XML 34 R20.htm IDEA: XBRL DOCUMENT

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Jan. 28, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

The consolidated financial statements of our Company include its accounts and the accounts of all wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Occasionally, certain reclassifications are made to conform previously reported data to the current presentation. Such reclassifications had no impact on total assets, total liabilities, net income or stockholders' investment in any of the years presented.

Use of Estimates in the Preparation of Consolidated Financial Statements

The preparation of consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (U.S. GAAP) requires management to make estimates and assumptions that affect:

the reported amounts of certain assets, including inventories and property and equipment;

the reported amounts of certain liabilities, including legal, tax-related and other accruals; and

the reported amounts of certain revenues and expenses during the reporting period.

The assumptions used by management could change significantly in future estimates due to changes in circumstances and actual results could differ from those estimates.

Reportable Segments

Given the economic characteristics of the store formats, the similar nature of products offered for sale, the type of customers, the methods of distribution and how our Company is managed, our operations constitute only one reportable segment.

Vendor Arrangements

We enter into arrangements with some of our vendors that entitle us to a partial refund of the cost of merchandise purchased during the year or reimbursement of certain costs we incur to advertise or otherwise promote their product. Volume-based rebates, supported by vendor agreements, are estimated throughout the year and reduce the cost of inventories and cost of goods sold during the year. This estimate is regularly monitored and adjusted for current or anticipated changes in purchase levels and for sales activity.

We also receive consideration from vendors through a variety of other programs, including markdown reimbursements, vendor compliance charges and defective merchandise credits. If the payment is a reimbursement for costs incurred, it is recognized as an offset against those related costs; otherwise, it is treated as a reduction to the cost of merchandise. Markdown reimbursements related to merchandise that has been sold are negotiated by our merchandising teams and are credited directly to cost of goods sold in the period received. If vendor funds are received prior to merchandise being sold, they are recorded as a reduction of merchandise cost. Vendor compliance charges and defective merchandise credits reduce the cost of inventories.

Advertising

We expense advertising costs when incurred. We participate in various advertising and marketing cooperative programs with our vendors, who, under these programs, reimburse us for certain costs incurred. A receivable for cooperative advertising to be reimbursed is recorded as a decrease to expense as advertisements are run.

The following table presents the components of our advertising expense (in thousands):

	Fiscal Year Ended
	January 28, 2017				January 30, 2016				January 31, 2015
Gross advertising costs		$	10,382			$	9,983			$	9,763
Advertising reimbursements			(3,319	)			(2,949	)			(3,456	)
Net advertising costs		$	7,063			$	7,034			$	6,307

Cost of Goods Sold

We include inbound freight charges, merchandise purchases, store occupancy costs and a portion of our logistics costs related to our retail business in cost of goods sold. Costs associated with moving merchandise to and between stores are included in store operating, selling and administrative expenses.

Cash and Cash Equivalents

We consider all short-term, highly liquid investments with original maturities of 90 days or less, including commercial paper and money market funds, to be cash equivalents. We are exposed to credit risk in the event of default by our financial institutions where we maintain deposits to the extent the amount recorded on the consolidated balance sheet exceeds the FDIC insurance limits per institution. Amounts due from third-party credit card processors for the settlement of debit and credit card transactions are included as cash equivalents as they are generally collected within three business days. Cash equivalents related to credit and debit card transactions at January 28, 2017 and January 30, 2016 were $3.7 million and $4.3 million, respectively.

Investments

We hold investments in trust for the Hibbett Sports, Inc. Supplemental 401(k) Plan (Supplemental Plan) and the Hibbett Sports, Inc. Executive Voluntary Deferral Plan (Deferral Plan). These are trading securities. At January 28, 2017, we had $2.7 million of investments of which $0.1 million was included in prepaid expenses and other and $2.6 million was included in other assets, net. At January 30, 2016, we had $2.6 million of investments of which $0.1 million was included in prepaid expenses and other and $2.5 million was included in other assets, net. Net unrealized holding gains for Fiscal 2017 was $0.1 million and net unrealized holding losses for Fiscal 2016 were $0.1 million.

Trade and Other Accounts Receivable

Trade accounts receivable consist primarily of amounts due to us from sales to educational institutions for athletic programs. We do not require collateral, and we maintain an allowance for potential uncollectible accounts based on an analysis of the aging of accounts receivable at the date of the financial statements, historical losses and existing economic conditions, when relevant. The allowance for doubtful accounts at January 28, 2017 and January 20, 2016 was $79,000 and $89,000, respectively.

