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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Nov. 01, 2015

Summary of Significant Accounting Policies [Abstract]

A. Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of the parent, Duluth Holdings Inc., and its wholly-owned subsidiary, Duluth Trading Company, LLC. The Company also consolidates Schlecht Retail Ventures LLC (“SRV”) as a variable interest entity (see Note 6 “Variable Interest Entities”). Prior to May 21, 2014, the Company consolidated Schlecht Enterprises, LLC (“SE”) as a variable interest entity. Effective May 21, 2014, SE was no longer considered a variable interest entity and was not consolidated after that date.

Use of Estimates

B. Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

C. Revenue Recognition

The Company recognizes revenue when the following four criteria are met:

persuasive evidence of an arrangement exists;

title has passed to the customer;

the sales price is fixed and determinable and no further obligation exists; and

collectability is reasonably assured.

These criteria are met upon customer receipt of the product (for direct sales) or at the point of sale (for retail store transactions). At the time of revenue recognition, the Company provides for estimated costs that may be incurred for product warranties and sales returns. A liability is recognized at the time a gift card is sold, and revenue is recognized at the time the gift card is redeemed for merchandise.

Deferred Catalog and Advertising Expenses

D. Deferred Catalog and Advertising Expenses

The Company’s direct-response advertising consists of producing, printing and mailing catalogs, which are capitalized as deferred catalog costs and amortized over the expected term of the related revenue stream (generally three to five months from the date catalogs are mailed). The Company’s non-direct response advertising costs are expensed as they are incurred. Non-direct response advertising costs primarily consist of billboards, web marketing programs, and radio and television advertisements.

Catalog and advertising expenses were $12.9 million and $37.0 million for the three and nine months ended November 1, 2015, respectively, and $8.8 million and $27.0 million for the three and nine months ended November 2, 2014, respectively.

Shipping and Processing

E. Shipping and Processing

Shipping and processing revenue generated from customer orders has been classified as a component of net sales. Shipping and processing expense, including handling expense, for the Company’s direct business, has been classified as a component of selling, general and administrative expenses. The Company incurred shipping and processing expenses of $3.4 million and $10.7 million for the three and nine months ended November 1, 2015, respectively, and $2.6 million and $8.0 million for the three and nine months ended November 2, 2014, respectively.

Income Taxes

F. Income Taxes

For federal and state income tax purposes, the Company and its shareholders have elected to be treated as an “S” corporation in accordance with the provisions of Subchapter S of the Code. SE and SRV are limited liability companies. Therefore, the Company’s, SE’s and SRV’s taxable income or loss is included in the individual income tax returns of the shareholders and members, as applicable, for both federal and state income tax purposes. Accordingly, no provision has been made for federal or state income taxes in the condensed consolidated financial statements.

ASC 740, Income Taxes, provides guidance related to the accounting for uncertainty in income taxes and establishes the criteria that an individual tax position has to meet for some or all of the benefits of that position to be recognized in the Company’s financial statements. The Company has assessed whether there remains any income tax expense related to its tax positions. The Company does not believe there is any uncertainty with respect to its tax positions that would result in a material change to the condensed consolidated financial statements. The Company recognizes penalties and interest related to uncertain tax positions as income tax expense. There were no amounts recorded as tax expense for interest or penalties for both the three and nine months ended November 1, 2015 and November 2, 2014.

- Definition

Disclosure of accounting policy for income taxes, which may include its accounting policies for recognizing and measuring deferred tax assets and liabilities and related valuation allowances, recognizing investment tax credits, operating loss carryforwards, tax credit carryforwards, and other carryforwards, methodologies for determining its effective income tax rate and the characterization of interest and penalties in the financial statements.

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- Definition

Disclosure of accounting policy for revenue recognition. If the entity has different policies for different types of revenue transactions, the policy for each material type of transaction is generally disclosed. If a sales transaction has multiple element arrangements (for example, delivery of multiple products, services or the rights to use assets) the disclosure may indicate the accounting policy for each unit of accounting as well as how units of accounting are determined and valued. The disclosure may encompass important judgment as to appropriateness of principles related to recognition of revenue. The disclosure also may indicate the entity's treatment of any unearned or deferred revenue that arises from the transaction.

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- Definition

Disclosure of accounting policy for the classification of shipping and handling costs, including whether the costs are included in cost of sales or included in other income statement accounts. If shipping and handling fees are significant and are not included in cost of sales, disclosure includes both the amounts of such costs and the line item on the income statement which includes such costs.

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