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EX-31.1 - EX-31.1 - Zumiez Inczumz-ex311_6.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MAY 2, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-51300

 

 

ZUMIEZ INC.

(Exact name of registrant as specified in its charter)

 

 

Washington

 

91-1040022

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

4001 204th Street SW, Lynnwood, WA 98036

(Address of principal executive offices)  (Zip Code)

Registrant’s telephone number, including area code: (425) 551-1500

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes     No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes     No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes     No

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock

ZUMZ

Nasdaq Global Select

At June 1, 2020, there were 25,430,813 shares outstanding of common stock.

 

 


ZUMIEZ INC.

FORM 10-Q

TABLE OF CONTENTS

 

Part I.

Financial Information

 

 

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets at May 2, 2020 (unaudited) and February 1, 2020

3

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Operations for the three months ended May 2, 2020 and May 4, 2019

4

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three months ended May 2, 2020 and May 4, 2019

5

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months ended May 2, 2020 and May 4, 2019

6

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended May 2, 2020 and May 4, 2019

7

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

8

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

 

 

 

 

 

Item 4.

Controls and Procedures

30

 

 

 

 

Part II.

Other Information

 

 

 

 

 

 

Item 1.

Legal Proceedings

31

 

 

 

 

 

Item 1A.

Risk Factors

31

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

31

 

 

 

 

 

Item 4.

Mine Safety Disclosures

31

 

 

 

 

 

Item 5.

Other Information

31

 

 

 

 

 

Item 6.

Exhibits

32

 

 

 

 

Signature

33

 

 

2


ZUMIEZ INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

 

May 2, 2020

 

 

February 1, 2020

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

63,731

 

 

$

52,428

 

Marketable securities

 

 

153,494

 

 

 

198,768

 

Receivables

 

 

16,837

 

 

 

16,841

 

Inventories

 

 

136,354

 

 

 

135,095

 

Prepaid expenses and other current assets

 

 

5,179

 

 

 

9,456

 

Total current assets

 

 

375,595

 

 

 

412,588

 

Fixed assets, net

 

 

109,573

 

 

 

113,051

 

Operating lease right-of-use assets

 

 

285,416

 

 

 

301,784

 

Goodwill

 

 

56,706

 

 

 

57,099

 

Intangible assets, net

 

 

14,366

 

 

 

14,564

 

Deferred tax assets, net

 

 

11,206

 

 

 

6,303

 

Other long-term assets

 

 

8,571

 

 

 

8,869

 

Total long-term assets

 

 

485,838

 

 

 

501,670

 

Total assets

 

$

861,433

 

 

$

914,258

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Trade accounts payable

 

$

49,497

 

 

$

47,787

 

Accrued payroll and payroll taxes

 

 

13,173

 

 

 

23,653

 

Income taxes payable

 

 

4,430

 

 

 

4,686

 

Operating lease liabilities

 

 

70,584

 

 

 

61,800

 

Other liabilities

 

 

19,197

 

 

 

21,784

 

Total current liabilities

 

 

156,881

 

 

 

159,710

 

Long-term operating lease liabilities

 

 

269,608

 

 

 

284,717

 

Other long-term liabilities

 

 

3,790

 

 

 

3,745

 

Total long-term liabilities

 

 

273,398

 

 

 

288,462

 

Total liabilities

 

 

430,279

 

 

 

448,172

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

Preferred stock, no par value, 20,000 shares authorized; none issued and outstanding

 

 

 

 

 

 

Common stock, no par value, 50,000 shares authorized; 25,431 shares issued and outstanding at May 2, 2020 and 25,828 shares issued and outstanding at February 1, 2020

 

 

163,349

 

 

 

161,458

 

Accumulated other comprehensive loss

 

 

(14,896

)

 

 

(12,591

)

Retained earnings

 

 

282,701

 

 

 

317,219

 

Total shareholders’ equity

 

 

431,154

 

 

 

466,086

 

Total liabilities and shareholders’ equity

 

$

861,433

 

 

$

914,258

 

 

See accompanying notes to condensed consolidated financial statements

 

3


ZUMIEZ INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

May 2, 2020

 

 

 

May 4, 2019

 

Net sales

 

$

 

137,772

 

 

$

 

212,928

 

Cost of goods sold

 

 

 

114,036

 

 

 

 

146,464

 

Gross profit

 

 

 

23,736

 

 

 

 

66,464

 

Selling, general and administrative expenses

 

 

 

51,584

 

 

 

 

