Quarterly report pursuant to Section 13 or 15(d)

Revenue (Notes)

v3.10.0.1
Revenue (Notes)
9 Months Ended
Nov. 03, 2018
Revenue from Contract with Customer [Abstract]  
Revenue from Contract with Customer [Text Block]
Revenue

Our contracts with customers primarily consist of sales of merchandise and services at the point of sale, sales of gift cards to a customer for a future purchase, customer loyalty rewards that provide discount rewards to customers based on purchase activity, and certain licensing and profit sharing arrangements involving the use of our intellectual property by others.
Revenue includes Total net sales and Credit income and other. Net sales are categorized by merchandise and service sale groupings as we believe it best depicts the nature, amount, timing and uncertainty of revenue and cash flow.

The following table provides the components of Net sales for the three and nine months ended November 3, 2018 and October 28, 2017:
 
Three Months Ended
 
Nine Months Ended
($ in millions)
November 3, 2018
 
October 28, 2017
 
November 3, 2018
 
October 28, 2017
 
 
 
 
 
As Adjusted
 
 
 
 
 
As Adjusted
Women’s apparel
$
597

 
23
%
 
$
610

 
22
%
 
$
1,905

 
24
%
 
$
2,036

 
24
%
Men’s apparel and accessories
552

 
21
%
 
571

 
20
%
 
1,615

 
20
%
 
1,718

 
20
%
Home
357

 
13
%
 
414

 
15
%
 
1,073

 
13
%
 
1,204

 
14
%
Women’s accessories, including Sephora
329

 
12
%
 
364

 
13
%
 
1,029

 
13
%
 
1,086

 
13
%
Children’s, including toys
280

 
11
%
 
307

 
11
%
 
728

 
9
%
 
780

 
9
%
Footwear and handbags
236

 
9
%
 
258

 
9
%
 
676

 
8
%
 
741

 
9
%
Jewelry
139

 
5
%
 
129

 
4
%
 
451

 
6
%
 
437

 
5
%
Services and other
163

 
6
%
 
164

 
6
%
 
522

 
7
%
 
501

 
6
%
Total net sales
$
2,653

 
100
%
 
$
2,817

 
100
%
 
$
7,999

 
100
%
 
$
8,503

 
100
%

Credit income and other encompasses the revenue earned from the agreement with Synchrony associated with our private label credit card and co-branded MasterCard® programs.
Merchandise and Service Sales
Total net sales, which exclude sales taxes and are net of estimated returns, are generally recorded when payment is received and the customer takes control of the merchandise. Service revenue is recorded at the time the customer receives the benefit of the service, such as salon, portrait, optical or custom decorating. Shipping and handling fees charged to customers are also included in total net sales with corresponding costs recorded as cost of goods sold. Net sales are not recognized for estimated future returns which are estimated based primarily on historical return rates and sales levels.

Gift Card Revenue
At the time gift cards are sold a performance obligation is created and no revenue is recognized; rather, a contract liability is established for our obligation to provide a merchandise or service sale to the customer for the face value of the card. The contract liability is relieved and a net sale is recognized when gift cards are redeemed for merchandise or services. We recognize gift card breakage, net of required escheatment, over the redemption pattern of gift cards. Breakage is estimated based on historical redemption patterns and the estimates can vary based on changes in the usage patterns of our customers.

Customer Loyalty Rewards
Customers who spend a certain amount with us using our private label card or registered loyalty card receive points that can accumulate towards earning JCPenney Rewards certificates which are redeemable for a discount on future purchases. Points earned by a loyalty customer do not expire but any certificates earned expire two months from the date of issuance. We account for our customer loyalty rewards by deferring a portion of our sales to loyalty points expected to be earned towards a reward certificate, and then recognize the reward certificate as a net sale when used by the customer in connection with a merchandise or service sale. The points earned toward a future reward are valued at their relative standalone selling price by applying fair value based on historical redemption patterns.

The liabilities related to our gift cards and our customer loyalty program are included in Other accounts payable and accrued expenses in the unaudited Interim Consolidated Balance Sheets and constitute our contract liability. The balance of these liabilities were as follows:
(in millions)
November 3, 2018
 
October 28, 2017
 
February 3, 2018
Gift cards
$
111

 
$
110

 
$
144

Loyalty rewards
60

 
73

 
73

Total contract liability
$
171

 
$
183

 
$
217


Contract liability includes consideration received for gift card and loyalty related performance obligations which have not been satisfied as of a given date.

A rollforward of the amounts included in contract liability for the first nine months of 2018 and 2017 are as follows:
(in millions)
2018
 
2017
Beginning balance
$
217

 
$
228

Current period gift cards sold and loyalty reward points earned
232

 
289

Net sales from amounts included in contract liability opening balances
(75
)
 
(89
)
Net sales from current period usage
(203
)
 
(245
)
Ending balance
$
171

 
$
183



Licensing Agreements
Our private label credit card and co-branded MasterCard® programs are owned and serviced by Synchrony.  Under our agreement with Synchrony, we receive periodic cash payments from Synchrony based upon the consumer's usage of co-branded card and the performance of the credit card portfolio. We participate in the programs by providing marketing promotions designed to increase the use of each card, including enhanced marketing offers for cardholders. Additionally, we accept payments in our stores from cardholders who prefer to pay in person when they are shopping in our locations. Revenue related to this agreement is recognized over the time we have fulfilled our deliverables and is reflected in Credit income and other.

Principal Versus Agent
We assess principal versus agent considerations depending on our control of the good or service before it is transferred to the customer. When we are the principal and have control of the specified good or service, we include as a net sale the gross amount of consideration to which we expect to be entitled for that specified good or service in revenue. In contrast, when we are the agent and do not have control of the specified good or service, we include as a net sale the fee or commission to which we expect to be entitled for the agency service. In certain instances, the fee or commission might be the net amount retained after paying the supplier.