Significant Accounting Policies (Policies)

3 Months Ended

May 04, 2013

Accounting Policies [Abstract]

Consolidation

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated.

Fiscal Periods

Fiscal Periods

References to a fiscal year refer to the calendar year in which the fiscal year begins. Our fiscal year ends on the Saturday nearest January 31st.

Use of Estimates

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and timing of revenue and expenses, the reported amounts and classification of assets and liabilities, and the disclosure of contingent assets and liabilities. These estimates and assumptions are embodied in our sales returns accrual, gift card breakage, inventory adjustments, derivative liability, stock-based compensation, impairment of long-lived assets, contingent liabilities and income taxes. These estimates and assumptions are based on historical results as well as management's future expectations. Actual results may vary from these estimates and assumptions.

Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss is made up entirely of unrecognized net actuarial loss, net of tax, for the Supplemental Executive Retirement Plan (the "SERP"). See Note 10. Supplemental Executive Retirement Plan, for amounts reclassified from accumulated other comprehensive loss to net periodic benefit costs due to the amortization of net actuarial loss.

Fair Value

Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are categorized using defined hierarchical levels related to the subjectivity associated with the inputs to fair value measurements as follows:

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

• Level 2 — Quoted prices for similar assets or liabilities in active markets or inputs that are observable; and

• Level 3 — Unobservable inputs in which little or no market activity exists.

On July 9, 2012, as disclosed in Note 8, we issued 1,000 shares of Series A Preferred Stock. The fair value of the Series A Preferred Stock is recorded as a derivative liability and is included in accrued liabilities. The derivative liability is measured on a recurring basis at fair value with Level 3 inputs using the Black-Scholes option valuation model with the following inputs:

	May 4, 2013			February 2, 2013
Closing price of Company's common stock	$	3.70		$	3.69
Exercise price	$	3.40		$	3.40
Risk-free interest rate	1.6		%	1.9		%
Expected volatility	77.8		%	84.9		%
Expected life	9.2			9.4
Expected dividends	$	—		$	—

The valuation model and the assumptions used in the model were determined based on the Series A Preferred Stock features and Company specific historical experience, taking into consideration expected future activity. The risk-free interest rate is based on the U.S. Treasury strip rates in effect at the time of measurement with an equivalent remaining term. The expected volatility of our stock prices is based on a combination of historical volatility and the implied volatility of our exchange traded options. Expected life is based on the remaining term of the Series A Preferred Stock. To the extent any of these assumptions increases or decreases in isolation, the fair value of the derivative liability increases or decreases accordingly. Other assumptions based on the Series A Preferred Stock features, including anti-dilution provisions, were considered and determined to be insignificant to the valuation.

Changes in the fair value are recorded as other gain or loss, net, in our consolidated statements of operations and comprehensive operations. Activity for the derivative liability was as follows:

	Three Months Ended
	May 4, 2013			April 28, 2012
	(in thousands)
Balance at beginning of period	$	18,683		$	—
Issuance of Series A Preferred Stock	—			—
Gain on change in fair value	(926		)	—
Balance at end of period	$	17,757		$	—

We have financial assets and liabilities, not required to be measured at fair value on a recurring basis, which primarily consist of cash, receivables, payables and debt. The carrying value of cash, receivables, payables and borrowing on our revolving line of credit approximate their fair values due to their short-term nature. As of May 4, 2013, the fair value of our senior secured term loan was $64.3 million compared to the carrying value of $54.5 million, which includes accrued PIK interest and net of the loan discount. The fair value of the senior secured term loan was estimated using Level 3 inputs by discounting the cash flows with an assumed interest rate that considers credit and liquidity risk. The carrying value of our previous term loan approximated fair value at April 28, 2012.

Income Taxes

Income Taxes

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulated loss incurred over the last three years. Such objective evidence limits the ability to consider other subjective evidence. We have a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence.

Reclassifications