Other accounts receivable consists primarily of tenant allowances due from landlords and cooperative advertising due from vendors. We analyze other accounts receivable for collectability based on aging of individual components, underlying contractual terms and economic conditions. Recorded amounts are deemed to be collectible.

Inventories and Valuation

Inventories

Inventories are valued using the lower of weighted average cost or market method. Items are removed from inventory using the weighted average cost method.

Lower of Cost or Market: Market is determined based on estimated net realizable value. We regularly review inventories to determine if the carrying value exceeds realizable value, and we record an accrual to reduce the carrying value to net realizable value as necessary. We account for obsolescence as part of our lower of cost or market accrual based on historical trends and specific identification. As of January 28, 2017 and January 30, 2016, the accrual was $5.5 million and $3.7 million, respectively. A determination of net realizable value requires significant judgment.

Shrink Reserves: We accrue for inventory shrinkage based on the actual historical results of our physical inventory counts. These estimates are compared to actual results as physical inventory counts are performed and reconciled to the general ledger. Physical inventory counts are performed on a cyclical basis. As of January 28, 2017 and January 30, 2016, the accrual was $1.3 million.

Inventory Purchase Concentration: Our business is dependent to a significant degree upon close relationships with our vendors. Our largest vendor, Nike, represented 56.8%, 57.5% and 55.7% of our purchases for Fiscal 2017, Fiscal 2016 and Fiscal 2015, respectively. Our second largest vendor, Under Armour, represented 16.4%, 15.9% and 15.4% of our purchases. Our third largest vendor represented 5.5%, 4.2% and 6.4% of our purchases for Fiscal 2017, Fiscal 2016 and Fiscal 2015, respectively.

Consignment Inventories: Consignment inventories, which are owned by the vendor but located in our stores, are not reported as our inventory until title is transferred to us or our purchase obligation is determined. At January 28, 2017 and January 30, 2016, vendor-owned inventories held at our locations (and not reported as our inventory) were $7.2 million and $5.7 million, respectively.

Property and Equipment

Property and equipment are recorded at cost and include assets acquired through capital leases. Depreciation on assets is principally provided using the straight-line method over the following estimated service lives:

Buildings	39 years
Leasehold improvements	3 – 10 years
Furniture and fixtures	7 years
Equipment	3 – 7 years

In the case of leasehold improvements, we calculate depreciation using the shorter of the term of the underlying leases or the estimated economic lives of the improvements. The term of the lease includes renewal option periods only in instances in which the exercise of the renewal option can be reasonably assured and failure to exercise such option would result in an economic penalty. We continually reassess the remaining useful life of leasehold improvements in light of store closing plans.

Construction in progress has historically been comprised primarily of property and equipment related to unopened stores and amounts associated with technology upgrades at period-end. At January 28, 2017, approximately 71% of the construction in progress balance was comprised of costs associated with information technology capital projects. The remaining balance consisted primarily of costs associated with logistics facility upgrades to support our omni-channel initiative.

Maintenance and repairs are charged to expense as incurred. The cost and accumulated depreciation of assets sold, retired or otherwise disposed of are removed from property and equipment and the related gain or loss is credited or charged to net income.

Deferred Rent

Deferred rent primarily consists of step rent and allowances from landlords related to our leased properties. Step rent represents the difference between actual operating lease payments due and straight-line rent expense, which we record over the term of the lease, including the build-out period. This amount is recorded as deferred rent in the early years of the lease, when cash payments are generally lower than straight-line rent expense, and reduced in the later years of the lease when payments begin to exceed the straight-line rent expense. Landlord allowances are generally comprised of amounts received and/or promised to us by landlords and may be received in the form of cash or free rent. We record a receivable from the landlord in accordance with the terms of the lease and a deferred rent liability. This deferred rent is amortized into net income (through lower rent expense) over the term (including the pre-opening build-out period) of the applicable lease, and the receivable is reduced as amounts are realized from the landlord.

In our consolidated statements of cash flows, the current and long-term portions of landlord allowances are included as changes in cash flows from operations. The current portion is included as a change in accrued expenses and the long-term portion is included as a change in deferred rent, non-current. The liability for the current portion of unamortized landlord allowances was $4.6 million and $3.7 million at January 28, 2017 and January 30, 2016, respectively. The liability for the long-term portion of unamortized landlord allowances was $16.4 million and $14.4 million at January 28, 2017 and January 30, 2016, respectively. We estimate the non-cash portion of landlord allowances was $1.4 million and $1.1 million at January 28, 2017 and January 30, 2016, respectively.

