How does Cicis handle gift card breakage?
Cicis Franchise · 2025 FDDAnswer from 2025 FDD Document
Gift cards: The Company records a liability in the period in which a gift card is sold. As gift cards are redeemed, the Company reimburses the restaurant for the gift card value and derecognizes the related liability. When a gift card is not subject to escheatment, and it is probable that a portion of a gift card will not be redeemed, this amount is considered breakage and recognized within other general and administrative expenses. Breakage is recognized consistent with the historic redemption patterns of the associated gift cards. In addition, the Company incurs various expenses in operating the gift card program, including fees on gift cards that are sold through third-party retailers. These fees are recognized as incurred.
Source: Item 20 — OUTLETS AND FRANCHISEE INFORMATION (FDD pages 58–64)
What This Means (2025 FDD)
According to Cicis's 2025 Franchise Disclosure Document, Cicis records a liability when a gift card is sold and reimburses the restaurant for the gift card value as the cards are redeemed, derecognizing the liability. If a gift card is not subject to escheatment (meaning it's not turned over to the state due to inactivity) and it's likely that a portion of the gift card will not be redeemed, Cicis considers this amount as "breakage." This breakage is then recognized within other general and administrative expenses.
Cicis recognizes breakage consistent with the historic redemption patterns of the associated gift cards. This means Cicis uses historical data to estimate how much of the outstanding gift card balances will likely go unredeemed and recognizes that amount as income. This is a common accounting practice, as companies are not expected to hold liabilities indefinitely for amounts that are unlikely to be claimed.
In addition to breakage, Cicis also incurs expenses in operating the gift card program, such as fees on gift cards sold through third-party retailers. These fees are recognized as they are incurred. This means that these costs are recorded as expenses in the period they happen, impacting the company's profitability in those periods.