DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Jan. 28, 2017

Description of Business and Significant Accounting Policies [Abstract]

Description of business

Description of Business.  We are a retailer operating specialty department stores primarily in small and mid-sized towns and communities. Our merchandise assortment is a well-edited selection of moderately priced brand name and private label apparel, accessories, cosmetics, footwear and home goods. As of January 28, 2017, we operated 798 specialty department stores located in 38 states under the BEALLS, GOODY’S, PALAIS ROYAL, PEEBLES and STAGE nameplates and a direct-to-consumer business.

Principles of consolidation

Principles of Consolidation.  The consolidated financial statements include the accounts of Stage Stores, Inc. and its subsidiary.  All intercompany transactions have been eliminated in consolidation. We report our specialty department stores and e-commerce website in a single operating segment.  Revenues from customers are derived from merchandise sales.  We do not rely on any major customer as a source of revenue.

Fiscal Year

Fiscal Year. References to a particular year are to our fiscal year, which is the 52- or 53-week period ending on the Saturday closest to January 31st of the following calendar year.  

Fiscal Year	Ended	Weeks
2016	January 28, 2017	52
2015	January 30, 2016	52
2014	January 31, 2015	52

Use of estimates

Use of Estimates.  The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  On an ongoing basis, we evaluate our estimates, including those related to inventory, deferred tax assets, intangible assets, long-lived assets, sales returns, gift card breakage, pension obligations, self-insurance and contingent liabilities.  Actual results may differ materially from these estimates.  We base our estimates on historical experience and on various assumptions which are believed to be reasonable under the circumstances.

Cash and cash equivalents

Cash and Cash Equivalents. Weconsider highly liquid investments with initial maturities of less than three months to be cash equivalents. Cash and cash equivalents also includes amounts due from credit card sales transactions.

Concentration of credit risk

Concentration of Credit Risk. Financial instruments which potentially subject us to concentrations of credit risk are primarily cash.  Our cash management and investment policies restrict investments to low-risk, highly-liquid securities and we perform periodic evaluations of the relative credit standing of the financial institutions with which we deal.

Merchandise inventories

Merchandise Inventories.  We value merchandise inventories using the lower of cost or net realizable value with cost determined using the weighted average cost method.  We capitalize distribution center costs associated with preparing inventory for sale, such as distribution payroll, benefits, occupancy, depreciation and other direct operating expenses as part of merchandise inventories.  We also include in inventory the cost of freight to our distribution centers and to stores as well as duties and fees related to import purchases.

Vendor allowances

Vendor Allowances. We receive consideration from our merchandise vendors in the form of allowances and reimbursements.  Given the promotional nature of our business, the allowances are generally intended to offset our costs of handling, promoting, advertising and selling the vendors’ products in our stores.  These allowances are recognized in accordance with ASC Subtopic 605-50, Customer Payments and Incentives. Vendor allowances related to the purchase of inventory are recorded as a reduction to the cost of inventory until sold.  Vendor allowances are recognized as a reduction of cost of goods sold or the related selling expense when the purpose for which the vendor funds were intended to be used has been fulfilled and amounts have been authorized by vendors. 

Stock-based compensation

Stock-Based Compensation. We recognize as compensation expense an amount equal to the fair value of share-based payments granted to employees and independent directors, net of estimated forfeitures.  That cost is recognized ratably in SG&A expense over the period during which an employee or independent director is required to provide service in exchange for the award.

Property, equipment and leasehold improvements

Property, Equipment and Leasehold Improvements.  Additions to property, equipment and leasehold improvements are recorded at cost and depreciated over their estimated useful lives using the straight-line method.  The estimated useful lives of leasehold improvements do not exceed the term of the related lease, including applicable available renewal options where appropriate.  The estimated useful lives in years are generally as follows:

Buildings & improvements	20
Information systems	3	-	10
Store and office fixtures and equipment	5	-	10
Warehouse equipment	5	-	15
Leasehold improvements - stores	5	-	15
Leasehold improvements - corporate office	10	-	12

Impairment of long-lived assets

Impairment of Long-Lived Assets.  Property, plant and equipment and other long-lived assets are reviewed to determine whether any events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.  For long-lived assets to be held and used, we base our evaluation on impairment indicators such as the nature of the asset’s physical condition, the future economic benefit of the asset, any historical or future profitability measurements and other external market conditions or factors that may be present.  If such impairment indicators are present or other factors exist that indicate the carrying amount of the asset may not be recoverable, we determine whether impairment has occurred through the use of an undiscounted cash flows analysis of the asset at the lowest level for which identifiable cash flows exist.  If impairment has occurred, we recognize a loss for the difference between the carrying amount and the estimated fair value of the asset. Management’s judgment is necessary to estimate fair value. 

