any amounts
collected from customers for sales tax and other similar taxes. There were no changes to our comparative reporting of shipping
and handling costs included in cost of sales or accounting for sales tax as a result of the adoption of ASC 606. Accounting Policy and Performance Obligations We operate as a multi-channel, family footwear
retailer and provide the convenience of shopping at our brick and mortar stores or shopping online through our e-commerce and mobile
platform. As part of our multi-channel strategy, we offer Shoes 2U, a program that enables us to ship product to a customer’s
home or selected store if the product is not in stock. We also offer “buy online, pick up in store” and “buy
online, ship to store” services for our customers. “Buy online, pick up in store” and “buy online, ship
to store” provide the convenience of local pickup for our customers. Substantially all of our revenue is for a single
performance obligation and is recognized when control passes to customers. We consider control to have transferred when we have
a present right to payment, the customer has title to the product, physical possession of the product has been transferred and
the risks and rewards of the product that we retain is minimal. For our brick and mortar stores, we satisfy our performance obligation
and control is transferred at the point of sale when the customer takes possession of the products. This also includes the “buy
online, pick up in store” and “buy online, ship to store” scenarios described above and includes Shoes 2U if
the customer chooses the option of picking up their goods in-store. For sales made through our e-commerce site or mobile app in
which the customer chooses home delivery, we transfer control and recognize revenue when the product is shipped from our stores
or distribution center. This also includes Shoes 2U if the customer chooses the option of having goods delivered to their home. The redemption of loyalty
points under our Shoe Perks loyalty rewards program (“Shoe Perks”) and redemptions of gift cards may be part of any
transaction. These situations represent separate performance obligations that are embedded in the contract and are more fully described
below. Transaction Price and Payment Terms The transaction price is the amount of consideration
we expect to receive from our customers and is reduced by any stated promotional discounts at the time of purchase. The transaction
price may be variable due to terms that permit customers to exchange or return products for a refund within a limited period of
time. The implicit contract with the customer reflected in the transaction receipt states the final terms of the sale, including
the description, quantity, and price of each product purchased. The customer agrees to a stated price in the contract that does
not vary over the term of the contract. Taxes imposed by governmental authorities such as sales taxes are excluded from net sales. Our brick and mortar stores accept various
forms of payment from customers at point of sale. These include cash, checks, credit/debit cards and gift cards. Our e-commerce
and mobile platforms accept credit/debit cards, PayPal and gift cards as forms of payment. Payments made for products are generally
collected when control passes to the customer either at point of sale or at the time the customer order is shipped. For Shoes 2U
transactions, customers may order the product at the point of sale. For these transactions, customers pay in advance and unearned
revenue is recorded as a contract liability. We recognize the related revenue when control has been transferred to the customer
( i.e., Returns and Refunds It is our policy to allow brick and mortar
and online customers to exchange or return products for a refund within a limited period of time. We have established a returns
allowance based upon historical experience in order to estimate these transactions. This allowance is recorded as a reduction in
sales with a corresponding refund liability recorded in accrued and other liabilities. The estimated cost of merchandise inventory
is recorded as a reduction to cost of sales and an increase in merchandise inventories. At August 4, 2018, approximately $706,000
of refund liabilities and $474,000 of right of return assets associated with estimated product returns were recorded in our condensed
consolidated balance sheet. Contract Liabilities We sell gift cards in our brick and mortar
stores and through our e-commerce and mobile platform. Gift card purchases are recorded as an increase to contract liabilities
at the time of purchase and a decrease to contract liabilities when a customer redeems a gift card. Under the previous revenue
guidance, when a customer did not use the entire value of their gift card, we recorded this unredeemed portion of the gift card
as revenue when the likelihood of redemption became remote ( i.e., We offer our customers the opportunity to enroll
in our Shoe Perks program, which accrues points and provides customers with the opportunity to earn rewards. Points under Shoe
Perks are earned primarily by making purchases either in-store or through our online platform. Once a certain threshold of accumulated
