2.Summary of significant accounting policies

Information regarding the Company’s significant accounting policies is contained in Note 2, “Summary of significant accounting policies,” to the consolidated financial statements in the Company’s Annual Report on Form 10‑K for the year ended February 3, 2018. Presented below and in the following notes is supplemental information that should be read in conjunction with “Notes to Consolidated Financial Statements” in the Annual Report.

Fiscal quarter

The Company’s quarterly periods are the 13 weeks ending on the Saturday closest to April 30, July 31, October 31, and January 31. The Company’s second quarter in fiscal 2018 and 2017 ended on August 4, 2018 and July 29, 2017, respectively.

Share-based compensation

The Company measures share-based compensation cost on the grant date, based on the fair value of the award, and recognizes the expense on a straight-line basis over the requisite service period for awards expected to vest. The Company estimated the grant date fair value of stock options using a Black-Scholes valuation model using the following weighted-average assumptions for the periods indicated:

The Company granted 163 and 103 stock options during the 26 weeks ended August 4, 2018 and July 29, 2017, respectively. The compensation cost charged against operating income for stock options was $2,215 and $2,235 for the 13 weeks ended August 4, 2018 and July 29, 2017, respectively. The compensation cost charged against operating income for stock options was $4,423 and $4,377 for the 26 weeks ended August 4, 2018 and July 29, 2017, respectively. The weighted-average grant date fair value of these stock options was $50.10 and $70.12 for the 26 weeks ended August 4, 2018 and July 29, 2017, respectively. At August 4, 2018, there was approximately $21,720 of unrecognized compensation expense related to unvested stock options.

The Company issued 92 and 42 restricted stock units during the 26 weeks ended August 4, 2018 and July 29, 2017, respectively. The compensation cost charged against operating income for restricted stock units was $3,290 and $2,354 for the 13 weeks ended August 4, 2018 and July 29, 2017, respectively. The compensation cost charged against operating income for restricted stock units was $5,795 and $4,453 for the 26 weeks ended August 4, 2018 and July 29, 2017, respectively. At August 4, 2018, there was approximately $25,569 of unrecognized compensation expense related to restricted stock units.

The Company issued 33 and 21 performance-based restricted stock units during the 26 weeks ended August 4, 2018 and July 29, 2017, respectively. The compensation cost charged against operating income for performance-based restricted stock units was $1,722 and $1,569 for the 13 weeks ended August 4, 2018 and July 29, 2017, respectively. The compensation cost charged against operating income for performance-based restricted stock units was $3,179 and $2,819 for the 26 weeks ended August 4, 2018 and July 29, 2017, respectively. At August 4, 2018, there was approximately $12,426 of unrecognized compensation expense related to performance-based restricted stock units.

Recent accounting pronouncements not yet adopted

Leases

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016‑02, Leases (Topic 842) and has since issued additional ASUs to further clarify or add options to the issued guidance. This standard will change the way all leases of one year or more are treated. Under this guidance, lessees will be required to capitalize virtually all leases on the balance sheet as a right-of-use asset and recognize an associated lease liability. The right-of-use asset represents the lessee’s right to use, or control the use of, a specified asset for the specified lease term. The lease liability represents the lessee’s obligation to make lease payments arising from the lease, measured on a discounted basis. Based on certain characteristics, leases are classified as financing or operating leases and their classification impacts the recognition of expense in the income statement. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, but have the option to apply this guidance to leases at the beginning of the period in which ASU 2016-02 is adopted instead. The Company continues to assess the method of adoption. ASU 2016‑02 is effective for public companies for annual reporting periods beginning after December 15, 2018, including interim reporting periods. Early adoption is permitted.

The Company will adopt the new standard in fiscal 2019. The Company formed a project team to review the current accounting policies and practices and assess the effect of the standard on the consolidated financial statements. The team is evaluating the impact of the standard, including optional practical expedients that may be elected upon adoption, and is progressing with the implementation plan. The implementation plan includes identifying the lease population, updating and assessing the lease administration software, and identifying changes to processes and controls. The adoption of ASU 2016‑02 will have a material impact on the Company’s consolidated financial position as the Company will have approximately 1,200 leased locations at the time of adoption, including the corporate office, stores, and distribution centers, however, the Company is not able to quantify the difference at this time. The Company does not believe adoption of this standard will have a material impact on the Company’s consolidated results of operations or cash flows.

Recently adopted accounting pronouncements

Revenue Recognition from Contracts with Customers

In May 2014, the FASB issued ASU 2014‑09, Revenue from Contracts with Customers (ASU 2014‑09), issued as a new Topic, Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition (ASC 605). The guidance in ASU 2014-09 and subsequently issued amendments outlines a comprehensive model for all entities to use in accounting for revenue arising from contracts with customers as well as required disclosures. Under the new standard, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration, which the entity expects to receive in exchange for those goods or services. The new standard requires additional disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers including significant judgments and changes in judgments.

The Company adopted the new revenue standard effective February 4, 2018 using the modified retrospective transition method applied to all contracts with the cumulative effect recorded to the opening balance of retained earnings as of the date of adoption. The comparative information has not been restated and continues to be reported under accounting standards in effect for those periods. The adoption of the new revenue standard did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows. The Company expects the impact of the adoption of the new revenue standard will be immaterial to net income on an ongoing basis. See Note 3, “Revenue”, for further details.