Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Sep. 30, 2014 |
Accounting Policies [Abstract] | ' |
Principles of Consolidation and Basis of Financial Statement Presentation | ' |
a. | Principles of Consolidation and Basis of Financial Statement Presentation | | | | | | | | | | |
The accompanying consolidated financial statements include the accounts of the Company and its direct and indirect wholly-owned subsidiaries: Cave Springs, Inc., Mothers Work Canada, Inc. and Destination Maternity Apparel Private Limited. All significant intercompany transactions and accounts have been eliminated in consolidation. |
Fiscal Year-End | ' |
b. | Fiscal Year-End | | | | | | | | | | |
The Company has historically operated on a fiscal year ending September 30 of each year. On December 4, 2014 the Company announced that its Board of Directors approved a change in its fiscal year end from September 30 to the Saturday nearest January 31 of each year. The fiscal year end change will align the Company’s reporting cycle with the National Retail Federation fiscal calendar. The change will be effective with the Company’s fiscal year 2015, which will begin February 1, 2015 and end January 30, 2016, and will result in a four-month transition period beginning October 1, 2014 and ending January 31, 2015. All references to fiscal years of the Company refer to the fiscal years ended on September 30 in those years, unless otherwise indicated. For example, the Company’s “fiscal 2014” ended on September 30, 2014. |
Use of Estimates | ' |
c. | Use of Estimates | | | | | | | | | | |
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
Cash and Cash Equivalents | ' |
d. | Cash and Cash Equivalents | | | | | | | | | | |
Cash and cash equivalents include cash on hand, cash in the bank and short-term investments with an original maturity of three months or less when purchased. Book cash overdrafts, which are outstanding checks in excess of funds on deposit, of $7,811,000 and $4,730,000 were included in accounts payable as of September 30, 2014 and 2013, respectively. |
The Company maintains cash accounts that, at times, may exceed federally insured limits. The Company has not experienced any losses from maintaining cash accounts in excess of such limits. Management believes that it is not exposed to any significant credit risks on its cash accounts. |
Inventories | ' |
e. | Inventories | | | | | | | | | | |
Inventories are valued at the lower of cost or market. Cost is determined by the “first-in, first-out” (FIFO) method. Inventories of goods manufactured by the Company include the cost of materials, freight, direct labor, and manufacturing and distribution overhead. |
Property, Plant and Equipment | ' |
f. | Property, Plant and Equipment | | | | | | | | | | |
Property, plant and equipment are stated at cost. Depreciation and amortization are computed for financial reporting purposes on a straight-line basis, using service lives ranging principally from five to ten years for furniture and equipment and forty years for the building. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or their useful life. The cost of assets sold or retired and the related accumulated depreciation or amortization are removed from the accounts with any resulting gain or loss included in net income. Maintenance and repairs are expensed as incurred, except for the capitalization of major renewals and betterments that extend the life of the asset. Long-lived assets are reviewed for impairment whenever adverse events, or changes in circumstances or business climate, indicate that the carrying value may not be recoverable. Factors used in the evaluation include, but are not limited to, management’s plans for future operations, brand initiatives, recent operating results and projected cash flows. If the associated undiscounted cash flows are insufficient to support the recorded asset, an impairment loss is recognized to reduce the carrying value of the asset. The amount of the impairment loss is determined by comparing the fair value of the asset with the carrying value. During fiscal 2014, 2013 and 2012 the Company recorded impairment write-downs of property, plant and equipment totaling $1,136,000, $754,000 and $1,875,000, respectively, on a pretax basis. |
Intangible Assets | ' |
g. | Intangible Assets | | | | | | | | | | |