points is reached, the customer earns a reward certificate, which is redeemable at any of our stores or online. Under the previous
guidance, after the certificates were batched, issued and awarded to customers at the end of the month, we recorded a liability
for the estimated cost of the reward certificates expected to be redeemed. This liability was immaterial at the adoption date and
all related certificates expired prior to May 5, 2018 in accordance with the terms of the awards. Under ASC 606, when a Shoe Perks
customer makes a purchase, we allocate the transaction price between the goods and the loyalty reward points based on the relative
standalone selling price. The portion allocated to the material right is recorded as a contract liability for rewards that are
expected to be redeemed. We then recognize revenue based on an estimate of when customers exercise their rights to redeem the rewards,
which incorporates an estimate of points expected to expire using historical rates. At August 4, 2018, approximately $308,000 of
contract liabilities associated with loyalty rewards were recorded in our condensed consolidated balance sheet. We expect the revenue
associated with these liabilities to be recognized in proportion to the pattern of customer redemptions in less than one year. We are a multi-channel retailer that provides
our customers with the convenience of home delivery. Our customers may choose this delivery method when purchasing products online,
through our mobile app or via Shoes 2U. These products are picked up at our stores or distribution center and delivered by third
party freight companies. Under the previous guidance, which was primarily based on a risks and rewards approach, when product was
shipped to our customers, we recognized revenue based on an estimated customer receipt date. Since we collect payment upon shipment,
this resulted in deferred revenue, which was recognized when the customer took receipt of the product. Under ASC 606, which is
control-based, we transfer control and recognize revenue when the product is shipped from our stores or distribution center. This
change had the effect of eliminating the deferred revenue accounting treatment under the previous guidance, and we no longer record
an initial liability when sales are shipped to our customers. Impact of Adoption The impact of the new guidance on our condensed
consolidated statement of income for the thirteen and twenty-six weeks ended August 4, 2018 is below. In the table, the adjustments
to net sales relate to deferred revenue for product shipped to customers not yet received, breakage revenue for unredeemed gift
cards and adjustments associated with our rewards program. The adjustment to cost of sales relates to the cost associated with
product shipped to customers not yet received under the previous revenue guidance The impact of the new guidance on income tax
expense was immaterial for the thirteen and twenty-six weeks ended August 4, 2018.
August 4, 2018
(In thousands) As Reported Adjustments As Adjusted
Merchandise inventories $ 336,907 $ (156 ) $ 336,751
Deferred income taxes 8,384 100 8,484
Accrued and other liabilities (25,659 ) (1,297 ) (26,956 )
The impact of the new guidance on our condensed
consolidated statement of income for the thirteen and twenty-six weeks ended August 4, 2018, is below. In the table, the adjustments
to net sales relate to deferred revenue for product shipped to customers not yet received, breakage revenue for unredeemed gift
cards and adjustments associated with our rewards program. The adjustment to cost of sales relates to the cost associated with
product shipped to customers not yet received under the previous revenue guidance The impact of the new guidance on income tax
expense was immaterial for the thirteen and twenty-six weeks ended August 4, 2018.
Thirteen Weeks Ended August 4, 2018
(In thousands) As Reported Adjustments As Adjusted
Net sales $ 268,366 $ (867 ) $ 267,499
Cost of sales (including buying, distribution and occupancy costs) 184,585 (229 ) 184,356
Twenty-six Weeks Ended August 4, 2018
(In thousands) As Reported Adjustments As Adjusted
Net sales $ 525,811 $ (966 ) $ 524,845
Cost of sales (including buying, distribution and occupancy costs) 364,703 (292 ) 364,411 Disaggregation of Revenue by Product Category Revenue is disaggregated by product category
below. Net sales and percentage of net sales for the thirteen and twenty-six weeks ended August 4, 2018 and July 29, 2017 were
as follows:
(In thousands) Thirteen Thirteen
Non-Athletics:
Women’s $ 65,373 25 % $ 59,001 25 %
Men’s 39,738 15 37,565 16
Children’s 13,228 5 11,210 5
Total 118,339 45 107,776 46
Athletics:
Women’s 43,824 16 38,311 16
Men’s 58,225 22 50,992 22
Children’s 35,767 13 27,638 12
Total 137,816 51 116,941 50
Accessories 11,580 4 9,865 4
Other 631 0 482 0
Total $ 268,366 100 % $ 235,064 100 %
(In thousands) Twenty-six Weeks Twenty-six Weeks
Non-Athletics:
Women's $ 126,015 24 % $ 119,120 25 %
Men's 73,687 14 70,438 14
Children's 25,031 5 23,091 5
Total 224,733 43 212,649 44
Athletics:
Women's 96,174 18 88,649 18
Men's 113,845 22 106,767 22
Children's 67,805 13 59,076 12
Total 277,824 53 254,492 52
Accessories 21,937 4 19,928 4
Other 1,317 0 1,384 0
Total $ 525,811 100 % $ 488,453 100 % |
