Quarterly report pursuant to Section 13 or 15(d)

Revenue Recognition

v3.10.0.1
Revenue Recognition
6 Months Ended
Aug. 04, 2018
Revenue Recognition  
Revenue Recognition

 

6.  Revenue Recognition

 

Adoption of ASC 606

 

Effective February 4, 2018, we adopted ASC 606, Revenue from Contracts with Customers and all related amendments (“ASC 606”), to all contracts using the modified retrospective approach.  We recognized the cumulative effect of initially applying ASC 606 as an adjustment to the opening balance of retained earnings.  The adoption had no impact to our previously reported results of operations or cash flows.  The comparative period information has not been restated and continues to be reported under the accounting standards in effect for the period presented. 

 

The following table depicts the cumulative effect of the changes made to our February 3, 2018 balance sheet for the adoption of ASC 606 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reported

 

 

 

Adjusted

 

 

 

Balance at

 

Impact of

 

Balance at

 

 

 

February 3,

 

Adoption of

 

February 3,

 

 

    

2018

    

ASU 606

    

2018

 

Assets:

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$

79,783

 

$

(303)

 

$

79,480

 

Inventories

 

 

851,931

 

 

(17,837)

 

 

834,094

 

Other current assets

 

 

78,252

 

 

2,753

 

 

81,005

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Accrued expenses and other current liabilities

 

 

285,537

 

 

32,378

 

 

317,915

 

Deferred taxes, net and other liabilities

 

 

164,191

 

 

(11,941)

 

 

152,250

 

Equity:

 

 

 

 

 

 

 

 

 

 

Accumulated deficit

 

 

(479,166)

 

 

(35,824)

 

 

(514,990)

 

 

The adoption of ASC 606 primarily impacted the timing of revenue recognition related to our customer loyalty program, gift cards and e-commerce sales within our retail segment, as discussed in more detail below.  In addition, for our corporate apparel segment, certain deferred revenue balances along with related inventory amounts were eliminated as part of the cumulative adjustment to opening retained earnings.  Also, for estimated sales returns, we now recognize allowances for estimated sales returns on a gross basis rather than a net basis on the condensed consolidated balance sheets.

Revenues

 

The following table depicts the disaggregation of revenue by major source (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

    

August 4, 2018

    

July 29, 2017

    

August 4, 2018

    

July 29, 2017

 

Net sales:

 

 

    

 

 

    

 

 

    

 

 

    

 

Men's tailored clothing product

 

$

356,504

 

$

341,182

 

$

712,241

 

$

673,812

 

Men's non-tailored clothing product

 

 

229,105

 

 

234,093

 

 

464,711

 

 

462,792

 

Women's clothing product

 

 

17,447

 

 

18,100

 

 

37,029

 

 

37,927

 

Other (1)

 

 

2,732

 

 

1,619

 

 

5,451

 

 

4,048

 

Total retail clothing product

 

 

605,788

 

 

594,994

 

 

1,219,432

 

 

1,178,579

 

Rental services

 

 

125,095

 

 

151,978

 

 

225,322

 

 

246,798

 

Alteration services

 

 

37,031

 

 

37,227

 

 

75,452

 

 

75,613

 

Retail dry cleaning services (2)

 

 

 —

 

 

8,799

 

 

2,551

 

 

17,313

 

Total alteration and other services

 

 

37,031

 

 

46,026

 

 

78,003

 

 

92,926

 

Total retail sales

 

 

767,914

 

 

792,998

 

 

1,522,757

 

 

1,518,303

 

Corporate apparel clothing product

 

 

55,516

 

 

57,760

 

 

118,637

 

 

115,361

 

Total net sales

 

$

823,430

 

$

850,758

 

$

1,641,394

 

$

1,633,664

 


(1)

Other consists of franchise and licensing revenues and gift card breakage.  Franchise revenues are generally recognized at a point in time while licensing revenues consist primarily of minimum guaranteed royalty amounts recognized over an elapsed time period.

(2)

On March 3, 2018, we completed the divestiture of our MW Cleaners business.  Please see Note 2 for additional information.

 

Please see Note 16 for additional information regarding our reporting segments.

