Over the previous eight months of this pandemic, we now have all seen the rise of e-commerce as a significant necessity for many firms. For a lot of firms, e-commerce has considerably outperformed their current gross sales channels and shoppers have now grow to be acclimated to a seamless “omnichannel” procuring expertise the place they will buy on-line and watch for supply or pick-up curbside or within the retailer. A recent WSJ article proclaims that the embrace of digital commerce is right here to remain even after the pandemic.
In mild of the surge in e-commerce exercise, it is sensible that many firms are individually calling out their e-commerce gross sales and progress efficiency of their quarterly earnings calls, SEC filings and investor displays.
Disaggregated Income Disclosure Requirement
As firms proceed to deal with their gross sales channel disclosures, one potential sleeper subject could possibly be the brand new income recognition customary’s requirement on disclosure of disaggregated revenues. Underneath ASC 606-10-50-5, a public firm should “disaggregate income acknowledged from contracts with clients into classes that depict how the character, quantity, timing, and uncertainty of income and money flows are affected by financial elements.”
Moreover, per the implementation steering in ASC 606-10-55-90, when choosing the kind of class (or classes) to make use of to disaggregate income, an entity ought to contemplate how the details about the entity’s income has been introduced for different functions, together with the next:
- Disclosures introduced outdoors of the monetary statements corresponding to MD&A, earnings releases and investor displays.
- Data commonly reviewed by our Chief Working Choice Maker (CODM).
- Every other data much like the knowledge recognized in (1) and (2) that’s utilized by the corporate or customers of the monetary statements to judge the corporate’s monetary efficiency or make useful resource allocation selections. (emphasis added)
In figuring out the classes to incorporate, ASC 606-10-55-91 says that an entity ought to contemplate the next examples:
- The kind of good or service (e.g., main product traces).
- Geographical area (e.g., nation or area).
- Market or sort of buyer (e.g., authorities or non-government clients).
- Sort of contract (e.g., fixed-price or time-and-materials).
- Contract period (e.g., short- or long-term).
- Timing of switch of products or companies (e.g., point-in-time or over time).
- Gross sales channels (e.g., direct to clients or by way of intermediaries).
Primarily based on an ASC 606 implementation survey compiled by Deloitte in 2018, it discovered the commonest classes of income disaggregation had been product/service sort, geography, contract sort and buyer sort, in that order. The 2018 Deloitte survey additionally discovered that income disaggregation within the gross sales channel class was not noticed within the knowledge set.
Whereas the last word evaluation will relaxation with the corporate’s accounting employees and its outdoors auditor, we have an interest to see whether or not the continued deal with e-commerce in public firm earnings supplies and investor displays will lead to extra firms concluding they need to disaggregate revenues by gross sales channels, together with e-commerce gross sales.
Furthermore, this recent SEC comment letter exchange demonstrates that disaggregate income continues to be of curiosity to the Workers, notably when the registrant discusses e-commerce in its earnings supplies and SEC filings as a major driver of outcomes.
For ease of reference, we now have repeated beneath the related SEC remark in addition to the registrant’s response. Within the change, the SEC Workers famous the corporate’s disclosures associated to e-commerce gross sales in its MD&A dialogue and within the firm’s quarterly earnings calls, and the Workers requested the corporate to clarify its consideration for disclosure of disaggregated revenues for the corporate’s direct-to-consumer phase by gross sales channel (i.e., e-commerce channel and in-store gross sales). In its response, the corporate was capable of clarify to the SEC Workers why disaggregation by gross sales channel was not acceptable given its information and circumstances. Nevertheless, this remark change serves as a useful reminder to firms to contemplate this subject as they’re making ready their monetary statements and accompanying public disclosures. (For an additional instance of a current SEC remark letter change on disaggregated income, see here.)
Notes to Condensed Consolidated Monetary Statements
Income Recognition, web page 11
- We be aware your disclosures of gross sales associated to e-commerce channels in your MD&A dialogue and in your quarterly earnings calls. We additionally be aware that gross sales out of your ecommerce channels elevated by 428.2% and had been a key driver to the quarter ended June 30, 2020. Please inform us your consideration for disclosure of disaggregated revenues on your Direct-to-consumer phase by gross sales channel (i.e., e-commerce channel and in-store gross sales) pursuant to ASC 606-10-55-89 by way of 91. In your response, inform us the quantity of e-commerce gross sales acknowledged through the intervals introduced and in addition for fiscal 2019.