65,496

 

Operating (loss) profit

 

 

 

(27,848

)

 

 

 

968

 

Interest income, net

 

 

 

1,074

 

 

 

 

852

 

Other income, net

 

 

 

106

 

 

 

 

153

 

(Loss) earnings before income taxes

 

 

 

(26,668

)

 

 

 

1,973

 

Provision for income taxes

 

 

 

(5,567

)

 

 

 

1,180

 

Net (loss) income

 

$

 

(21,101

)

 

$

 

793

 

Basic (loss) earnings per share

 

$

 

(0.84

)

 

$

 

0.03

 

Diluted (loss) earnings per share

 

$

 

(0.84

)

 

$

 

0.03

 

Weighted average shares used in computation of (loss) earnings per share:

 

 

 

 

 

 

Basic

 

 

 

25,040

 

 

 

 

25,090

 

Diluted

 

 

 

25,040

 

 

 

 

25,351

 

 

See accompanying notes to condensed consolidated financial statements

 

4


ZUMIEZ INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

May 2, 2020

 

 

May 4, 2019

 

Net (loss) income

 

$

(21,101

)

 

$

793

 

Other comprehensive loss, net of tax and reclassification adjustments:

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

(1,961

)

 

 

(3,035

)

Net change in unrealized loss on available-for-sale debt securities

 

 

(344

)

 

 

(16

)

Other comprehensive loss, net

 

 

(2,305

)

 

 

(3,051

)

Comprehensive loss

 

$

(23,406

)

 

$

(2,258

)

 

See accompanying notes to condensed consolidated financial statements

 

5


ZUMIEZ INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

Common Stock

 

 

Accumulated

Other

Comprehensive

 

 

Retained

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Loss

 

 

Earnings

 

 

Total

 

Balance at February 1, 2020

 

 

25,828

 

 

$

161,458

 

 

$

(12,591

)

 

$

317,219

 

 

$

466,086

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(21,101

)

 

 

(21,101

)

Other comprehensive loss, net

 

 

 

 

 

 

 

 

(2,305

)

 

 

 

 

 

(2,305

)

Issuance and exercise of stock-based awards

 

 

297

 

 

 

335

 

 

 

 

 

 

 

 

 

335

 

Stock-based compensation expense

 

 

 

 

 

1,556

 

 

 

 

 

 

 

 

 

1,556

 

Repurchase of common stock

 

 

(694

)

 

 

 

 

 

 

 

 

(13,417

)

 

 

(13,417

)

Balance at May 2, 2020

 

 

25,431

 

 

$

163,349

 

 

$

(14,896

)

 

$

282,701

 

 

$

431,154

 

 

 

 

Common Stock

 

 

Accumulated

Other

Comprehensive

 

 

Retained

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Income (Loss)

 

 

Earnings

 

 

Total

 

Balance at February 2, 2019

 

 

25,521

 

 

$

153,066

 

 

$

(9,224

)

 

$

256,614

 

 

$

400,456

 

Net income

 

 

 

 

 

 

 

 

 

 

 

793

 

 

 

793

 

Other comprehensive loss, net

 

 

 

 

 

 

 

 

(3,051

)

 

 

 

 

 

(3,051

)

Issuance and exercise of stock-based awards

 

 

220

 

 

 

345

 

 

 

 

 

 

 

 

 

345

 

Stock-based compensation expense

 

 

 

 

 

1,693

 

 

 

 

 

 

 

 

 

1,693

 

Cumulative effect of accounting change under ASC 842

 

 

 

 

 

 

 

 

 

 

 

(6,276

)

 

 

(6,276

)

Balance at May 4, 2019

 

 

25,741

 

 

$

155,104

 

 

$

(12,275

)

 

$

251,131

 

 

$

393,960

 

 

See accompanying notes to condensed consolidated financial statements

 

6


ZUMIEZ INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

May 2, 2020

 

 

May 4, 2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(21,101

)

 

$

793

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation, amortization and accretion

 

 

6,096

 

 

 

6,263

 

Noncash lease expense

 

 

14,996

 

 

 

13,371

 

Deferred taxes

 

 

(4,856

)

 

 

1,249

 

Stock-based compensation expense

 

 

1,556

 

 

 

1,693

 

Impairment of long-lived assets

 

 

1,514

 

 

 

123

 

Other

 

 

(173

)

 

 

101

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

1,918

 

 

 

4,708

 

Inventories

 

 

(2,031

)

 

 

(7,540

)

Prepaid expenses and other assets

 

