NOTE 12. REVENUE

The Company adopted authoritative guidance related to the recognition of revenue from contracts with customers effective First Quarter 2018 using the modified retrospective method. The comparative information presented in the Condensed Consolidated Financial Statements was not restated and is reported under the accounting standards in effect for the periods presented. See Note 2, Recent Accounting Pronouncements, for a discussion of the significant changes resulting from adoption of the guidance. The adoption of the guidance did not have a significant impact on revenue.

Revenues include sales of merchandise and delivery revenues related to merchandise sold. Substantially all of the Company's revenue is recognized when control of product passes to customers which for the Direct segment is when the merchandise is expected to be received by the customer and for the Retail segment is at the time of sale in the store. The Company recognizes revenue, including shipping and handling fees billed to customers, in the amount expected to be received when control of the Company's products transfers to customers, and is presented net of various forms of promotions, which range from contractually-fixed percentage price reductions to sales returns, discounts, and other incentives that may vary in amount. Variable amounts are estimated based on an analysis of historical experience and adjusted as better estimates become available. There were no changes to estimates in Second Quarter 2018.

The Company's revenues are disaggregated by product categories and geographic location. Revenue by product category is presented in Note 11, Segment Reporting. Revenue by geographic location was:



	13 Weeks Ended				26 Weeks Ended
(in thousands)	August 3, 2018		July 28, 2017		August 3, 2018		July 28, 2017
Net revenue:
United States	$	271,011	$	264,830	$	527,178	$	497,155
Europe	25,938		26,808		57,105		52,205
Asia	10,996		10,552		23,487		21,195
Total Net revenue	$	307,945	$	302,190	$	607,770	$	570,555

The Company elected to exclude from revenue, taxes assessed by governmental authorities, including value-added and other sales-related taxes, that are imposed on and concurrent with revenue-producing activities, and as a result there is no change in presentation from prior comparative periods.

Contract Liabilities

Contract liabilities consist of payments received in advance of the transfer of control to the customer. As products are delivered and control transfers, the Company recognizes the deferred revenue in Net revenue in the Condensed Consolidated Statements of Operations. The following table summarizes the deferred revenue associated with payments received in advance of the transfer of control to the customer reported in Other current liabilities in the Condensed Consolidated Balance Sheets and amounts recognized through Net revenues for each period presented. The remainder of deferred revenue as of August 3, 2018 is expected to be recognized in Net revenue in the fiscal quarter ending November 2, 2018, as products are delivered to customers.



	August 3, 2018
(in thousands)	13 Weeks Ended			26 Weeks Ended
Deferred Revenue Beginning of Period	$	15,890		$	12,838
Deferred Revenue Recognized in Period	(15,890		)	(12,838		)
Revenue Deferred in Period	8,460			8,460
Deferred Revenue End of Period	$	8,460		$	8,460

The Company's policy with respect to gift cards is to record revenue when the gift cards are redeemed for merchandise. The Company recognizes gift card breakage income in proportion to the pattern of rights exercised by the customer when the Company expects to be entitled to breakage and the Company determines that it does not have an obligation to remit the value of the unredeemed gift card to the relevant jurisdiction as unclaimed or abandoned property. Gift card breakage is recorded within Net revenue in the Condensed Consolidated Statements of Operations. Prior to their redemption, gift cards are recorded as a liability, included within Other current liabilities in the Condensed Consolidated Balance Sheets. The total contract liability related to gift cards issued was $16.6 million, $18.0 million and $19.3 million as of August 3, 2018, July 28, 2017 and February 2, 2018, respectively. The liability is estimated based on expected breakage that considers historical patterns of redemption. The following table provides the reconciliation of the contract liability related to gift cards:



	August 3, 2018
(in thousands)	13 Weeks Ended			26 Weeks Ended
Balance as of Beginning of Period	$	19,290		$	19,272
Gift cards sold	9,281			25,353
Gift cards redeemed	(11,683		)	(26,347		)
Gift card breakage	(262		)	(1,652		)
Balance as of August 3, 2018	$	16,626		$	16,626

Refund Liabilities

Refund liabilities, primarily associated with product sales returns and retrospective volume rebates represent variable consideration and are estimated and recorded as a reduction to Net revenue based on historical experience. As of August 3, 2018, July 28, 2017 and February 2, 2018, $18.6 million, $9.6 million and $11.1 million, respectively, of refund liabilities, primarily associated with product returns, were reported in Other current liabilities in the Condensed Consolidated Balance Sheets. Prior to adoption, product return assets and return liabilities were reported within Other current liabilities. As of the adoption date, the product return assets were reclassified and reported as a component of Prepaid expenses and other current assets, and return liabilities continued to be reported in Other current liabilities in the Company's Condensed Consolidated Balance Sheet. See Note 2, Recent Accounting Pronouncements, for additional details on the impact of this change.