REVENUE

Net Sales

We recognize revenue for merchandise sales, net of expected returns and sales tax, at the time the guest takes possession of the merchandise. When merchandise is shipped to our guests, we estimate receipt based on historical experience. The liability for sales returns is estimated based on historical return rates and sales for the return period. We recognize a return asset and corresponding adjustment to cost of sales for our right to recover returned merchandise. At each financial reporting date, we assess our estimates of expected returns, refund liabilities and return assets. For merchandise sold in our stores and online, tender is accepted at the point of sale. When we receive payment before the guest has taken possession of the merchandise, the amount received is recorded as deferred revenue until the transaction is complete. Performance obligations for unfulfilled merchandise orders are typically satisfied within one week. Shipping and handling fees charged to guests relate to fulfillment activities and are included in net sales with the corresponding costs recorded in cost of sales.

We record deferred revenue for the sale of gift cards and merchandise credits issued for returned merchandise, and we recognize revenue in net sales upon redemption. Gift card and merchandise credit redemptions typically occur within 12 months of the date of issuance with the majority redeemed within the first three months. Our gift cards and merchandise credits do not expire. Based on historical redemption rates, a small percentage of gift cards and merchandise credits will never be redeemed. We recognize estimated breakage income for gift cards and merchandise credits that will never be redeemed in proportion to actual historical redemption patterns.

Under our loyalty programs, members can accumulate points, based on their spending levels, toward earning a reward certificate that can be redeemed for future merchandise purchases. Points earned by loyalty members reset to zero at the end of each calendar year. Reward certificates expire 30 days and 60 days after the date of issuance for our department stores and off-price stores, respectively. We allocate and defer a portion of our sales to reward certificates expected to be earned, based on the relative stand-alone sales transaction price and reward certificate value, and then recognize the reward certificate as a net sale when it is redeemed.

The following table sets forth the composition of net sales by merchandise category for each period presented (in thousands):



	Three Months Ended
	May 5, 2018								April 29, 2017
Merchandise Category	Department Stores			Off-price Stores		Total Company			Department Stores			Off-price Stores			Total Company
Women’s	$	103,487		$	19,967	$	123,454		$	113,392		$	5,104		$	118,496
Men’s	41,336			7,545		48,881			42,472			2,069			44,541
Children's	29,078			8,096		37,174			32,688			1,933			34,621
Apparel	173,901			35,608		209,509			188,552			9,106			197,658

Footwear	44,483			4,819		49,302			45,643			405			46,048
Accessories	18,872			4,366		23,238			20,262			1,595			21,857
Cosmetics/Fragrances	31,186			2,482		33,668			28,937			727			29,664
Home/Gifts/Other	12,809			18,507		31,316			10,916			4,987			15,903
Non-apparel	107,350			30,174		137,524			105,758			7,714			113,472

Revenue adjustments not allocated^(a)	(2,888		)	84		(2,804		)	(2,005		)	(518		)	(2,523		)

Net sales	$	278,363		$	65,866	$	344,229		$	292,305		$	16,302		$	308,607

^(a) Includes adjustments related to deferred revenue, estimated sales returns, breakage income, shipping and miscellaneous revenues, which are not allocated to merchandise categories.

Credit Income

The portfolio for our private label credit card is owned and serviced by Comenity Bank, an affiliate of Alliance Data Systems Corporation. Comenity Bank manages the account activation, receivables funding, card authorization, card issuance, statement generation, remittance processing and guest service functions for our private label credit card program. We perform certain duties, including electronic processing and transmitting of transaction records, and executing marketing promotions designed to increase card usage. We also accept payments in our stores from cardholders on behalf of Comenity Bank. We receive a monthly net portfolio yield payment from Comenity Bank, and can potentially earn an annual bonus based upon the performance of the private label credit card portfolio. The receivable for credit income, which is recorded in prepaid expenses and other current assets, was $4.7 million, $5.8 million, $4.1 million and $4.9 million as of May 5, 2018, February 3, 2018, April 29, 2017 and January 28, 2017, respectively.

Contract Liabilities

Contract liabilities reflect performance obligations related to gift cards, merchandise credits, loyalty program rewards and unfulfilled merchandise orders that have not been satisfied as of a given date. Contract liabilities are recorded in accrued expenses and other current liabilities. Contract liabilities for each period presented were as follows (in thousands):



	May 5, 2018		February 3, 2018		April 29, 2017
Gift cards and merchandise credits, net	$	10,159	$	12,122	$	8,964
Loyalty program rewards, net	3,081		1,118		1,759
Merchandise fulfillment liability	788		234		580
Total contract liabilities	$	14,028	$	13,474	$	11,303

The following table summarizes contract liability activity for each period presented (in thousands):



	Three Months Ended
	May 5, 2018			April 29, 2017
Beginning balance	$	13,474		$	11,669
Net sales recognized during the period from amounts included in contract liability balances at the beginning of the period	(4,669		)	(2,909		)
Current period additions to contract liability balances included in contract liability balances at the end of the period	5,223			2,543
Ending balance	$	14,028		$	11,303