CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Nov. 02, 2019 |
Feb. 02, 2019 |
Nov. 03, 2018 |
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Statement Of Financial Position [Abstract] | |||
Preferred stock, par value | $ 0.01 | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 5,000,000 | 5,000,000 | 5,000,000 |
Preferred stock, issued | 0 | 0 | 0 |
Preferred stock, outstanding | 0 | 0 | 0 |
Common stock, par value | $ 0.01 | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 600,000,000 | 600,000,000 | 600,000,000 |
Common stock, shares issued | 249,566,000 | 249,566,000 | 249,566,000 |
Common stock, shares outstanding | 166,974,000 | 172,436,000 | 176,407,000 |
Treasury stock, shares | 82,592,000 | 77,130,000 | 73,159,000 |
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
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Nov. 02, 2019 |
Nov. 03, 2018 |
Nov. 02, 2019 |
Nov. 03, 2018 |
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Income Statement [Abstract] | ||||
Total net revenue | $ 1,066,412 | $ 1,003,707 | $ 2,993,581 | $ 2,791,522 |
Cost of sales, including certain buying, occupancy and warehousing expenses | 659,350 | 604,220 | 1,879,027 | 1,734,491 |
Gross profit | 407,062 | 399,487 | 1,114,554 | 1,057,031 |
Selling, general and administrative expenses | 258,973 | 248,438 | 742,764 | 692,644 |
Restructuring charges | 4,272 | 1,568 | ||
Depreciation and amortization expense | 44,987 | 42,416 | 134,648 | 127,090 |
Operating income | 103,102 | 108,633 | 232,870 | 235,729 |
Other income, net | 2,577 | 4,330 | 10,749 | 5,692 |
Income before income taxes | 105,679 | 112,963 | 243,619 | 241,421 |
Provision for income taxes | 24,918 | 27,491 | 57,125 | 55,687 |
Net income | $ 80,761 | $ 85,472 | $ 186,494 | $ 185,734 |
Net income per basic share | $ 0.48 | $ 0.48 | $ 1.09 | $ 1.05 |
Net income per diluted share | $ 0.48 | $ 0.48 | $ 1.09 | $ 1.04 |
Weighted average common shares outstanding - basic | 167,912 | 176,938 | 170,463 | 177,033 |
Weighted average common shares outstanding - diluted | 168,693 | 178,122 | 171,697 | 178,278 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
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Nov. 02, 2019 |
Nov. 03, 2018 |
Nov. 02, 2019 |
Nov. 03, 2018 |
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Statement Of Income And Comprehensive Income [Abstract] | ||||
Net income | $ 80,761 | $ 85,472 | $ 186,494 | $ 185,734 |
Other comprehensive income: | ||||
Foreign currency translation income (loss) | 769 | 6,492 | (1,029) | 8,343 |
Other comprehensive income (loss): | 769 | 6,492 | (1,029) | 8,343 |
Comprehensive income | $ 81,530 | $ 91,964 | $ 185,465 | $ 194,077 |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical) - $ / shares |
3 Months Ended | 9 Months Ended | ||
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Nov. 02, 2019 |
Nov. 03, 2018 |
Nov. 02, 2019 |
Nov. 03, 2018 |
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Statement Of Stockholders Equity [Abstract] | ||||
Cash dividends and dividend equivalents, Per share | $ 0.1375 | $ 0.1375 | $ 0.375 | $ 0.375 |
Interim Financial Statements |
9 Months Ended |
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Nov. 02, 2019 | |
Accounting Policies [Abstract] | |
Interim Financial Statements |
1. Interim Financial Statements The accompanying Consolidated Financial Statements of American Eagle Outfitters, Inc. (the “Company”) at November 2, 2019 and November 3, 2018 and for the 13- and 39-week periods ended November 2, 2019 and November 3, 2018 have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Certain notes and other information have been condensed or omitted from the interim Consolidated Financial Statements presented in this Quarterly Report on Form 10-Q. Therefore, these Consolidated Financial Statements should be read in conjunction with the Company’s Fiscal 2018 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 14, 2019 (the “Fiscal 2018 Form 10-K”). In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and those described in the footnotes that follow) considered necessary for a fair presentation have been included. The existence of subsequent events has been evaluated through the filing date of this Quarterly Report on Form 10-Q. As used in this report, all references to “we,” “our” and the “Company” refer to American Eagle Outfitters, Inc. and its wholly owned subsidiaries. “American Eagle,” “AE” and the “AE Brand” refer to our American Eagle stores. “Aerie” refers to our Aerie® by American Eagle® stores. “AEO Direct” refers to our e-commerce operations, www.ae.com, and www.aerie.com. “Tailgate” refers to our Tailgate brand of vintage, sports-inspired apparel. “Todd Snyder” refers to our Todd Snyder New York premium menswear brand. Our business is affected by the pattern of seasonality common to most retail apparel businesses. Historically, a large portion of total net revenue and operating income occurs in the third and fourth fiscal quarters, reflecting the increased demand during the back-to-school and year-end holiday selling seasons, respectively. The results for the current and prior periods are not necessarily indicative of future financial results.
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Summary of Significant Accounting Policies |
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Organization Consolidation And Presentation Of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Significant Accounting Policies |
2. Summary of Significant Accounting Policies Principles of Consolidation The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. At November 2, 2019, and for all periods presented, the Company operated in one reportable segment. Fiscal Year Our fiscal year is a 52- or 53-week year that ends on the Saturday nearest to January 31. As used herein, “Fiscal 2019” refers to the 52-week period that will end on February 1, 2020. “Fiscal 2018” refers to the 52-week period ended February 2, 2019. Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of our contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, our management reviews the Company’s estimates based on currently available information. Changes in facts and circumstances may result in revised estimates. Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) established Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”), by issuing Accounting Standards Update (“ASU”) No. 2016-02. ASC 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements.
The standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.
The Company adopted ASU 2016-02 and its subsequent amendments effective February 3, 2019. Financial information has not been updated and the disclosures required under the new standard have not been provided for dates and periods before February 3, 2019. The Company elected the new standard’s package of practical expedients, which permits the Company to maintain prior conclusions about lease identification, lease classification, and initial direct costs. The Company elected to use the go-forward practical expedient to not separate lease and non-lease components for all of our leases. The Company also elected to use the short-term lease recognition exemption for all leases that qualify.
Upon adoption, the Company:
Refer to Note 9 to the Consolidated Financial Statements for information regarding leases.
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income (“ASU 2018-02”). This guidance permits companies to reclassify the stranded tax effects of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) on items within accumulated other comprehensive income to retained earnings. The Company adopted ASU 2018-02 on February 3, 2019. The adoption did not have a material impact on our Consolidated Financial Statements.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). This ASU simplifies the accounting for goodwill impairments under Step 2 by eliminating the requirement to perform procedures to determine the fair value of the assets and liabilities of the reporting unit, including previously unrecognized assets and liabilities, in order to determine the fair value of the goodwill and any impairment charge to be recognized. The Company adopted ASU 2017-04 on February 3, 2019. The adoption did not have an impact on the Company’s Consolidated Financial Statements, as no goodwill was determined to be impaired during the 39 weeks ended November 2, 2019. However, this ASU may have a material effect on our Consolidated Financial Statements in the future in the event that we determine that goodwill for any of our reporting units is impaired.