 

4,354

 

 

 

(167

)

Trade accounts payable

 

 

1,074

 

 

 

19,568

 

Accrued payroll and payroll taxes

 

 

(10,423

)

 

 

(5,636

)

Income taxes payable

 

 

(1,078

)

 

 

(7,104

)

Operating lease liabilities

 

 

(6,948

)

 

 

(13,770

)

Other liabilities

 

 

(2,440

)

 

 

(3,790

)

Net cash (used in) provided by operating activities

 

 

(17,542

)

 

 

9,862

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Additions to fixed assets

 

 

(2,504

)

 

 

(3,331

)

Purchases of marketable securities and other investments

 

 

(9,106

)

 

 

(33,385

)

Sales and maturities of marketable securities and other investments

 

 

54,344

 

 

 

39,001

 

Net cash provided by investing activities

 

 

42,734

 

 

 

2,285

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance and exercise of stock-based awards

 

 

428

 

 

 

583

 

Payments for tax withholdings on equity awards

 

 

(93

)

 

 

(238

)

Common stock repurchased

 

 

(13,417

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(13,082

)

 

 

345

 

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

(853

)

 

 

(466

)

Net increase in cash, cash equivalents, and restricted cash

 

 

11,257

 

 

 

12,026

 

Cash, cash equivalents, and restricted cash, beginning of period

 

 

58,991

 

 

 

54,271

 

Cash, cash equivalents, and restricted cash, end of period

 

$

70,248

 

 

$

66,297

 

Supplemental disclosure on cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for income taxes

 

$

343

 

 

$

7,038

 

Accrual for purchases of fixed assets

 

 

1,976

 

 

 

1,583

 

 

See accompanying notes to condensed consolidated financial statements

 

7


ZUMIEZ INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1. Nature of Business and Basis of Presentation

Nature of Business—Zumiez Inc., including its wholly owned subsidiaries, (the “Company,” “we,” “us,” “its” and “our”) is a leading specialty retailer of apparel, footwear, accessories and hardgoods for young men and women who want to express their individuality through the fashion, music, art and culture of action sports, streetwear, and other unique lifestyles.  At May 2, 2020, we operated 719 stores; 606 in the United States (“U.S.”), 52 in Canada, 49 in Europe, and 12 in Australia. Beginning in mid-March, we experienced global store closures as a result of a novel strain of coronavirus (“COVID-19”) that extended for a significant portion of the three months ended May 2, 2020. As of May 2, 2020, 65 of our stores, which represents 9% of our total count, were open and operating. We are monitoring the evolving circumstances surrounding COVID-19 and will continue to reopen stores as it is safe to do so. We operate under the names Zumiez, Blue Tomato and Fast Times. Additionally, we operate ecommerce websites at zumiez.com, zumiez.ca, blue-tomato.com and fasttimes.com.au.

Fiscal Year—We use a fiscal calendar widely used by the retail industry that results in a fiscal year consisting of a 52- or 53-week period ending on the Saturday closest to January 31.  Each fiscal year consists of four 13-week quarters, with an extra week added to the fourth quarter every five or six years.  The three months ended May 2, 2020 and May 4, 2019 were 13-week periods.  

Basis of Presentation—The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  The unaudited condensed consolidated financial statements include the accounts of Zumiez Inc. and its wholly-owned subsidiaries.  All significant intercompany transactions and balances are eliminated in consolidation.

In our opinion, the unaudited condensed consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the condensed consolidated balance sheets, operating results and cash flows for the periods presented.

The financial data at February 1, 2020 is derived from audited consolidated financial statements, which are included in our Annual Report on Form 10-K for the year ended February 1, 2020, and should be read in conjunction with the audited consolidated financial statements and notes thereto.  Interim results are not necessarily indicative of results for the full fiscal year due to seasonality and other factors.

Use of Estimates—The preparation of financial statements in conformity with U.S. GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements as well as the reported amounts of revenues and expenses during the reporting period.  These estimates can also affect supplemental information disclosed by us, including information about contingencies, risk and financial condition.  Actual results could differ from these estimates and assumptions.

Reclassification—Certain prior period restricted cash amounts have been reclassified to be consistent with current year presentation within our consolidated statement of cash flows.

COVID-19— In December 2019, COVID-19 was first identified, and in March 2020, the World Health Organization categorized COVID-19 as a pandemic. To help control the spread of the virus and protect the health and safety of our employees and customers, we began closing our retail stores across all markets that we operate between March 16, 2020 and March 19, 2020. Changes in our operations due to COVID-19 resulted in material reductions in revenues and operating income during the first fiscal quarter and are expected to have continued negative impacts through the balance of the year.