Pursuant to ASC 606-10-50-5, we thought of the suitable degree of disaggregation that describes how the character, quantity, timing and uncertainty of income and money flows are affected by financial elements inside the Firm’s direct-to-consumer phase. Following the implementation steering in ASC 606-10-55-90, we additionally thought of (a) disclosures introduced outdoors of the monetary statements corresponding to MD&A, earnings releases and investor displays, (b) data commonly reviewed by our Chief Working Choice Maker (“CODM”) and (c) every other data much like the knowledge recognized in (a) and (b) that’s utilized by the Firm or customers of the monetary statements to judge the Firm’s monetary efficiency or make useful resource allocation selections. In figuring out the classes to incorporate, we thought of the examples present in ASC 606-10-55-91: (a) the kind of good or service (e.g., main product traces), (b) geographical area (e.g., nation or area), (c) market or sort of buyer (e.g., authorities or non-government clients), (d) sort of contract (e.g., fixed-price or time-and-materials), (e) contract period (e.g., short- or long-term), (f) timing of switch of products or companies (e.g., point-in-time or over time) and (g) gross sales channels (e.g., direct to clients or by way of intermediaries). The next summarizes our evaluation of the aforementioned examples:
- Sort of fine or service – Considerably all merchandise bought by the Firm is footwear. Related merchandise is obtainable throughout a number of channels.
- Geographical area – The Firm’s income within the direct-to-consumer phase is predominantly home, with e-commerce and shops serving comparable geographies.
- Market or sort of buyer – All clients within the direct-to-consumer phase are shoppers.
- Sort of contract – All income contracts within the direct-to-consumer phase symbolize a single efficiency obligation and are ruled by level of sale orders for our merchandise.
- Contract period – All income contracts within the direct-to-consumer phase are short-term in nature.
- Timing of switch of products or companies – We acknowledge income on the time limit that management of the ordered product is transferred to the shopper, which is often at a retail retailer location or upon cargo to the patron.
- Gross sales channels – Merchandise within the direct-to-consumer phase is bought on to shoppers by way of an built-in retail idea. We handle this phase as an omni-channel providing the place the in retailer and e-commerce gross sales are intrinsically linked.
As famous within the instance of classes above, there aren’t any vital variations between the gross sales from retail shops or e-commerce that may require extra disaggregation of our direct-to-consumer phase. As a result of (1) we promote comparable merchandise throughout geographies, to the identical sort of buyer (i.e., shoppers) and throughout gross sales channels, and (2) the character of all our contracts are comparable (i.e., level of sale orders which might be acknowledged at a time limit), we consider the character, quantity, timing and uncertainty of income and money flows are typically affected by the identical financial elements inside our direct-to-consumer phase.
In sure situations, the Firm might present additional data relating to the efficiency of gross sales to supply traders with context relating to the Firm’s total monetary efficiency throughout a given interval. Data by gross sales channel for our direct-to-consumer phase is just not referenced or mentioned persistently within the Firm’s periodic or annual filings as it’s typically not vital to the Firm’s phase income on a quarterly or annual foundation however might grow to be significant in a given interval. That’s, the knowledge is just not commonly offered to our traders as a result of income for every channel is often pushed by the identical financial elements. Additional, when data is offered due to a major change, we don’t present income quantities by channel; moderately, disaggregated data is offered utilizing different metrics (e.g., progress) to supply context on any vital adjustments related to phase income in a specific interval.
In Q2 2020, we had been closely impacted by the distinctive information and circumstances of the COVID-19 pandemic and its instant influence on the worldwide economic system. In response, the Firm’s extra disclosures relating to e-commerce gross sales offered extra transparency and incremental data relating to recognized developments within the market for that interval. The Firm believed that the extra disclosures relating to the rise in its e-commerce gross sales, which had a extra vital influence because of the Firm’s retail retailer closures through the second quarter, was significant to open up to traders. We don’t count on to supply the identical disclosures on a recurring foundation until they proceed to be vital and related in explaining phase efficiency or point out a strategic shift within the method through which the Firm assesses gross sales efficiency. If they’re vital and related to a given interval, we consider it is very important give traders context as to the financial elements that have an effect on our phase income. We don’t, nevertheless, consider that the distinctive information and circumstances which have considerably modified income by channel will commonly have an effect on the way through which the Firm opinions efficiency for the direct-to-consumer phase within the long-term.
E-commerce gross sales haven’t been materials on a historic foundation, and we don’t count on the outsized progress development within the interval to proceed, as nearly all of our retail shops have now reopened. Our e-commerce gross sales had been $106.8 million for the three months ended June 30, 2020 and $131.8 million for the six months ended June 30, 2020, $20.2 million for the three months ended June 30, 2019 and $35.4 million for the six months ended June 30, 2019, and $63.2 million for the fiscal 12 months ended December 31, 2019.
The Firm continues to judge the impacts the COVID-19 pandemic can have on its future monetary efficiency as there stays uncertainty, as to the size and severity and can consider the associated disclosures in future filings on Type 10-Q and Type 10-Okay, in addition to in its earnings launch, investor presentation and different supplies as acceptable.