2. REVENUES

Effective January 29, 2018, the Company adopted ASC 606 using the modified retrospective method. The comparative information presented in the condensed consolidated financial statements is not restated and is reported under the accounting standards in effect for those periods presented. See Note 1 under “Significant Accounting Policies” for a discussion of the significant changes resulting from the adoption of ASC 606.

The Company’s revenue primarily consists of the sale of apparel, footwear and hard goods. For the Company’s direct segment, revenues are recognized upon shipment, which is when the customer obtains control of the product and has the ability to direct the use of the product, including, among other options, the ability to redirect the product to a different shipping destination. For the Company’s retail segment, revenues are recognized at the point of sale. The Company provides the customer the right of return on the product and revenue is adjusted based on an estimate of the expected returns based on historical rates as well as events that may cause changes to historical rates. The Company considers the sale of products in either the direct or retail segment as a single performance obligation. Shipping and processing revenue generated from customer orders are included as a component of net sales and shipping and processing expense, including handling expense, is included as a component of selling, general and administrative expenses. Sales tax collected from customers and remitted to taxing authorities is excluded from revenue and is included in accrued expenses.

The Company’s contract liabilities primarily consist of gift card liabilities and are recorded in accrued expenses and other current liabilities under deferred revenue (see Note 4 “Accrued Expenses and Other Current Liabilities”) on the Company’s condensed consolidated balance sheets. Upon the issuance of a gift card, a liability is established for its cash value. The gift card liability is relieved and revenues on gift cards are recorded at the time of redemption by the customer. Based on historical redemption patterns, gift cards are generally redeemed within one year and gift card breakage is not material.

The following table presents the impact of the adoption of ASC 606 on the Company’s condensed consolidated balance sheets as of January 29, 2018, the first day of fiscal 2018:


	January 28, 2018		Adjustments due to ASC 606		January 29, 2018
(in thousands)
Inventory, net	$	89,548	$	(629)	$	88,919
Prepaid expenses & other current assets		7,642		1,073		8,715
Deferred catalog costs		1,446		(1,365)		81
Total current assets		101,826		(921)		100,905
Total assets		223,102		(921)		222,181

Accrued expenses and other current liabilities		25,261		(45)		25,216
Income taxes payable		7,631		149		7,780
Total current liabilities		50,296		104		50,400
Deferred tax liabilities		2,100		(377)		1,723
Total liabilities		83,753		(273)		83,480
Total shareholders' equity		139,349		(648)		138,701
Total liabilities and shareholders' equity		223,102		(921)		222,181

The following tables present the effects of the adoption of ASC 606 on the Company’s condensed consolidated balance sheets as of October 28, 2018 and the Company’s condensed consolidated statements of operations for the three and nine months ended October 28, 2018:


	October 28, 2018
	As Reported		Adjustments due to ASC 606		Balances without Adoption of ASC 606
(in thousands)
Inventory, net	$	131,448	$	1,998	$	133,446
Prepaid expenses & other current assets		11,975		(396)		11,579
Deferred catalog costs		1,137		91		1,228
Total current assets		150,226		1,693		151,919
Total assets		324,517		1,693		326,210

Accrued expenses and other current liabilities		30,715		3,501		34,216
Total current liabilities		65,160		3,501		68,661
Deferred tax liabilities		1,573		(470)		1,103
Total liabilities		181,866		3,031		184,897
Total shareholders' equity		142,651		(1,338)		141,313
Total liabilities and shareholders' equity		324,517		1,693		326,210


	October 28, 2018
	Three Months Ended						Nine Months Ended
	As Reported		Adjustments due to ASC 606		Balances without Adoption of ASC 606		As Reported		Adjustments due to ASC 606		Balances without Adoption of ASC 606
(in thousands)
Net sales	$	106,701	$	(2,097)	$	104,604	$	317,561	$	(3,711)	$	313,850
Cost of goods sold (excluding depreciation and amortization)		45,730		(1,212)		44,518		138,410		(2,117)		136,293
Gross profit		60,971		(885)		60,086		179,151		(1,594)		177,557
Selling, general and administrative expenses		63,534		(139)		63,395		172,075		1,090		173,165
Operating (loss) income		(2,563)		(746)		(3,309)		7,076		(2,684)		4,392
Interest expense		1,583		—		1,583		3,638		—		3,638
Other income, net		3		—		3		168		—		168
(Loss) income before income taxes		(4,143)		(746)		(4,889)		3,606		(2,684)		922
Income tax (benefit) expense		(1,067)		(194)		(1,261)		913		(698)		215
Net (loss) income		(3,076)		(552)		(3,628)		2,693		(1,986)		707
Less: Net income attributable to noncontrolling interest		74		—		74		157		—		157
Net (loss) income attributable to controlling interest	$	(3,150)	$	(552)	$	(3,702)	$	2,536	$	(1,986)	$	550