Lease Commitments

9 Months Ended

Oct. 30, 2021

3. Lease Commitments

The Company’s leases primarily consist of stores, distribution facilities and office space under operating and finance leases that will expire principally during the next 30 years. The leases typically include renewal options at five year intervals and escalation clauses. Lease renewals are only included in the lease liability to the extent that they are reasonably assured of being exercised. The Company’s leases typically provide for contingent rentals based on a percentage of gross sales. Contingent rentals are not included in the lease liability, and they are recognized as variable lease cost when incurred.

As a result of the COVID-19 pandemic and the associated temporary store closures discussed above, the Company worked with landlords to modify payment terms for certain leases. The FASB has provided relief under ASC 842, “Leases,” related to the COVID-19 pandemic. Under this relief, companies can make a policy election on how to treat lease concessions resulting directly from COVID-19, provided that the modified contracts result in total cash flows that are substantially the same or less than the cash flows in the original contract. The Company has made the policy election to account for lease concessions that result from the COVID-19 pandemic as if

they were made as enforceable rights under the original contract. Additionally, the Company has elected to account for these concessions outside of the lease modification framework described under ASC 842. As a result, deferred payments related to these leases of $5.6 million are included in the line item “Other current liabilities” on the Company’s Condensed Consolidated Balance Sheet. Due dates for these payments vary by lease, with all payments due before the end of Fiscal 2021.

The following is a schedule of the Company’s future lease payments:


	(in thousands)
Fiscal Year	Operating Leases			Finance Leases
2021 (remainder)	$	110,235		$	1,846
2022		498,007			7,513
2023		476,505			7,589
2024		441,446			7,417
2025		408,363			5,287
2026		371,207			5,324
Thereafter		1,252,675			28,014
Total future minimum lease payments		3,558,438			62,990
Amount representing interest		(651,608	)		(17,951	)
Total lease liabilities		2,906,830			45,039
Less: current portion of lease liabilities		(346,167	)		(4,610	)
Total long term lease liabilities	$	2,560,663		$	40,429

Weighted average discount rate		5.0	%		6.7	%
Weighted average remaining lease term (years)		8.2			11.3

The above schedule excludes approximately $358.6 million for 67 stores that the Company has committed to open or relocate but has not yet taken possession of the space. The discount rates used in valuing the Company’s leases are not readily determinable, and are based on the Company’s incremental borrowing rate on a fully collateralized basis.

The following is a schedule of net lease costs for the periods indicated:


	(in thousands)
	Three Months Ended						Nine Months Ended
	October 30, 2021			October 31, 2020			October 30, 2021			October 31, 2020
Finance lease cost:
Amortization of finance lease asset (a)	$	1,140		$	1,212		$	3,414		$	3,634
Interest on lease liabilities (b)		768			841			2,366			2,570
Operating lease cost (c)		119,858			111,797			346,789			330,362
Variable lease cost (c)		49,445			45,110			142,356			131,971
Total lease cost		171,211			158,960			494,925			468,537
Less all rental income (d)		(1,386	)		(1,280	)		(4,015	)		(3,793	)
Total net rent expense (e)	$	169,825		$	157,680		$	490,910		$	464,744


(a)	Included in the line item “Depreciation and amortization” in the Company’s Condensed Consolidated Statements of Income (Loss).
(b)	Included in the line item “Interest expense” in the Company’s Condensed Consolidated Statements of Income (Loss).
(c)	Includes real estate taxes, common area maintenance, insurance and percentage rent. Included in the line item “Selling, general and administrative expenses” in the Company’s Condensed Consolidated Statements of Income (Loss).
(d)	Included in the line item “Other revenue” in the Company’s Condensed Consolidated Statements of Income (Loss).
(e)	Excludes an immaterial amount of short-term lease cost.

Supplemental cash flow disclosures related to leases are as follows:


	(in thousands)
	Nine Months Ended
	October 30, 2021		October 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Cash payments arising from operating lease liabilities (a)	$	381,006	$	283,124
Cash payments for the principal portion of finance lease liabilities (b)	$	2,980	$	2,347
Cash payments for the interest portion of finance lease liabilities (a)	$	2,366	$	2,570
Supplemental non-cash information:
Operating lease liabilities arising from obtaining right-of-use assets	$	440,874	$	321,688


(a)	Included within operating activities in the Company’s Condensed Consolidated Statements of Cash Flows.
(b)	Included within financing activities in the Company’s Condensed Consolidated Statements of Cash Flows.