Insurance Recoveries

Insurance Recoveries. We incurred casualty losses during 2016, 2015 and 2014. We received total insurance proceeds of $3.3 million, $2.5 million and $2.0 million during 2016, 2015 and 2014, respectively, and recognized net gains of $0.7 million, $0.8 million and $0.9 million in 2016, 2015 and 2014, respectively, which are included in SG&A expenses.

Intangible asset and impairment of intangible assets

Intangible Assets and Impairment of Intangible Assets.  Indefinite life intangible assets are tested for impairment annually or more frequently when indicators of impairment exist. As a part of the acquisition of Peebles, Inc. in 2003, we acquired the rights to the PEEBLES trade name and trademark (collectively the “Trademark”), which was identified as an indefinite life intangible.  The value of the Trademark was determined to be $14.9 million at the time of the Peebles, Inc. acquisition.  We completed our annual impairment testing during the fourth quarter of 2016 and determined that the fair value exceeded the carrying value by less than 10%.

Debt issuance costs

Debt Issuance Costs.  Debt issuance costs are accounted for as a deferred charge and amortized on a straight-line basis over the term of the related financing agreement.  The balance of debt issuance costs, net of accumulated amortization of $0.1 million and $0.3 million, is $1.4 million and $0.8 million at January 28, 2017 and January 30, 2016, respectively.

Revenue recognition

Revenue Recognition.  Our retail stores record revenue at the point of sale.  Sales of merchandise shipped to our customers are recorded based on estimated receipt of merchandise by the customer. Shipping and handling fees charged to customers are included in net sales with the corresponding costs recorded as costs of goods sold. Total revenues do not include sales tax because we are a pass-through conduit for collecting and remitting sales taxes. Revenues are recognized net of expected returns, which we estimate using historical return patterns as a percentage of sales.

We record deferred revenue on our balance sheet for the sale of gift cards and merchandise credits issued related to customer returns. Upon redemption, we recognize this revenue in net sales.

Gift card and merchandise credit liability

Gift Card and Merchandise Credit Liability.Unredeemed gift cards and merchandise credits are recorded as a liability. Our gift cards and merchandise credits do not expire. Based on historical redemption rates, a small and relatively stable percentage of gift cards and merchandise credits will never be redeemed, which is referred to as “breakage.” Estimated breakage income is recognized over time in proportion to actual gift card and merchandise credit redemptions. We recognized breakage income of approximately $3.0 million in net sales in 2016, and approximately $1.6 million and $1.1 million as an offset to SG&A expenses in 2015 and 2014, respectively.

Customer Loyalty Program

Customer Loyalty Program.  Prior to the third quarter of 2016, customers who spent a required amount within a specified time frame using our private label credit card received reward certificates which could be redeemed for merchandise. We estimated the net cost of the rewards and recorded a liability associated with unredeemed certificates and customer spend toward unissued certificates. The cost of the loyalty rewards program was recorded in cost of sales. In the third quarter of 2016, we expanded our loyalty program to enable all customers to earn benefits regardless of how they choose to pay. We record deferred revenue, net of estimated breakage, for the retail value of certificates earned and as customers make purchases towards earning reward certificates.

Self Insurance Reserves

Self-Insurance Reserves.  We maintain self-insured retentions with respect to general liability, workers compensation and health benefits for our employees.  We estimate the accruals for the liabilities based on industry development factors and historical claim trend experience.  Although management believes adequate reserves have been provided for expected liabilities arising from our self-insured obligations, projections of future losses are inherently uncertain, and it is reasonably possible that estimates of these liabilities will change over the near term as circumstances develop.

