REVENUE

Net Sales

We recognize revenue for merchandise sales, net of expected returns and sales tax, at the time of in-store purchase or delivery of the product to our guest. When merchandise is shipped to our guests, we estimate receipt based on historical experience. Revenue is deferred and a liability is established for sales returns based on historical return rates and sales for the return period. We recognize an asset and corresponding adjustment to cost of sales for our right to recover returned merchandise. At each financial reporting date, we assess our estimates of expected returns, refund liabilities and return assets. For merchandise sold in our stores and online, tender is accepted at the point of sale. When we receive payment before the guest has taken possession of the merchandise, the amount received is recorded as deferred revenue until the transaction is complete. Our performance obligations for unfulfilled merchandise orders are typically satisfied within one week. Shipping and handling fees charged to guests relate to fulfillment activities and are included in net sales with the corresponding costs recorded in cost of sales.

We record deferred revenue for the sale of gift cards and merchandise credits issued for returned merchandise, and we recognize revenue in net sales upon redemption. Gift card and merchandise credit redemptions typically occur within 12 months of the date of issuance with the majority redeemed within the first three months. Our gift cards and merchandise credits do not expire. Based on historical redemption rates, a small percentage of gift cards and merchandise credits will never be redeemed. We recognize estimated breakage income for gift cards and merchandise credits that will never be redeemed in proportion to actual historical redemption patterns.

In March 2019, we integrated our off-price and department store loyalty programs into one. Under the program, members can accumulate points, based on their spending, toward earning a reward certificate that can be redeemed for future merchandise purchases. Points earned by loyalty members reset to zero at the end of each calendar year. Reward certificates expire 30 days after the date of issuance. We allocate and defer a portion of our sales to reward certificates expected to be earned, based on the relative stand-alone sales transaction price and reward certificate value, and recognize the reward certificate as a net sale when it is redeemed.

The following table presents the composition of net sales by merchandise category (in thousands):



	Fiscal Year
	2018						2017
Merchandise Category	Department Stores		Off-price Stores		Total Company		Department Stores		Off-price Stores		Total Company
Women’s	$	433,452	$	79,004	$	512,456	$	478,971	$	63,293	$	542,264
Men’s	221,605		41,012		262,617		236,055		31,400		267,455
Children's	125,378		36,725		162,103		141,218		27,720		168,938
Apparel	780,435		156,741		937,176		856,244		122,413		978,657

Footwear	185,018		18,065		203,083		188,277		3,866		192,143
Accessories	87,663		18,835		106,498		100,042		18,896		118,938
Cosmetics/Fragrances	142,162		12,824		154,986		147,785		10,586		158,371
Home/Gifts/Other	89,268		84,588		173,856		73,729		65,706		139,435
Non-apparel	504,111		134,312		638,423		509,833		99,054		608,887

Revenue adjustments not allocated^(a)	4,305		245		4,550		4,043		688		4,731

Net sales	$	1,288,851	$	291,298	$	1,580,149	$	1,370,120	$	222,155	$	1,592,275

^(a) Includes adjustments related to deferred revenue, estimated sales returns, breakage income, shipping and miscellaneous revenues, which are not allocated to merchandise categories.

Contract Liabilities

Contract liabilities reflect our performance obligations related to gift cards, merchandise credits, loyalty program rewards and merchandise orders that have not been satisfied as of a given date, and therefore, revenue recognition has been deferred. Contract liabilities are recorded in accrued expenses and other current liabilities. Contract liabilities for each period presented were as follows (in thousands):



	February 2, 2019		February 3, 2018
Gift cards and merchandise credits, net	$	12,433	$	12,122
Loyalty program rewards, net	1,484		1,118
Merchandise fulfillment liability	488		234
Total contract liabilities	$	14,405	$	13,474

The following table summarizes contract liability activity for each period presented (in thousands):



	Fiscal Year
	2018			2017
Beginning balance	$	13,474		$	11,669
Net sales recognized during the period from amounts included in contract liability balances at the beginning of the period	(8,818		)	(6,522		)
Current period additions to contract liability balances included in contract liability balances at the end of the period	9,749			8,327
Ending balance	$	14,405		$	13,474

Credit Income

We earn credit income from our private label credit card (“PLCC”) through a profit-sharing arrangement with Comenity Bank, an affiliate of Alliance Data Systems Corporation. Comenity Bank owns the PLCC portfolio and manages the account activation, receivables funding, card authorization, card issuance, statement generation, remittance processing and guest service functions for our PLCC program. We perform certain duties, including electronic processing and transmitting of transaction records, and executing marketing promotions designed to increase card usage. We also accept payments in our stores from cardholders on behalf of Comenity Bank. We receive a monthly net portfolio yield payment from Comenity Bank, and we can potentially earn an annual bonus based upon the performance of the PLCC portfolio. The receivable for credit income, which is recorded in prepaid expenses and other current assets, was $4.9 million and $5.8 million as of February 2, 2019 and February 3, 2018 respectively.

We recorded deferred revenue for certain upfront payments received from Comenity Bank upon execution of the PLCC agreement, and we recognized $1.8 million and $1.4 million in credit income related to these upfront payments in 2018 and 2017, respectively. As of February 2, 2019, deferred revenue of $2.9 million remained to be amortized.