Annual report pursuant to Section 13 and 15(d)

REVENUE RECOGNITION

v3.20.1
REVENUE RECOGNITION
12 Months Ended
Feb. 01, 2020
REVENUE RECOGNITION  
REVENUE RECOGNITION

7.  REVENUE RECOGNITION

Adoption of ASC 606

Effective February 4, 2018, we adopted 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 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

    

ASC 606

    

2018

 

Assets:

Accounts receivable, net

$

36,288

$

(303)

$

35,985

Other current assets

 

77,228

 

2,753

 

79,981

Current assets - discontinued operations

182,862

(17,837)

165,025

Liabilities:

Accrued expenses and other current liabilities

246,946

52,673

299,619

Current liabilities - discontinued operations

62,188

(20,295)

41,893

Deferred taxes, net and other liabilities

160,163

(12,555)

147,608

Non-current liabilities - discontinued operations

4,028

614

4,642

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 programs, gift cards and e-commerce sales, as discussed in more detail below.  In addition, for our corporate apparel business, which has been reclassified to discontinued operations, 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 consolidated balance sheets.

Revenues

The following table sets forth supplemental products and services sales information for the Company (in thousands):

Fiscal Year

 

 

2019

    

2018

    

2017

 

Net sales:

    

    

    

Men's tailored clothing product

$

1,305,913

$

1,385,320

$

1,351,881

Men's non-tailored clothing product

 

971,509

 

988,973

 

1,008,663

Women's clothing product

68,354

 

68,518

 

70,630

Other (1)

 

12,616

 

11,936

 

8,643

Total retail clothing product

 

2,358,392

 

2,454,747

 

2,439,817

Rental services

 

383,521

 

399,146

 

428,355

Alteration services

 

139,348

 

148,067

 

150,005

Retail dry cleaning services (2)

 

 

2,551

 

34,844

Total alteration and other services

 

139,348

 

150,618

 

184,849

Total net sales

$

2,881,261

$

3,004,511

$

3,053,021

(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.  See Note 3 for additional information.

Additional net sales information is as follows (in thousands):

Fiscal Year

 

 

2019

    

2018

    

2017

 

Net sales:

    

    

    

Men's Wearhouse(1)

$

1,655,924

$

1,741,983

$

1,742,668

Jos. A. Bank

706,040

722,887

735,149

K&G

 

318,363

 

319,476

 

323,994

Moores

 

200,934

 

217,614

 

216,366

MW Cleaners(2)

 

 

2,551

 

34,844

Total net sales

$

2,881,261

$

3,004,511

$

3,053,021

(1) Consists of Men’s Wearhouse, Men’s Wearhouse and Tux, tuxedo shops within Macy's (all 170 of which were closed during 2017) and Joseph Abboud.
(2) On March 3, 2018, we completed the divestiture of our MW Cleaners business. See Note 3 for additional information.

The table below presents information related to geographic areas in which we operate, with net sales classified based primarily on the geographic area where our customer is located (in thousands):

Fiscal Year

 

    

2019

    

2018

    

2017

 

Net sales:

    

    

    

U.S.

$

2,680,327

$

2,786,897

$

2,836,655

Canada

 

200,934

 

217,614

 

216,366

Total net sales

$

2,881,261

$

3,004,511

$

3,053,021

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 an accrual for estimated sales returns.  For rental and alteration services, we transfer control and recognize revenue at a point in time, upon receipt of the completed service 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 Programs

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, historically, did not expire.  During the fourth quarter of 2018, we finalized our decision to implement an expiration policy for loyalty program points beginning in the second quarter of fiscal 2019, which was completed.  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 programs represents a customer option that is a material right and, accordingly, is a performance obligation in the contract with our customer.  Therefore, we record our obligation for future point redemptions using a deferred revenue model.  

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 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 not 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.

During the fourth quarter of 2018, we redeemed certain loyalty members’ cumulative outstanding points into reward certificates prior to them reaching 500 total points, and these certificates expired on February 2, 2019.  In addition, we finalized our decision to implement an expiration policy for loyalty program points beginning in the second quarter of fiscal 2019, which was completed.  As a result of these changes in the loyalty programs, in fiscal 2018, we recorded a decrease to our deferred revenue liability related to outstanding loyalty program points of $17.6 million, $14.3 million net of income taxes, or $0.28 earnings per diluted share. 

Our estimate of the expected usage 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 programs.

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.  Pre-tax breakage income of $3.5 and $3.1 million was recognized during fiscal 2019 and 2018, respectively. 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. Pre-tax breakage income of $3.2 million was recognized during fiscal 2017.

Sales Returns

Revenue from merchandise product sales 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 $5.8 million and $6.4 million at February 1, 2020 and February 2, 2019, respectively, 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 $3.0 million and $3.2 million at February 1, 2020 and February 2, 2019, respectively.

Contract Liabilities

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

Balance at

Increase

Balance at

    

February 2, 2019

    

(Decrease)

    

February 1, 2020

Contract liabilities

$

121,796

$

(261)

$

121,535

Balance at

Increase

Balance at

    

February 3, 2018

    

(Decrease)

    

February 2, 2019

As Adjusted

Contract liabilities

$

139,809

$

(18,013)

$

121,796

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 primarily 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 sheets.  See Note 11 for additional information on our accrued expenses and other current liabilities.

The amount of revenue recognized for fiscal 2019 and 2018 that was included in the opening contract liability balance was $81.7 million and $100.0 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.  Fiscal 2018 also includes the impact of changes related to our loyalty programs of $17.6 million.