Hibbett Sports 2011 Annual Report Download - page 30

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Inflation and Other Economic Factors
Our ability to provide quality merchandise on a profitable basis may be subject to economic factors and influences that
we cannot control. National or international events, including uncertainties in the global financial markets, U.S. government
policies, the Middle East and Asia, could lead to disruptions in economies in the United States or in foreign countries where a
significant portion of our merchandise is manufactured. These and other factors could increase our merchandise costs and other
costs that are critical to our operations. Consumer spending could also decline because of economic pressures.
Merchandise Costs. Based on current economic conditions, we expect that any increase in merchandise costs per unit
will be offset by improved vendor discounts and increased retail prices in Fiscal 2012.
Freight Costs. We experienced stabilized fuel costs during the first half of Fiscal 2011 compared to Fiscal 2010, but
those costs began increasing in the second half of the fiscal year. At the end of Fiscal 2011, freight costs were still rising, and we
expect fuel costs to continue to rise in Fiscal 2012. We expect volatility in freight costs to have a slight effect on our results of
operations.
Minimum Wage. Increases in the mandated minimum wage over the past several years have impacted our payroll costs.
Congress approved federal minimum wage increases totaling 40.8% over a three-year period beginning in Fiscal 2008.
Currently, no new increases to minimum wage have been proposed. Some of the states we operate in have automatic provisions
for future increases based on the Consumer Price Index or on inflation. We expect wage increases to have a slight effect on our
store operating, selling and administrative expenses.
Insurance Costs. In Fiscal 2011 and Fiscal 2010, we experienced a decrease in general business insurance. We are
primarily self-insured for health claims, and during all three fiscal periods, have experienced an increase in our average monthly
health insurance claims. In Fiscal 2012, we expect that both general business insurance costs and health insurance costs will
increase slightly, but do not expect these increases to have a significant impact in our consolidated financial statements.
Recent Accounting Pronouncements
We continuously monitor and review all current accounting pronouncements and standards from the Financial
Accounting Standards Board (FASB) and other authoritative sources of U.S. GAAP for applicability to our operations.
In February 2010, the FASB issued amended guidance on subsequent events. Under this amended guidance, SEC filers
are no longer required to disclose the date through which subsequent events have been evaluated in originally issued and revised
financial statements. The guidance was effective immediately, and we have adopted this new guidance.
Proposed Amendments to Current Accounting Standards. The FASB is currently working on amendments to existing
accounting standards governing a number of areas including, but not limited to, accounting for leases. In August 2010, the FASB
issued an exposure draft, Leases, which would replace the existing guidance in ASC Topic 840, Leases. When and if effective,
this proposed standard will likely have a significant impact in our consolidated financial statements. However, as the standard-
setting process is still ongoing, we are unable to determine the impact this proposed change in accounting will have in our
consolidated financial statements at this time.
Our Critical Accounting Policies
Our critical accounting policies reflected in the consolidated financial statements are detailed below.
Revenue Recognition. We recognize revenue, including gift card and layaway sales, in accordance with ASC Topic
605, Revenue Recognition.
Retail merchandise sales occur on-site in our retail stores. Customers have the option of paying the full purchase price
of the merchandise upon sale or paying a down payment and placing the merchandise on layaway. The customer may make
further payments in installments, but the entire purchase price for merchandise placed on layaway must be received by us within
30 days. The down payment and any installments are recorded by us as short-term deferred revenue until the customer pays the
entire purchase price for the merchandise. We recognize revenue at the time the customer takes possession of the merchandise.
Retail sales are recorded net of returns and discounts and exclude sales taxes.
In Fiscal 2009, we began a customer loyalty program, the MVP Rewards program, whereby customers enroll in the
program and receive points in a variety of ways that are automatically converted into reward certificates based on program
parameters that are subject to change. An estimate of the obligation related to the program, based on historical redemption rates,
is recorded as a current liability and a reduction of net retail sales in the period earned by the customer. The current liability is
reduced, and a corresponding amount is recognized in net retail sales, in the amount of and at the time of redemption of the
reward certificate. At January 29, 2011 and January 30, 2010, the amount recorded in current liabilities for reward certificates
issued was inconsequential.