Foreign Currency Translation In accordance with ASC 830, Foreign Currency Matters, assets and liabilities denominated in foreign currencies were translated into United States dollars (“USD”) (our reporting currency) at the exchange rates prevailing at the balance sheet date. Revenues and expenses denominated in foreign currencies were translated into USD at the monthly average exchange rates for the period. Gains or losses resulting from foreign currency transactions are included in the results of operations, whereas related translation adjustments are reported as an element of other comprehensive income in accordance with ASC 220, Comprehensive Income. Cash and Cash Equivalents and Short-term Investments The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. As of November 2, 2019, short-term investments classified as available-for-sale included certificates of deposit with a maturity of greater than three months, but less than one year. As of November 3, 2018, short-term investments classified as available-for-sale included certificates of deposit, corporate bonds, and commercial paper with a maturity of greater than three months, but less than one year. Refer to Note 3 to the Consolidated Financial Statements for information regarding cash and cash equivalents and short-term investments. Merchandise Inventory Merchandise inventory is valued at the lower of average cost or market, utilizing the retail method. Average cost includes merchandise design and sourcing costs and related expenses. The Company records merchandise receipts when control of the merchandise has transferred to the Company. The Company reviews its inventory levels to identify slow-moving merchandise and generally uses markdowns to clear merchandise. Additionally, the Company estimates a markdown reserve for future planned permanent markdowns related to current inventory. Markdowns may occur when inventory exceeds customer demand for reasons of style, seasonal adaptation, changes in customer preference, lack of consumer acceptance of fashion items, competition, or if it is determined that the inventory in stock will not sell at its currently ticketed price. Such markdowns may have a material adverse impact on earnings, depending on the extent and amount of inventory affected. The Company also estimates a shrinkage reserve for the period between the last physical count and the balance sheet date. The estimate for the shrinkage reserve, based on historical results, can be affected by changes in merchandise mix and changes in actual shrinkage trends. Revenue Recognition In May 2014, the FASB issued ASC 606, Revenue From Contracts With Customers (“ASC 606”), a comprehensive revenue recognition model that expands disclosure requirements and requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The Company adopted ASC 606 on February 4, 2018. Results for reporting periods beginning on or after February 4, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting. The Company recorded a net increase to opening retained earnings of $0.2 million as of February 4, 2018 due to the cumulative impact of adoption. The impact was the result of accounting for customer loyalty programs using a relative stand-alone selling price method versus incremental cost method. The Company defers a portion of the sales revenue attributed to the loyalty points and recognizes revenue when the points are redeemed or expire, consistent with the requirements of ASC 606. Refer to the Customer Loyalty Program caption below for additional information.
Revenue is recorded for store sales upon the purchase of merchandise by customers. The Company’s e-commerce operation records revenue upon the customer receipt date of the merchandise. Shipping and handling revenues are included in total net revenue. Sales tax collected from customers is excluded from revenue and is included as part of accrued income and other taxes on the Company’s Consolidated Balance Sheets. Revenue is recorded net of estimated and actual sales returns and promotional price reductions. The Company records the impact of adjustments to its sales return reserve quarterly within total net revenue and cost of sales. The sales return reserve reflects an estimate of sales returns based on projected merchandise returns determined using historical average return percentages. Revenue is not recorded on the issuance of gift cards. A current liability is recorded upon issuance, and revenue is recognized when the gift card is redeemed for merchandise. Additionally, the Company recognizes revenue on unredeemed gift cards based on an estimate of the amounts that will not be redeemed (“gift card breakage”), determined through historical redemption trends. Gift card breakage revenue is recognized in proportion to actual gift card redemptions as a component of total net revenue. For further information on the Company’s gift card program, refer to the Gift Cards caption below. The Company recognizes royalty revenue generated from its license or franchise agreements based on a percentage of merchandise sales by the licensee/franchisee. This revenue is recorded as a component of total net revenue when earned and collection is probable. The following table sets forth the approximate consolidated percentage of total net revenue attributable to each merchandise group for each of the periods indicated:
The following table disaggregates the Company’s Total Net Revenue by geography:
Cost of Sales, Including Certain Buying, Occupancy, and Warehousing Expenses Cost of sales consists of merchandise costs, including design, sourcing, importing, and inbound freight costs, as well as markdowns, shrinkage and certain promotional costs (collectively, “merchandise costs”) and buying, occupancy and warehousing costs. Design costs are related to the Company's Design Center operations and include compensation, travel and entertainment, supplies and samples for our design teams, as well as rent and depreciation for our Design Center. These costs are included in cost of sales as the respective inventory is sold. Buying, occupancy and warehousing costs consist of compensation, employee benefit expenses and travel and entertainment for our buyers and certain senior merchandising executives; rent and utilities related to our stores, corporate headquarters, distribution centers and other office space; freight from our distribution centers to the stores; compensation and supplies for our distribution centers, including purchasing, receiving and inspection costs; and shipping and handling costs related to our e-commerce operation. Gross profit is the difference between total net revenue and cost of sales. Selling, General, and Administrative Expenses Selling, general, and administrative expenses consist of compensation and employee benefit expenses, including salaries, incentives, and related benefits associated with our stores and corporate headquarters. Selling, general and administrative expenses also include advertising costs, supplies for our stores and home office, communication costs, travel and entertainment, leasing costs and services purchased. Selling, general, and administrative expenses do not include compensation, employee benefit expenses and travel for our design, sourcing and importing teams, our buyers and our distribution centers, as these amounts are recorded in cost of sales. Additionally, selling, general, and administrative expenses do not include rent and utilities related to our stores, operating costs of our distribution centers, and shipping and handling costs related to our e-commerce operations, all of which are included in cost of sales. Other Income, Net Other income, net consists primarily of foreign currency transaction gain/loss, interest income/expense, and realized investment gains/losses.
Property and Equipment Property and equipment is recorded on the basis of cost, including costs to prepare the asset for use, with depreciation computed utilizing the straight-line method over the asset’s estimated useful life. The useful lives of our major classes of assets are as follows:
As of November 2, 2019, the weighted average remaining useful life of our assets was approximately eight years.
In accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”), the Company evaluates long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified, for stores that have been open for a period of time sufficient to reach maturity. Impairment losses are recorded on long-lived assets used in operations when events and circumstances indicate that the assets are impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. When events such as these occur, the impaired assets are adjusted to their estimated fair value and an impairment loss is recorded. No long-lived asset impairment charges were recorded during the 13 or 39 weeks ended November 2, 2019 or November 3, 2018. Refer to Note 6 to the Consolidated Financial Statements for additional information regarding property and equipment. Intangible Assets including Goodwill The Company’s goodwill is primarily related to the acquisition of its importing operations, Canada business, and Tailgate and Todd Snyder brands. In accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”), the Company evaluates goodwill for possible impairment on at least an annual basis and last performed an annual impairment test as of February 2, 2019. As a result of the Company’s annual goodwill impairment test, the Company concluded that its goodwill was not impaired. Definite-lived intangible assets are recorded on the basis of cost with amortization computed utilizing the straight-line method over the assets’ estimated useful lives. The Company’s definite-lived intangible assets, which consist primarily of trademark assets, are generally amortized over 15 to 25 years. The Company evaluates definite-lived intangible assets for impairment in accordance with ASC 350 when events or circumstances indicate that the carrying value of the asset may not be recoverable. Such an evaluation includes the estimation of undiscounted future cash flows to be generated by those assets. If the sum of the estimated future undiscounted cash flows is less than the carrying amounts of the assets, then the assets are impaired and are adjusted to their estimated fair value. No definite-lived intangible asset impairment charges were recorded during the 13 or 39 weeks ended November 2, 2019 or November 3, 2018. Refer to Note 7 to the Consolidated Financial Statements for additional information regarding intangible assets. Gift Cards Revenue is not recorded on the issuance of gift cards. The value of a gift card is recorded as a current liability upon issuance, and revenue is recognized when the gift card is redeemed for merchandise. The Company estimates gift card breakage and recognizes revenue in proportion to actual gift card redemptions as a component of total net revenue. The Company determines an estimated gift card breakage rate by continuously evaluating historical redemption data and the time when there is a remote likelihood that a gift card will be redeemed. The Company recorded $1.5 million and $1.6 million of revenue related to gift card breakage during the 13 weeks ended November 2, 2019 and November 3, 2018, respectively. During the 39 weeks ended November 2, 2019 and November 3, 2018, the Company recorded $5.4 million and $6.2 million, respectively, of revenue related to gift card breakage.
