Fair Value Measurements

6 Months Ended

Jul. 31, 2021

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 5 - Fair Value Measurements

The accounting guidance related to fair value measurements defines fair value and provides a consistent framework for measuring fair value under the authoritative literature. Valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect market assumptions. This guidance only applies when other guidance requires or permits the fair value measurement of assets and liabilities. The guidance does not expand the use of fair value measurements. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels:

• Level 1 – Quoted prices in active markets for identical assets or liabilities;

• Level 2 – Quoted prices in active or inactive markets for similar assets or liabilities that are either directly or indirectly observable; and

• Level 3 – Significant unobservable inputs that are not corroborated by market data. Generally, these fair value measures are model-based valuation techniques such as discounted cash flows, and are based on the best information available, including our own data. Fair values of our long-lived assets are estimated using an income-based approach and are classified within Level 3 of the valuation hierarchy.

Fair Value of Financial Instruments

The following table presents financial instruments that are measured at fair value on a recurring basis at July 31, 2021, January 30, 2021 and August 1, 2020.

	Fair Value Measurements
(In thousands)	Level 1		Level 2		Level 3		Total
As of July 31, 2021
Cash equivalents - money market mutual funds	$	132,514	$	0	$	0	$	132,514
Marketable securities - mutual funds that fund     deferred compensation		17,431		0		0		17,431
Total	$	149,945	$	0	$	0	$	149,945
As of January 30, 2021
Cash equivalents - money market mutual funds	$	97,519	$	0	$	0	$	97,519
As of August 1, 2020
Cash equivalents - money market mutual funds	$	69,963	$	0	$	0	$	69,963

During the second quarter of fiscal 2021, we invested approximately $17.5 million in publicly traded mutual funds with readily determinable fair values.  These marketable securities are designed to mitigate volatility in our Condensed Consolidated Statements of Income associated with our non-qualified deferred compensation plan.  As of July 31, 2021, these marketable securities were principally invested in equity-based mutual funds, consistent with the allocation in our deferred compensation plan.  As of July 31, 2021, the balance in our deferred compensation plan was $17.5 million, of which $6.1 million was in Accrued and other liabilities based on scheduled payments due within the next 12 months and $11.4 million was in Deferred compensation.  We classify these marketable securities as current assets because we have the ability to convert the securities into cash at our discretion and these marketable securities are not held in a rabbi trust.

The fair values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities approximate their carrying values because of their short-term nature.  

Long-Lived Asset Impairment Testing

We periodically evaluate our long-lived assets for impairment if events or circumstances indicate that the carrying value may not be recoverable.  The carrying value of long-lived assets is considered impaired when the carrying value of the assets exceeds the expected future cash flows to be derived from their use.  Assets are grouped, and the evaluation is performed, at the lowest level for which there are identifiable cash flows, which is generally at a store level.  Store level asset groupings typically include property and equipment and operating lease right-of-use assets.  If the estimated, undiscounted future cash flows for a store are determined to be less than the carrying value of the store’s assets, an impairment loss is recorded for the difference between estimated fair value and carrying value.  Assets subject to impairment are adjusted to estimated fair value and, if applicable, an impairment loss is recorded in selling, general and administrative expenses.  If the operating lease right-of-use asset is impaired, we would amortize the remaining right-of-use asset on a straight-line basis over the remaining lease term.

We estimate the fair value of our long-lived assets using store specific cash flow assumptions discounted by a rate commensurate with the risk involved with such assets while incorporating marketplace assumptions.  Our estimates are derived from an income-based approach considering the cash flows expected over the remaining lease term for each location. These projections are primarily based

on management’s estimates of store-level sales, exercise of future lease renewal options and the store’s contribution to cash flows and, by their nature, include judgments about how current initiatives will impact future performance. We estimate the fair value of operating lease right-of-use assets using the market value of rents applicable to the leased asset, discounted using the remaining lease term.

External factors, such as the local environment in which the store is located, including store traffic and competition, are evaluated in terms of their effect on sales trends. Changes in sales and operating income assumptions or unfavorable changes in external factors can significantly impact the estimated future cash flows.  An increase or decrease in the projected cash flow can significantly impact the fair value of these assets, which may have an effect on the impairment recorded.  If actual operating results or market conditions differ from those anticipated, the carrying value of certain of our assets may prove unrecoverable and we may incur additional impairment charges in the future.

During the thirteen and twenty-six weeks ended July 31, 2021, we recorded impairment charges of $243,000 and $967,000 associated with one store and three stores, respectively.  During the thirteen and twenty-six weeks ended August 1, 2020, we recorded impairment charges of $182,000 and $2.5 million associated with one store and eight stores, respectively.  These charges were included in selling, general and administrative expenses.  No impairments of operating right-of-use assets have been recorded in any of these periods.