Note 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 consolidated balance sheet as of February 2, 2019 was (in thousands):

	As Reported		ASU 2014-09 Effect (1)			Excluding ASU 2014-09 Effect
Inventories, net	$	280,287	$	(130	)	$	280,417
Prepaid expenses and other	$	16,343	$	(252	)	$	16,595
Accounts payable	$	107,315	$	693		$	106,622
Other accrued expenses	$	10,174	$	(49	)	$	10,223

(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 consolidated statement of operations for the fifty-two weeks ended February 2, 2019 was (in thousands, except per share amounts):

	As Reported		ASU 2014-09 Effect			Excluding ASU 2014-09 Effect
Net sales	$	1,008,682	$	(977	)	$	1,009,659
Cost of goods sold	$	679,947	$	(110	)	$	680,057
Gross margin	$	328,735	$	(867	)	$	329,602
Store operating, selling and administrative expenses	$	264,142	$	(68	)	$	264,210
Income before provision for income taxes	$	37,558	$	(800	)	$	38,358
Provision for income taxes	$	9,137	$	(194	)	$	9,331
Net income	$	28,421	$	(606	)	$	29,027
Diluted earnings per share	$	1.51	$	(0.03	)	$	1.54

Standards that are not yet adopted

In February 2016, the FASB established Topic 842, Leases, by issuing ASU 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU 2018-10, Codification Improvements to Topic 842, Leases; and ASU 2018-11, Targeted Improvements. 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.

The new standard is effective for us on February 3, 2019, and we will adopt it as of that date. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. We will to use the effective date as our date of initial application. Consequently, financial information will not be restated, and the disclosures required under the new standard will not be provided for dates and periods prior to February 3, 2019. We have completed the upgrade of our existing lease accounting system to facilitate the adoption.

The new standard provided for optional practical expedients in transition. We expect to elect the “package of practical expedients”, which permits us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs under the new standard. We will not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us.

On adoption, we will recognize additional operating liabilities of approximately $230.0 million, with corresponding ROU assets of approximately $210.0 million. The new standard provides practical expedients for an entity’s ongoing accounting. We will elect the short-term lease recognition exemption for certain classes of underlying assets. In doing so, for those leases that qualify, we will not recognize ROU assets or lease liabilities, including not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We will elect to combine lease and non-lease components for certain classes of underlying assets.

Adoption will result in the elimination of the below-market and above-market lease intangible balances acquired during Fiscal 2019, as these amounts will be included in the ROU assets balance at implementation date.

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 February 2, 2019, there were no other new pronouncements or interpretations that had or were expected to have a significant impact on our operations.