The COVID-19 pandemic remains a rapidly evolving situation. The continuation of the outbreak may cause prolonged periods of store closures and modified operating schedules and may result in changes in customer behaviors, including a potential reduction in consumer discretionary spending in our stores. These may lead to increased asset recovery and valuation risks, such as impairment of our stores and other assets and an inability to realize deferred tax assets due to sustaining losses in certain jurisdictions. Uncertainties in the global economy could impact the financial viability of our suppliers, vendors and other business partners, which could interrupt our supply chain, limit our ability to sell to our consumer and require other changes to our operations. These and other factors could adversely impact our net revenues, operating income and earnings per share financial measures.

 

8


Restricted Cash— Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements are recorded as restricted cash in other long-term assets on our condensed consolidated balance sheets. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statement of cash flows (in thousands):

 

 

 

February 1, 2020

 

 

February 2, 2019

 

Cash and cash equivalents

 

$

 

52,428

 

 

$

52,422

 

Restricted cash included in other long-term assets

 

 

 

6,563

 

 

 

1,849

 

Total cash, cash equivalents, and restricted cash shown in the statement of cash flows

 

$

 

58,991

 

 

$

54,271

 

 

 

 

 

 

 

 

 

 

 

 

 

May 2, 2020

 

 

May 4, 2019

 

Cash and cash equivalents

 

$

 

63,731

 

 

$

60,616

 

Restricted cash included in other long-term assets

 

 

 

6,517

 

 

 

5,681

 

Total cash, cash equivalents, and restricted cash shown in the statement of cash flows

 

$

 

70,248

 

 

$

66,297

 

 

Restricted cash included in other long-term assets represents amounts held as insurance collateral and collateral for bank guarantees on certain store operating leases.

Significant Accounting Policies—Our significant accounting policies are detailed in Note 2, “Summary of Significant Accounting Policies” within Part IV Item 15 of the Annual Report on Form 10-K for the year ended February 1, 2020.  There have been no changes in accounting policies other than specific accounting considerations herein that we have taken as a result of COVID-19.      

 

Zumiez evaluates its long-lived assets for indicators of impairment quarterly or when events or changes in circumstances indicate that their carrying amounts may not be recoverable. Given the substantial reduction in our sales and reduced cash flow projections as a result of the store closures due to the COVID-19 pandemic, we determined that a triggering event occurred and that an impairment assessment was warranted for certain stores. This analysis resulted in the Company recording $1.5M of impairment charges related to long-lived assets and operating lease right of use assets in the first quarter of fiscal 2020. As we open our stores and have better visibility to the current operating environment including the potential sublease market this may result in additional impairment of our long-lived assets later in fiscal 2020.    

 

We assess goodwill and indefinite-lived intangible assets for impairment annually in the fourth quarter or more frequently if indicators of impairment arise. We perform this analysis at the reporting unit level by determining whether the fair value of a reporting unit is less than its carrying amount. Given the aforementioned circumstances surrounding COVID-19, we determined that a triggering event had, in fact, occurred. Based on our prior year fourth quarter impairment analysis, in which the fair values of all reporting units were in excess of their carrying amounts, we concluded that impairment was not needed. At this time, we do not believe that additional impairment of goodwill for the first fiscal quarter of 2020 is warranted; however, we are currently monitoring the ongoing negative effects of COVID-19 and if our results decline from our current estimates, we may incur future potential impairments.

 

Merchandise inventories are stated at the lower of cost (primarily average cost) or net realizable value. We record reserves for obsolete and slow-moving inventory and for estimated shrinkage between physical inventory counts. During the three months ended May 2, 2020, we recorded no inventory write-offs as a result of excess inventory due to the temporary closure of our retail stores. However, the pace of store reopenings as well as future customer behavior, among other factors, may result in additional inventory write-offs later in fiscal 2020.

During the first quarter of fiscal 2020, we received an immaterial amount of COVID-19 related lease concessions and deferrals for certain stores in United States, Europe and Australia, generally correlating with the limited time period our stores were closed during stay-at-home mandates. Consistent with updated guidance from the Financial Accounting Standards Board (“FASB”) in April 2020, we have elected to treat COVID-19-related rent concessions as variable lease expense and lease deferrals as there is no change in the contract assuming they are short-term in nature. COVID-19 related rent concessions that are expected to extend well beyond the fiscal year or change the other terms in the lease are treated as lease modifications and a full re-valuation of the right of use asset and liability is performed.  We are having ongoing conversations with landlords in various markets to seek commercially reasonable lease concessions given the current environment.  

