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Goodwill and intangibles
 12 Months Ended
Feb. 01, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and intangibles Goodwill and intangibles
Goodwill and other indefinite-lived intangible assets, such as indefinite-lived trade names, are evaluated for impairment annually and more frequently if events or conditions are identified indicating the carrying value of a reporting unit or an indefinite-lived intangible asset may not be recoverable. In evaluating goodwill and indefinite-lived trade names for impairment, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying value. If the Company concludes that it is not more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying value, then no further testing is required. However, if the Company concludes that it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying value, then a goodwill impairment test is performed to identify a potential impairment and measure the amount of impairment to be recognized, if any. When the carrying amount of the reporting unit or an indefinite-lived intangible assets exceeds its fair value, an impairment charge is recorded.
The impairment test for goodwill involves estimating the fair value of all assets and liabilities of the reporting unit, including the implied fair value of goodwill, through either estimated discounted future cash flows or market-based methodologies. The impairment test for other indefinite-lived intangible assets involves estimating the fair value of the asset, which is typically performed using the relief from royalty method for indefinite-lived trade names.
Due to a sustained decline in the Company’s market capitalization during the 13 weeks ended May 5, 2018, the Company determined a triggering event had occurred that required an interim impairment assessment for all of its reporting units and indefinite-lived intangible assets. As part of the assessment, it was determined that an increase in the discount rate applied in the valuation was required to align with market-based assumptions and company-specific risk. This higher discount rate, in conjunction with revised long-term projections associated with finalizing certain initial aspects of the Company’s Path to Brilliance transformation plan in the first quarter, resulted in lower than previously projected long-term future cash flows for the reporting units which negatively affected the valuation compared to previous valuations. As a result of the interim impairment assessment, the Company recognized pre-tax impairment charges totaling $448.7 million in the 13 weeks ended May 5, 2018.
Due to a continued decline in the Company’s market capitalization during the 13 weeks ended February 2, 2019, the Company determined a triggering event had occurred that required additional interim impairment assessments for its reporting units and indefinite-lived intangible assets. The Company recognized additional pre-tax impairment charges totaling $286.7 million during the 13 weeks ended February 2, 2019 primarily related to revised long-term projections and a higher discount rate associated with R2Net.
During the second quarter of Fiscal 2020, the Company performed its annual evaluation of its indefinite-lived intangible assets, including goodwill and trade names identified in the Zale acquisition, for impairment indicators. Additionally, due to a continued decline in the Company’s market capitalization during the second quarter of Fiscal 2020, the Company determined a triggering event had occurred requiring interim impairment assessments for its remaining reporting units with goodwill and indefinite-lived intangible assets. Using methodologies similar to the assessments performed in Fiscal 2019 described above, the Company determined no additional impairment charges were required to be recognized during Fiscal 2020 related to the annual evaluation or interim assessment.
During the fourth quarter of Fiscal 2020, the Company completed an annual qualitative assessment of its R2Net reporting unit and related indefinite-lived trade name, and through this assessment, the Company did not identify any events or conditions that would indicate that it was more likely than not that the carrying values of the reporting units and indefinite-lived trade names exceeded their fair values.
Goodwill
During the first quarter of Fiscal 2019, using a combination of discounted cash flow and guideline public company methodologies, the Company compared the fair value of each of its reporting units with their carrying value and concluded that a deficit existed. Accordingly, in the 13 weeks ended May 5, 2018, the Company recognized pre-tax impairment charges in operations of $308.8 million within its North America segment. Due to the second triggering event in the 13 weeks ended February 2, 2019 and using similar methodologies as the initial impairment assessment, the Company recognized additional pre-tax impairment charges in the statement of operations of $208.8 million and $3.6 million within its North America and Other segments, respectively.
During the second quarter of Fiscal 2020, a non-cash immaterial out-of-period adjustment of $47.7 million, with $35.2 million related to Zales goodwill and $12.5 million related to R2Net goodwill, was recognized within Goodwill and intangible impairments on the consolidated statements of operations related to an error in the calculation of goodwill impairments during Fiscal 2019.
The following table summarizes the Company’s goodwill by reportable segment:
(in millions)
North
America
 
Other
 
Total
Balance at February 3, 2018
$
818.1

 
$
3.6

 
$
821.7

Impairment
(517.6
)
 
(3.6
)
 
(521.2
)
Impact of foreign exchange and other adjustments(1)
(3.9
)
 
