Recently Adopted and Issued Accounting Pronouncements

12 Months Ended

Feb. 01, 2020

Recently Adopted and Issued Accounting Pronouncements [Abstract]

Recently Adopted and Issued Accounting Pronouncements

Note 2.  Recently Adopted and Issued Accounting Pronouncements

During the fiscal ended February 1, 2020, the Company adopted the following accounting pronouncements.

Leases

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842).  Lessees are required to recognize a right-of-use asset and a lease liability for virtually all leases (other than leases that meet the definition of a short-term lease). The liability is equal to the present value of lease payments. The asset is based on the liability, subject to certain adjustments, such as for initial direct costs. For income statement purposes, a dual model was retained, requiring leases to be classified as either operating or finance leases. Operating leases result in straight-line expense (similar to operating leases under the prior accounting standard) while finance leases result in a frontloaded expense pattern (similar to capital leases under the prior accounting standard).

The Company adopted this new accounting standard on February 3, 2019 on a modified retrospective basis and applied the new standard to all leases greater than one year.  As a result, comparative financial information has not been restated and continues to be reported under the accounting standards in effect for fiscal 2018. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which includes the ability to carry forward the existing lease classification and to use hindsight when determining lease term. The Company does not engage in any Lessor transactions, and as a Lessee, the Company does not have any finance leases.  As a result, the new standard had a material impact on the consolidated balance sheet but did not materially impact the Company’s consolidated operating results and did not materially impact the Company’s cash flows.

The following is a discussion of the Company’s lease policy under the new lease accounting standard:

The Company determines if an arrangement contains a lease at the inception of a contract. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of the remaining future minimum lease payments.  As the interest rate implicit in the Company’s leases is not readily determinable, the Company utilizes its incremental borrowing rate to discount the lease payments.  The operating lease right-of-use assets also include lease payments made before commencement and reduced by lease incentives.  Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet and lease expense is recognized on a straight-line basis over the term of the short-term lease.

For real estate leases, the Company accounts for lease components and non-lease components as a single lease component.  Certain real estate leases require additional payments based on reimbursement for real estate taxes, common area maintenance and insurance, which are expensed as incurred as variable lease costs. Other real estate leases contain one fixed lease payment that includes real estate taxes, common area maintenance and insurance. These fixed payments are considered part of the lease payment and included in the right-of-use assets and lease liabilities.

The Company elected the short-term lease exemption permitted under the lease standard. As such, the Company does not record leases with an initial term of 12 months or less on the balance sheet but continue to expense them on a straight-line basis over the lease term.  As of February 1, 2020, 153 leases were short-term in nature and were exempt from being recorded on the balance sheet.

During fiscal 2019, the Company concluded, based on continued operating losses within the fye segment driven by lower than expected third quarter sales that triggering events had occurred, and an evaluation of the fye operating lease right-of-use asset for impairment was required.  Operating lease right-of-use assets, primarily at the Company’s retail store locations, where impairment was determined to exist were written down to their estimated fair values as of the end of fiscal 2019, resulting in the recording of asset impairment charges of $18.5 million.  Estimated fair values at these locations were determined based on a measure of discounted future cash flows over the remaining lease terms at the respective locations.  Future cash flows were estimated based on individual store and corporate level plans and were discounted at a rate approximating the Company’s cost of capital.  Management believes its assumptions were reasonable and consistently applied.

As a result of applying the new lease standard using a modified retrospective method, the following adjustments were made to accounts on consolidated balance sheet as of February 3, 2019:

	Impact of Change in Accounting Policy
	As Reported February 2, 2019			Adjustments			Adjusted February 3, 2019
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	4,355		$	-		$	4,355
Restricted cash		4,126			-			4,126
Accounts receivable		5,383			-			5,383
Merchandise inventory		94,842			-			94,842
Prepaid expenses and other current assets		6,657			(748	)		5,909
Total current assets		115,363			(748	)		114,615
Restricted cash		5,745			-			5,745
Fixed assets, net		7,529			-			7,529
Operating lease right-of-use assets		-			28,044			28,044
Intangible assets, net		3,668			-			3,668
Other assets		5,708			-			5,708
TOTAL ASSETS	$	138,013		$	27,296		$	165,309
LIABILITIES
CURRENT LIABILITIES
Accounts payable	$	34,329		$	-		$	34,329
Accrued expenses and other current liabilities		8,132			(1,319	)		6,813
Deferred revenue		6,955			-			6,955
Current portion of operating lease liabilites		-			9,064			9,064
Total current liabilities		49,416			7,745			57,161
Operating lease liabilities		-			22,728			22,728
Other long-term liabilities		24,867			(3,177	)		21,690
TOTAL LIABILITIES		74,283			27,296			101,579
SHAREHOLDERS’ EQUITY
Preferred stock  ($0.01 par value; 5,000,000  shares authorized; none issued)		-			-			-
Common stock ($0.01 par value; 200,000,000  shares  authorized; 3,221,834 shares issued)		32			-			32
Additional paid-in capital		344,826			-			344,826
Treasury stock at cost (1,408,892, 1,408,892 and 1,407,831 shares, respectively)		(230,166	)		-			(230,166	)
Accumulated other comprehensive loss		(735	)		-			(735	)
Accumulated deficit		(50,227	)		-			(50,227	)
TOTAL SHAREHOLDERS’ EQUITY		63,730			-			63,730
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	138,013		$	27,296		$	165,309