Intangible assets with definite useful lives consist primarily of patent and lease acquisition costs. The Company capitalizes legal costs incurred to defend its patents when a successful outcome is deemed probable and to the extent of an evident increase in the value of the patents. Intangible assets are amortized over the shorter of their useful life or, if applicable, the lease term. Management reviews the carrying amount of these intangible assets as impairment indicators arise, to assess the continued recoverability based on future undiscounted cash flows and operating results from the related asset, future asset utilization and changes in market conditions. As of September 30, 2014 the Company has capitalized $2,952,000 of legal costs incurred in connection with a lawsuit asserting infringement of Company patents, of which $1,859,000 and $1,093,000 were incurred during fiscal 2014 and 2013, respectively. During fiscal 2013 and 2012 the Company recorded write-downs of intangible assets totaling $32,000 and $1,000, respectively, on a pretax basis. The Company has not identified any indefinite-lived intangible assets. Aggregate amortization expense of intangible assets in fiscal 2014, 2013 and 2012 was $240,000, $149,000 and $142,000, respectively. |
Estimated amortization expense of the Company’s intangible assets as of September 30, 2014, during our fiscal year end change transition period from October 1, 2014 to January 31, 2015 and our next four future fiscal years ending on the Saturday nearest January 31 of each year, is as follows (in thousands): |
|
Fiscal Year | | | | | | | | | | |
October 1, 2014 to January 31, 2015 | $ | 106 | | | | | | | | | |
2015 | | 316 | | | | | | | | | |
2016 | | 309 | | | | | | | | | |
2017 | | 301 | | | | | | | | | |
2018 | | 292 | | | | | | | | | |
|
Interest Rate Derivative | ' |
h. | Interest Rate Derivative | | | | | | | | | | |
The Company mitigated a portion of its floating rate interest risk on variable rate long-term debt through an interest rate swap agreement that expired on April 18, 2012. On the date the derivative instrument was entered into, the Company designated it as a hedge of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”) and recognized the derivative on the balance sheet at fair value. In accordance with applicable accounting standards for derivative instruments, changes in the fair value of a derivative that is designated as, and meets all the criteria for, a cash flow hedge were recorded in accumulated other comprehensive loss and reclassified into earnings as the underlying hedged item affected earnings. The Company formally documented the relationship between the hedging instrument and hedged items. The Company formally assessed at the inception of the hedge and on a quarterly basis, whether the derivative was highly effective in offsetting changes in cash flows of the hedged item. For fiscal 2012 the Company’s interest rate swap was determined to have no ineffectiveness. |
Deferred Financing Costs | ' |
i. | Deferred Financing Costs | | | | | | | | | | |
Deferred financing costs are amortized to interest expense over the term of the related debt agreement. Amortization expense of deferred financing costs in fiscal 2014, 2013 and 2012 was $198,000, $203,000 and $105,000, respectively. In connection with debt extinguishments, in fiscal 2013 and 2012 the Company wrote off $9,000 and $22,000, respectively, of unamortized deferred financing costs (see Note 9). In connection with its current credit facility entered into on November 1, 2012, the Company incurred approximately $988,000 in deferred financing costs, of which $927,000 was paid in fiscal 2013 and $61,000 was paid in fiscal 2012 (see Note 8). |
Estimated amortization expense of the Company’s deferred financing costs as of September 30, 2014, during our fiscal year end change transition period from October 1, 2014 to January 31, 2015 and our future fiscal years ending on the Saturday nearest January 31 of each year, is as follows (in thousands): |
|
Fiscal Year | | | | | | | | | | |
October 1, 2014 to January 31, 2015 | $ | 65 | | | | | | | | | |
2015 | | 198 | | | | | | | | | |
2016 | | 198 | | | | | | | | | |
2017 | | 148 | | | | | | | | | |
|
Deferred Rent | ' |
j. | Deferred Rent | | | | | | | | | | |
Rent expense on operating leases, including rent holidays and scheduled rent increases, is recorded on a straight-line basis over the term of the lease commencing on the date the Company takes possession of the leased property, which for stores is generally four to six weeks prior to a store’s opening date and for the Company’s new headquarters building was approximately ten months prior to the planned January 2015 relocation. The net excess of rent expense over the actual cash paid has been recorded as a deferred rent liability in the accompanying Consolidated Balance Sheets. Tenant improvement allowances received from landlords are also included in the accompanying Consolidated Balance Sheets as deferred rent liabilities and are amortized as a reduction of rent expense over the term of the lease from the possession date. |
Treasury (Reacquired) Shares | ' |
k. | Treasury (Reacquired) Shares | | | | | | | | | | |
Shares repurchased are retired and treated as authorized but unissued shares, with the cost in excess of par value of the reacquired shares charged to additional paid-in capital and the par value charged to common stock. |
Fair Value of Financial Instruments | ' |
