| 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 the 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 November 3, 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 November 3, 2018, approximately $286,000 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 balance sheet as of November 3, 2018 is below. In the table, the adjustments for merchandise
inventories relate to: (1) the classification of the right of return assets associated with product returns previously recorded
net of the refund liability in accrued and other liabilities, and (2) the cost basis of inventory for product shipped to customers
not yet received under the previous revenue guidance. The adjustment for deferred income taxes relates to the tax effect of the
cumulative effect adjustments. The adjustments to accrued and other liabilities relate to: (1) the classification of the right
of return assets from accrued and other liabilities to merchandise inventories, (2) recognition of deferred revenue for product
shipped to customers not yet received, and (3) the adjustment to contract liabilities for unredeemed gift cards and award certificates.
November 3, 2018
(In thousands) As Reported Adjustments As Adjusted
Merchandise inventories $ 300,510 $ (387 ) $ 300,123
Deferred income taxes 8,866 100 8,966
Accrued and other liabilities (28,094 ) (176 ) (28,270 ) The impact of the new guidance on our condensed
consolidated statement of income for the thirteen and thirty-nine weeks ended November 3, 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 thirty-nine weeks ended November 3, 2018.
Thirteen Weeks Ended November 3, 2018
(In thousands) As Reported Adjustments As Adjusted
Net sales $ 269,181 $ 1,121 $ 270,302
Cost of sales (including buying, distribution and occupancy costs) 187,963 300 188,263
Thirty-nine Weeks Ended November 3, 2018
(In thousands) As Reported Adjustments As Adjusted
Net sales $ 794,992 $ 170 $ 795,162
Cost of sales (including buying, distribution and occupancy costs) 552,666 8 552,674 Disaggregation of Revenue by Product Category Revenue is disaggregated by product category below. Net
sales and percentage of net sales for the thirteen and thirty-nine weeks ended November 3, 2018 and October 28, 2017 were as follows:
(In thousands) Thirteen Weeks Thirteen Weeks
Non-Athletics:
Women’s $ 59,510 22 % $ 57,601 20 %
Men’s 33,946 13 33,828 12
Children’s 13,155 5 13,378 5
Total 106,611 40 104,807 37
Athletics:
Women’s 47,409 18 52,077 18
Men’s 56,608 20 64,044 22
Children’s 45,264 17 52,511 18
Total 149,281 55 168,632 58
Accessories 12,081 5 12,853 5
Other 1,208 0 1,177 0
Total $ 269,181 100 % $ 287,469 100 %
(In thousands) Thirty-nine Weeks Thirty-nine Weeks
Non-Athletics:
Women’s $ 185,525 23 % $ 176,722 23 %
Men’s 107,633 14 104,267 14
Children’s 38,186 5 36,469 5
Total 331,344 42 317,458 42
Athletics:
Women’s 143,583 18 140,725 18
Men’s 170,453 22 170,811 22
Children’s 113,069 14 111,587 14
Total 427,105 54 423,123 54
Accessories 34,019 4 32,781 4
Other 2,524 0 2,560 0
Total $ 794,992 100 % $ 775,922 100 % |
