Basis of Presentation (Policies)

3 Months Ended

May 02, 2020

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Use of Estimates

Use of Estimates

The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. We believe that our accounting estimates are appropriate after incorporating the increased uncertainties surrounding the severity and duration of the COVID-19 pandemic. Actual results could differ from those estimates.

Leases

Leases

In the first quarter of 2020, we negotiated rent deferrals for a significant number of our stores, with repayment at later dates, primarily in the third and fourth quarter of 2020 and first and second quarter of 2021. These concessions provide a deferral of rent payments with no substantive changes to the original contract. Consistent with updated guidance from the FASB in April 2020, we have elected to treat the COVID-19 pandemic-related rent deferrals as accrued liabilities. We will continue to recognize expense during the deferral periods.

Merchandise Inventories

Merchandise Inventories

Merchandise inventories are valued at the lower of cost or market using the Retail Inventory Method ("RIM"). Under RIM, the valuation of inventory at cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail value of inventory. RIM is an averaging method that has been widely used in the retail industry due to its practicality. The use of RIM will result in inventory being valued at the lower of cost or market since permanent markdowns are taken as a reduction of the retail value of inventories. A reserve would be recorded if the future estimated selling price is less than cost. 

As a result of the COVID-19 pandemic and store closures, we recorded a reserve of $163 million for excess seasonal inventory where the expected selling price is less than cost for the quarter ended May 2, 2020. No reserve was recorded as of February 1, 2020 or May 4, 2019. In addition, $24 million of inventory was written off during the first quarter of 2020 as there was no future recoverable value.

Property and Equipment and Long Lived Assets

Property and Equipment and Long Lived Assets

All property and equipment and other long-lived assets are reviewed for potential impairment at least annually or when events or changes in circumstances indicate that the asset’s carrying value may not be recoverable. If such indicators are present, it is determined whether the sum of the estimated undiscounted future cash flows attributable to such assets is less than the carrying value of the assets. A potential impairment has occurred if projected future undiscounted cash flows are less than the carrying value of the assets. Given the substantial reduction in our sales and the reduced cash flow projections as a result of the store closures due to the COVID-19 pandemic, we determined that a triggering event occurred in the first quarter of 2020 and an impairment assessment was warranted for certain stores and other long lived assets. Based on this assessment, we recorded impairment charges of $51 million in the first quarter of 2020 in Impairments, store closing, and other costs. In connection with the closure of four stores in the first quarter of 2019, we recorded impairment charges of $49 million in the first quarter of 2019 in Impairments, store closing, and other costs.

As of May 2, 2020, we had assets held for sale of $24 million. 

Restructuring Reserve

Restructuring Reserve

The following table summarizes changes in the restructuring reserve during the quarter ended May 2, 2020:

(Dollars In Millions)	Severance
Balance - February 1, 2020	$	27
Payments and reversals		(16	)
Additions		2
Balance - May 2, 2020	$	13

Charges related to corporate restructuring efforts are recorded in Impairments, store, closing, and other costs. 

Recent Accounting Pronouncements

Recent Accounting Pronouncements

During the quarter ended May 2, 2020, we adopted the new accounting standard on accounting for expected credit losses (ASU 2016-13). We applied the new principle using a modified retrospective approach. There was no material impact on our financial statements due to adoption of the new standard.

During the quarter ended May 2, 2020, we adopted the new accounting standard on recognizing implementation costs related to a cloud computing arrangement (ASU 2018-15). We applied the new principle using a prospective approach. There was no material impact on our financial statements due to adoption of the new standard.

The following table provides a brief description of issued, but not yet effective, accounting standards:

Standard	Description	Effect on our Financial Statements
Income Taxes (ASU 2019-12) Issued December 2019 Effective Q1 2021	The new standard is designed to simplify the accounting for income taxes by removing certain exceptions to the general principles as outlined in U.S. GAAP.	We are evaluating the impact of the new standard on our financial statements.