l. | Fair Value of Financial Instruments | | | | | | | | | | |
The carrying values of cash and cash equivalents, trade receivables and accounts payable approximate fair value due to the short-term nature of those instruments. The majority of the Company’s long-term debt bore interest at variable rates, which adjusted based on market conditions, and the carrying value of the long-term debt approximated fair value. The fair value of the Company’s debt was determined using a discounted cash flow analysis based on interest rates available to the Company. A significant portion of the Company’s floating rate interest risk on variable rate long-term debt was mitigated through an interest rate swap agreement that expired on April 18, 2012. |
Revenue Recognition, Sales Returns and Allowances | ' |
m. | Revenue Recognition, Sales Returns and Allowances | | | | | | | | | | |
Revenue is recognized at the point of sale for retail store sales, including leased department sales, or when merchandise is delivered to customers for licensed brand product and Internet sales, and when merchandise is shipped to international franchisees. Leased department revenue is remitted to us, less a fixed percentage of the net sales earned by the lease partner (as stipulated in each agreement), which is considered a store expense and included in selling, general and administrative expenses (see Note 2q). A liability is established for the retail value of gift cards sold and merchandise credits issued. The liability is relieved and revenue is recognized when gift cards or merchandise credits are redeemed by customers as tender for merchandise purchased. Allowances for returns are recorded as a reduction of revenue, based on the Company’s historical experience. Revenues are recorded net of applicable sales taxes. |
Other Revenues | ' |
n. | Other Revenues | | | | | | | | | | |
Included in net sales are revenues earned by the Company through a variety of marketing partnership programs utilizing the Company’s opt-in customer database and various in-store marketing initiatives, focused on baby and parent-related products and services. Revenue from marketing partnership programs is recognized when goods or services are provided. Also included in net sales are fees and royalties related to international franchise agreements. International franchise fees are earned by the Company when all material services or conditions related to the international franchise agreement have been substantially performed or satisfied and royalties are earned based on net sales of the Company’s international franchisees and may include minimum guaranteed royalties. |
Cost of Goods Sold | ' |
o. | Cost of Goods Sold | | | | | | | | | | |
Cost of goods sold in the accompanying Consolidated Statements of Income includes: merchandise costs (including customs duty expenses), expenses related to inventory shrinkage, product-related corporate expenses (including expenses related to payroll, benefit costs and operating expenses of the Company’s buying departments), inventory reserves (including lower of cost or market reserves), inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs, internal transfer costs, and the other costs of the Company’s distribution network. |
Shipping and Handling Fees and Costs | ' |
p. | Shipping and Handling Fees and Costs | | | | | | | | | | |
The Company includes shipping and handling revenue earned from its Internet activities in net sales. Shipping and handling costs, which are included in cost of goods sold in the accompanying Consolidated Statements of Income, include shipping supplies, related labor costs and third-party shipping costs. |
Selling, General and Administrative Expenses | ' |
q. | Selling, General and Administrative Expenses | | | | | | | | | | |
Selling, general and administrative expenses in the accompanying Consolidated Statements of Income include advertising and marketing expenses, corporate administrative expenses, store expenses (including store payroll and store occupancy expenses), and store opening expenses. |
Advertising Costs | ' |
r. | Advertising Costs | | | | | | | | | | |
The Company expenses the costs of advertising when the advertising first occurs. Advertising expenses, including Internet advertising expenses, were $18,187,000, $16,984,000 and $13,878,000 in fiscal 2014, 2013 and 2012, respectively. |
Stock-based Compensation | ' |
s. | Stock-based Compensation | | | | | | | | | | |
The Company recognizes employee stock-based compensation as a cost in the accompanying Consolidated Statements of Income. Stock-based awards are measured at the grant date fair value and the compensation expense is recorded generally on a straight-line basis over the vesting period, net of estimated forfeitures. Excess tax benefits related to stock option exercises and restricted stock vesting, which are recognized in stockholders’ equity, are reflected as financing cash inflows. |