Recent Accounting Standards— In April 2020, the FASB issued interpretive guidance that indicated it would be acceptable for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842, as though enforceable rights and obligations for those concessions existed (regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contract).  The FASB also indicated it was acceptable to treat deferral of lease payments with no substantive changes to the contract as if there was no change to the contract. The Company has elected to treat COVID-19 related lease concessions as variable lease expense and COVID-19 related lease deferrals as there was no change to the contract assuming they are short-term in nature.  For leases where rent concessions are

9


expected to extend well beyond the fiscal year or change the other terms of the lease these are treated as a lease modification. We have adopted this standard prospectively for the fiscal year beginning February 2, 2020 and due to the changing landscape are not able to estimate the impact on our condensed consolidated financial statements for fiscal year 2020.  

In December 2019, the FASB issued an update simplifying the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. We early adopted this update for the fiscal year, and interim periods, beginning February 2, 2020. The impact on our condensed consolidated financial statements was not material.

In August 2018, the FASB issued a new standard over customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract.  The standard requires implementation costs incurred in a hosting arrangement that is a service contract be accounted for in accordance with ASC 350-40.  The new standard is effective for annual periods beginning after December 15, 2019, with early adoption permitted.  We adopted this standard prospectively for the fiscal year beginning February 3, 2019 and the impact on our condensed consolidated financial statements was not material.

In January 2017, the FASB issued a new standard simplifying the test for goodwill impairment.  The standard eliminates Step 2 from the goodwill impairment test. The standard requires entities perform the goodwill impairment test by comparing the fair value of a reporting unit to its carrying amount and recognize the impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total goodwill allocated to that reporting unit. The new standard is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted.  We do expect this standard to have a material impact on our condensed consolidated financial statements.

     

 

2. Revenue

 

The following table disaggregates net sales by geographic region (in thousands):

 

 

 

Three Months Ended

 

 

 

May 2, 2020

 

 

May 4, 2019

 

United States

 

$

 

110,364

 

 

$

176,918

 

Canada

 

 

 

6,173

 

 

 

11,032

 

Europe

 

 

 

19,600

 

 

 

22,946

 

Australia

 

 

 

1,635

 

 

 

2,032

 

Net sales

 

$

 

137,772

 

 

$

212,928

 

 

Net sales for the three months ended May 2, 2020 included a $1.0 million decrease due to the change in foreign exchange rates, which consisted of $0.2 million in Canada, $0.6 million in Europe and $0.2 million in Australia.       

  

Our contract liabilities include deferred revenue related to our customer loyalty program and gift cards. The current liability for gift cards was $3.3 million at May 2, 2020 and $4.3 million at February 1, 2020, respectively. Deferred revenue related to our STASH loyalty program was $0.5 million at May 2, 2020 and $0.7 million at February 1, 2020, respectively.

 

10


3. Cash, Cash Equivalents and Marketable Securities

The following tables summarize the estimated fair value of our cash, cash equivalents and marketable securities and the gross unrealized holding gains and losses (in thousands)

 

 

 

May 2, 2020

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Holding

Gains

 

 

Gross

Unrealized

Holding

Losses

 

 

Estimated

Fair Value

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

45,384

 

 

$

 

 

$

 

 

$

45,384

 

Money market funds

 

 

15,747

 

 

 

 

 

 

 

 

 

15,747

 

U.S. treasury and government agency securities

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

 

2,600

 

 

 

 

 

 

 

 

 

2,600

 

Total cash and cash equivalents

 

 

63,731

 

 

 

 

 

 

 

 

 

63,731

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury and government agency securities

 

 

19,936

 

 

 

399

 

 

 

 

 

 

20,335

 

Corporate debt securities

 

 

115,947

 

 

 

1,001

 

 

 

(401

)

 

 

116,547

 

State and local government securities

 

 

16,601

 

 

 

117

 

 

 

(106

)

 

 

16,612

 

Variable-rate demand notes

 

 

 

 

 

 

 

 

 

 

 

 

Total marketable securities

 

$

152,484

 

 

$

1,517

 

 

$

(507

)

 

$

153,494

 

 

 

 

February 1, 2020

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Holding

Gains

 

 

Gross

Unrealized

Holding

Losses

 

