Express 2011 Annual Report Download - page 71

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 of 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 $5.4 million and $4.9 million as of January 28,
2012 and January 29, 2011, respectively, and is included in accrued expenses on the Consolidated Balance
Sheets.
The Company sells gift cards in its retail stores and through its e-commerce website and third parties, which 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 $23.2 million and $22.9 million, as of
January 28, 2012 and January 29, 2011, respectively, and is included in deferred revenue on the Consolidated
Balance Sheets. The Company recognizes income from gift cards when they are redeemed by the customer. The
Company also recognized 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 $3.5 million, $2.6 million, and $2.3 million in 2011, 2010, and 2009,
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, includes merchandise costs, net of discounts and allowances,
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 primarily include payroll, benefit costs, and other operating
expenses for store selling and administrative departments and store marketing and advertising expenses.
Other Operating (Income) Expense, Net
Other operating (income) expense, net consisted of advisory fees incurred from Golden Gate and Limited Brands
in prior years. In the current year, it primarily consists of gain/loss on disposal of assets and excess proceeds
from the settlement of insurance claims.
Other Income, Net
Other income, net consisted of the change in fair market value of the interest rate swap in prior years. In the
current year, it primarily consists of foreign currency transaction gain/loss.
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 Chief Executive Officer and its Chief Operating Officer are the Chief
Operating Decision Maker beginning in the fourth quarter of 2011, 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 stores and e-commerce operations. Prior to the fourth quarter of 2011, the Chief
Operating Decision Maker was the Chief Executive Officer.
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