Deferred Lease Credits Deferred lease credits represent the unamortized portion of construction allowances received from lessors related to the Company’s retail stores. Construction allowances are generally comprised of cash amounts received by the Company from the lessor as part of the negotiated lease terms. The Company records a receivable and an adjustment to the operating lease ROU asset at the lease commencement date (date of initial possession of the store). The deferred lease credit is amortized as part of the single lease cost over the term of the original lease (including the pre-opening build-out period). The receivable is reduced as amounts are received from the lessor. Co-branded Credit Card The Company offers a co-branded credit card (the “AEO Visa Card”) and a private label credit card (the “AEO Credit Card”) under the AE and Aerie brands. These credit cards are issued by a third-party bank (the “Bank”) in accordance with a credit card agreement (“the Agreement”). The Company has no liability to the Bank for bad debt expense, provided that purchases are made in accordance with the Bank’s procedures. We receive funding from the Bank based on the Agreement and card activity, which includes payments for new account activations and usage of the credit cards. We recognize revenue for this funding as we fulfill our performance obligations under the contract. This revenue is recorded in other revenue, which is a component of total net revenue in our Consolidated Statements of Operations. The adoption of ASC 606 did not have an impact of the Company’s accounting for these programs. For further information on the Company’s loyalty program, refer to the Customer Loyalty Program caption below. Customer Loyalty Program In 2017, the Company launched a new, digitized loyalty program called AEO ConnectedTM (the “Program”). This Program integrates the credit card rewards program and the AEREWARDSÒ loyalty program into one combined customer offering. Under the Program, customers accumulate points based on purchase activity and earn rewards by reaching certain point thresholds. Customers earn rewards in the form of discount savings certificates. Rewards earned are valid through the stated expiration date, which is 45 days from the issuance date of the reward. Rewards not redeemed during the 45-day redemption period are forfeited. Additional rewards are also given for key items such as jeans and bras. Points earned under the Program on purchases at American Eagle and Aerie are accounted for in accordance with ASC 606. The portion of the sales revenue attributed to the award points is deferred and recognized when the award is redeemed or when the points expire, using the relative stand-alone selling price method. Additionally, reward points earned using the co-branded credit card on non-AE or Aerie purchases are accounted for in accordance with ASC 606. As the points are earned, a current liability is recorded for the estimated cost of the award, and the impact of adjustments is recorded in cost of sales.
Sales Return Reserve Revenue is recorded net of estimated and actual sales returns and deductions for coupon redemptions and other promotions. The Company records the impact of adjustments to its sales return reserve quarterly within total net revenue and cost of sales. The sales return reserve reflects an estimate of sales returns based on projected merchandise returns determined using historical average return percentages. The presentation on a gross basis consists of a separate right of return asset and liability. These amounts are recorded within (i) prepaid expenses and other and (ii) other current liabilities and accrued expenses, respectively, on the Consolidated Balance Sheets. Income Taxes The Company calculates income taxes in accordance with ASC 740, Income Taxes (“ASC 740”), which requires the use of the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on the difference between the Consolidated Financial Statement carrying amounts of existing assets and liabilities and their respective tax bases as computed pursuant to ASC 740. Deferred tax assets and liabilities are measured using the tax rates, based on certain judgments regarding enacted tax laws and published guidance, in effect in the years when those temporary differences are expected to reverse. A valuation allowance is established against the deferred tax assets when it is more likely than not that some portion or all of the deferred taxes may not be realized. Changes in the Company’s level and composition of earnings, tax laws or the deferred tax valuation allowance, as well as the results of tax audits, may materially affect the Company’s effective income tax rate. The Company evaluates its income tax positions in accordance with ASC 740, which prescribes a comprehensive model for recognizing, measuring, presenting, and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular jurisdiction. Under ASC 740, a tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits. The calculation of deferred tax assets and liabilities, as well as the decision to recognize a tax benefit from an uncertain position and to establish a valuation allowance, requires management to make estimates and assumptions. The Company believes that its estimates and assumptions are reasonable, although actual results may have a positive or negative material impact on the balances of deferred tax assets and liabilities, valuation allowances or net income. Refer to Note 11 to the Consolidated Financial Statements for additional information regarding income taxes. Segment Information In accordance with ASC 280, Segment Reporting (“ASC 280”), the Company has identified two operating segments (American Eagle Brand and Aerie Brand) that reflect the basis used internally to review performance and allocate resources. Both operating segments have been aggregated and are presented as one reportable segment, as permitted by ASC 280.
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Cash and Cash Equivalents and Short-term Investments |
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Cash and Cash Equivalents and Short-term Investments |
3. Cash and Cash Equivalents and Short-term Investments The following table summarizes the fair market values for the Company’s cash and short-term investments, which are recorded on the Consolidated Balance Sheets:
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Fair Value Measurements |
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Fair Value Disclosures [Abstract] | |||||||
Fair Value Measurements |
4. Fair Value Measurements ASC 820, Fair Value Measurement Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. Fair value is defined under ASC 820 as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date. Financial Instruments Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. In addition, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
The Company’s cash equivalents and short-term investments are Level 1 financial assets and are measured at fair value on a recurring basis, for all periods presented. Refer to Note 3 to the Consolidated Financial Statements for additional information regarding cash equivalents and short-term investments. During the 13 and 39 weeks ended November 2, 2019 and November 3, 2018, we did not have any financial instruments that required other fair value measurements.
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Earnings per Share |
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Earnings per Share |
5. Earnings per Share The following is a reconciliation between basic and diluted weighted average shares outstanding:
Dilutive and anti-dilutive shares relate to share-based compensation. Refer to Note 10 to the Consolidated Financial Statements for additional information regarding share-based compensation. |
Property and Equipment |
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Property and Equipment |
6. Property and Equipment Property and equipment consists of the following:
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Intangible Assets, including Goodwill |
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Goodwill And Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets, including Goodwill |
7. Intangible Assets, including Goodwill Intangible assets consist of the following:
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Other Credit Arrangements |
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Nov. 02, 2019 | |
Debt Disclosure [Abstract] | |
Other Credit Arrangements |
8. Other Credit Arrangements In January 2019, the Company entered into an amended and restated Credit Agreement (“Credit Agreement”) for , syndicated, asset-based revolving credit facilities (the “Credit Facilities”). The Credit Agreement provides senior secured revolving credit for loans and letters of credit up to $400 million, subject to customary borrowing base limitations. The Credit Facilities provide increased financial flexibility and take advantage of a favorable credit environment.All obligations under the Credit Facilities are unconditionally guaranteed by certain subsidiaries. The obligations under the Credit Agreement are secured by a first-priority security interest in certain working capital assets of the borrowers and guarantors, consisting primarily of cash, receivables, inventory, and certain other assets and have been further secured by first-priority mortgages on certain real property. |
Leases |
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Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases |
9. Leases The Company leases all store premises, some of its office space and certain information technology and office equipment. These leases are generally classified as operating leases.
