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Leases | 6 Months Ended
--- | ---
Dec. 31, 2022
Leases [Abstract] |
Leases | LEASES The Company leases retail space, office space, warehouse facilities, fulfillment centers, storage space, machinery, equipment and certain other items under operating leases. The Company's leases have initial terms ranging from 1 to 20 years and may have renewal or early termination options ranging from 1 to 10 years. These leases may also include rent escalation clauses or lease incentives. In determining the lease term used in the lease right-of-use ("ROU") asset and lease liability calculations, the Company considers various factors such as market conditions and the terms of any renewal or termination options that may exist. When deemed reasonably certain, the renewal and termination options are included in the determination of the lease term and calculation of the lease ROU asset and lease liability. The Company is typically required to make fixed minimum rent payments, variable rent payments primarily based on performance (i.e., percentage-of-sales-based payments), or a combination thereof, directly related to its ROU asset. The Company is also often required, by the lease, to pay for certain other costs including real estate taxes, insurance, common area maintenance fees, and/or certain other costs, which may be fixed or variable, depending upon the terms of the respective lease agreement. To the extent these payments are fixed, the Company has included them in calculating the lease ROU assets and lease liabilities. The Company calculates lease ROU assets and lease liabilities as the present value of fixed lease payments over the reasonably certain lease term beginning at the commencement date. The Company is required to use the implicit rate to determine the present value of lease payments. As the rate implicit in the Company's leases is not readily determinable, the Company uses its incremental borrowing rate based on the information available at the lease commencement date, including the Company's credit rating, credit spread and adjustments for the impact of collateral, lease tenors, economic environment and currency. For operating leases, fixed lease payments are recognized as operating lease cost on a straight-line basis over the lease term. For finance leases and impaired operating leases, the ROU asset is depreciated on a straight-line basis over the remaining lease term, along with recognition of interest expense associated with accretion of the lease liability. For leases with a lease term of 12 months or less ("short-term lease"), any fixed lease payments are recognized on a straight-line basis over such term and are not recognized on the Condensed Consolidated Balance Sheets. Variable lease cost for both operating and finance leases, if any, is recognized as incurred. The Company acts as sublessor in certain leasing arrangements, primarily related to a sublease of a portion of the Company's leased headquarters space as well as certain retail locations. Fixed sublease payments received are recognized on a straight-line basis over the sublease term. ROU assets, along with any other related long-lived assets, are periodically evaluated for impairment. The following table summarizes the ROU assets and lease liabilities recorded on the Company's Condensed Consolidated Balance Sheets as of December 31, 2022 and July 2, 2022:
|  | December 31, 2022 |  | July 2, 2022 |  | Location Recorded on Balance Sheet
|  | (millions) |  |
Assets: |  |  |  |  |  |
Operating leases |  | $ | 1,358.8 |  |  | $ | 1,281.6 |  |  | Operating lease right-of-use assets
Finance leases |  | 1.6 |  |  | 1.9 |  |  | Property and equipment, net
Total lease assets |  | $ | 1,360.4 |  |  | $ | 1,283.5 |  |  |
Liabilities: |  |  |  |  |  |
Operating leases: |  |  |  |  |  |
Current lease liabilities |  | $ | 282.7 |  |  | $ | 288.7 |  |  | Current lease liabilities
Long-term lease liabilities |  | 1,348.4 |  |  | 1,282.3 |  |  | Long-term lease liabilities
Total operating lease liabilities |  | $ | 1,631.1 |  |  | $ | 1,571.0 |  |  |
Finance leases: |  |  |  |  |  |
Current lease liabilities |  | $ | 1.1 |  |  | $ | 1.1 |  |  | Accrued liabilities
Long-term lease liabilities |  | 1.8 |  |  | 2.4 |  |  | Other liabilities
Total finance lease liabilities |  | $ | 2.9 |  |  | $ | 3.5 |  |  |
Total lease liabilities |  | $ | 1,634.0 |  |  | $ | 1,574.5 |  |  |
The following table summarizes the composition of net lease costs, primarily recorded within SG&A expenses on the Company's Condensed Consolidated Statements of Operations for the three-month and six-month periods ended December 31, 2022 and January 1, 2022:
