REVENUE

Adoption of ASU 2014-09, Revenue from Contracts with Customers- During the first quarter of fiscal 2018, we adopted the new accounting standard for revenue recognition, ASU 2014-09 and the related amendments, using the full retrospective method where each prior period presented is restated. We recorded an increase to retained earnings as of January 31, 2016 (opening balance) of $4.9 million. The adoption of ASU 2014-09 had the following impacts:


•	Income from the breakage of gift cards is classified within net sales and recognized proportionately over the expected redemption period, which was previously recognized as a reduction to operating expenses when the redemption of the gift card was deemed remote.


•	The loyalty program is being treated as deferred revenue, which was previously treated using the incremental cost method and recognized to cost of sales.


•	We changed other classifications between net sales, franchise and other revenue, cost of sales and operating expenses for various revenue-related transactions.


•	We present our estimated returns allowance on a gross basis with returns liability recorded to accrued expenses and an asset for recovery to prepaid expenses and other current assets, which were previously presented on a net basis in accrued expenses.

As a result of adopting ASU 2014-09, we adjusted our condensed consolidated statements of operations (including total comprehensive income) on a retrospective basis as follows:



	Three months ended April 29, 2017
(in thousands, except per share amounts)	As Reported			Adjustments		As Adjusted
Net sales	$	691,102		(283	)	$	690,819
Franchise and other revenue	$	—		1,219		$	1,219
Total revenue	$	—		692,038		$	692,038
Cost of sales	$	(495,873	)	2,139		$	(493,734	)
Operating expenses	$	(153,264	)	(3,304	)	$	(156,568	)
Operating profit	$	40,881		(229	)	$	40,652
Income before income taxes and loss from Town Shoes	$	39,938		(229	)	$	39,709
Income tax provision	$	(15,665	)	80		$	(15,585	)
Net income	$	22,967		(149	)	$	22,818
Total comprehensive income	$	20,483		(149	)	$	20,334
Basic earnings per share	$	0.29		(0.01	)	$	0.28

As a result of adopting ASU 2014-09, we adjusted our condensed consolidated balance sheets on a retrospective basis as follows:



	February 3, 2018					April 29, 2017
(in thousands)	As Reported		Adjustments	As Adjusted		As Reported		Adjustments	As Adjusted
ASSETS
Prepaid expenses and other current assets	$	41,333	7,864	$	49,197	$	36,230	8,234	$	44,464
Total current assets	$	863,009	7,864	$	870,873	$	882,132	8,234	$	890,366
Deferred income taxes	$	27,671	40	$	27,711	$	16,287	24	$	16,311
Total assets	$	1,413,613	7,904	$	1,421,517	$	1,471,464	8,258	$	1,479,722
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses	$	145,218	3,008	$	148,226	$	135,758	3,661	$	139,419
Total current liabilities	$	324,526	3,008	$	327,534	$	349,369	3,661	$	353,030
Total liabilities	$	463,258	3,008	$	466,266	$	526,176	3,661	$	529,837
Retained earnings	$	350,083	4,896	$	354,979	$	353,592	4,597	$	358,189
Total shareholders' equity	$	950,355	4,896	$	955,251	$	945,288	4,597	$	949,885
Total liabilities and shareholders' equity	$	1,413,613	7,904	$	1,421,517	$	1,471,464	8,258	$	1,479,722

As a result of adopting ASU 2014-09, we adjusted our condensed consolidated statements of cash flows on a retrospective basis as follows:



	Three months ended April 29, 2017
(in thousands)	As Reported			Adjustments		As Adjusted
Cash flows from operating activities:
Net income	$	22,967		(149	)	$	22,818
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes	$	(1,232	)	(4	)	$	(1,236	)
Prepaid expenses and other current assets	$	(6,833	)	153		$	(6,680	)

Disaggregation of Revenue- The following table presents our revenue disaggregated by operating and reporting segments:



	Three months ended
(in thousands)	May 5, 2018		April 29, 2017
Net sales:
DSW segment	$	669,784	$	624,504
Other:
ABG	35,020		43,988
Ebuys	5,633		22,327
	40,653		66,315
Total net sales	710,437		690,819
Franchise and other revenue	1,665		1,219
Total revenue	$	712,102	$	692,038

Net sales recognized are primarily based on sales to customers in the U.S. Net sales realized from geographic markets outside of the U.S. have collectively been immaterial.

For the DSW segment, we separate our merchandise into three primary categories: women’s footwear, men’s footwear, and accessories and other (which includes kids’ footwear). The following table presents the DSW segment sales by category:



	Three months ended
(in thousands)	May 5, 2018				April 29, 2017
DSW segment categories:
Women's footwear	$	469,284	70.1	%	$	437,930	70.1	%
Men's footwear	133,159		19.9		128,113		20.5
Accessories and other	67,341		10.0		58,461		9.4
	$	669,784	100.0	%	$	624,504	100.0	%

Deferred Revenue Liabilities- We record deferred revenue liabilities, included in accrued expenses on the consolidated balance sheets, for remaining obligations we have to our customers. The following table presents the changes and total balances for gift cards and our loyalty program:



	Three months ended
(in thousands)	May 5, 2018			April 29, 2017
Gift cards:
Beginning of period	$	32,792		$	30,829
Gift cards redeemed and breakage recognized to net sales	(22,273		)	(19,309		)
Gift cards issued	17,632			16,282
End of period	$	28,151		$	27,802
Loyalty program:
Beginning of period	$	21,282		$	19,889
Loyalty certificates redeemed and expired and other adjustments recognized to net sales	(6,635		)	(6,656		)
Deferred revenue for loyalty points issued	7,464			8,054
End of period	$	22,111		$	21,287

Sales Returns- We reduce net sales by the amount of expected returns and cost of sales by the amount of merchandise we expect to recover, which are estimated based on historical experience. The following table presents the changes and total balances for the returns liability:



	Three months ended
(in thousands)	May 5, 2018			April 29, 2017
Sales returns liability:
Beginning of period	$	14,130		$	14,149
Net sales reduced for estimated returns	85,053			77,936
Actual returns during the period	(83,177		)	(77,133		)
End of period	$	16,006		$	14,952

As of May 5, 2018, February 3, 2018, and April 29, 2017, the asset for recovery of merchandise returns was $8.5 million, $7.9 million, and $8.2 million, respectively.