Store leases generally provide for a combination of base rentals and contingent rent based on store sales. Additionally, most leases include lessor incentives such as construction allowances and rent holidays. The Company is typically responsible for tenant occupancy costs including maintenance costs, common area charges, real estate taxes, and certain other expenses.
Most leases include one or more options to renew. The exercise of lease renewal options is at the Company’s discretion and is not reasonably certain at lease commencement. When measuring ROU assets and lease liabilities after the date of adoption of ASC 842, the Company only includes cash flows related to options to extend or terminate leases once those options are executed.
Some leases have variable payments. However, because they are not based on an index or rate, they are not included in the measurement of ROU assets and lease liabilities.
The Company uses its incremental borrowing rate as a basis for the discount rates used in the measurement of ROU assets and lease liabilities.
For leases that qualify for the short-term lease exemption, the Company does not record a lease liability or ROU asset. Short-term lease payments are recognized on a straight-line basis over the lease term of 12 months or less.
The table below is a maturity analysis of the operating leases in effect as of the end of the period. Undiscounted cash flows for finance leases and short-term leases are not material for the periods reported and are excluded from the table below:
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Share-Based Compensation |
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Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-Based Compensation |
10. Share-Based Compensation The Company accounts for share-based compensation under the provisions of ASC 718, Compensation - Stock Compensation (“ASC 718”), which requires companies to measure and recognize compensation expense for all share-based payments at fair value. Total share-based compensation expense included in the Consolidated Statements of Operations for the 13 and 39 weeks ended November 2, 2019 was $5.6 million ($4.3 million, net of tax) and $19.9 million ($15.3 million, net of tax), respectively, and for the 13 and 39 weeks ended November 3, 2018 was $6.2 million ($4.7 million, net of tax) and $17.8 million ($13.7 million, net of tax), respectively. Stock Option Grants The Company grants both time-based and performance-based stock options. A summary of the Company’s stock option activity for the 39 weeks ended November 2, 2019 follows:
Cash received from the exercise of stock options was $2.1 million and $15.5 million for the 39 weeks ended November 2, 2019 and November 3, 2018, respectively. The actual tax benefit realized from stock option exercises totaled $0.1 million for the 39 weeks ended November 2, 2019 and $0.9 million for the 39 weeks ended November 3, 2018. As of November 2, 2019, there was $6.5 million of unrecognized compensation expense for stock option awards that is expected to be recognized over a weighted average period of 2.0 years. The fair value of stock options was estimated at the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumptions:
Restricted Stock Grants Time-based restricted stock awards are comprised of time-based restricted stock units. These awards vest over three years. Time-based restricted stock units receive dividend equivalents in the form of additional time-based restricted stock units, which are subject to the same restrictions and forfeiture provisions as the original award. Performance-based restricted stock awards include performance-based restricted stock units. These awards cliff vest at the end of a period assuming, and based upon, the Company’s achievement of pre-established goals throughout the term of the award. Performance-based restricted stock units receive dividend equivalents in the form of additional performance-based restricted stock units, which are subject to the same restrictions and forfeiture provisions as the original award.The grant date fair value of all restricted stock awards is based on the closing market price of the Company’s common stock on the date of grant. A summary of the Company’s restricted stock activity is presented in the following table:
As of November 2, 2019, there was $28.3 million of unrecognized compensation expense related to non-vested, time-based restricted stock unit awards that is expected to be recognized over a weighted-average period of 2.2 years. Based on current probable performance, there is $4.9 million of unrecognized compensation expense related to performance-based restricted stock unit awards, which will be recognized as achievement of performance goals is probable over a period.As of November 2, 2019, the Company had 3.7 million shares available for all equity grants.
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Income Taxes |
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Nov. 02, 2019 | |
Income Tax Disclosure [Abstract] | |
Income Taxes |
11. Income Taxes The provision for income taxes is based on the current estimate of the annual effective income tax rate and is adjusted as necessary for discrete quarterly events. The effective income tax rate for the 13 weeks ended November 2, 2019 was 23.6% compared to 24.3% for the 13 weeks ended November 3, 2018. The decrease in the effective income tax rate for the 13 weeks ended November 2, 2019 was primarily due to a decrease in unrecognized tax benefits. The effective income tax rate for the 39 weeks ended November 2, 2019 was 23.4% compared to 23.1% for the 39 weeks ended November 3, 2018. The increase in the effective income tax rate for the 39 weeks ended November 2, 2019 was primarily due to an increase in unrecognized tax benefits and less favorable excess tax benefits from share-based payments in accordance with ASU 2016-09. The Company records accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company recognizes income tax liabilities related to unrecognized tax benefits in accordance with ASC 740 and adjusts these liabilities when its judgment changes as a result of the evaluation of new information not previously available. Unrecognized tax benefits decreased by approximately $1.6 million during the 13 weeks ended November 2, 2019. Over the next 12 months, the Company believes that it is reasonably possible that unrecognized tax benefits may decrease by approximately $1.0 million due to settlements, expiration of statute of limitations, or other changes in unrecognized tax benefits.
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Legal Proceedings |
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Nov. 02, 2019 | |
Commitments And Contingencies Disclosure [Abstract] | |
Legal Proceedings |
12. Legal Proceedings The Company is subject to certain legal proceedings and claims arising out of the conduct of its business. In accordance with ASC 450, Contingencies (“ASC 450”), the Company records a reserve for estimated losses when the loss is probable and the amount can be reasonably estimated. If a range of possible loss exists and no anticipated loss within the range is more likely than any other anticipated loss, the Company records the accrual at the low end of the range, in accordance with ASC 450. As the Company believes that it has provided adequate reserves, it anticipates that the ultimate outcome of any matter currently pending against the Company will not materially affect the consolidated financial position, results of operations or consolidated cash flows of the Company. However, our assessment of any litigation or other legal claims could potentially change in light of the discovery of facts not presently known or determinations by judges, juries, or other finders of fact, which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or claims. |
Restructuring Charges |
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Restructuring And Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||
Restructuring Charges |
13. Restructuring Charges
During the 39 weeks ended November 2, 2019, the Company recorded pre-tax restructuring charges of $4.3 million. This amount consists primarily of corporate severance charges and closure costs for our company-owned and operated stores in China.
During the 39 weeks ended November 3, 2018, the Company recorded pre-tax restructuring charges of $1.6 million. This amount consists primarily of charges for corporate severance costs.
The Company may incur additional charges for corporate and international restructuring in Fiscal 2019. The magnitude is dependent on a number of factors, including negotiating third-party agreements, adherence to notification requirements and local laws.
A rollforward of the liabilities recognized in the Consolidated Balance Sheet is in the table below. The accrued liability as of February 2, 2019 relates to previous restructuring activities disclosed in the Company’s Fiscal 2018 Form 10-K, which remained unpaid at the beginning of Fiscal 2019.