—

 
(3.9
)
Balance at February 2, 2019
$
296.6

 
$
—

 
$
296.6

Impairment
(47.7
)
 
—

 
(47.7
)
Impact of foreign exchange
(0.1
)
 
—

 
(0.1
)
Balance at February 1, 2020
$
248.8

 
$
—

 
$
248.8


(1)
During Fiscal 2019, other adjustments include a purchase price accounting adjustment of $2.6 million related to a revised valuation of acquired intangible assets from the R2Net acquisition. Refer to Note 5 for additional details.
Intangibles
Definite-lived intangible assets include trade names and favorable lease agreements. All indefinite-lived intangible assets consist of trade names. Both definite and indefinite-lived assets are recorded within intangible assets, net on the consolidated balance sheets. Intangible liabilities, net is comprised of unfavorable lease agreements and contracts and is recorded within other liabilities on the consolidated balance sheets.
In conjunction with the interim goodwill impairment tests noted above, the Company reviewed its indefinite-lived intangible assets for potential impairment by calculating the fair values of the assets using the relief from royalty method and comparing the fair value to their respective carrying amounts. The interim impairment test resulted in the determination that the fair values of indefinite-lived intangible assets related to certain Zales trade names were less than their carrying value. Accordingly, in the 13 weeks ended May 5, 2018, the Company recognized pre-tax impairment charges in operations of $139.9 million within its North America segment. Additionally, in conjunction with the interim goodwill impairment tests associated with the second triggering event in the fourth quarter of Fiscal 2019, the Company determined that the fair values of indefinite-lived intangible assets related to trade names, primarily James Allen, were less than their carrying value. Accordingly, in the 13 weeks ended February 2, 2019, the Company recognized pre-tax impairment charges in operations of $74.3 million within its North America segment.
There were no indefinite-lived intangible asset impairment losses recognized during Fiscal 2020.
The following table provides additional detail regarding the composition of intangible assets and liabilities:
 
 
February 1, 2020
 
February 2, 2019
(in millions)
 
Gross
carrying
amount
 
Accumulated
amortization
 
Accumulated impairment loss
 
Net
carrying
amount
 
Gross
carrying
amount
 
Accumulated
amortization
 
Accumulated impairment loss
 
Net
carrying
amount
Intangible assets, net:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Definite-lived intangible assets
 
$
53.2

 
$
(50.9
)
 
$
—

 
$
2.3

 
$
53.3

 
$
(50.1
)
 
$
—

 
$
3.2

Indefinite-lived intangible assets
 
475.4

 
 
 
(213.9
)
 
261.5

 
475.9

 
 
 
(214.1
)
 
261.8

Total intangible assets, net
 
$
528.6

 
$
(50.9
)
 
$
(213.9
)
 
$
263.8

 
$
529.2

 
$
(50.1
)
 
$
(214.1
)
 
$
265.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Intangible liabilities, net
 
$
(113.9
)
 
$
98.0

 
$
—

 
$
(15.9
)
 
$
(113.9
)
 
$
92.5

 
$
—

 
$
(21.4
)

Amortization expense relating to intangible assets was $0.9 million in Fiscal 2020 (Fiscal 2019: $4.0 million; Fiscal 2018: $9.3 million). The unfavorable leases and unfavorable contracts are classified as liabilities and recognized over the term of the underlying lease or contract. Amortization relating to intangible liabilities was $5.5 million in Fiscal 2020 (Fiscal 2019: $7.9 million; Fiscal 2018: $13.0 million). Expected future amortization for intangible assets and future amortization for intangible liabilities recorded at February 1, 2020 follows:
(in millions)
Intangible assets, net amortization
 
Intangible liabilities amortization
Fiscal 2021
$
0.9

 
$
(5.4
)
Fiscal 2022
0.8

 
(5.4
)
Fiscal 2023
0.6

 
(5.1
)
Total
$
2.3

 
$
(15.9
)

The Company will continue to monitor the share price of the Company’s stock, as well as key business metrics and inputs used to estimate fair value, such as sales trends and interest rates. In addition, as a result of the impairment of goodwill and trade names during the fourth quarter of Fiscal 2019, goodwill of $77.8 million associated with the R2Net acquisition and the Company’s trade names within the North America segment continue to approximate their respective fair values and could be at risk for future impairments should there be an adverse business or economic change in future periods.