 

Estimated

Fair Value

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

34,233

 

 

$

 

 

$

 

 

$

34,233

 

Money market funds

 

 

9,850

 

 

 

 

 

 

 

 

 

9,850

 

Corporate debt securities

 

 

8,345

 

 

 

 

 

 

 

 

 

8,345

 

Total cash and cash equivalents

 

 

52,428

 

 

 

 

 

 

 

 

 

52,428

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury and government agency securities

 

 

25,452

 

 

 

142

 

 

 

(2

)

 

 

25,592

 

Corporate debt securities

 

 

148,608

 

 

 

1,121

 

 

 

 

 

 

149,729

 

State and local government securities

 

 

22,310

 

 

 

207

 

 

 

 

 

 

22,517

 

Variable-rate demand notes

 

 

930

 

 

 

 

 

 

 

 

 

930

 

Total marketable securities

 

$

197,300

 

 

$

1,470

 

 

$

(2

)

 

$

198,768

 

 

All of our marketable securities have an effective maturity date of five years or less and may be liquidated, at our discretion, prior to maturity.

The following tables summarize the gross unrealized holding losses and fair value for investments in an unrealized loss position, and the length of time that individual securities have been in a continuous loss position (in thousands):

 

 

 

May 2, 2020

 

 

 

Less Than 12 Months

 

 

12 Months or Greater

 

 

Total

 

 

 

Fair Value

 

 

Unrealized

Losses

 

 

Fair Value

 

 

Unrealized

Losses

 

 

Fair Value

 

 

Unrealized

Losses

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury and government agency securities

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Corporate debt securities

 

$

25,160

 

 

$

(401

)

 

$

 

 

$

 

 

$

25,160

 

 

$

(401

)

State and local government securities

 

$

4,664

 

 

$

(106

)

 

$

 

 

$

 

 

$

4,664

 

 

$

(106

)

Total marketable securities

 

$

29,824

 

 

$

(507

)

 

$

 

 

$

 

 

$

29,824

 

 

$

(507

)

11


 

 

 

February 1, 2020

 

 

 

Less Than 12 Months

 

 

12 Months or Greater

 

 

Total

 

 

 

Fair Value

 

 

Unrealized

Losses

 

 

Fair Value

 

 

Unrealized

Losses

 

 

Fair Value

 

 

Unrealized

Losses

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury and government agency securities

 

$

567

 

 

$

(2

)

 

$

 

 

$

 

 

$

567

 

 

$

(2

)

Corporate debt securities

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

State and local government securities

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Total marketable securities

 

$

567

 

 

$

(2

)

 

$

 

 

$

 

 

$

567

 

 

$

(2

)

 

We did not record a realized loss for other-than-temporary impairments during the three months ended May 2, 2020 or May 4, 2019.

 

4. Leases

At May 2, 2020, we had operating leases for our retail stores, certain distribution and fulfillment facilities, vehicles and equipment. Our remaining lease terms vary from one month to ten years, with varying renewal and termination options. At May 2, 2020, the weighted-average of the remaining lease term was 5.7 years and the weighted-average discount rate was 3.3%.

The following table presents components of lease expense (in thousands):

 

 

 

Three Months Ended

 

 

 

May 2, 2020

 

 

May 4, 2019

 

Operating lease expense

 

$

17,953

 

 

$

17,082

 

Variable lease expense

 

 

676

 

 

 

894

 

Total lease expense (1)

 

$

18,629

 

 

$

17,976

 

 

(1)

Total lease expense includes short-term lease expense and sublease income which is immaterial to the Company. Total lease expense does not include right-of-use asset impairment charges, common area maintenance charges and other non-lease components.

 

 

Supplemental cash flow information related to leases is as follows (in thousands):

 

 

Three Months Ended

 

 

 

May 2, 2020

 

 

May 4, 2019

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

(6,948

)

 

$

(13,770

)

Right-of-use assets obtained in exchange for new operating lease liabilities

 

 

2,214

 

 

 

20,296

 

 

At May 2, 2020, the maturities of our operating leases liabilities are as follows (in thousands):

 

Fiscal 2020

 

$

61,945

 

Fiscal 2021

 

 

72,657

 

Fiscal 2022

 

 

63,948

 

Fiscal 2023

 

 

53,603

 

Fiscal 2024

 

 

46,058

 

Thereafter

 

 

73,943

 

Total minimum lease payments

 

 

372,154

 

Less: interest

 

 

(31,962

)

Present value of lease obligations