 

Retail Segment

For retail clothing product revenue, we transfer control and recognize revenue at a point in time, upon sale or shipment of the merchandise, net of actual sales returns and a provision for estimated sales returns.  For rental and alteration services, we transfer control and recognize revenue at a point in time, upon receipt by the customer.  Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services.  Sales, use and value added taxes we collect from our customers and are remitted to governmental agencies are excluded from revenue.   

 

Loyalty Program

 

We maintain a customer loyalty program for our Men’s Wearhouse, Men’s Wearhouse and Tux, Jos. A. Bank and Moores brands in which customers receive points for purchases. Points are generally equivalent to dollars spent on a one‑to‑one basis, excluding any sales tax dollars, and do not expire. Upon reaching 500 points, customers are issued a $50 rewards certificate which they may redeem for purchases at our stores or online. Generally, reward certificates earned must be redeemed no later than six months from the date of issuance.  We believe our loyalty program represents a customer option that is a material right and, accordingly, is a performance obligation in the contract with our customer.  Therefore, we will record our obligation for future point redemptions using a deferred revenue model.  In prior years, we used an incremental cost approach where we accrued the estimated costs of the anticipated certificate redemptions when the certificates were issued and charged such costs to cost of sales.

 

When loyalty program members earn points, we recognize a portion of the transaction as revenue for merchandise product sales or services and defer a portion of the transaction representing the value of the related points. The value of the points is recorded in deferred revenue on our condensed consolidated balance sheet and recognized into revenue when the points are converted into a rewards certificate and the certificate is used.

 

We account for points earned and certificates issued that will never be redeemed by loyalty members, which we refer to as breakage. We review our breakage estimates at least annually based upon the latest available information regarding redemption and expiration patterns.

 

Our estimate of the expected expiration of points and certificates requires significant management judgment. Current and future changes to our assumptions or to loyalty program rules may result in material changes to the deferred revenue balance as well as recognized revenues from the loyalty program.  For example, during fiscal 2018, we plan to test potential changes to our loyalty program in order to improve the effectiveness of the program.

 

Gift Card Breakage

 

Proceeds from the sale of gift cards are recorded as a liability and are recognized as net sales from products and services when the cards are redeemed.  Our gift cards do not have expiration dates.  In addition, we recognize revenue for gift cards for which the likelihood of redemption is deemed to be remote and for which there is no legal obligation to remit the value of such unredeemed gift cards to any relevant jurisdictions (commonly referred to as gift card breakage) under the redemption recognition method. This method records gift card breakage as revenue on a proportional basis over the redemption period based on our historical gift card breakage rate. We review our gift card breakage estimate based on our historical redemption patterns.  In prior years, we recognized income from breakage of gift cards as a reduction of SG&A when the likelihood of redemption of the gift card was remote.

 

Sales Returns

 

Revenue from merchandise product sales and services is reported net of sales returns, which includes an estimate of future returns based on historical return rates, with a corresponding reduction to cost of sales. Our refund liability for sales returns was $5.9 million at August 4, 2018, which is included in accrued and other current liabilities and represents the expected value of the refund that will be due to our customers.  We also have a corresponding asset included in other current assets that represents the right to recover products from customers associated with sales returns of $2.6 million at August 4, 2018.  In prior years, we recognized a provision for estimated sales returns on a net basis.

 

Corporate Apparel Segment

 

For our corporate apparel segment, we sell corporate clothing and uniforms to workforces under a contract or by purchase order.  We transfer control and recognize revenue at a point in time, generally upon delivery of the product to the customer.  Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services.  Sales, use and value added taxes we collect from our customers and are remitted to governmental agencies are excluded from revenue.   

 

Contract Liabilities

 

The following table summarizes the opening and closing balances of our contract liabilities (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at

 

Increase

 

Balance at

 

 

    

February 3, 2018

    

(Decrease)

    

August 4, 2018

 

 

 

As Adjusted

 

 

 

 

 

 

 

Contract liabilities

 

$

141,552

 

$

21,858

 

$

163,410

 

 

Contract liabilities include cash payments received from customers in advance of our performance, including amounts which are refundable.  These liabilities primarily consist of customer deposits related to rental product or custom clothing transactions since we typically receive payment from our customers prior to our performance and deferred revenue related to our loyalty programs and unredeemed gift cards.  These amounts are included as “Customer deposits, prepayments and refunds payable,” “Loyalty program liabilities” and “Unredeemed gift cards,” respectively, within the accrued expenses and other current liabilities line item on our consolidated balance sheet.  Please see Note 10 for additional information on our accrued expenses and other current liabilities.