Revenue Recognition

We recognize revenue, including layaway, customer order and gift card sales, in accordance with the Accounting Standards Codification (ASC) Topic 605, Revenue Recognition. Retail merchandise sales occur on-site in our stores. We recognize revenue at the time the customer takes possession of the merchandise. Retail sales are recorded net of returns and discounts and exclude sales taxes.

Layaways: Customers have the option of paying a down payment and placing merchandise on layaway. The customer may make further payments in installments, but the entire purchase price must be received by us within 30 days. The down payment and any installments are recorded as short-term deferred revenue until the customer pays the entire purchase price for the merchandise.

Customer Orders: Customers may order merchandise available in other Hibbett store locations for pickup in the selling store at a later date. Customers make a deposit payment with the remaining balance due at pickup. The deposits are recorded as short-term deferred revenue until the remaining balance is paid and the customer takes possession of the merchandise.

Customer Loyalty Program: We offer a customer loyalty program, the MVP Rewards program, whereby customers, upon registration, can earn reward certificates that can be redeemed in our stores. An estimate of the obligation related to the program, based on historical certificate redemption rates, is recorded as a current liability and a reduction of net retail sales in the period earned by the customer. At January 28, 2017 and January 30, 2016, the amount recorded in other accrued expenses on our consolidated balance sheet for reward certificates issued was not material.

Gift Cards: Proceeds received from the issuance of our non-expiring gift cards are initially recorded as deferred revenue. Revenue is subsequently recognized at the time the customer redeems the gift cards and takes possession of the merchandise. Unredeemed gift cards are recorded as other accrued expenses on our consolidated balance sheet.

The net deferred revenue liability for gift cards, customer orders and layaways at January 28, 2017 and January 30, 2016 was $5.8 million and $5.5 million, respectively. Income from unredeemed gift cards is recognized on our consolidated statements of operations as a reduction to store operating, selling and administrative expenses when the likelihood of redemption becomes remote. We have determined the likelihood of redemption is remote when redemptions are equal to or less than five percent of the remaining balances of gift cards aged by activation year. Gift card breakage was not material in Fiscal 2017, Fiscal 2016 or Fiscal 2015.

Store Opening and Closing Costs

New store opening costs, including pre-opening costs, are charged to expense as incurred. Store opening costs primarily include payroll expenses, training costs and straight-line rent expenses. All pre-opening costs are included in store operating, selling and administrative expenses as a part of operating expenses.

We consider individual store closings to be a normal part of operations and regularly review store performance against expectations. Costs associated with store closings are recognized at the time of closing or when a liability has been incurred. These costs were not significant in Fiscal 2017, Fiscal 2016 or Fiscal 2015.

Impairment of Long-Lived Assets

We continually evaluate whether events and circumstances have occurred that indicate the remaining balance of long-lived assets may be impaired and not recoverable. Our policy is to recognize any impairment loss on long-lived assets as a charge to current income when certain events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Impairment is assessed considering the estimated undiscounted cash flows over the asset's remaining life. If estimated cash flows are insufficient to recover the investment, an impairment loss is recognized based on a comparison of the cost of the asset to fair value less any costs of disposition. Evaluation of asset impairment requires significant judgment.

Insurance Accrual

We are self-insured for a significant portion of our health insurance. Liabilities associated with the risks that are retained by us are estimated, in part, by considering our historical claims experience. The estimated accruals for these liabilities could be affected if future occurrences and claims differ from our assumptions. To minimize our potential exposure, we carry stop-loss insurance that reimburses us for losses over $0.2 million per covered person per year. As of January 28, 2017 and January 30, 2016, the accrual for these liabilities was $0.6 million and $0.7 million, respectively, and was included in other accrued expenses in the consolidated balance sheets.

We are also self-insured for our workers' compensation, property and general liability insurance up to an established deductible with a cumulative stop-loss on workers' compensation. As of January 28, 2017 and January 30, 2016, the accrual for these liabilities (which is not discounted) was $0.7 million and $0.4 million and was included in other accrued expenses in the consolidated balance sheets.

Sales Returns

Net sales returns were $37.8 million for Fiscal 2017, $34.8 million for Fiscal 2016 and $32.3 million for Fiscal 2015. The accrual for the effect of estimated returns was $0.4 million as of January 28, 2017 and January 30, 2016, and was included in other accrued expenses in the consolidated balance sheets. Determination of the accrual for estimated returns requires significant judgment.