Store Closing, Asset Impairment and Asset Disposal Expenses | ' |
t. | Store Closing, Asset Impairment and Asset Disposal Expenses | | | | | | | | | | |
Store closing expenses include lease termination fees, gains or losses on disposal of closed store assets and recognition of unamortized deferred rent. Asset impairment expenses represent losses recognized to reduce the carrying value of impaired long-lived assets. Asset disposal expenses represent gains or losses on disposal of assets other than in connection with store closings, including assets disposed from remodeling or relocation of stores. |
Income Taxes | ' |
u. | Income Taxes | | | | | | | | | | |
The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities as well as from net operating loss carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. |
Under the accounting standard for uncertain income tax positions, recognition of a tax benefit occurs when a tax position is estimated by management to be more likely than not to be sustained upon examination, based solely on its technical merits. Derecognition of a previously recognized tax position would occur if it is subsequently determined that the tax position no longer meets the more-likely-than-not threshold of being sustained. Recognized tax positions are measured at the largest amount that management believes has a greater than 50% likelihood of being finalized. The Company records interest and penalties related to unrecognized tax benefits in income tax provision. |
Net Income Per Share and Cash Dividends | ' |
v. | Net Income per Share and Cash Dividends | | | | | | | | | | |
Basic net income (or earnings) per share (“Basic EPS”) is computed by dividing net income by the weighted average number of common shares outstanding, excluding restricted stock awards for which the restrictions have not lapsed. Diluted net income per share (“Diluted EPS”) 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 lapse of restrictions on restricted stock awards and exercise of stock options into shares of common stock as if those stock options were exercised. Common shares issuable in connection with the award of performance-based restricted stock units (“RSUs”) are excluded from the calculation of EPS until the RSUs’ performance conditions are achieved and the shares in respect of the RSUs become issuable (see Note 13). |
The following table summarizes those effects for the diluted net income per share calculation (in thousands, except per share amounts): |
|
| Year Ended September 30, | |
| 2014 | | | 2013 | | | 2012 | |
| | | | | | | | | | | |
Net income | $ | 10,497 | | | $ | 23,943 | | | $ | 19,372 | |
Net income per share—Basic | $ | 0.78 | | | $ | 1.8 | | | $ | 1.48 | |
Net income per share—Diluted | $ | 0.77 | | | $ | 1.78 | | | $ | 1.46 | |
Average number of shares outstanding—Basic | | 13,451 | | | | 13,272 | | | | 13,096 | |
Incremental shares from the assumed exercise of outstanding stock options | | 73 | | | | 108 | | | | 122 | |
Incremental shares from the assumed lapse of restrictions on restricted stock awards | | 48 | | | | 59 | | | | 49 | |
Average number of shares outstanding—Diluted | | 13,572 | | | | 13,439 | | | | 13,267 | |
In addition to performance-based RSUs, for fiscal 2014, 2013 and 2012 stock options and unvested restricted stock totaling approximately 201,000, 196,000 and 321,000 shares, respectively, were excluded from the calculation of Diluted EPS as their effect would have been antidilutive. |
During fiscal 2014, 2013 and 2012 the Company paid cash dividends totaling $10,772,000 ($0.7875 per share), $9,799,000 ($0.725 per share) and $9,325,000 ($0.70 per share), respectively. On November 13, 2014 the Company declared a quarterly cash dividend of $0.20 per share payable on December 26, 2014, which will require approximately $2,700,000 of available cash. |
Statements of Cash Flows | ' |
w. | Statements of Cash Flows | | | | | | | | | | |
In fiscal 2014, 2013 and 2012 the Company paid interest, including payments made on its interest rate swap agreement in fiscal 2012 (see Note 9), of $211,000, $360,000 and $1,359,000, respectively, and made income tax payments, net of refunds, of $8,460,000, $16,188,000 and $7,432,000, respectively. |
Business and Credit Risk | ' |
x. | Business and Credit Risk | | | | | | | | | | |
Financial instruments, primarily cash and cash equivalents and trade receivables, potentially subject the Company to concentrations of credit risk. The Company limits its credit risk associated with cash and cash equivalents by placing such investments in highly liquid funds and instruments. Trade receivables associated with third-party credit cards are processed by financial institutions, which are monitored for financial stability. Trade receivables associated with licensed brand, leased department, international franchise and other relationships are evaluated for collectibility based on a combination of factors, including aging of trade receivables, write-off experience and past payment trends. The Company is dependent on key suppliers to provide sufficient quantities of inventory at competitive prices. No single supplier represented 10% or more of net purchases in fiscal 2014, 2013 or 2012. A significant majority of the Company’s purchases during fiscal 2014, 2013 and 2012 were imported. Management believes that any event causing a disruption of imports from any specific country could be mitigated by moving production to readily available alternative sources. |