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Summary of Significant Accounting Policies (Policies) |
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Principles of Consolidation |
Principles of Consolidation The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. At November 2, 2019, and for all periods presented, the Company operated in one reportable segment. |
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Fiscal Year |
Fiscal Year Our fiscal year is a 52- or 53-week year that ends on the Saturday nearest to January 31. As used herein, “Fiscal 2019” refers to the 52-week period that will end on February 1, 2020. “Fiscal 2018” refers to the 52-week period ended February 2, 2019. |
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Estimates |
Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of our contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, our management reviews the Company’s estimates based on currently available information. Changes in facts and circumstances may result in revised estimates. |
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Recent Accounting Pronouncements |
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) established Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”), by issuing Accounting Standards Update (“ASU”) No. 2016-02. ASC 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements.
The standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.
The Company adopted ASU 2016-02 and its subsequent amendments effective February 3, 2019. Financial information has not been updated and the disclosures required under the new standard have not been provided for dates and periods before February 3, 2019. The Company elected the new standard’s package of practical expedients, which permits the Company to maintain prior conclusions about lease identification, lease classification, and initial direct costs. The Company elected to use the go-forward practical expedient to not separate lease and non-lease components for all of our leases. The Company also elected to use the short-term lease recognition exemption for all leases that qualify.
Upon adoption, the Company:
Refer to Note 9 to the Consolidated Financial Statements for information regarding leases.
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income (“ASU 2018-02”). This guidance permits companies to reclassify the stranded tax effects of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) on items within accumulated other comprehensive income to retained earnings. The Company adopted ASU 2018-02 on February 3, 2019. The adoption did not have a material impact on our Consolidated Financial Statements.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). This ASU simplifies the accounting for goodwill impairments under Step 2 by eliminating the requirement to perform procedures to determine the fair value of the assets and liabilities of the reporting unit, including previously unrecognized assets and liabilities, in order to determine the fair value of the goodwill and any impairment charge to be recognized. The Company adopted ASU 2017-04 on February 3, 2019. The adoption did not have an impact on the Company’s Consolidated Financial Statements, as no goodwill was determined to be impaired during the 39 weeks ended November 2, 2019. However, this ASU may have a material effect on our Consolidated Financial Statements in the future in the event that we determine that goodwill for any of our reporting units is impaired.
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Foreign Currency Translation |
Foreign Currency Translation In accordance with ASC 830, Foreign Currency Matters, assets and liabilities denominated in foreign currencies were translated into United States dollars (“USD”) (our reporting currency) at the exchange rates prevailing at the balance sheet date. Revenues and expenses denominated in foreign currencies were translated into USD at the monthly average exchange rates for the period. Gains or losses resulting from foreign currency transactions are included in the results of operations, whereas related translation adjustments are reported as an element of other comprehensive income in accordance with ASC 220, Comprehensive Income. |
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Cash and Cash Equivalents and Short-term Investments |
Cash and Cash Equivalents and Short-term Investments The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. As of November 2, 2019, short-term investments classified as available-for-sale included certificates of deposit with a maturity of greater than three months, but less than one year. As of November 3, 2018, short-term investments classified as available-for-sale included certificates of deposit, corporate bonds, and commercial paper with a maturity of greater than three months, but less than one year. Refer to Note 3 to the Consolidated Financial Statements for information regarding cash and cash equivalents and short-term investments. |
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Merchandise Inventory |
Merchandise Inventory Merchandise inventory is valued at the lower of average cost or market, utilizing the retail method. Average cost includes merchandise design and sourcing costs and related expenses. The Company records merchandise receipts when control of the merchandise has transferred to the Company. The Company reviews its inventory levels to identify slow-moving merchandise and generally uses markdowns to clear merchandise. Additionally, the Company estimates a markdown reserve for future planned permanent markdowns related to current inventory. Markdowns may occur when inventory exceeds customer demand for reasons of style, seasonal adaptation, changes in customer preference, lack of consumer acceptance of fashion items, competition, or if it is determined that the inventory in stock will not sell at its currently ticketed price. Such markdowns may have a material adverse impact on earnings, depending on the extent and amount of inventory affected. The Company also estimates a shrinkage reserve for the period between the last physical count and the balance sheet date. The estimate for the shrinkage reserve, based on historical results, can be affected by changes in merchandise mix and changes in actual shrinkage trends. |
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Revenue Recognition |
Revenue Recognition In May 2014, the FASB issued ASC 606, Revenue From Contracts With Customers (“ASC 606”), a comprehensive revenue recognition model that expands disclosure requirements and requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The Company adopted ASC 606 on February 4, 2018. Results for reporting periods beginning on or after February 4, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting. The Company recorded a net increase to opening retained earnings of $0.2 million as of February 4, 2018 due to the cumulative impact of adoption. The impact was the result of accounting for customer loyalty programs using a relative stand-alone selling price method versus incremental cost method. The Company defers a portion of the sales revenue attributed to the loyalty points and recognizes revenue when the points are redeemed or expire, consistent with the requirements of ASC 606. Refer to the Customer Loyalty Program caption below for additional information.
Revenue is recorded for store sales upon the purchase of merchandise by customers. The Company’s e-commerce operation records revenue upon the customer receipt date of the merchandise. Shipping and handling revenues are included in total net revenue. Sales tax collected from customers is excluded from revenue and is included as part of accrued income and other taxes on the Company’s Consolidated Balance Sheets. Revenue is recorded net of estimated and actual sales returns and promotional price reductions. The Company records the impact of adjustments to its sales return reserve quarterly within total net revenue and cost of sales. The sales return reserve reflects an estimate of sales returns based on projected merchandise returns determined using historical average return percentages. Revenue is not recorded on the issuance of gift cards. A current liability is recorded upon issuance, and revenue is recognized when the gift card is redeemed for merchandise. Additionally, the Company recognizes revenue on unredeemed gift cards based on an estimate of the amounts that will not be redeemed (“gift card breakage”), determined through historical redemption trends. Gift card breakage revenue is recognized in proportion to actual gift card redemptions as a component of total net revenue. For further information on the Company’s gift card program, refer to the Gift Cards caption below. The Company recognizes royalty revenue generated from its license or franchise agreements based on a percentage of merchandise sales by the licensee/franchisee. This revenue is recorded as a component of total net revenue when earned and collection is probable. The following table sets forth the approximate consolidated percentage of total net revenue attributable to each merchandise group for each of the periods indicated:
The following table disaggregates the Company’s Total Net Revenue by geography:
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Cost of Sales, Including Certain Buying, Occupancy and Warehousing Expenses |
Cost of Sales, Including Certain Buying, Occupancy, and Warehousing Expenses Cost of sales consists of merchandise costs, including design, sourcing, importing, and inbound freight costs, as well as markdowns, shrinkage and certain promotional costs (collectively, “merchandise costs”) and buying, occupancy and warehousing costs. Design costs are related to the Company's Design Center operations and include compensation, travel and entertainment, supplies and samples for our design teams, as well as rent and depreciation for our Design Center. These costs are included in cost of sales as the respective inventory is sold. Buying, occupancy and warehousing costs consist of compensation, employee benefit expenses and travel and entertainment for our buyers and certain senior merchandising executives; rent and utilities related to our stores, corporate headquarters, distribution centers and other office space; freight from our distribution centers to the stores; compensation and supplies for our distribution centers, including purchasing, receiving and inspection costs; and shipping and handling costs related to our e-commerce operation. Gross profit is the difference between total net revenue and cost of sales. |
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Selling, General and Administrative Expenses |
Selling, General, and Administrative Expenses Selling, general, and administrative expenses consist of compensation and employee benefit expenses, including salaries, incentives, and related benefits associated with our stores and corporate headquarters. Selling, general and administrative expenses also include advertising costs, supplies for our stores and home office, communication costs, travel and entertainment, leasing costs and services purchased. Selling, general, and administrative expenses do not include compensation, employee benefit expenses and travel for our design, sourcing and importing teams, our buyers and our distribution centers, as these amounts are recorded in cost of sales. Additionally, selling, general, and administrative expenses do not include rent and utilities related to our stores, operating costs of our distribution centers, and shipping and handling costs related to our e-commerce operations, all of which are included in cost of sales. |
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Other Income, Net |
Other Income, Net Other income, net consists primarily of foreign currency transaction gain/loss, interest income/expense, and realized investment gains/losses. |
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Property and Equipment |
Property and Equipment Property and equipment is recorded on the basis of cost, including costs to prepare the asset for use, with depreciation computed utilizing the straight-line method over the asset’s estimated useful life. The useful lives of our major classes of assets are as follows:
As of November 2, 2019, the weighted average remaining useful life of our assets was approximately eight years.
In accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”), the Company evaluates long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified, for stores that have been open for a period of time sufficient to reach maturity. Impairment losses are recorded on long-lived assets used in operations when events and circumstances indicate that the assets are impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. When events such as these occur, the impaired assets are adjusted to their estimated fair value and an impairment loss is recorded. No long-lived asset impairment charges were recorded during the 13 or 39 weeks ended November 2, 2019 or November 3, 2018. Refer to Note 6 to the Consolidated Financial Statements for additional information regarding property and equipment. |
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Intangible Assets Including Goodwill |
Intangible Assets including Goodwill The Company’s goodwill is primarily related to the acquisition of its importing operations, Canada business, and Tailgate and Todd Snyder brands. In accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”), the Company evaluates goodwill for possible impairment on at least an annual basis and last performed an annual impairment test as of February 2, 2019. As a result of the Company’s annual goodwill impairment test, the Company concluded that its goodwill was not impaired. Definite-lived intangible assets are recorded on the basis of cost with amortization computed utilizing the straight-line method over the assets’ estimated useful lives. The Company’s definite-lived intangible assets, which consist primarily of trademark assets, are generally amortized over 15 to 25 years. The Company evaluates definite-lived intangible assets for impairment in accordance with ASC 350 when events or circumstances indicate that the carrying value of the asset may not be recoverable. Such an evaluation includes the estimation of undiscounted future cash flows to be generated by those assets. If the sum of the estimated future undiscounted cash flows is less than the carrying amounts of the assets, then the assets are impaired and are adjusted to their estimated fair value. No definite-lived intangible asset impairment charges were recorded during the 13 or 39 weeks ended November 2, 2019 or November 3, 2018. Refer to Note 7 to the Consolidated Financial Statements for additional information regarding intangible assets. |
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Gift Cards |
Gift Cards Revenue is not recorded on the issuance of gift cards. The value of a gift card is recorded as a current liability upon issuance, and revenue is recognized when the gift card is redeemed for merchandise. The Company estimates gift card breakage and recognizes revenue in proportion to actual gift card redemptions as a component of total net revenue. The Company determines an estimated gift card breakage rate by continuously evaluating historical redemption data and the time when there is a remote likelihood that a gift card will be redeemed. The Company recorded $1.5 million and $1.6 million of revenue related to gift card breakage during the 13 weeks ended November 2, 2019 and November 3, 2018, respectively. During the 39 weeks ended November 2, 2019 and November 3, 2018, the Company recorded $5.4 million and $6.2 million, respectively, of revenue related to gift card breakage. |
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Deferred Lease Credits |
Deferred Lease Credits Deferred lease credits represent the unamortized portion of construction allowances received from lessors related to the Company’s retail stores. Construction allowances are generally comprised of cash amounts received by the Company from the lessor as part of the negotiated lease terms. The Company records a receivable and an adjustment to the operating lease ROU asset at the lease commencement date (date of initial possession of the store). The deferred lease credit is amortized as part of the single lease cost over the term of the original lease (including the pre-opening build-out period). The receivable is reduced as amounts are received from the lessor. |
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Co-branded Credit Card |
Co-branded Credit Card The Company offers a co-branded credit card (the “AEO Visa Card”) and a private label credit card (the “AEO Credit Card”) under the AE and Aerie brands. These credit cards are issued by a third-party bank (the “Bank”) in accordance with a credit card agreement (“the Agreement”). The Company has no liability to the Bank for bad debt expense, provided that purchases are made in accordance with the Bank’s procedures. We receive funding from the Bank based on the Agreement and card activity, which includes payments for new account activations and usage of the credit cards. We recognize revenue for this funding as we fulfill our performance obligations under the contract. This revenue is recorded in other revenue, which is a component of total net revenue in our Consolidated Statements of Operations. The adoption of ASC 606 did not have an impact of the Company’s accounting for these programs. For further information on the Company’s loyalty program, refer to the Customer Loyalty Program caption below. |
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Customer Loyalty Program |
Customer Loyalty Program In 2017, the Company launched a new, digitized loyalty program called AEO ConnectedTM (the “Program”). This Program integrates the credit card rewards program and the AEREWARDSÒ loyalty program into one combined customer offering. Under the Program, customers accumulate points based on purchase activity and earn rewards by reaching certain point thresholds. Customers earn rewards in the form of discount savings certificates. Rewards earned are valid through the stated expiration date, which is 45 days from the issuance date of the reward. Rewards not redeemed during the 45-day redemption period are forfeited. Additional rewards are also given for key items such as jeans and bras. Points earned under the Program on purchases at American Eagle and Aerie are accounted for in accordance with ASC 606. The portion of the sales revenue attributed to the award points is deferred and recognized when the award is redeemed or when the points expire, using the relative stand-alone selling price method. Additionally, reward points earned using the co-branded credit card on non-AE or Aerie purchases are accounted for in accordance with ASC 606. As the points are earned, a current liability is recorded for the estimated cost of the award, and the impact of adjustments is recorded in cost of sales. |
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Sales Return Reserve |
Sales Return Reserve Revenue is recorded net of estimated and actual sales returns and deductions for coupon redemptions and other promotions. The Company records the impact of adjustments to its sales return reserve quarterly within total net revenue and cost of sales. The sales return reserve reflects an estimate of sales returns based on projected merchandise returns determined using historical average return percentages. The presentation on a gross basis consists of a separate right of return asset and liability. These amounts are recorded within (i) prepaid expenses and other and (ii) other current liabilities and accrued expenses, respectively, on the Consolidated Balance Sheets. |
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Income Taxes |
