2.Summary of significant accounting policies

Information regarding the Company’s significant accounting policies is contained in Note 2, “Summary of significant accounting policies,” to the consolidated financial statements in the Company’s Annual Report on Form 10‑K for the year ended February 3, 2018. Presented below and in the following notes is supplemental information that should be read in conjunction with “Notes to Consolidated Financial Statements” in the Annual Report.

Fiscal quarter

The Company’s quarterly periods are the 13 weeks ending on the Saturday closest to April 30, July 31, October 31, and January 31. The Company’s third quarter in fiscal 2018 and 2017 ended on November 3, 2018 and October 28, 2017, respectively.

Share-based compensation

The Company measures share-based compensation cost on the grant date, based on the fair value of the award, and recognizes the expense on a straight-line basis over the requisite service period for awards expected to vest. The Company estimated the grant date fair value of stock options using a Black-Scholes valuation model using the following weighted-average assumptions for the periods indicated:

The Company granted 163 and 106 stock options during the 39 weeks ended November 3, 2018 and October 28, 2017, respectively. The compensation cost charged against operating income for stock options was $2,134 and $2,212 for the 13 weeks ended November 3, 2018 and October 28, 2017, respectively. The compensation cost charged against operating income for stock options was $6,557 and $6,589 for the 39 weeks ended November 3, 2018 and October 28, 2017, respectively. The weighted-average grant date fair value of these stock options was $50.10 and $69.61 for the 39 weeks ended November 3, 2018 and October 28, 2017, respectively. At November 3, 2018, there was approximately $19,586 of unrecognized compensation expense related to unvested stock options.

The Company issued 95 and 45 restricted stock units during the 39 weeks ended November 3, 2018 and October 28, 2017, respectively. The compensation cost charged against operating income for restricted stock units was $3,449 and $2,419 for the 13 weeks ended November 3, 2018 and October 28, 2017, respectively. The compensation cost charged against operating income for restricted stock units was $9,244 and $6,872 for the 39 weeks ended November 3, 2018 and October 28, 2017, respectively. At November 3, 2018, there was approximately $22,597 of unrecognized compensation expense related to restricted stock units.

The Company issued 33 and 21 performance-based restricted stock units during the 39 weeks ended November 3, 2018 and October 28, 2017, respectively. The compensation cost charged against operating income for performance-based restricted stock units was $1,904 and $1,618 for the 13 weeks ended November 3, 2018 and October 28, 2017, respectively. The compensation cost charged against operating income for performance-based restricted stock units was $5,083 and $4,437 for the 39 weeks ended November 3, 2018 and October 28, 2017, respectively. At November 3, 2018, there was approximately $11,403 of unrecognized compensation expense related to performance-based restricted stock units.

Goodwill and Other Intangible Assets

Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to $9,084 and $0 at November 3, 2018 and February 3, 2018, respectively. The Company recognized $9,084 of goodwill during the 13 weeks and 39 weeks ended November 3, 2018 related to the acquisitions discussed in Note 3, “Acquisitions.” The Company reviews the recoverability of goodwill annually during the fourth quarter or more frequently if an event occurs or circumstances change that would indicate that impairment may exist. 

Other intangible assets with finite useful lives are amortized over their useful lives. During the 13 weeks and 39 weeks ended November 3, 2018, the Company recognized $7,066 in intangibles related to the acquisitions discussed in Note 3, “Acquisitions.” The Company reviews the recoverability of long-lived assets whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable.

Recent accounting pronouncements not yet adopted

Leases

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016‑02, Leases (Topic 842). The guidance in ASU 2016-02 and subsequently issued amendments requires lessees to capitalize virtually all leases with terms of more than twelve months on the balance sheet as a right-of-use asset and recognize an associated lease liability. The right-of-use asset represents the lessee’s right to use, or control the use of, a specified asset for the specified lease term. The lease liability represents the lessee’s obligation to make lease payments arising from the lease, measured on a discounted basis. Based on certain characteristics, leases are classified as financing or operating leases and their classification impacts the recognition of expense in the income statement. Entities are allowed to apply the modified retrospective approach (1) retrospectively to each comparative period presented or (2) retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment. ASU 2016‑02 is effective for public companies for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted.

The Company will adopt the new standard in the first quarter of fiscal 2019 using the modified retrospective approach with a cumulative-effect adjustment to opening retained earnings recorded at the beginning of the period of adoption.  Therefore, upon adoption, the Company will recognize and measure leases without revising comparative period information or disclosures.

The Company formed a cross-functional project team to assess the impact of the standard on the consolidated financial statements and is progressing with the implementation plan, which includes identifying the lease population, updating the lease software, and identifying changes to processes and controls. The Company plans to implement the transition package of three practical expedients permitted within the standard, which among other things, allows for the carryforward of historical lease classifications. The Company will make an accounting policy election to keep leases with terms of twelve months or less off the balance sheet and result in recognizing those lease payments on a straight-line basis over the lease term. The Company has determined that the initial lease term will not differ under the new standard versus current accounting practice.

The adoption of ASU 2016‑02 will have a material impact on the Company’s consolidated financial position as there will be approximately 1,200 leased locations at the time of adoption, including the corporate office, stores, and distribution centers, however, the Company is not able to quantify the difference at this time. The Company does not believe adoption of this standard will have a material impact on the Company’s consolidated results of operations or cash flows.

Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies how all entities assess goodwill for impairment by eliminating Step 2 from the goodwill impairment test. As amended, the goodwill impairment test will consist of one step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, except that the loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019 and should be applied prospectively. Early adoption is permitted. The adoption of ASU 2017-04 is not expected to have a material impact on the Company’s consolidated financial position, results of operation, or cash flows.

 

Intangibles – Goodwill and Other-Internal-Use Software

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which clarifies and aligns the accounting for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019 and should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Early adoption is permitted. The adoption of ASU 2018-15 is not expected to have a material impact on the Company’s consolidated financial position, results of operations, or cash flows. 

Recently adopted accounting pronouncements

Revenue Recognition from Contracts with Customers

In May 2014, the FASB issued ASU 2014‑09, Revenue from Contracts with Customers (ASU 2014‑09), issued as a new Topic, Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition (ASC 605). The guidance in ASU 2014-09 and subsequently issued amendments outlines a comprehensive model for all entities to use in accounting for revenue arising from contracts with customers as well as required disclosures. Under the new standard, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration, which the entity expects to receive in exchange for those goods or services. The new standard requires additional disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers including significant judgments and changes in judgments.

The Company adopted the new revenue standard effective February 4, 2018 using the modified retrospective transition method applied to all contracts with the cumulative effect recorded to the opening balance of retained earnings as of the date of adoption. The comparative information has not been restated and continues to be reported under accounting standards in effect for those periods. The adoption of the new revenue standard did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows. The Company expects the impact of the adoption of the new revenue standard will be immaterial to net income on an ongoing basis. See Note 4, “Revenue”, for further details.