Fair Value Measurements

3 Months Ended

May 02, 2020

Fair Value Disclosures [Abstract]

Fair Value Measurements

FAIR VALUE MEASUREMENTS

Our financial instruments consist of cash, money market accounts, marketable securities, assets held in our non-qualified deferred compensation plan, accounts receivable and payable, and debt. Cash, accounts receivable and accounts payable are carried at cost, less reserves for credit losses as applicable, which approximates their fair value due to the short-term nature of the instruments.

Marketable securities are classified as available-for-sale and as of May 2, 2020 generally consist of corporate bonds, commercial paper, U.S. government agencies and municipal securities, with $4.6 million of securities with maturity dates within one year or less and $23.2 million with maturity dates over one year and less than two years.

We consider all marketable securities available-for-sale, including those with maturity dates beyond 12 months, and therefore classify these securities within current assets on the condensed consolidated balance sheets as they are available to support current operational liquidity needs. Marketable securities are carried at fair value, with the unrealized holding gains and losses, net of income taxes, reflected in accumulated other comprehensive (loss) income until realized, and any credit risk related losses recognized in net income the period incurred. For the purposes of computing realized and unrealized gains and losses, cost is determined on a specific identification basis.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. Entities are required to use a three-level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels are defined as follows: 

Level 1	—	Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2	—	Unadjusted quoted prices in active markets for similar assets or liabilities; or Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; or Inputs other than quoted prices that are observable for the asset or liability
Level 3	—	Unobservable inputs for the asset or liability

Assets Measured on a Recurring Basis

We measure certain financial assets at fair value on a recurring basis, including our marketable securities, which are classified as available-for-sale securities, certain cash equivalents, specifically our money market accounts and assets held in our non-qualified deferred compensation plan. The money market accounts are valued based on quoted market prices in active markets. Our marketable securities are generally valued based on other observable inputs for those securities (including market corroborated pricing or other models that utilize observable inputs such as interest rates and yield curves) based on information provided by independent third-party pricing entities, except for U.S. government securities which are valued based on quoted market prices in active markets. The investments in our non-qualified deferred compensation plan are valued using quoted market prices and are included in other assets on our consolidated balance sheets.

Assets Measured on a Nonrecurring Basis

From time to time, we measure certain assets at fair value on a non-recurring basis. This includes the evaluation of long-lived assets, goodwill and other intangible assets for impairment using Company-specific assumptions which would fall within Level 3 of the fair value hierarchy.

We assess the carrying amount of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company uses market participant rents and a market participant discount rate to calculate the fair value of ROU assets. The Company uses discounted future cash flows of the asset or asset group using a discount rate that approximates the cost of capital of a market participant to quantify fair value for other long-lived assets within the asset group which are primarily leasehold improvements. The asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets, which for our retail stores, is primarily at the store level.

To assess the fair value of goodwill, we have historically utilized both an income approach and a market approach. Inputs used to calculate the fair value based on the income approach primarily include estimated future cash flows, discounted at a rate that approximates the cost of capital of a market participant. Inputs used to calculate the fair value based on the market approach include identifying sales and EBITDA multiples based on guidelines for similar publicly traded companies and recent transactions.

To assess the fair value of trademarks, we utilize a relief from royalty approach. Inputs used to calculate the fair value of the trademarks primarily include future sales projections, discounted at a rate that approximates the cost of capital of a market participant and an estimated royalty rate.

The following tables presents quantitative information about the Level 3 significant unobservable inputs for the WHBM trademark measured at fair value as of April 4, 2020 and long-lived assets at retail stores as of May 2, 2020.

Quantitative Information about Level 3 Fair Value Measurements

	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)
WHBM Trademark	$	6,000	Relief from royalty	Weighted-average cost of capital	11% to 13%
				Long-term revenue growth rate	-2.5% to 0%
Long-lived assets at retail stores	$	1,232	Discounted cash flow	Weighted-average cost of capital	9.5 % to 11.5 %
				Long-term revenue growth rate	-10% to 15%

The fair value of goodwill for the Chico's and WHBM reporting units and WHBM trademark as of April 4, 2020 was $16.4 million, zero and $6.0 million, respectively. The carrying value of goodwill for the Chico's and WHBM reporting units and WHBM trademark as of February 1, 2020 and May 4, 2019 was $36.4 million, $60.4 million and $34.0 million, respectively.

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. For the thirteen weeks ended May 2, 2020, we recognized $113.2 million in goodwill and indefinite-lived intangible impairment charges as further discussed in Note 3 and $18.5 million in impairment charges on our long-lived assets at certain underperforming stores as further discussed in Note 4. Impairment charges related to long-lived assets at certain underperforming stores for the thirteen weeks ended May 4, 2019 were immaterial.

As of May 2, 2020, February 1, 2020 and May 4, 2019, our revolving loan and letter of credit facility approximates fair value as this instrument has a variable interest rate which approximates current market rates (Level 2 criteria).

Fair value calculations contain significant judgments and estimates, which may differ from actual results due to, among other things, economic conditions, changes to the business model or changes in operating performance. The most sensitive assumptions in our estimates include short and long-term revenue recoverability rates as a result of COVID-19, which could impact future impairment charges.

We conduct reviews on a quarterly basis to verify pricing, assess liquidity and determine if significant inputs have changed that would impact the fair value hierarchy disclosure.

In accordance with the provisions of the guidance, we categorized our financial assets and liabilities which are valued on a recurring and nonrecurring basis, based on the priority of the inputs to the valuation technique for the instruments, as follows:

			Fair Value Measurements at the End of the Reporting Date Using						Thirteen Weeks Ended May 2, 2020
	Balance as of May 2, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Impairment
Recurring fair value measurements:
Current Assets
Cash equivalents:
Money market accounts	$	27,320	$	27,320	$	—	$	—
Marketable securities:
Corporate bonds	27,755		—		27,755		—
Noncurrent Assets
Deferred compensation plan	6,983		6,983		—		—
Total recurring fair value measurements	$	62,058	$	34,303	$	27,755	$	—
Nonrecurring fair value measurements:
Noncurrent Assets
Goodwill	$	16,360	$	—	$	—	$	16,360	$	(80,414	)
Trademark	6,000		—		—		6,000		(28,000		)
Long-lived assets at retail stores (1)	1,232		—		—		1,232		(18,493		)
Total nonrecurring fair value measurements	$	23,592	$	—	$	—	$	23,592	$	(126,907	)
	Balance as of February 1, 2020
Recurring fair value measurements:
Current Assets
Cash equivalents:
Money market accounts	$	621	$	621	$	—	$	—
Marketable securities:
Corporate bonds	62,645		—		62,645		—
Commercial paper	1,248		—		1,248		—
Noncurrent Assets
Deferred compensation plan	7,464		7,464		—		—
Total recurring fair value measurements	$	71,978	$	8,085	$	63,893	$	—
	Balance as of May 4, 2019
Financial Assets:
Current Assets
Cash equivalents:
Money market accounts	$	328	$	328	$	—	$	—
Marketable securities:
Corporate bonds	59,893		—		59,893		—
Commercial paper	2,943		—		2,943		—
Noncurrent Assets
Deferred compensation plan	6,872		6,872		—		—
Total recurring fair value measurements	$	70,036	$	7,200	$	62,836	$	—

⁽¹⁾ The fair value of long-lived assets at retail stores of $1.2 million specifically relates to only those stores which had store impairment charges during the thirteen weeks ended May 2, 2020.