Express 2012 Annual Report Download - page 63

Revenue Recognition
The Company recognizes sales at the time the customer takes possession of the merchandise which, for e-
commerce revenues, requires an estimate of shipments that have not yet been received by the customer. The
estimate of these shipments is based on shipping terms and historical delivery times. Amounts related to shipping
and handling revenues billed to customers in an e-commerce sale transaction are classified as net sales, and the
related shipping and handling costs are classified as cost of goods sold, buying and occupancy costs in the
Consolidated Statements of Income and Comprehensive Income. The Company’s shipping and handling
revenues were $17.4 million, $15.8 million, and $13.2 million in 2012, 2011, and 2010, respectively. Associate
discounts are classified as a reduction of net sales. Net sales exclude sales tax collected from customers and
remitted to governmental authorities.
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 $9.8 million and $9.5 million as of February 2,
2013 and January 28, 2012, 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 $24.0 million and $23.2 million, as of
February 2, 2013 and January 28, 2012, 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 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 $2.3 million, $3.5 million, and $2.6 million in 2012, 2011, and 2010,
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, 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 primarily consists of gains/losses on disposal of assets and excess
proceeds from the settlement of insurance claims. In 2010 it consisted of advisory fees incurred and paid to
Golden Gate and L Brands.
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