Advertising expenses

Advertising Expenses.  Advertising costs are charged to operations when the related advertising first takes place.  Advertising costs were $88.7 million, $91.0 million and $92.1 million, in 2016, 2015 and 2014, respectively, which are net of advertising allowances received from vendors of $4.3 million, $4.9 million and $5.0 million, respectively.

Rent expense

Rent Expense.  We record rent expense on a straight-line basis over the lease term, including the build out period, and where appropriate, applicable available lease renewal option periods.  The difference between the payment and expense in any period is recorded as deferred rent in other long-term liabilities in the consolidated financial statements.  We record construction allowances from landlords when contractually earned as a deferred rent credit in other long-term liabilities.  Such deferred rent credit is amortized over the related lease term, commencing on the date we contractually earned the construction allowance, as a reduction of rent expense.  The deferred rent credit was $43.4 million and $47.5 million as of January 28, 2017 and January 30, 2016, respectively.

Certain leases provide for contingent rents that are not measurable at inception.  These contingent rents are primarily based on a percentage of sales that are in excess of a predetermined level.  These amounts are excluded from minimum rent and are included in the determination of total rent expense when it is probable that the expense has been incurred and the amount is reasonably estimable.

Income taxes

Income Taxes.  The provision for income taxes is computed based on the pretax income (loss) included in the consolidated financial statements.  The asset and liability approach is used to recognize deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts for financial reporting purposes and the tax basis of assets and liabilities.  A valuation allowance is established if it is more likely than not that some portion of the deferred tax asset will not be realized.  See Note 14 for additional disclosures regarding income taxes and deferred income taxes.

Earnings per share

Earnings Per Share. Basic earnings per share is computed using the weighted average number of common shares outstanding during the measurement period.  Diluted earnings per share is computed using the weighted average number of common shares as well as all potentially dilutive common share equivalents outstanding during the measurement period.  

We granted non-vested stock awards that contain non-forfeitable dividend rights. Under Accounting Standards Codification (“ASC”) 260-10, Earnings Per Share, non-vested stock awards that contain non-forfeitable dividend or dividend equivalent rights are considered participating securities and are included in the calculation of basic and diluted earnings per share pursuant to the two-class method.  The two-class method determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and their respective participation rights in undistributed earnings. See Note 2 for additional disclosures regarding earnings per share.

Recent Accounting Standards

Recent Accounting Standards. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes most existing revenue recognition guidance in GAAP. The core principle of the guidance is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects what a company expects to be entitled to in exchange for those goods or services. ASU 2014-09 allows for either a retrospective or cumulative effect transition method of adoption. In August 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09 by one year. The new revenue standard will be effective for us in the first quarter of fiscal year ending February 2, 2019. We do not expect the adoption of ASU 2014-09 to have a material impact on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize the assets and liabilities that arise from finance and operating leases on the balance sheet. In addition, this guidance requires disclosures about the amount, timing and uncertainty of cash flows arising from leases. The new standard will be effective for us in the first quarter of fiscal year ending February 1, 2020. We are currently evaluating the impact that the adoption of this ASU will have on our consolidated financial statements and we expect that our reported assets and liabilities will significantly increase under the new standard.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which modifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under the new standard, excess income tax benefits and tax deficiencies related to equity awards that vest or settle will be recognized as income tax expense, rather than within additional paid-in capital on the balance sheet. The recognition of excess tax benefits and losses may create significant volatility in earnings. We do not expect the adoption of the other requirements of this ASU to have a material impact on our consolidated financial statements. The new standard will be effective for us in the first quarter of fiscal year ending February 3, 2018.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which provides guidance on certain specific cash flow issues including proceeds received from the settlement of insurance claims. This guidance requires cash proceeds received from the settlement of insurance claims to be classified on the statement of cash flows on the basis of the related insurance coverage (that is, the nature of the loss). The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, with early adoption permitted. We do not expect the adoption of this ASU to have a material impact on our consolidated statements of cash flows.

In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires employers that offer or maintain defined benefit plans to disaggregate the service component from the other components of net benefit cost and provides guidance on presentation of the service component and the other components of net benefit cost in the statement of operations. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017. We are currently evaluating the impact that the adoption of ASU 2017-07 will have on our consolidated financial statements.