EXIT AND DISPOSAL ACTIVITIES

9 Months Ended

Nov. 01, 2014

Discontinued Operations and Disposal Groups [Abstract]

Disposal Groups Including Discontinued Operations Disclosure [Text Block]

NOTE 6: EXIT AND DISPOSAL ACTIVITIES

Fixed Assets

The Company’s policy is to review the carrying value of all long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. We measure impairment losses of fixed assets and leasehold improvements as the amount by which the carrying amount of a long-lived asset exceeds its fair value as prescribed by FASB ASC 360, "Impairment or Disposal of Long-Lived Assets." If a long-lived asset is found to be impaired, the amount recognized for impairment is equal to the difference between the carrying value and the asset’s fair value. The fair value is based on estimated market values for similar assets or other reasonable estimates of fair market value based upon using a discounted cash flow model.

During the second quarter of 2014, in association with the planned closure of stores not meeting the Company's operational performance targets, we recorded a charge of $2.9 million in selling, general and administrative expense for the impairment of fixed assets and leasehold improvements. Five stores were closed in the third quarter, and approximately 47 stores will close in the fourth quarter of 2014. In the third quarter of 2014, the Company utilized $0.2 million of the reserve associated with fixed assets and leasehold improvements for the five stores that closed leaving $2.7 million remaining in the reserve as of November 1, 2014.

Inventory

As discussed in Note 2 - Inventories, we adjust inventory values on a consistent basis to reflect current market conditions. In accordance with FASB ASC 330, "Inventories," we write down inventory to net realizable value in the period in which conditions giving rise to the write-downs are first recognized.

In the fourth quarter of 2013, a reserve in the amount of $1.7 million, was established for the discontinuance of product categories that the Company has decided to exit in line with the strategies that are part of the Company's reconfiguration plan. Product categories the Company has decided to exit are furniture, electronics, and footwear. During the first nine months of 2014, the Company recorded an additional markdown reserve to cost of goods sold for the discontinuance of the exit categories of $0.7 million, including $0.3 million for the accelerated recognition of freight capitalization expense, while utilizing $1.4 million of the reserve associated with goods sold in 2014.

In the third quarter of 2014, we recorded a below-cost inventory adjustment of approximately $3.3 million (including $1.3 million for the accelerated recognition of freight capitalization expense) to value inventory at the lower of cost or market on inventory in approximately 47 stores that are planned for closure in the fourth quarter of fiscal 2014. The adjustment was recorded to cost of goods sold in the Consolidated Statements of Income for the thirteen and thirty-nine week periods ended November 1, 2014.

Lease Termination

For lease obligations related to closed stores, we record the estimated future liability associated with the rental obligation on the cease use date (when the stores were closed). The lease obligations are established at the cease use date for the present value of any remaining operating lease obligations, net of estimated sublease income, and at the communication date for severance and other exit costs, as prescribed by FASB ASC 420, “Exit or Disposal Cost Obligations.” Key assumptions in calculating the liability include the timeframe expected to terminate lease agreements, estimates related to the sublease potential of closed locations, and estimates of other related exit costs. If actual timing and potential termination costs or realization of sublease income differ from our estimates, the resulting liabilities could vary from recorded amounts. These liabilities are reviewed periodically and adjusted when necessary.

A lease obligation still exists for some store closures that occurred in 2008. During the first nine months of fiscal 2014, we utilized and added less than $0.1 million of the remaining lease liability for the fiscal 2008 store closures, leaving $0.1 million in the reserve at November 1, 2014.

The following table illustrates the exit and disposal reserves related to the store closures and strategic initiatives discussed in the previous paragraphs (in millions):

	Balance at						Ending Balance
	February 1, 2014		Additions		Utilization		November 1, 2014
Inventory markdowns for discontinuance of exit categories	$	1.7	$	0.4	$	(1.2)	$	0.9
Inventory provision for freight capitalization expense, exit categories	$	-	$	0.3	$	(0.2)	$	0.1
Inventory markdowns for 2014 planned closures	$	-	$	2.0	$	-	$	2.0
Inventory provision for freight capitalization expense, 2014 planned closures	$	-	$	1.3	$	-	$	1.3
Lease contract termination liability, 2008 closures	$	0.1	$	-	$	-	$	0.1
Total	$	1.8	$	4.0	$	(1.4)	$	4.4

We expect to record the lease termination costs related to the planned closure of approximately 47 stores in the fourth quarter of 2014. Charges associated with lease terminations are expected to be in the range of $0.3 million to $0.6 million. Additional one-time charges to selling, general and administrative expenses associated with going out of business activities are anticipated to be in the range of $2.5 million to $3.5 million.