REVENUE

Net Sales

We recognize revenue for merchandise sales, net of expected returns and sales tax, at the time of in-store purchase or delivery of the product to our guest. When merchandise is shipped to our guests, we estimate receipt based on historical experience. Revenue is deferred and a liability is established for sales returns based on historical return rates and sales for the return period. We recognize an 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. Our 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, 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 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 recognize the reward certificate as a net sale when it is redeemed.

The following table presents the composition of net sales by merchandise category (in thousands):



	Three Months Ended
	August 4, 2018									July 29, 2017
Merchandise Category	Department Stores			Off-price Stores			Total Company			Department Stores		Off-price Stores			Total Company
Women’s	$	117,209		$	19,264		$	136,473		$	126,695	$	17,022		$	143,717
Men’s	53,124			8,913			62,037			54,442		7,625			62,067
Children's	29,400			7,530			36,930			29,397		6,217			35,614
Apparel	199,733			35,707			235,440			210,534		30,864			241,398

Footwear	45,141			4,505			49,646			43,864		756			44,620
Accessories	18,426			3,889			22,315			20,991		5,184			26,175
Cosmetics/Fragrances	31,287			2,428			33,715			32,860		2,558			35,418
Home/Gifts/Other	11,989			16,746			28,735			11,093		16,175			27,268
Non-apparel	106,843			27,568			134,411			108,808		24,673			133,481

Revenue adjustments not allocated^(a)	(281		)	(276		)	(557		)	2,224		(22		)	2,202

Net sales	$	306,295		$	62,999		$	369,294		$	321,566	$	55,515		$	377,081



	Six Months Ended
	August 4, 2018									July 29, 2017
Merchandise Category	Department Stores			Off-price Stores			Total Company			Department Stores		Off-price Stores			Total Company
Women’s	$	220,696		$	39,231		$	259,927		$	240,087	$	22,126		$	262,213
Men’s	94,460			16,458			110,918			96,914		9,694			106,608
Children's	58,478			15,626			74,104			62,085		8,150			70,235
Apparel	373,634			71,315			444,949			399,086		39,970			439,056

Footwear	89,624			9,324			98,948			89,507		1,161			90,668
Accessories	37,298			8,255			45,553			41,253		6,779			48,032
Cosmetics/Fragrances	62,473			4,910			67,383			61,797		3,285			65,082
Home/Gifts/Other	24,798			35,253			60,051			22,009		21,162			43,171
Non-apparel	214,193			57,742			271,935			214,566		32,387			246,953

Revenue adjustments not allocated^(a)	(3,169		)	(192		)	(3,361		)	219		(540		)	(321		)

Net sales	$	584,658		$	128,865		$	713,523		$	613,871	$	71,817		$	685,688

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

Contract Liabilities

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



	August 4, 2018		February 3, 2018		July 29, 2017
Gift cards and merchandise credits, net	$	9,657	$	12,122	$	8,883
Loyalty program rewards, net	4,612		1,118		630
Merchandise fulfillment liability	850		234		886
Total contract liabilities	$	15,119	$	13,474	$	10,399

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



	Three Months Ended						Six Months Ended
	August 4, 2018			July 29, 2017			August 4, 2018			July 29, 2017
Beginning balance	14,028			11,303			$	13,474		$	11,669
Net sales recognized during the period from amounts included in contract liability balances at the beginning of the period	(5,484		)	(3,833		)	(6,284		)	(4,403		)
Current period additions to contract liability balances included in contract liability balances at the end of the period	6,575			2,929			7,929			3,133
Ending balance	$	15,119		$	10,399		$	15,119		$	10,399

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 we 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 August 4, 2018, February 3, 2018, July 29, 2017 and January 28, 2017, respectively.