2. Recent Accounting Pronouncements

Standards that were adopted

In May 2014, the Financial Accounting Standards Board (FASB) issued a new standard related to revenue recognition. Under ASU 2014-09, Revenue from Contracts with Customers (Topic 606), revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive for those goods or services. The standard requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. On February 4, 2018, we adopted ASU 2014-09 using the modified retrospective transition method. Results for reporting periods beginning after February 3, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.

In preparation for implementation of the standard, we identified the revenue streams that would be affected. We then designed and implemented processes and internal controls to appropriately recognize and present the associated financial information. Based on these efforts, we determined that the adoption of ASU 2014-09 changed the recognition and presentation of:

The stand-alone benefit received by customers through the Hibbett Rewards customer loyalty program recorded as a separate performance obligation,

Gift card breakage income recognized in net sales in proportion to the customer redemption pattern, and

The liability for net sales returns recognized on a gross basis including a right to recover asset measured at the former carrying value of the inventory less any expected recovery costs.

We applied ASU 2014-09 only to contracts that were not completed prior to Fiscal 2019. The cumulative effect of initially applying ASU 2014-09 was a $0.6 million decrease to the opening balance of retained earnings as of February 4, 2018. We expect the adoption to be immaterial to our financial position, results of operations and cash flows on an ongoing basis.

The effect of the adoption of ASU 2014-09 on our unaudited condensed consolidated balance sheet as of August 4, 2018 was (in thousands):

	As Reported		ASU 2014-09 Effect (1)		Excluding ASU 2014-09 Effect
Inventories, net	$	248,135	$	375	$	247,760
Other current assets	$	21,013	$	447	$	20,566
Accounts payable	$	112,759	$	569	$	112,190
Other accrued expenses	$	9,660	$	392	$	9,268

(1) Does not include the cumulative effect of initially adopting ASU 2014-09 to our consolidated balance sheet as adjusted as of February 4, 2018.

The effect of the adoption of ASU 2014-09 on our unaudited condensed consolidated statement of operations for the thirteen weeks ended August 4, 2018 was (in thousands, except per share amounts):

	As Reported			ASU 2014-09 Effect			Excluding ASU 2014-09 Effect
Net sales	$	211,123		$	(346	)	$	211,469
Cost of goods sold	$	144,772		$	(344	)	$	145,116
Gross margin	$	66,351		$	(2	)	$	66,353
Store operating, selling and administrative expenses	$	61,965		$	(27	)	$	61,992
Loss before provision for income taxes	$	(1,718	)	$	25		$	(1,743	)
Benefit for income taxes	$	(496	)	$	(7	)	$	(489	)
Net loss	$	(1,222	)	$	18		$	(1,240	)
Diluted loss per share	$	(0.06	)	$	0.01		$	(0.07	)

The effect of the adoption of ASU 2014-09 on our unaudited condensed consolidated statement of operations for the twenty-six weeks ended August 4, 2018 was (in thousands, except per share amounts):

	As Reported		ASU 2014-09 Effect			Excluding ASU 2014-09 Effect
Net sales	$	485,830	$	(524	)	$	486,354
Cost of goods sold	$	322,706	$	(322	)	$	323,028
Gross margin	$	163,124	$	(202	)	$	163,326
Store operating, selling and administrative expenses	$	123,869	$	(63	)	$	123,932
Income before provision for income taxes	$	26,847	$	(139	)	$	26,986
Provision for income taxes	$	6,560	$	(34	)	$	6,594
Net income	$	20,287	$	(105	)	$	20,392
Diluted earnings per share	$	1.06	$	-		$	1.06

Standards that are not yet adopted

In February 2016, the FASB issued ASU 2016-02 – Leases, which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. The new 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. We will adopt ASU 2016-02 in our fiscal year beginning February 3, 2019 (Fiscal 2020), and expect to utilize the adoption date transition method set forth in ASU 2018-11. Our lease accounting software has been upgraded with ASU 2016-02 functionality. As provided in ASU 2016-02, we do not plan to utilize hindsight upon adoption but intend to elect the practical expedient package. The Company continues to evaluate the provisions of the standard.

While we continue to assess the effect of adoption of ASU 2016-02, we anticipate its implementation will result in recognition of approximately $150.0 million to $180.0 million in net ROU assets and approximately $170.0 million to $200.0 million in lease liabilities. We do not expect a significant change in our leasing strategy between now and adoption.

We continuously monitor and review all current accounting pronouncements and standards from the FASB of U.S. GAAP for applicability to our operations. As of August 4, 2018, there were no other new pronouncements or interpretations that had or were expected to have a significant impact on our operations.