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
	November 3, 2018							October 28, 2017
Merchandise Category	Department Stores		Off-price Stores			Total Company		Department Stores			Off-price Stores		Total Company
Women’s	$	94,732	$	19,934		$	114,666	$	105,805		$	19,366	$	125,171
Men’s	43,954		11,230			55,184		47,674			9,327		57,001
Children's	29,682		10,635			40,317		34,813			9,565		44,378
Apparel	168,368		41,799			210,167		188,292			38,258		226,550

Footwear	44,400		4,594			48,994		45,329			1,235		46,564
Accessories	17,823		4,863			22,686		19,792			5,153		24,945
Cosmetics/Fragrances	27,822		2,620			30,442		28,843			2,569		31,412
Home/Gifts/Other	16,665		18,074			34,739		13,699			14,460		28,159
Non-apparel	106,710		30,151			136,861		107,663			23,417		131,080

Revenue adjustments not allocated^(a)	183		(111		)	72		(493		)	99		(394		)

Net sales	$	275,261	$	71,839		$	347,100	$	295,462		$	61,774	$	357,236



	Nine Months Ended
	November 3, 2018									October 28, 2017
Merchandise Category	Department Stores			Off-price Stores			Total Company			Department Stores			Off-price Stores			Total Company
Women’s	$	315,428		$	59,165		$	374,593		$	345,892		$	41,492		$	387,384
Men’s	138,414			27,688			166,102			144,588			19,021			163,609
Children's	88,160			26,261			114,421			96,898			17,715			114,613
Apparel	542,002			113,114			655,116			587,378			78,228			665,606

Footwear	134,024			13,918			147,942			134,836			2,396			137,232
Accessories	55,121			13,118			68,239			61,045			11,932			72,977
Cosmetics/Fragrances	90,295			7,530			97,825			90,640			5,854			96,494
Home/Gifts/Other	41,463			53,327			94,790			35,708			35,622			71,330
Non-apparel	320,903			87,893			408,796			322,229			55,804			378,033

Revenue adjustments not allocated^(a)	(2,986		)	(303		)	(3,289		)	(274		)	(441		)	(715		)

Net sales	$	859,919		$	200,704		$	1,060,623		$	909,333		$	133,591		$	1,042,924

^(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):



	November 3, 2018		February 3, 2018		October 28, 2017
Gift cards and merchandise credits, net	$	9,756	$	12,122	$	8,587
Loyalty program rewards, net	5,540		1,118		2,452
Merchandise fulfillment liability	1,180		234		684
Total contract liabilities	$	16,476	$	13,474	$	11,723

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



	Three Months Ended						Nine Months Ended
	November 3, 2018			October 28, 2017			November 3, 2018			October 28, 2017
Beginning balance	$	15,119		$	10,399		$	13,474		$	11,669
Net sales recognized during the period from amounts included in contract liability balances at the beginning of the period	(6,574		)	(2,404		)	(7,396		)	(5,291		)
Current period additions to contract liability balances included in contract liability balances at the end of the period	7,931			3,728			10,398			5,345
Ending balance	$	16,476		$	11,723		$	16,476		$	11,723

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 $4.0 million, $5.8 million, $3.5 million and $4.9 million as of November 3, 2018, February 3, 2018, October 28, 2017 and January 28, 2017, respectively.