19. REVENUE AND CONTRACT LIABILITY
Unearned revenue
Unearned revenue consists of the following (in thousands):
| | | | | | | | | | | |
| | December 31, |
| | 2025 | | 2024 |
| Unearned product revenue on undelivered product | $ | 11,170 | | | $ | 11,192 | |
| In store credits | 10,875 | | | 11,462 | |
| Loyalty program membership fees and reward points | 6,429 | | | 13,918 | |
| Unearned product revenue on unshipped orders | 3,911 | | | 3,610 | |
| Other | 2,044 | | | 2,913 | |
| Total unearned revenue | $ | 34,429 | | | $ | 43,095 | |
The following table provides information about unearned revenue from contracts with customers, including significant changes in unearned revenue balances during the period (in thousands):
| | | | | |
| Amount |
| Unearned revenue at December 31, 2023 | $ | 49,597 | |
| Increase due to deferral of revenue at period end, net | 32,802 | |
| Decrease due to beginning contract liabilities recognized as revenue | (39,304) | |
| Unearned revenue at December 31, 2024 | 43,095 | |
| Increase due to deferral of revenue at period end, net | 24,725 | |
| Decrease due to beginning contract liabilities recognized as revenue | (33,391) | |
| Unearned revenue at December 31, 2025 | $ | 34,429 | |
Our total unearned revenue related to outstanding loyalty program rewards was $4.1 million and $11.1 million at December 31, 2025 and 2024, respectively. Breakage income related to loyalty program rewards and gift cards is recognized in Net revenue in our consolidated statements of operations. Breakage included in revenue was $11.1 million, $7.2 million, and $5.1 million for the years ended December 31, 2025, 2024, and 2023, respectively. The timing of revenue recognition of these reward dollars is driven by actual customer activities, such as redemptions and expirations. At December 31, 2025 and 2024, we had an additional $2.4 million and $4.6 million, respectively, of unearned contract revenue classified within Other long-term liabilities on our consolidated balance sheets.
Sales returns allowance
The following table provides additions to and deduction from the sales returns allowance, which is included in our Accrued liabilities balance in our consolidated balance sheets (in thousands):
| | | | | |
| Amount |
| Allowance for returns at December 31, 2022 | $ | 10,222 | |
| Additions to the allowance | 121,939 | |
| Deductions from the allowance | (123,510) | |
| Allowance for returns at December 31, 2023 | 8,651 | |
| Additions to the allowance | 105,353 | |
| Deductions from the allowance | (104,478) | |
| Allowance for returns at December 31, 2024 | 9,526 | |
| Additions to the allowance | 87,835 | |
| Deductions from the allowance | (89,639) | |
| Allowance for returns at December 31, 2025 | $ | 7,722 | |
About Revenue Disclosures
Revenue disclosures under ASC 606 explain how a company identifies performance obligations, allocates transaction prices, and determines when revenue is recognized. This section is essential for understanding whether reported revenue reflects genuine economic activity or aggressive accounting choices. Analysts examine the mix of point-in-time versus over-time recognition, which directly affects revenue timing and comparability.
Key signals: rising contract liabilities (deferred revenue) suggest strong future revenue visibility, while declining contract assets may indicate slowing project milestones. Watch for variable consideration estimates — rebates, returns, and performance bonuses that require management judgment. Significant changes in disaggregated revenue by geography or product line can reveal shifting business mix before it appears in headline numbers. Compare revenue growth against contract liability growth to assess sustainability, and scrutinize any changes in the timing of recognition that coincide with earnings pressure.