3. REVENUES

Effective January 29, 2018, the Company adopted ASC 606 using the modified retrospective method. The comparative information presented in the condensed consolidated financial statements is not restated and is reported under the accounting standards in effect for those periods presented. See Note 15 “Recent Accounting Pronouncements” for a discussion of the significant changes resulting from the adoption of ASC 606.

The Company’s revenue primarily consists of the sale of apparel, footwear and hard goods. For the Company’s direct segment, revenues are recognized upon shipment following customer payment, which is when the customer obtains control of the product and has the ability to direct the use of the product, including, among other options, the ability to redirect the product to a different shipping destination. For the Company’s retail segment, revenues are recognized at the point of sale. The Company provides the customer the right of return on the product and revenue is adjusted based on an estimate of the expected returns based on historical rates as well as events that may cause changes to historical rates. See Note 5 “Accrued Expense and Other Liabilities” for the Company’s product returns reserve. The Company considers the sale of products in either the direct or retail segment as a single performance obligation. Shipping and processing revenue generated from customer orders are included as a component of net sales and shipping and processing expense, including handling expense, is included as a component of selling, general and administrative expenses. Sales tax collected from customers and remitted to taxing authorities is excluded from revenue and is included in accrued expenses.

The Company’s contract assets primarily consist of the right of return for amounts of inventory to be returned that is expected to be resold and is recorded in Prepaid expenses and other current assets on the Company’s consolidated balance sheets. As of February 3, 2019, the amount related the right of return for inventory to be resold was $0.9 million. The Company’s contract liabilities primarily consist of gift card liabilities and are recorded in accrued expenses and other current liabilities under deferred revenue (see Note 5 “Accrued Expenses and Other Current Liabilities”) on the Company’s consolidated balance sheets. Upon the issuance of a gift card, a liability is established for its cash value. The gift card liability is relieved and revenues on gift cards are recorded at the time of redemption by the customer. Based on historical redemption patterns, gift cards are generally redeemed within one year and gift card breakage is not material.

The following table presents the impact of the adoption of ASC 606 on the Company’s consolidated balance sheets as of January 29, 2018, the first day of fiscal 2018:


	January 28, 2018		Adjustments due to ASC 606		January 29, 2018
(in thousands)
Inventory, net	$	89,548	$	(629)	$	88,919
Prepaid expenses & other current assets		7,642		1,073		8,715
Prepaid catalog costs		1,446		(1,365)		81
Total current assets		101,826		(921)		100,905
Total assets		223,102		(921)		222,181

Accrued expenses and other current liabilities		25,261		(45)		25,216
Income taxes payable		7,631		149		7,780
Total current liabilities		50,296		104		50,400
Deferred tax liabilities		2,100		(377)		1,723
Total liabilities		83,753		(273)		83,480
Total shareholders' equity		139,349		(648)		138,701
Total liabilities and shareholders' equity		223,102		(921)		222,181

The following tables present the effects of the adoption of ASC 606 on the Company’s consolidated balance sheets as of February 3, 2019 and the Company’s consolidated statements of operations for the year ended February 3, 2019:


	February 3, 2019
	As Reported		Adjustments due to ASC 606		Balances without Adoption of ASC 606
(in thousands)
Inventory, net	$	97,685	$	1,607	$	99,292
Prepaid expenses & other current assets		12,640		(52)		12,588
Prepaid catalog costs		2,503		2,198		4,701
Total current assets		118,198		3,753		121,951
Total assets		296,759		3,753		300,512

Accrued expenses and other current liabilities		26,530		2,656		29,186
Total current liabilities		52,611		2,656		55,267
Deferred tax liabilities		9,722		285		10,007
Total liabilities		136,649		2,941		139,590
Total shareholders' equity		160,110		812		160,922
Total liabilities and shareholders' equity		296,759		3,753		300,512


	February 3, 2019
	As Reported		Adjustments due to ASC 606		Balances without Adoption of ASC 606
(in thousands)
Net sales	$	568,102	$	(2,905)	$	565,197
Cost of goods sold (excluding depreciation and amortization)		257,700		(1,959)		255,741
Gross profit		310,402		(946)		309,456
Selling, general and administrative expenses		273,221		(1,167)		272,054
Operating income		37,181		221		37,402
Interest expense		5,949		-		5,949
Other income, net		383		-		383
Income before income taxes		31,615		221		31,836
Income tax expense		8,450		57		8,507
Net income		23,165		164		23,329
Less: Net income attributable to noncontrolling interest		9		-		9
Net income attributable to controlling interest	$	23,156	$	164	$	23,320