Segment Reporting

Operating segments are defined as components of an enterprise that engage in business activities and for which discrete financial information is available that is evaluated on a regular basis by the chief operating decision maker to make decisions about how to allocate resources and assess performance. We are a leading specialty retailer and offer a broad selection of quality, branded durable consumer goods and related services in addition to a proprietary credit solution for our core credit-constrained consumers. We have two operating segments: (i) retail and (ii) credit. Our operating segments complement one another. The retail segment operates primarily through our stores and website in the retail furniture and mattresses, home appliances, consumer electronics and home office products business. Our retail segment product offerings include furniture and mattresses, home appliances, consumer electronics and home office products from leading global brands across a wide range of price points. Our credit segment offers affordable financing solutions to a large, under-served population of credit-constrained consumers who typically have limited credit alternatives. Our operating segments provide customers the opportunity to comparison shop across brands with confidence in our competitive prices as well as affordable monthly payment options, next day delivery and installation in the majority of our markets, and product repair service. We believe our large, attractively merchandised retail stores and credit solutions offer a distinctive value proposition compared to other retailers that target our core customer demographic. The operating segments follow the same accounting policies used in our consolidated financial statements.

We evaluate a segment’s performance based upon operating income before taxes. Selling, general and administrative expenses include the direct expenses of the retail and credit operations, allocated corporate overhead expenses, and a charge to the credit segment to reimburse the retail segment for expenses it incurs related to occupancy, personnel, advertising and other direct costs of the retail segment which benefit the credit operations by sourcing credit customers and collecting payments. The reimbursement received by the retail segment from the credit segment is estimated using an annual rate of 2.5% times the average portfolio balance for each applicable period.

As of July 31, 2017, we operated retail stores in 14 states with no operations outside of the United States. No single customer accounts for more than 10% of our total revenues.

Financial information by segment is presented in the following tables:



	Three Months Ended July 31, 2017							Three Months Ended July 31, 2016
(in thousands)	Retail		Credit			Total		Retail		Credit			Total
Revenues:
Furniture and mattress	$	95,297	$	—		$	95,297	$	105,562	$	—		$	105,562
Home appliance	89,085		—			89,085		101,359		—			101,359
Consumer electronic	52,946		—			52,946		65,735		—			65,735
Home office	17,862		—			17,862		21,701		—			21,701
Other	4,403		—			4,403		5,366		—			5,366
Product sales	259,593		—			259,593		299,723		—			299,723
Repair service agreement commissions	23,519		—			23,519		28,310		—			28,310
Service revenues	3,301		—			3,301		3,966		—			3,966
Total net sales	286,413		—			286,413		331,999		—			331,999
Finance charges and other revenues	92		80,142			80,234		437		65,721			66,158
Total revenues	286,505		80,142			366,647		332,436		65,721			398,157
Costs and expenses:
Cost of goods sold	172,306		—			172,306		208,869		—			208,869
Selling, general and administrative expenses ⁽¹⁾	78,667		32,965			111,632		84,838		35,008			119,846
Provision for bad debts	165		49,284			49,449		127		60,069			60,196
Charges and credits	4,068		—			4,068		2,895		—			2,895
Total costs and expense	255,206		82,249			337,455		296,729		95,077			391,806
Operating income (loss)	31,299		(2,107		)	29,192		35,707		(29,356		)	6,351
Interest expense	—		20,039			20,039		—		24,138			24,138
Loss on extinguishment of debt	—		2,097			2,097		—		—			—
Income (loss) before income taxes	$	31,299	$	(24,243	)	$	7,056	$	35,707	$	(53,494	)	$	(17,787	)



	Six Months Ended July 31, 2017							Six Months Ended July 31, 2016
(in thousands)	Retail		Credit			Total		Retail		Credit			Total
Revenues:
Furniture and mattress	$	189,740	$	—		$	189,740	$	210,868	$	—		$	210,868
Home appliance	169,207		—			169,207		189,263		—			189,263
Consumer electronic	108,699		—			108,699		131,600		—			131,600
Home office	34,650		—			34,650		44,174		—			44,174
Other	8,659		—			8,659		10,308		—			10,308
Product sales	510,955		—			510,955		586,213		—			586,213
Repair service agreement commissions	48,215		—			48,215		56,495		—			56,495
Service revenues	6,528		—			6,528		7,833		—			7,833
Total net sales	565,698		—			565,698		650,541		—			650,541
Finance charges and other revenues	172		156,603			156,775		931		135,798			136,729
Total revenues	565,870		156,603			722,473		651,472		135,798			787,270
Costs and expenses:
Cost of goods sold	344,256		—			344,256		413,335		—			413,335
Selling, general and administrative expenses ⁽¹⁾	152,614		65,555			218,169		164,821		68,272			233,093
Provision for bad debts	395		104,984			105,379		525		117,889			118,414
Charges and credits	5,295		—			5,295		3,421		—			3,421
Total costs and expense	502,560		170,539			673,099		582,102		186,161			768,263
Operating income (loss)	63,310		(13,936		)	49,374		69,370		(50,363		)	19,007
Interest expense	—		44,047			44,047		—		50,034			50,034
Loss on extinguishment of debt	—		2,446			2,446		—		—			—
Income (loss) before income taxes	$	63,310	$	(60,429	)	$	2,881	$	69,370	$	(100,397	)	$	(31,027	)

(1)

For the three months ended July 31, 2017 and 2016, the amount of corporate overhead allocated to each segment reflected in selling, general and administrative expense was $7.7 million and $6.5 million, respectively. For the three months ended July 31, 2017 and 2016, the amount of reimbursement made to the retail segment by the credit segment was $9.2 million and $9.6 million, respectively. For the six months ended July 31, 2017 and 2016, the amount of corporate overhead allocated to each segment reflected in selling, general and administrative expense was $14.2 million and $12.2 million, respectively. For the six months ended July 31, 2017 and 2016, the amount of reimbursement made to the retail segment by the credit segment was $18.7 million and $19.4 million, respectively.