|  | Three Months Ended |  | Six Months Ended
|  | December 31, 2022 |  | January 1, 2022 |  | December 31, 2022 |  | January 1, 2022
|  | (millions)
Finance lease cost: |  |  |  |  |  |  |  |
Amortization of right-of-use assets |  | $ | 0.2 |  |  | $ | 0.3 |  |  | $ | 0.5 |  |  | $ | 0.5 |
Interest on lease liabilities(1) |  | 0.1 |  |  | 0.1 |  |  | 0.2 |  |  | 0.2 |
Total finance lease cost |  | 0.3 |  |  | 0.4 |  |  | 0.7 |  |  | 0.7 |
Operating lease cost |  | 78.5 |  |  | 85.8 |  |  | 157.8 |  |  | 170.7 |
Short-term lease cost |  | 8.6 |  |  | 5.1 |  |  | 16.4 |  |  | 9.6 |
Variable lease cost(2) |  | 48.9 |  |  | 55.2 |  |  | 98.4 |  |  | 98.8 |
Less: sublease income |  | (4.4) |  |  | (5.2) |  |  | (9.3) |  |  | (10.1) |
Total net lease cost |  | $ | 131.9 |  |  | $ | 141.3 |  |  | $ | 264.0 |  |  | $ | 269.7 |
(1) Interest on lease liabilities is recorded within Interest expense, net on the Company's Condensed Consolidated Statement of Operations. (2) Rent concessions negotiated related to Covid-19 are recorded in variable lease expense. The following table summarizes certain cash flow information related to the Company's leases for the six months December 31, 2022 and January 1, 2022:
|  | Six Months Ended
|  | December 31, 2022 |  | January 1, 2022
|  | (millions)
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |
Operating cash flows from operating leases |  | $ | 194.4 |  |  | $ | 214.3 |
Operating cash flows from finance leases |  | 0.2 |  |  | 0.2 |
Financing cash flows from finance leases |  | 0.5 |  |  | 0.5 |
Non-cash transactions: |  |  |  |
Right-of-use assets obtained in exchange for operating lease liabilities |  | 224.9 |  |  | 65.4 |
Additionally, the Company had approximately $6.0 million of future payment obligations related to executed lease agreements for which the related lease had not yet commenced as of December 31, 2022.
Leases | LEASES The Company leases retail space, office space, warehouse facilities, fulfillment centers, storage space, machinery, equipment and certain other items under operating leases. The Company's leases have initial terms ranging from 1 to 20 years and may have renewal or early termination options ranging from 1 to 10 years. These leases may also include rent escalation clauses or lease incentives. In determining the lease term used in the lease right-of-use ("ROU") asset and lease liability calculations, the Company considers various factors such as market conditions and the terms of any renewal or termination options that may exist. When deemed reasonably certain, the renewal and termination options are included in the determination of the lease term and calculation of the lease ROU asset and lease liability. The Company is typically required to make fixed minimum rent payments, variable rent payments primarily based on performance (i.e., percentage-of-sales-based payments), or a combination thereof, directly related to its ROU asset. The Company is also often required, by the lease, to pay for certain other costs including real estate taxes, insurance, common area maintenance fees, and/or certain other costs, which may be fixed or variable, depending upon the terms of the respective lease agreement. To the extent these payments are fixed, the Company has included them in calculating the lease ROU assets and lease liabilities. The Company calculates lease ROU assets and lease liabilities as the present value of fixed lease payments over the reasonably certain lease term beginning at the commencement date. The Company is required to use the implicit rate to determine the present value of lease payments. As the rate implicit in the Company's leases is not readily determinable, the Company uses its incremental borrowing rate based on the information available at the lease commencement date, including the Company's credit rating, credit spread and adjustments for the impact of collateral, lease tenors, economic environment and currency. For operating leases, fixed lease payments are recognized as operating lease cost on a straight-line basis over the lease term. For finance leases and impaired operating leases, the ROU asset is depreciated on a straight-line basis over the remaining lease term, along with recognition of interest expense associated with accretion of the lease liability. For leases with a lease term of 12 months or less ("short-term lease"), any fixed lease payments are recognized on a straight-line basis over such term and are not recognized on the Condensed Consolidated Balance Sheets. Variable lease cost for both operating and finance leases, if any, is recognized as incurred. The Company acts as sublessor in certain leasing arrangements, primarily related to a sublease of a portion of the Company's leased headquarters space as well as certain retail locations. Fixed sublease payments received are recognized on a straight-line basis over the sublease term. ROU assets, along with any other related long-lived assets, are periodically evaluated for impairment. The following table summarizes the ROU assets and lease liabilities recorded on the Company's Condensed Consolidated Balance Sheets as of December 31, 2022 and July 2, 2022:
|  | December 31, 2022 |  | July 2, 2022 |  | Location Recorded on Balance Sheet
|  | (millions) |  |
Assets: |  |  |  |  |  |
Operating leases |  | $ | 1,358.8 |  |  | $ | 1,281.6 |  |  | Operating lease right-of-use assets
Finance leases |  | 1.6 |  |  | 1.9 |  |  | Property and equipment, net
Total lease assets |  | $ | 1,360.4 |  |  | $ | 1,283.5 |  |  |
Liabilities: |  |  |  |  |  |
Operating leases: |  |  |  |  |  |
Current lease liabilities |  | $ | 282.7 |  |  | $ | 288.7 |  |  | Current lease liabilities
Long-term lease liabilities |  | 1,348.4 |  |  | 1,282.3 |  |  | Long-term lease liabilities
Total operating lease liabilities |  | $ | 1,631.1 |  |  | $ | 1,571.0 |  |  |
Finance leases: |  |  |  |  |  |
Current lease liabilities |  | $ | 1.1 |  |  | $ | 1.1 |  |  | Accrued liabilities
Long-term lease liabilities |  | 1.8 |  |  | 2.4 |  |  | Other liabilities
Total finance lease liabilities |  | $ | 2.9 |  |  | $ | 3.5 |  |  |
Total lease liabilities |  | $ | 1,634.0 |  |  | $ | 1,574.5 |  |  |
The following table summarizes the composition of net lease costs, primarily recorded within SG&A expenses on the Company's Condensed Consolidated Statements of Operations for the three-month and six-month periods ended December 31, 2022 and January 1, 2022:
|  | Three Months Ended |  | Six Months Ended
|  | December 31, 2022 |  | January 1, 2022 |  | December 31, 2022 |  | January 1, 2022
|  | (millions)
Finance lease cost: |  |  |  |  |  |  |  |
Amortization of right-of-use assets |  | $ | 0.2 |  |  | $ | 0.3 |  |  | $ | 0.5 |  |  | $ | 0.5 |
Interest on lease liabilities(1) |  | 0.1 |  |  | 0.1 |  |  | 0.2 |  |  | 0.2 |
Total finance lease cost |  | 0.3 |  |  | 0.4 |  |  | 0.7 |  |  | 0.7 |
Operating lease cost |  | 78.5 |  |  | 85.8 |  |  | 157.8 |  |  | 170.7 |
Short-term lease cost |  | 8.6 |  |  | 5.1 |  |  | 16.4 |  |  | 9.6 |
Variable lease cost(2) |  | 48.9 |  |  | 55.2 |  |  | 98.4 |  |  | 98.8 |
Less: sublease income |  | (4.4) |  |  | (5.2) |  |  | (9.3) |  |  | (10.1) |
Total net lease cost |  | $ | 131.9 |  |  | $ | 141.3 |  |  | $ | 264.0 |  |  | $ | 269.7 |
(1) Interest on lease liabilities is recorded within Interest expense, net on the Company's Condensed Consolidated Statement of Operations. (2) Rent concessions negotiated related to Covid-19 are recorded in variable lease expense. The following table summarizes certain cash flow information related to the Company's leases for the six months December 31, 2022 and January 1, 2022:
|  | Six Months Ended
|  | December 31, 2022 |  | January 1, 2022
|  | (millions)
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |
Operating cash flows from operating leases |  | $ | 194.4 |  |  | $ | 214.3 |
Operating cash flows from finance leases |  | 0.2 |  |  | 0.2 |
Financing cash flows from finance leases |  | 0.5 |  |  | 0.5 |
Non-cash transactions: |  |  |  |
Right-of-use assets obtained in exchange for operating lease liabilities |  | 224.9 |  |  | 65.4 |
Additionally, the Company had approximately $6.0 million of future payment obligations related to executed lease agreements for which the related lease had not yet commenced as of December 31, 2022.

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- Definition The entire disclosure for finance leases of lessee. Includes, but is not limited to, description of lessee's finance lease and maturity analysis of finance lease liability. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 842 -SubTopic 20 -URI https://asc.fasb.org/subtopic&trid=77888251 + Details
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- Definition The entire disclosure for operating leases of lessee. Includes, but is not limited to, description of operating lease and maturity analysis of operating lease liability. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 842 -SubTopic 20 -URI https://asc.fasb.org/subtopic&trid=77888251 + Details
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