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Goodwill and Intangible Impairment Charges
 3 Months Ended
May 02, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Impairment Charges GOODWILL AND INTANGIBLE IMPAIRMENT CHARGES
Fiscal 2020 Interim Impairment Assessment
Goodwill and other indefinite-lived intangible assets are assessed for impairment at least annually. We perform our annual impairment test during the fourth quarter, or more frequently when circumstances indicate carrying values may not be recoverable. In assessing the possibility that a reporting unit’s fair value has been reduced below its carrying amount due to the occurrence of events or circumstances between annual impairment testing dates, we consider various macroeconomic, industry-specific and Company-specific factors, including: (i) severe adverse industry or economic trends; (ii) significant Company-specific actions; (iii) current, historical or projected deterioration of the Company’s financial performance; or (iv) a sustained decrease in the Company’s market capitalization. During the first quarter of fiscal 2020, the Company experienced a significant decline in its market capitalization and disruptions to its operations as a result of the COVID-19 pandemic. As a result, the Company reduced its level of forecasted earnings for fiscal 2020 and future periods across all of its brands. In light of the decline in the Company's stock price and market capitalization, the temporary closure of all its stores across North America during the second half of the first quarter of fiscal 2020, and lower-than-expected earnings for fiscal 2020 and future periods, the Company concluded that these factors, among other factors, represented impairment indicators which required the Company to test its goodwill and indefinite-lived intangible assets for impairment during the first quarter of fiscal 2020.
The Company performed its valuation of its goodwill and indefinite-lived intangible assets using a quantitative approach as of April 4, 2020, which was the last day in the second month of the first fiscal quarter. The valuation of the Company's goodwill and indefinite-lived intangible assets was determined with the assistance of an independent valuation firm using the income approach (discounted cash flow ("DCF") method) and relief from royalty method, respectively. We applied a 100% weighting to the income approach as we were able to provide detailed forecasts for the foreseeable future to perform a DCF analysis. We did not utilize a market approach in the fair value assessment of the reporting units provided the implied EBITDA multiples from the market approach did not yield reasonable fair values given the volatile market conditions at the time of the assessment. Furthermore, the Company’s publicly traded market capitalization was reconciled to the sum of the fair value of the reporting units estimated using the income approach described above. The fair value of our trademark was
determined using an approach that values the Company’s cash savings from having a royalty-free license compared to the market rate it would pay for access to use the trademark.
Changes in key assumptions and the resulting reduction in projected future cash flows included in the interim test resulted in a decrease in the fair values of our Chico's and White House Black Market ("WHBM") reporting units such that their fair values were less than their carrying values. As a result, the Company recognized the following pre-tax goodwill impairment charges during the first quarter of fiscal 2020: a charge of $20.0 million at the Chico's reporting unit to write down the carrying value of the goodwill to $16.4 million and a charge of $60.4 million at the WHBM reporting unit, reducing the carrying value of goodwill to zero. In addition, the Company recognized pre-tax impairment charges to write down the carrying values of its other indefinite-lived intangible assets to their fair values as follows: $28.0 million of our WHBM trademark and $4.8 million of our Chico's franchise rights. The carrying value of the trademark and franchise rights was $6.0 million and $0.2 million, respectively, and are included in other intangible assets, net, in the accompanying unaudited condensed consolidated balance sheet as of May 2, 2020. These impairment charges are included in goodwill and intangible impairment in the accompanying unaudited condensed consolidated statements of (loss) income.
The following table details the changes in goodwill for each reportable segment, as applicable:
 
Chico's
Reporting Unit
 
WHBM
Reporting Unit
 
Total (1)
 
 
 
 
 
 
 
(in thousands)
Balance at February 1, 2020
$
36,403

 
$
60,371

 
$
96,774

Impairment charges
(20,043
)
 
(60,371
)
 
(80,414
)
Balance at May 2, 2020
$
16,360

 
$
—

 
$
16,360

(1) There is no goodwill associated with the Intimates Group reporting unit and, therefore, no analysis has been performed.
The following table details the changes in other indefinite-lived intangible assets, net:
 
WHBM
Trademark
 
Chico's Franchise Rights
 
Total
 
 
 
 
 
 
 
(in thousands)
Balance at February 1, 2020
$
34,000

 
$
4,930

 
$
38,930

Impairment charges
(28,000
)
 
(4,766
)
 
(32,766
)
Balance at May 2, 2020
$
6,000

 
$
164

 
$
6,164