Express 2014 Annual Report Download - page 57

The Company provides a reserve for projected merchandise returns based on prior experience. Merchandise
returns are often resalable merchandise and are refunded by issuing the same payment tender as the original
purchase. Merchandise exchanges of the same product and price, typically due to size or color preferences, are
not considered merchandise returns. The sales returns reserve was $9.7 million and $11.0 million as of
January 31, 2015 and February 1, 2014, respectively, and is included in accrued expenses on the Consolidated
Balance Sheets.
The Company sells gift cards in its stores, on its e-commerce website, and through third parties. These gift cards
do not expire or lose value over periods of inactivity. The Company accounts for gift cards by recognizing a
liability at the time a gift card is sold. The gift card liability balance was $26.0 million and $25.2 million, as of
January 31, 2015 and February 1, 2014, respectively, and is included in deferred revenue on the Consolidated
Balance Sheets. The Company recognizes revenue from gift cards when they are redeemed by the customer. The
Company also recognizes income on unredeemed gift cards, which is recognized proportionately using a time-
based attribution method from issuance of the gift card to the time when it can be determined that the likelihood
of the gift card being redeemed is remote and that there is no legal obligation to remit the unredeemed gift cards
to relevant jurisdictions, referred to as “gift card breakage”. The gift card breakage rate is based on historical
redemption patterns and totaled $2.7 million, $3.0 million, and $2.3 million in 2014, 2013, and 2012,
respectively. Gift card breakage is included in net sales in the Consolidated Statements of Income and
Comprehensive Income.
Cost of Goods Sold, Buying and Occupancy Costs
Cost of goods sold, buying and occupancy costs, include merchandise costs, freight, inventory shrinkage, and
other gross margin related expenses. Buying and occupancy expenses primarily include payroll, benefit costs,
and other operating expenses for the buying departments (merchandising, design, manufacturing, and planning
and allocation), distribution, fulfillment, rent, common area maintenance, real estate taxes, utilities, maintenance,
and depreciation for stores.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses include all operating costs not included in cost of goods sold,
buying and occupancy costs, with the exception of proceeds received from insurance claims and gain/loss on
disposal of assets, which are included in other operating expense, net. These costs include payroll and other
expenses related to operations at our corporate home office, store expenses other than occupancy, and marketing
expenses, which include production, mailing, and print advertising costs.
Other Operating Income, Net
Other operating income, net primarily consists of gains/losses on disposal of assets and excess proceeds from the
settlement of insurance claims.
Other Expense (Income), Net
Other expense (income), net, primarily consists of foreign currency transaction gains/losses.
Segment Reporting
The Company defines an operating segment on the same basis that it uses to evaluate performance internally. The
Company has determined that, together, its President and Chief Executive Officer and its Chief Operating Officer
are the Chief Operating Decision Maker, and that there is one operating segment. Therefore, the Company
reports results as a single segment, which includes the operation of its Express brick-and-mortar retail and outlet
stores, e-commerce operations, and franchise operations.
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