Quarterly report pursuant to Section 13 or 15(d)

REVENUE RECOGNITION

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REVENUE RECOGNITION
9 Months Ended
Nov. 03, 2018
REVENUE RECOGNITION  
REVENUE RECOGNITION

2. REVENUE RECOGNITION

 

Our revenue is primarily associated with sales of merchandise to customers within our stores, customers utilizing our e-commerce platforms and through our Darice wholesale business (“Darice”). Revenue is measured based on the amount of consideration that we expect to receive, reduced by estimates for return allowances, point-of-sale coupons and discounts. Revenue also excludes any amounts collected on behalf of third parties, including sales tax. Revenue from sales of our merchandise is recognized when the customer takes possession of the merchandise. Payment for our retail sales is typically due at the time of the sale.

 

Right of Return

 

We allow for merchandise to be returned under most circumstances up to 180 days after purchase. A sales return reserve is established using historical customer return behavior and reduces both revenue and cost of goods sold. Historically, the sales returns reserve was presented net of cost of sales in other current liabilities in the consolidated balance sheets. As a result of adopting ASU 2014-09, the Company presents the gross sales return reserve in other current liabilities and the estimated value of the merchandise expected to be returned in prepaid expenses and other in the consolidated balance sheets. The change did not have a material impact on our consolidated balance sheet as of November 3, 2018.

 

Customer Receivables

 

As of November 3, 2018, February 3, 2018 and October 28, 2017, receivables from customers, which consist primarily of trade receivables related to Darice, were approximately  $30.5 million,  $19.2  million and $23.5 million, respectively, and are included in accounts receivable, net in the consolidated balance sheets.

 

Gift Cards

 

We record a gift card liability on the date we issue the gift card to the customer. We record revenue and reduce the gift card liability as the customer redeems the gift card or when the likelihood of redemption by the customer is remote (“gift card breakage”). We estimate gift card breakage using the expected value method based on customers’ historical redemption rates and patterns. Gift card breakage income is recorded in net sales in the consolidated statements of comprehensive income over the estimated redemption period. The gift card liability is included in accrued liabilities and other in the consolidated balance sheets.

 

The following table includes activity related to gift cards (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13 Weeks Ended

 

39 Weeks Ended

 

 

November 3,

 

October 28,

 

November 3,

 

October 28,

 

 

2018

 

2017

 

2018

 

2017

Balance at beginning of period

 

$

50,513

 

$

44,185

 

$

56,729

 

$

49,869

Issuance of gift cards

 

 

12,077

 

 

11,582

 

 

36,873

 

 

36,536

Revenue recognized (1)

 

 

(12,403)

 

 

(11,678)

 

 

(41,541)

 

 

(41,190)

Gift card breakage

 

 

(749)

 

 

(454)

 

 

(2,623)

 

 

(1,580)

Balance at end of period

 

$

49,438

 

$

43,635

 

$

49,438

 

$

43,635


(1)

Revenue recognized from the beginning liability during the third quarters of fiscal 2018 and fiscal 2017 totaled $7.1 million. Revenue recognized from the beginning liability during the first nine months of fiscal 2018 and fiscal 2017 totaled $19.9 million and $19.4 million, respectively.