Recent Accounting Pronouncements

9 Months Ended

Nov. 02, 2019

ASU 2018-12 Transition [Abstract]

Schedule of New Accounting Pronouncements and Changes in Accounting Principles [Table Text Block]

Note 3. Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-02, Leases (Topic 842). Lessees are required to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The liability is equal to the present value of lease payments. The asset is based on the liability, subject to certain adjustments, such as for initial direct costs. For income statement purposes, a dual model was retained, requiring leases to be classified as either operating or finance leases. Operating leases result in straight-line expense (similar to operating leases under the prior accounting standard) while finance leases result in a frontloaded expense pattern (similar to capital leases under the prior accounting standard).

The Company adopted this new accounting standard on February 3, 2019 on a modified retrospective basis and applied the new standard to all leases greater than one year. As a result, comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which includes, among other things, the ability to carry forward the existing lease classification. The Company does not engage in any Lessor transactions, and as a Lessee, the Company does not have any finance leases. As a result, the new standard had a material impact on the unaudited condensed consolidated balance sheet, but did not materially impact the Company’s consolidated operating results and did not materially impact the Company’s cash flows.

The following is a discussion of the Company’s lease policy under the new lease accounting standard:

The Company determines if an arrangement contains a lease at the inception of a contract. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of the remaining future minimum lease payments. As the interest rate implicit in the Company’s leases is not readily determinable, the Company utilizes its incremental borrowing rate to discount the lease payments. The operating lease right-of-use assets also include lease payments made before commencement and reduced by lease incentives. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet and lease expense is recognized on a straight-line basis over the term of the short-term lease.

For real estate leases, the Company accounts for lease components and non-lease components as a single lease component. Certain real estate leases require additional payments based on reimbursement for real estate taxes, common area maintenance and insurance, which are expensed as incurred as variable lease costs. Other real estate leases contain one fixed lease payment that includes real estate taxes, common area maintenance and insurance. These fixed payments are considered part of the lease payment and included in the right-of-use assets and lease liabilities.

We elected the following package of practical expedients permitted under the lease standard: We do not record leases with an initial term of 12 months or less on the balance sheet but continue to expense them on a straight-line basis over the lease term. As of November 2, 2019, 153 leases were short-term in nature and were exempt from being recorded on the balance sheet.

The Company leases its 181,300 square foot distribution center/office facility in Albany, New York from an entity controlled by the estate of Robert J. Higgins, its former Chairman and largest shareholder. The distribution center/office lease commenced on January 1, 2016, and expires on December 31, 2020. Under the lease, accounted for as an operating lease, the Company is responsible for monthly payments in the amount of $103 thousand per month. Under the terms of the lease agreement, the Company is also responsible for property taxes and other operating costs with respect to the premises.

During the thirty nine weeks ended November 2, 2019, the Company concluded, based on continued operating losses within the fye segment driven by lower than expected third quarter sales that triggering events had occurred, and an evaluation of the fye operating lease right-of-use asset for impairment was required. Operating lease right-of-use assets, primarily at the Company’s retail store locations, where impairment was determined to exist were written down to their estimated fair values as of the end of November 2, 2019, resulting in the recording of asset impairment charges of $13.7 million. Estimated fair values at these locations were determined based on a measure of discounted future cash flows over the remaining lease terms at the respective locations. Future cash flows were estimated based on individual store and corporate level plans and were discounted at a rate approximating the Company’s cost of capital. Management believes its assumptions were reasonable and consistently applied.

Impact of New Lease Standard on Balance Sheet Line Items

As a result of applying the new lease standard using a modified retrospective method, the following adjustments were made to accounts on the condensed consolidated balance sheet as of February 3, 2019:

	Impact of Change in Accounting Policy
	As Reported February 2, 2019			Adjustments			Adjusted February 3, 2019
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	4,355		$	—		$	4,355
Restricted cash		4,126			—			4,126
Accounts receivable		5,383			—			5,383
Merchandise inventory		94,842			—			94,842
Prepaid expenses and other current assets		6,657			(748	)		5,909
Total current assets		115,363			(748	)		114,615
Restricted cash		5,745			—			5,745
Fixed assets, net		7,529			—			7,529
Operating lease right-of-use assets		—			28,044			28,044
Intangible assets, net		3,668			—			3,668
Other assets		5,708			—			5,708
TOTAL ASSETS	$	138,013		$	27,296		$	165,309
LIABILITIES
CURRENT LIABILITIES
Accounts payable	$	34,329		$	—		$	34,329
Accrued expenses and other current liabilities		8,132			(1,319	)		6,813
Deferred revenue		6,955			—			6,955
Current portion of operating lease liabilites		—			9,064			9,064
Total current liabilities		49,416			7,745			57,161
Operating lease liabilities		—			22,728			22,728
Other long-term liabilities		24,867			(3,177	)		21,690
TOTAL LIABILITIES		74,283			27,296			101,579
SHAREHOLDERS’ EQUITY
Preferred stock  ($0.01 par value; 5,000,000  shares authorized; none issued)		—			—			—
Common stock ($0.01 par value; 200,000,000 shares authorized; 3,221,834 shares issued)		32			—			32
Additional paid-in capital		344,826			—			344,826
Treasury stock at cost (1,408,892 shares)		(230,166	)		—			(230,166	)
Accumulated other comprehensive loss		(735	)		—			(735	)
Accumulated deficit		(50,227	)		—			(50,227	)
TOTAL SHAREHOLDERS’ EQUITY		63,730			—			63,730
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	138,013		$	27,296		$	165,309

The following table is a summary of the Company’s components of net lease cost for the thirteen and thirty-nine week periods ended November 2, 2019:

Lease Cost

		Thirteen Weeks Ended		Thirty-nine Weeks Ended
(amounts in thousands)	Classification	November 2, 2019		November 2, 2019
Short-term operating lease cost	SG&A	$	4,838	$	10,043
Operating lease cost	SG&A		1,753		7,013
Variable lease cost	SG&A		127		369
Net lease cost		$	6,718	$	17,425

During the thirteen and thirty-nine weeks ended November 3, 2018, the Company recorded minimum rentals of $7.2 million and $21.9 million, respectively, and did not record any contingent rentals.

As of November 2, 2019, the maturity of lease liabilities is as follows:

(amounts in thousands)	Operating Leases
2019	$	2,656
2020		10,502
2021		7,312
2022		3,181
2023		2,278
Thereafter		2,116
Total lease payments		28,045
Less: amounts representing interest		(2,378	)
Present value of lease liabilities	$	25,667

Lease term and discount rate are as follows:

	November 2, 2019
Weighted-average remaining lease term (years) Operating leases		1.06
Weighted-average discount rate Operating leases		5	%

Other information:

	Thirty-nine Weeks Ended
(amounts in thousands)	November 2, 2019
Cash paid for amounts included in the measurement of operating lease liabilities
Operating cash flows from operating leases	$	6,582

As determined prior to the adoption of the new lease standard, the future minimum lease payments under operating leases in effect as of February 2, 2019 were as follows:

2019	$	24,426
2020		8,393
2021		5,239
2022		1,881
2023		1,137
Thereafter		1,060
Total minimum lease payments	$	42,136