Revenue Recognition and Receivables

9 Months Ended

Oct. 31, 2020

Revenue Recognition and Receivables

Revenue Recognition and Receivables

3.    Revenue Recognition and Receivables: Our revenue consists of direct to consumer sales, including our retail store, e-commerce and restaurant operations, and wholesale sales, as well as royalty income, which is included in royalties and other income in our consolidated statements of operations. We recognize revenue when performance obligations under the terms of the contracts with our customers are satisfied. Our accounting policies related to revenue recognition for each type of contract with customers, including a description of the related performance obligations, return rights, allowances, discounts, credit terms and other information, is described in the significant accounting policies described in our Fiscal 2019 Form 10-K.

The table below quantifies the amount of net sales by distribution channel (in thousands) for each period presented.

	Third Quarter				First Nine Months
	Fiscal 2020		Fiscal 2019		Fiscal 2020		Fiscal 2019
Retail	$	47,415	$	83,636	$	134,701	$	324,892
E-commerce		66,135		62,310		226,618		180,736
Restaurant		12,214		17,325		32,505		61,457
Wholesale		49,221		77,595		132,768		256,794
Other		150		355		874		1,315
Net sales	$	175,135	$	241,221	$	527,466	$	825,194

In the ordinary course of our wholesale operations, we offer discounts, allowances and cooperative advertising support to some of our wholesale customers for certain products. We record these discounts, returns and allowances as a reduction to net sales in our consolidated statements of operations and as a reduction to receivables, net in our consolidated balance sheets. As of October 31, 2020, February 1, 2020 and November 2, 2019, reserve balances recorded as a reduction to receivables related to these items were $8 million, $9 million and $9 million, respectively.

We extend credit to certain wholesale customers based on an evaluation of the customer’s financial capacity and condition, usually without requiring collateral. In circumstances where we become aware of a specific wholesale customer’s inability to meet its financial obligations, a specific provision for credit losses is taken as a reduction to accounts receivable to reduce the net recognized receivable to the amount reasonably expected to be collected. Such amounts are ultimately written off at the time that the amounts are not considered collectible. For all other wholesale customer receivable amounts, we recognize estimated provisions for credit losses based on our historical collection experience, the financial condition of our customers, an evaluation of current economic conditions, anticipated trends and the risk characteristics of the receivables, each of which is subjective and requires certain assumptions. As discussed in Note 1, during Fiscal 2020, we estimated these losses using the current expected loss approach including consideration of the expected impact of the ongoing COVID-19 pandemic on our receivables, while in Fiscal 2019, we estimated these losses using the incurred loss model under the previous guidance. We include such charges for credit losses and write-offs in SG&A in our consolidated statements of operations and as a reduction to receivables, net in our consolidated balance sheets. As of October 31, 2020, February 1, 2020 and November 2, 2019, our provision for credit losses related to receivables was $3 million, $1 million and $1 million, respectively. Provisions for credit losses expense included in our consolidated statement of operations for the Third Quarter of Fiscal 2020 and the First Nine Months of Fiscal 2020 were $0 million and $4 million, respectively, while write-offs of credit losses for the Third Quarter of Fiscal 2020 and the First Nine Months of Fiscal 2020 were $2 million and $2 million, respectively. Both provisions for credit losses expense included in our consolidated statement of operations and write-offs of credit losses for the Third Quarter of Fiscal 2019 and the First Nine Months of Fiscal 2019 were $0 million.

Substantially all amounts recognized in receivables, net represent trade receivables related to contracts with customers. In addition to trade and other receivables, current income tax receivables of $1 million, $1 million and $1 million and tenant allowances due from landlord of $3 million, $1 million and $2 million are included in receivables, net in our consolidated balance sheet as of October 31, 2020, February 1, 2020 and November 2, 2019, respectively. As of October 31, 2020, February 1, 2020 and November 2, 2019, prepaid expenses and other current assets included $3 million, $3 million and $4 million, respectively, representing the estimated value of inventory for expected wholesale and direct to consumer sales returns. We did not have any significant contract assets related to contracts with customers, other than trade receivables and the value of inventory associated with expected sales returns, as of October 31, 2020, February 1, 2020 and November 2, 2019.

An estimated sales return liability of $6 million, $3 million and $3 million for expected direct to consumer returns is classified in accrued expenses and other liabilities in our consolidated balance sheet as of October 31, 2020, February 1, 2020 and November 2, 2019, respectively. Contract liabilities for gift cards purchased by consumers and merchandise credits received by customers but not yet redeemed, less any breakage income recognized to date, is included in accrued expenses and other liabilities in our consolidated balance sheets and totaled $12 million, $12 million and $11 million as of October 31, 2020, February 1, 2020, and November 2, 2019, respectively.