Income Taxes The Company calculates income taxes in accordance with ASC 740, Income Taxes (“ASC 740”), which requires the use of the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on the difference between the Consolidated Financial Statement carrying amounts of existing assets and liabilities and their respective tax bases as computed pursuant to ASC 740. Deferred tax assets and liabilities are measured using the tax rates, based on certain judgments regarding enacted tax laws and published guidance, in effect in the years when those temporary differences are expected to reverse. A valuation allowance is established against the deferred tax assets when it is more likely than not that some portion or all of the deferred taxes may not be realized. Changes in the Company’s level and composition of earnings, tax laws or the deferred tax valuation allowance, as well as the results of tax audits, may materially affect the Company’s effective income tax rate. The Company evaluates its income tax positions in accordance with ASC 740, which prescribes a comprehensive model for recognizing, measuring, presenting, and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular jurisdiction. Under ASC 740, a tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits. The calculation of deferred tax assets and liabilities, as well as the decision to recognize a tax benefit from an uncertain position and to establish a valuation allowance, requires management to make estimates and assumptions. The Company believes that its estimates and assumptions are reasonable, although actual results may have a positive or negative material impact on the balances of deferred tax assets and liabilities, valuation allowances or net income. Refer to Note 11 to the Consolidated Financial Statements for additional information regarding income taxes. |
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Segment Information |
Segment Information In accordance with ASC 280, Segment Reporting (“ASC 280”), the Company has identified two operating segments (American Eagle Brand and Aerie Brand) that reflect the basis used internally to review performance and allocate resources. Both operating segments have been aggregated and are presented as one reportable segment, as permitted by ASC 280. |
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Fair Value Measurements |
ASC 820, Fair Value Measurement Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. Fair value is defined under ASC 820 as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date. Financial Instruments Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. In addition, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
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Share-Based Compensation |
The Company accounts for share-based compensation under the provisions of ASC 718, Compensation - Stock Compensation (“ASC 718”), which requires companies to measure and recognize compensation expense for all share-based payments at fair value. |
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Legal Proceedings |
The Company is subject to certain legal proceedings and claims arising out of the conduct of its business. In accordance with ASC 450, Contingencies (“ASC 450”), the Company records a reserve for estimated losses when the loss is probable and the amount can be reasonably estimated. If a range of possible loss exists and no anticipated loss within the range is more likely than any other anticipated loss, the Company records the accrual at the low end of the range, in accordance with ASC 450. As the Company believes that it has provided adequate reserves, it anticipates that the ultimate outcome of any matter currently pending against the Company will not materially affect the consolidated financial position, results of operations or consolidated cash flows of the Company. However, our assessment of any litigation or other legal claims could potentially change in light of the discovery of facts not presently known or determinations by judges, juries, or other finders of fact, which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or claims. |
Summary of Significant Accounting Policies (Tables) |
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated Percentage of Total Net Revenue Attributable to Each Merchandise Group |
The following table sets forth the approximate consolidated percentage of total net revenue attributable to each merchandise group for each of the periods indicated:
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Summary of Disaggregation of Company's Total Net Revenue by Geography |
The following table disaggregates the Company’s Total Net Revenue by geography:
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Useful Lives of Major Classes of Assets | The useful lives of our major classes of assets are as follows:
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Cash and Cash Equivalents and Short-term Investments (Tables) |
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Cash And Cash Equivalents [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Market Values for Cash and Short-term Investments |
The following table summarizes the fair market values for the Company’s cash and short-term investments, which are recorded on the Consolidated Balance Sheets:
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Earnings per Share (Tables) |
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Reconciliation Between Basic and Diluted Weighted Average Shares Outstanding |
The following is a reconciliation between basic and diluted weighted average shares outstanding:
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Property and Equipment (Tables) |
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Property Plant And Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and Equipment |
Property and equipment consists of the following:
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Intangible Assets, including Goodwill (Tables) |
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Goodwill And Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets, Including Goodwill |
Intangible assets consist of the following:
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Leases (Tables) |
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Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Lease Costs, Other Information, Lease Term and Discount Rate |
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Summary of Maturity Analysis of Operating Leases |
The table below is a maturity analysis of the operating leases in effect as of the end of the period. Undiscounted cash flows for finance leases and short-term leases are not material for the periods reported and are excluded from the table below:
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Share-Based Compensation (Tables) |
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Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Stock Option Activity | A summary of the Company’s stock option activity for the 39 weeks ended November 2, 2019 follows:
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Black-Scholes Option Valuation Assumptions |
The fair value of stock options was estimated at the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumptions:
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Summary of Restricted Stock Activity |
A summary of the Company’s restricted stock activity is presented in the following table:
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Restructuring Charges (Tables) |
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Restructuring And Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||
Rollforward of Liabilities Recognized in Consolidated Balance Sheet |
A rollforward of the liabilities recognized in the Consolidated Balance Sheet is in the table below. The accrued liability as of February 2, 2019 relates to previous restructuring activities disclosed in the Company’s Fiscal 2018 Form 10-K, which remained unpaid at the beginning of Fiscal 2019.
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Consolidated Percentage of Total Net Revenue Attributable to Each Merchandise Group (Detail) |
3 Months Ended | 9 Months Ended | ||
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Nov. 02, 2019 |
Nov. 03, 2018 |
Nov. 02, 2019 |
Nov. 03, 2018 |
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Product Information [Line Items] | ||||
Percentage of total net revenue | 100.00% | 100.00% | 100.00% | 100.00% |
Men's apparel and accessories | ||||
Product Information [Line Items] | ||||
Percentage of total net revenue | 29.00% | 32.00% | 28.00% | 31.00% |
Women's apparel and accessories (excluding Aerie) | ||||
