Stein Mart 2015 Annual Report Download - page 32

STEIN MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in thousands, except per share amounts)
F-8
1. Summary of Significant Accounting Policies and Other Information
As of January 30, 2016 we operated a chain of 278 retail stores in 30 states and an internet store that offers the fashion merchandise,
service and presentation of a better department or specialty store at prices competitive with off-price retail chains.
As used herein, the terms “we”, “our”, “us”, “Stein Mart” and the “Company” refer to Stein Mart, Inc. and its wholly-owned subsidiaries,
Stein Mart Buying Corp. and Stein Mart Holding Corp.
Consolidation. The Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-
company accounts have been eliminated in consolidation.
Fiscal Year End. Our fiscal year ends on the Saturday closest to January 31. Fiscal years 2015, 2014 and 2013 ended on January 30,
2016, January 31, 2015, and February 1, 2014, respectively. Fiscal 2015, 2014 and 2013 included 52 weeks. References to years in the
Consolidated Financial Statements relate to fiscal years rather than calendar years.
Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents. Included in cash and cash equivalents are cash on hand in the stores, deposits with banks and amounts
due from credit card transactions with settlement terms of five days or less. Credit and debit card receivables included within cash were
$9.1 million at January 30, 2016 and January 31, 2015. We have historically had money market fund investments classified as cash
equivalents, which are Level 1 assets because fair value is based on readily available market prices. The fair value of these assets was
$53.7 million at January 31, 2015. We did not have money market fund investments at January 30, 2016.
Retail Inventory Method and Inventory Valuation. Inventories are valued using the lower of cost or market value, determined by the
retail inventory method. Under the retail inventory method (“RIM”), the valuation of inventories at cost and the resulting gross margins are
calculated by applying a cost-to-retail ratio to the retail value of inventories. RIM is an averaging method that is widely used in the retail
industry. The use of the retail inventory method results in valuing inventories at lower of cost or market as permanent markdowns are
currently taken as a reduction of the retail value of inventories. Inherent in the RIM calculation are certain significant management
judgments and estimates including, among others, merchandise markon, markup, markdowns and shrinkage, which significantly affect the
ending inventory valuation at cost as well as the corresponding charge to cost of goods sold. In addition, failure to take appropriate
permanent markdowns currently can result in an overstatement of inventory.
We perform physical inventory counts at all stores once per year, in either the summer or January. Included in the carrying value of
merchandise inventories between physical counts is a reserve for estimated shrinkage. That estimate is based on historical physical
inventory results. The difference between actual and estimated shrinkage may cause fluctuations in quarterly results but was not
significant in 2015 and 2014.
Vendor Allowances. We receive allowances from some of our vendors primarily related to markdown reimbursement, damaged/defective
merchandise and vendor compliance issues. Vendor allowances are recorded when earned in accordance with Accounting Standards
Codification (“ASC”) Topic 605-50, Revenue Recognition, Customer Payments and Incentives. Allowances received from vendors related
to profitability of inventory recently sold are reflected as reductions to cost of merchandise sold in the later of the period that the
merchandise markdown is incurred or the allowance is negotiated. Allowances received from vendors related to damaged/defective
inventory are reflected as reductions to the cost of merchandise as it is received. Allowances received due to compliance issues (primarily
violations of shipping and merchandise preparation requirements) are reflected as a reduction to the cost of the merchandise when
identified during the receiving process.
Property and Equipment. Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is
computed using the straight-line method over estimated useful lives of 3-10 years for fixtures, equipment and software and 5-10 years for
leasehold improvements. Leasehold improvements are amortized over the shorter of the estimated useful lives of the improvements or the
term of the lease. We capitalize costs associated with the acquisition or development of software for internal use. We only capitalize
subsequent additions, modifications or upgrades to internal-use software to the extent that such changes increase functionality. We
expense software maintenance and training costs as incurred.