Compensation – Retirement Benefits

In March 2017, the FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which is intended to improve the presentation of net periodic pension cost and net periodic post-retirement benefit cost in an entity’s financial statements by requiring the service cost component be disaggregated from other components of net benefit costs and presented in the same line item or items as other compensation costs for the employees. Additionally, only the service cost component of net benefit cost is eligible for capitalization when applicable. ASU 2017-07 was effective for the Company’s fiscal year beginning February 3, 2019.  This standard did not have a material effect on the Company’s consolidated financial statements.

Compensation – Stock Compensation

In May 2017, the FASB issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting,” which provided clarity as to what changes to the terms or conditions of share-based payment awards require an entity to apply modification accounting in Topic 718. ASU 2017-09 was effective for the Company for interim and annual periods in fiscal year beginning February 3, 2019.  This standard did not have a material effect on the Company’s consolidated financial statements.

Revenue Recognition

In June 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.  On February 4, 2018, the Company adopted Topic 606 using the modified retrospective approach.  The new standard states that revenue is recognized when performance obligations are satisfied by transferring goods or services to the customer in an amount that the entity expects to collect in exchange for those goods or services. The satisfaction of a performance obligation with a single customer may occur at a point in time or may occur over time. The significant majority of the Company’s revenue is recognized at a point in time, generally when a customer purchases and takes possession of merchandise through the stores or when merchandise purchased through our e-commerce websites is shipped to a customer. Revenues do not include sales taxes or other taxes collected from customers. The Company has arrangements with customers where the performance obligations are satisfied over time, which primarily relate to the loyalty programs and gift card liabilities. The adoption of Topic 606 impacted the timing of revenue recognition for gift card breakage. Prior to adoption of Topic 606, gift card breakage was recognized at the point gift card redemption became remote. In accordance with the Topic 606, the Company recognizes gift card breakage in proportion to the pattern of rights exercised by the customer.  The adoption of Topic 606 also impacted presentation of the Consolidated Balance Sheets related to sales return reserves to be recorded on a gross basis, consisting of a separate right of return asset and liability.   The Company’s evaluation of Topic 606 included a review of certain third-party arrangements to determine whether the Company acts as principal or agent in such arrangements, and such evaluation did not result in any material changes in gross versus net presentation as a result of the adoption of the new standard. The cumulative effect of initially applying Topic 606 was a $0.3 million increase to the opening balance of inventory, a $0.3 million increase to the opening balance of accrued expenses and other liabilities, a $0.5 million increase to the opening balance of deferred revenue, and a $0.5 million decrease to the opening balance of retained earnings as of February 4, 2018

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which introduced an expected credit loss model for the impairment of financial assets measured at amortized cost. The model replaces the probable, incurred loss model for those assets and instead, broadens the information an entity must consider in developing its expected credit loss estimate for assets measured at amortized cost. ASU No. 2016-13 is effective beginning in the first quarter of fiscal 2020. Early adoption is permitted. We will adopt this standard in the first quarter of Fiscal 2020. We have evaluated the impact of this new standard on the consolidated financial statements which is immaterial.

In August 2018, the FASB issued ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework— Changes to the Disclosure Requirements for Defined Benefit Plans”, which removes certain disclosures that are no longer cost beneficial and also includes additional disclosures to improve the overall usefulness of the disclosure requirements to financial statement users. This standard will be effective for public entities for fiscal years beginning after December 15, 2020, however early adoption is permitted. We are currently evaluating the impact of this new standard on the consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes” (Topic 740), which simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also simplifies aspects of the enacted changes in tax laws or rates. This standard will be effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, however early adoption is permitted. We are currently evaluating the impact of this new standard on the consolidated financial statements.

Recent accounting pronouncements pending adoption not discussed above are either not applicable or are not expected to have a material impact on our consolidated financial condition, results of operations, or cash flows.