Insurance | ' |
y. | Insurance | | | | | | | | | | |
The Company is self-insured for workers’ compensation, general liability and automotive liability claims, and employee-related healthcare claims, up to certain stop-loss limits. Such costs are accrued based on known claims and an estimate of incurred but not reported claims. Further, the Company utilizes a cooperative arrangement with a number of other companies to assist in managing certain workers’ compensation and general liability insurance risks for loss occurrences prior to March 1, 2010. The Company’s expenses associated with this relationship could be impacted by the loss history associated with the cooperative as a whole. Liabilities associated with these risks are estimated by considering historical claims experience and other actuarial assumptions. |
Store Preopening Costs | ' |
z. | Store Preopening Costs | | | | | | | | | | |
Non-capital expenditures, such as payroll costs incurred prior to the opening of a new store, are charged to expense in the period in which they were incurred. |
Recent Accounting Pronouncements | ' |
aa. | Recent Accounting Pronouncements | | | | | | | | | | |
In May 2014 the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU No. 2014-09 requires an entity to recognize revenue for the amount of consideration to which it expects to be entitled for the transfer of promised goods or services to customers. Additionally, ASU No. 2014-09 requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. The standard will replace most existing revenue recognition guidance in generally accepted accounting principles in the United States (“GAAP”) when it becomes effective. ASU No. 2014-09 is effective for financial statements issued for annual reporting periods beginning after December 15, 2016 and interim periods within those years. Early adoption is not permitted. The impact from adoption of the new requirements of ASU No. 2014-09 on the Company’s consolidated financial position or results of operations has not yet been determined. |
In April 2014 the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU No. 2014-08 changes the requirements for reporting discontinued operations and improves the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. ASU No. 2014-08 also requires expanded disclosures for discontinued operations to provide users of financial statements with more information about the assets, liabilities, revenues, and expenses of discontinued operations. ASU No. 2014-08 is effective for all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within annual periods beginning on or after December 15, 2015. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. Adoption of the new requirements of ASU No. 2014-08 is not expected to have a material impact on the Company’s consolidated financial position or results of operations. |
In July 2013 the FASB issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU No. 2013-11 requires presentation of an unrecognized tax benefit 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. 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 would be presented in the financial statements as a liability and would not be combined with deferred tax assets. ASU No. 2013-11 is effective for financial statements issued for annual reporting periods beginning after December 15, 2013 and interim periods within those years. Adoption of the new requirements of ASU No. 2013-11 is not expected to have a material impact on the Company’s consolidated financial position or results of operations. |
In February 2013 the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU No. 2013-02 requires companies to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, companies are required to present, either on the face of the income statement or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. The standard does not change the current requirements for reporting net income or other comprehensive income in financial statements. ASU No. 2013-02 is effective for financial statements issued for annual reporting periods beginning after December 15, 2012 and interim periods within those years. Because this guidance impacts presentation only, the adoption of the new requirements of ASU No. 2013-02 did not have any impact on the Company’s consolidated financial position or results of operations. |