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 for fiscal 2016) 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 (loss)) on a retrospective basis as follows:



	Three months ended October 28, 2017								Nine months ended October 28, 2017
(in thousands, except per share amounts)	As Reported			Adjustments		As Adjusted			As Reported			Adjustments		As Adjusted
Net sales	$	708,308		1,343		$	709,651		$	2,079,819		2,372		$	2,082,191
Franchise and other revenue	$	—		1,341		$	1,341		$	—		3,851		$	3,851
Total revenue	$	—		710,992		$	710,992		$	—		2,086,042		$	2,086,042
Cost of sales	$	(501,591	)	667		$	(500,924	)	$	(1,480,901	)	3,819		$	(1,477,082	)
Operating expenses	$	(151,772	)	(3,403	)	$	(155,175	)	$	(454,093	)	(10,204	)	$	(464,297	)
Operating profit	$	3,422		(52	)	$	3,370		$	91,050		(162	)	$	90,888
Income before income taxes and income (loss) from equity investment in TSL	$	3,903		(52	)	$	3,851		$	90,570		(162	)	$	90,408
Income tax provision	$	(1,496	)	20		$	(1,476	)	$	(35,510	)	59		$	(35,451	)
Net income	$	4,037		(32	)	$	4,005		$	55,603		(103	)	$	55,500
Total comprehensive income (loss)	$	(3,514	)	(32	)	$	(3,546	)	$	56,729		(103	)	$	56,626

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



	February 3, 2018					October 28, 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	$	25,445	8,775	$	34,220
Total current assets	$	863,009	7,864	$	870,873	$	921,966	8,775	$	930,741
Deferred income taxes	$	27,671	40	$	27,711	$	35,284	32	$	35,316
Total assets	$	1,413,613	7,904	$	1,421,517	$	1,431,578	8,807	$	1,440,385
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses	$	145,218	3,008	$	148,226	$	141,990	4,165	$	146,155
Total current liabilities	$	324,526	3,008	$	327,534	$	336,303	4,165	$	340,468
Total liabilities	$	463,258	3,008	$	466,266	$	483,017	4,165	$	487,182
Retained earnings	$	350,083	4,896	$	354,979	$	354,315	4,642	$	358,957
Total shareholders' equity	$	950,355	4,896	$	955,251	$	948,561	4,642	$	953,203
Total liabilities and shareholders' equity	$	1,413,613	7,904	$	1,421,517	$	1,431,578	8,807	$	1,440,385

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



	Nine months ended October 28, 2017
(in thousands)	As Reported			Adjustments		As Adjusted
Cash flows from operating activities:
Net income	$	55,603		(103	)	$	55,500
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes	$	(20,381	)	(11	)	$	(20,392	)
Prepaid expenses and other current assets	$	979		(388	)	$	591
Accrued expenses	$	10,598		502		$	11,100

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



	Three months ended				Nine months ended
(in thousands)	November 3, 2018		October 28, 2017		November 3, 2018		October 28, 2017
Net sales:
U.S. Retail segment	$	721,746	$	655,930	$	2,083,287	$	1,910,125
Canada Retail segment	80,072		—		152,604		—
Other:
ABG	29,851		31,059		94,317		106,377
Ebuys	—		22,662		5,633		65,689
Total Other	29,851		53,721		99,950		172,066
Total net sales	831,669		709,651		2,335,841		2,082,191
Franchise and other revenue	1,334		1,341		4,532		3,851
Total revenue	$	833,003	$	710,992	$	2,340,373	$	2,086,042

U.S. Retail segment and Other net sales recognized are primarily based on sales to customers in the U.S. and Canada Retail segment net sales recognized are based on sales to customers in Canada. Revenue realized from geographic markets outside of the U.S. and Canada have collectively been immaterial.

For the U.S. Retail and Canada Retail segments, 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 retail net sales by category as reconciled to total net sales:



	Three months ended				Nine months ended
(in thousands)	November 3, 2018		October 28, 2017		November 3, 2018		October 28, 2017
Retail net sales by category:
Women's footwear	$	539,126	$	457,745	$	1,517,814	$	1,324,508
Men's footwear	155,338		134,128		459,525		405,331
Accessories and other	107,354		64,057		258,552		180,286
Other - ABG and Ebuys	29,851		53,721		99,950		172,066
Total net sales	$	831,669	$	709,651	$	2,335,841	$	2,082,191

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 programs:



	Three months ended						Nine months ended
(in thousands)	November 3, 2018			October 28, 2017			November 3, 2018			October 28, 2017
Gift cards:
Beginning of period	$	26,791		$	24,806		$	32,792		$	30,829
Gift cards redeemed and breakage recognized to net sales	(17,390		)	(16,174		)	(61,424		)	(60,615		)
Gift cards issued	15,507			14,042			53,540			52,460
End of period	$	24,908		$	22,674		$	24,908		$	22,674
Loyalty programs:
Beginning of period	$	16,786		$	21,606		$	21,282		$	19,889
Loyalty certificates redeemed and expired and other adjustments recognized to net sales	(6,465		)	(7,678		)	(29,850		)	(21,863		)
Deferred revenue for loyalty points issued	7,669			8,223			26,558			24,125
End of period	$	17,990		$	22,151		$	17,990		$	22,151

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						Nine months ended
(in thousands)	November 3, 2018			October 28, 2017			November 3, 2018			October 28, 2017
Sales returns liability:
Beginning of period	$	14,426		$	12,763		$	14,130		$	14,149
Net sales reduced for estimated returns	101,192			85,363			284,808			244,783
Actual returns during the period	(98,332		)	(82,038		)	(281,652		)	(242,844		)
End of period	$	17,286		$	16,088		$	17,286		$	16,088

As of November 3, 2018, February 3, 2018, and October 28, 2017, the asset for recovery of merchandise returns was $8.9 million, $7.9 million, and $8.8 million, respectively.