Express 2011 Annual Report Download - page 67

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Receivables, Net
Receivables, net consist primarily of tenant allowances from landlords and miscellaneous trade receivables,
which are continuously reviewed for collectability. The Company maintains an allowance for doubtful accounts
balance which totaled $2.9 million and $3.6 million as of January 28, 2012 and January 29, 2011, respectively.
Inventories
Inventories are principally valued at the lower of cost or market on a weighted-average cost basis. The Company
writes down inventory, the impact of which is reflected in cost of goods sold, buying and occupancy costs in the
Consolidated Statements of Income and Comprehensive Income, if the cost of specific inventory items on hand
exceeds the amount it expects to realize from the ultimate sale or disposal of the inventory. These estimates are
based on management’s judgment regarding future demand and market conditions and analysis of historical
experience. The lower of cost or market adjustment to inventory as of January 28, 2012 and January 29, 2011
was $9.0 million and $6.8 million, respectively.
The Company also records an inventory shrink reserve calculated as a percentage of cost of sales for estimated
merchandise inventory losses for the period between the last physical inventory count and the balance sheet date.
This estimate is based on management’s analysis of historical results. The shrink reserve was $18.2 million and
$15.0 million as of January 28, 2012 and January 29, 2011, respectively.
Advertising
Advertising production costs are expensed at the time the promotion first appears in media, store, or on the
website, except for direct response advertising costs that relate primarily to the production and distribution of the
Company’s catalogs. Direct response advertising costs are amortized over the expected future revenue stream,
which is 1 to 3 months from the date materials are mailed. Total advertising expense totaled $83.2 million, $72.6
million, and $53.7 million in 2011, 2010, and 2009, respectively. Advertising costs are included in selling,
general, and administrative expenses in the Consolidated Statements of Income and Comprehensive Income.
Private Label Credit Card
The Company has an agreement with a third party to provide customers with private label credit cards (the “Card
Agreement”). Each private label credit card bears the logo of the Express brand and can only be used at the
Company’s retail store locations or website. A third-party financing company is the sole owner of the accounts
issued under the private label credit card program and absorbs the losses associated with non-payment by the
private label card holders and a portion of any fraudulent usage of the accounts. The Company receives
reimbursement funds for expenses incurred from the third-party financing company in accordance with the Card
Agreement based on usage of the private label credit cards. These reimbursement funds are used to fund
marketing programs associated with the private label credit card. Income is recognized when the amounts are
fixed or determinable and collectability is reasonably assured, which is generally at the time that the actual usage
of the private label credit cards or specified transaction occurs. The income related to these private label credit
cards is classified in selling, general, and administrative expenses in the Consolidated Statements of Income and
Comprehensive Income.
Loyalty Program
The Company maintains a customer loyalty program (“Program”) in which customers earn points toward
certificates for qualifying purchases and other benefits. The Program was previously restricted to holders of the
Company’s private label credit cards. However, beginning in 2011, a new tender agnostic program was piloted
that opened the Program to non-private label credit card holders in 91 stores. The Company plans to roll this
program out to the remaining stores in the first quarter of 2012. Upon reaching specified point values, customers
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