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.

Revenue includes sales of merchandise and delivery revenue 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 Third Quarter 2018.

The Company's revenue is 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				39 Weeks Ended
(in thousands)	November 2, 2018		October 27, 2017		November 2, 2018		October 27, 2017
Net revenue:
North America	$	300,900	$	283,771	$	828,078	$	780,926
Europe	30,783		31,848		87,888		84,053
Asia	9,887		9,870		33,374		31,065
Total Net revenue	$	341,570	$	325,489	$	949,340	$	896,044

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 revenue for each period presented. The remainder of deferred revenue as of November 2, 2018 is expected to be recognized in Net revenue in the fiscal quarter ending February 1, 2019, as products are delivered to customers.



	November 2, 2018
(in thousands)	13 Weeks Ended			39 Weeks Ended
Deferred Revenue Beginning of Period	$	8,461		$	12,838
Deferred Revenue Recognized in Period	(8,461		)	(12,838		)
Revenue Deferred in Period	21,960			21,960
Deferred Revenue End of Period	$	21,960		$	21,960

Revenue from gift cards is recognized when (i) the gift card is redeemed by the customer for merchandise, or (ii) as gift card breakage, an estimate of gift cards which will not be redeemed where the Company does not have a legal obligation to remit the value of the unredeemed gift cards to the relevant jurisdictions. 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 $16.0 million, $17.7 million and $19.3 million as of November 2, 2018, October 27, 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:



	November 2, 2018
(in thousands)	13 Weeks Ended			39 Weeks Ended
Balance as of Beginning of Period	$	16,626		$	19,272
Gift cards sold	14,790			40,143
Gift cards redeemed	(15,258		)	(41,605		)
Gift card breakage	(183		)	(1,835		)
Balance as of November 2, 2018	$	15,975		$	15,975

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 November 2, 2018, October 27, 2017 and February 2, 2018, $23.7 million, $12.0 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 net 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.