Product Information [Line Items] | ||||
Percentage of total net revenue | 54.00% | 53.00% | 54.00% | 54.00% |
Aerie | ||||
Product Information [Line Items] | ||||
Percentage of total net revenue | 17.00% | 15.00% | 18.00% | 15.00% |
Summary of Disaggregation of Company's Total Net Revenue by Geography (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||||
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Nov. 02, 2019 |
Nov. 03, 2018 |
Nov. 02, 2019 |
Nov. 03, 2018 |
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Product Information [Line Items] | ||||||
Total net revenue | $ 1,066,412 | $ 1,003,707 | $ 2,993,581 | $ 2,791,522 | ||
United States | ||||||
Product Information [Line Items] | ||||||
Total net revenue | 935,203 | 877,099 | 2,577,685 | 2,427,749 | ||
Foreign | ||||||
Product Information [Line Items] | ||||||
Total net revenue | [1] | $ 131,209 | $ 126,608 | $ 415,896 | $ 363,773 | |
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Useful Lives of Major Classes of Assets (Parenthetical) (Detail) |
9 Months Ended |
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Nov. 02, 2019 | |
Maximum | Leasehold Improvements | |
Property, Plant and Equipment, Estimated Useful Lives, Lease Terms [Line Items] | |
Useful lives in asset class | 10 years |
Fair Market Values for Cash and Short-term Investments (Detail) - USD ($) $ in Thousands |
Nov. 02, 2019 |
Feb. 02, 2019 |
Nov. 03, 2018 |
---|---|---|---|
Cash and cash equivalents: | |||
Cash and cash equivalents | $ 214,514 | $ 333,330 | $ 279,872 |
Short-term investments | |||
Short-term investments | 50,000 | 92,135 | 79,856 |
Total | 264,514 | 425,465 | 359,728 |
Cash | |||
Cash and cash equivalents: | |||
Cash and cash equivalents | 134,602 | 108,216 | 156,250 |
Interest Bearing Deposits | |||
Cash and cash equivalents: | |||
Cash and cash equivalents | 79,912 | 165,274 | 93,733 |
Commercial Paper | |||
Cash and cash equivalents: | |||
Cash and cash equivalents | 59,840 | 29,889 | |
Short-term investments | |||
Short-term investments | 22,135 | 14,859 | |
Certificates of Deposit | |||
Short-term investments | |||
Short-term investments | $ 50,000 | $ 70,000 | 55,000 |
Corporate Bonds | |||
Short-term investments | |||
Short-term investments | $ 9,997 |
Reconciliation Between Basic and Diluted Weighted Average Shares Outstanding (Detail) - shares shares in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Nov. 02, 2019 |
Nov. 03, 2018 |
Nov. 02, 2019 |
Nov. 03, 2018 |
|
Weighted average common shares outstanding: | ||||
Basic number of common shares outstanding | 167,912 | 176,938 | 170,463 | 177,033 |
Dilutive effect of stock options and non-vested restricted stock | 781 | 1,184 | 1,234 | 1,245 |
Diluted number of common shares outstanding | 168,693 | 178,122 | 171,697 | 178,278 |
Anti-dilutive shares | 1,057 | 1,099 | 595 | 388 |
Property and Equipment (Detail) - USD ($) $ in Thousands |
Nov. 02, 2019 |
Feb. 02, 2019 |
Nov. 03, 2018 |
---|---|---|---|
Property Plant And Equipment [Abstract] | |||
Property and equipment, at cost | $ 2,326,704 | $ 2,180,850 | $ 2,136,945 |
Less: Accumulated depreciation and impairment | (1,562,354) | (1,438,701) | (1,401,231) |
Property and equipment, net | $ 764,350 | $ 742,149 | $ 735,714 |
Intangible Assets, Including Goodwill (Detail) - USD ($) $ in Thousands |
Nov. 02, 2019 |
Feb. 02, 2019 |
Nov. 03, 2018 |
---|---|---|---|
Intangible Assets Net Including Goodwill [Abstract] | |||
Goodwill | $ 14,890 | $ 14,899 | $ 14,898 |
Trademarks, at cost | 71,382 | 70,994 | 70,869 |
Less: Accumulated amortization | (30,806) | (27,726) | (26,705) |
Intangible assets, net | $ 55,466 | $ 58,167 | $ 59,062 |
Other Credit Arrangements - Additional Information (Detail) - Credit Facilities - Credit Agreement |
1 Months Ended |
---|---|
Jan. 31, 2019
USD ($)
| |
Line Of Credit Facility [Line Items] | |
Line of credit facility, expiration period | 5 years |
Borrowing agreements with financial institutions | $ 400,000,000 |
Leases - Summary of Lease Costs and Other Information (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended |
---|---|---|
Nov. 02, 2019 |
Nov. 02, 2019 |
|
Lease costs | ||
Operating lease costs | $ 89,382 | $ 257,463 |
Variable lease costs | 24,268 | 72,723 |
Short-term leases and other lease costs | 7,752 | 31,653 |
Total lease costs | 121,402 | 361,839 |
Other information | ||
Cash paid for operating lease liability | (82,422) | (235,825) |
New ROU asset for operating leases entered into during the period | $ 98,194 | $ 254,121 |
Leases - Summary of Lease Term and Discount Rate (Detail) |
Nov. 02, 2019 |
---|---|
Lease term and discount rate | |
Weighted-average remaining lease term - operating leases | 6 years 4 months 24 days |
Weighted-average discount rate - operating leases | 5.10% |
Leases - Summary of Maturity Analysis of Operating Leases (Detail) $ in Thousands |
Nov. 02, 2019
USD ($)
|
---|---|
Leases [Abstract] | |
2019 (remaining 13 weeks) | $ 61,493 |
2020 | 370,199 |
2021 | 329,180 |
2022 | 277,434 |
2023 | 255,086 |
Thereafter | 667,638 |
Total undiscounted cash flows | 1,961,030 |
Less: discount on lease liability | (314,899) |
Total lease liability | $ 1,646,131 |
Summary of Stock Option Activity (Parenthetical) (Detail) |
9 Months Ended |
---|---|
Nov. 02, 2019
$ / shares
| |
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] | |
Options exercised, exercise prices range, lower limit | $ 14.59 |
Options exercised, exercise prices range, upper limit | $ 23.53 |
Black-Scholes Option Valuation Assumptions (Detail) |
9 Months Ended | |||||||
---|---|---|---|---|---|---|---|---|
Nov. 02, 2019 |
Nov. 03, 2018 |
|||||||
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] | ||||||||
Risk-free interest rate | [1] | 2.20% | 2.60% | |||||
Dividend yield | 2.40% | 2.50% | ||||||
Volatility factor | [2] | 38.20% | 39.50% | |||||
Weighted-average expected term (in years) | [3] | 4 years 4 months 24 days | 4 years 6 months | |||||
|
Summary of Restricted Stock Activity (Detail) shares in Thousands |
9 Months Ended |
---|---|
Nov. 02, 2019
$ / shares
shares
| |
Time Based Restricted Stock Units | |
Shares | |
Nonvested - beginning of period | shares | 1,999 |
Granted | shares | 1,205 |
Vested | shares | (916) |
Cancelled | shares | (47) |
Nonvested - end of period | shares | 2,241 |
Weighted-Average Grant Date Fair Value | |
Nonvested - beginning of period | $ / shares | $ 18.00 |
Granted | $ / shares | 17.60 |
Vested | $ / shares | 16.08 |
Cancelled | $ / shares | 16.82 |
Nonvested - end of period | $ / shares | $ 18.44 |
Performance-Based Restricted Stock Units | |
Shares | |
Nonvested - beginning of period | shares | 1,900 |
Granted | shares | 607 |
Vested | shares | (245) |
Cancelled | shares | (346) |
Nonvested - end of period | shares | 1,916 |
Weighted-Average Grant Date Fair Value | |
Nonvested - beginning of period | $ / shares | $ 17.44 |
Granted | $ / shares | 19.68 |
Vested | $ / shares | 15.99 |
Cancelled | $ / shares | 16.00 |
Nonvested - end of period | $ / shares | $ 19.20 |
Income Taxes - Additional Information (Detail) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Nov. 02, 2019 |
Nov. 03, 2018 |
Nov. 02, 2019 |
Nov. 03, 2018 |
|
Income Tax Disclosure [Abstract] | ||||
Effective income tax rate | 23.60% | 24.30% | 23.40% | 23.10% |
Increase (decrease) in unrecognized tax benefits | $ (1.6) | |||
Reasonably possible amount of reduction in unrecognized tax benefit over the next twelve months | $ 1.0 | $ 1.0 |
Restructuring Charges - Additional Information (Detail) - USD ($) $ in Thousands |
9 Months Ended | |
---|---|---|
Nov. 02, 2019 |
Nov. 03, 2018 |
|
Restructuring And Related Activities [Abstract] | ||
Restructuring charges | $ 4,272 | $ 1,568 |
Rollforward of Liabilities Recognized in Consolidated Balance Sheets (Detail) $ in Thousands |
9 Months Ended |
---|---|
Nov. 02, 2019
USD ($)
| |
Restructuring And Related Activities [Abstract] | |
Accrued liability as of February 2, 2019 | $ 6,629 |
Add: Costs incurred, excluding non-cash charges | 4,272 |
Less: Cash payments and adjustments | (7,824) |
Accrued liability as of November 2, 2019 | $ 3,077 |