 

The amount of revenue recognized for the three and six months ended August 4, 2018 that was included in the opening contract liability balance was $62.4 million and $104.1 million, respectively.  This revenue primarily consists of recognition of deposits for completed transactions as well as redeemed certificates related to our loyalty program and gift card redemptions.

 

Practical Expedients and Impact on Fiscal 2018 Results

 

Due to the short term nature of a significant portion of our contracts with customers, we have elected to apply the practical expedients under ASC 606 to:  (1) not adjust the consideration for the effects of a significant financing component, (2) recognize incremental costs of obtaining a contract as expense when incurred and (3) not disclose the value of our unsatisfied performance obligations for contracts with an original expected duration of one year or less. 

 

In accordance with ASC 606, the following tables reflect the impact on our fiscal 2018 condensed consolidated statement of earnings and balance sheet as if we had continued to apply accounting standards in effect last year (“Legacy GAAP”) (in thousands, except per share amounts):

 

 

 

 

 

 

 

 

 

 

 

 

Statement of Earnings

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended August 4, 2018

 

 

 

As

 

Amounts Under

 

Effect of Change

 

 

    

Reported

    

Legacy GAAP

    

Increase/(Decrease)

 

Net sales:

 

 

 

 

 

 

 

 

 

 

Total retail sales

 

$

767,914

 

$

762,538

 

$

(5,376)

 

Corporate apparel clothing product

 

 

55,516

 

 

57,394

 

 

1,878

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

Total retail cost of sales

 

 

413,912

 

 

413,640

 

 

(272)

 

Total corporate apparel clothing product cost of sales

 

 

40,616

 

 

42,054

 

 

1,438

 

Selling, general and administrative expenses

 

 

242,255

 

 

241,847

 

 

(408)

 

Provision for income taxes

 

 

9,884

 

 

9,172

 

 

(712)

 

Net earnings

 

 

49,238

 

 

45,694

 

 

(3,544)

 

Diluted net earnings per common share

 

$

                   0.97

 

$

                  0.90

 

$

(0.07)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended August 4, 2018

 

 

 

As

 

Amounts Under

 

Effect of Change

 

 

    

Reported

    

Legacy GAAP

    

Increase/(Decrease)

 

Net sales:

 

 

 

 

 

 

 

 

 

 

Total retail sales

 

$

1,522,757

 

$

1,520,626

 

$

(2,131)

 

Corporate apparel clothing product

 

 

118,637

 

 

123,896

 

 

5,259

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

Total retail cost of sales

 

 

839,986

 

 

839,966

 

 

(20)

 

Total corporate apparel clothing product cost of sales

 

 

87,282

 

 

91,529

 

 

4,247

 

Selling, general and administrative expenses

 

 

493,349

 

 

492,604

 

 

(745)

 

Provision for income taxes

 

 

14,265

 

 

14,200

 

 

(65)

 

Net earnings

 

 

63,147

 

 

62,858

 

 

(289)

 

Diluted net earnings per common share

 

$

1.24

 

$

1.24

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet

 

August 4, 2018

 

 

 

As

 

Amounts Under

 

Effect of Change

 

 

    

Reported

    

Legacy GAAP

    

Increase/(Decrease)

 

Assets:

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$

65,099

 

$

67,978

 

$

2,879

 

Inventories

 

 

786,510

 

 

799,258

 

 

12,748

 

Other current assets

 

 

87,491

 

 

84,904

 

 

(2,587)

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Accrued expenses and other current liabilities

 

 

313,319

 

 

262,711

 

 

(50,608)

 

Deferred taxes, net and other liabilities

 

 

146,484

 

 

134,517

 

 

(11,967)

 

Equity:

 

 

 

 

 

 

 

 

 

 

Accumulated deficit

 

$

(470,377)

 

$

(434,842)

 

$

35,535