LEASES

12 Months Ended

Dec. 25, 2022

On December 25, 2022 the Company adopted ASU 2016-02, Leases (“ASC 842”), using a modified retrospective approach under the effective date method. The Company did not elect the package of practical expedients permitted under the transition guidance within ASC 842 which, among other items, required the Company to re-evaluate historical lease classifications and determine if previously classified initial direct costs would qualify for capitalization under ASC 842. As a result, the Company recorded a $4.9 million cumulative-effect adjustment to accumulated deficit, of which $4.2 million was related to legal fees no longer capitalizable under ASC 842 and $0.7 million was related to operating lease asset impairment of stores determined to be impaired in a prior period.

In addition to the items mentioned above, the Company elected the following:

•Adopt the short-term lease exception for leases with terms of twelve months or less and account for them as if they were operating leases under ASC 840; and

•Apply the practical expedient of combining lease and non-lease components.

Results for reporting periods beginning on or after December 27, 2021 are presented under ASC 842. Prior period amounts were not revised and continue to be reported in accordance with ASC 840, the accounting standard then in effect.

Upon transition, on December 27, 2021, the Company recorded the following increases (decreases) to the respective line items on the consolidated balance sheet:


(dollar amounts in thousands)	December 26, 2021	Increases/(Decreases)	December 27, 2021
Tenant improvement receivable	16,695	(16,695)	—
Current portion of lease acquisition costs	525	(432)	93
Operating lease asset	—	231,705	231,705
Prepaid expenses	13,763	(3,244)	10,519
Other current assets	155	1,495	1,650
Lease acquisition costs, net	4,391	(3,780)	611
Current portion of deferred rent liability	6,061	(6,061)	—
Operating lease liabilities, current	—	24,757	24,757
Deferred rent liability, net of current portion	38,402	(38,402)	—
Non-current operating lease liability	—	232,541	232,541
Other non-current liability	500	1,158	1,658
Accumulated deficit	(476,216)	(4,944)	(481,160)

The components of lease cost for the fiscal year ended December 25, 2022 were as follows:


(dollar amounts in thousands)	Classification
Operating lease cost	Occupancy and related expense General and administrative expense Pre-opening costs	43,722
Variable lease cost	Occupancy and related expense General and administrative expense	7,958
Short term lease cost	Occupancy and related expense General and administrative expense	145
Sublease income	General and administrative expense	(711)
Total lease cost		$	51,114

During the fiscal year ended December 25, 2022, the Company recorded non-cash impairment charges related to operating lease assets of $6.2 million. See Note 1. Of this amount, $5.8 million is recorded within restructuring charges and $0.4 million is recorded within impairment and closure costs in the consolidated statement of operations.

As of December 25, 2022, future minimum lease payments for operating leases consisted of the following:


(dollar amounts in thousands)
2023			45,663
2024			50,642
2025			50,172
2026			48,901
2027			44,460
Thereafter			150,339
Total			390,177
Less: imputed interest			89,438
Total lease liabilities			300,739

As of December 25, 2022 the Company had additional operating lease commitments of $18.0 million for non-cancelable leases without a possession date, which the Company anticipates will commence in fiscal year 2023. These nature of such lease commitments is consistent with the nature of the leases that the Company has executed thus far.

A summary of lease terms and discount rates for operating leases as of December 25, 2022 is as follows:



Weighted average remaining lease term (years):
Operating Leases	7.98
Weighted average discount rate:
Operating Leases	6.09	%

Supplemental cash flow information related to leases as of December 25, 2022 is as follows:



Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases, net of lease incentives	$	29,230
Right of use assets obtained in exchange for lease obligations:
Operating leases	$	57,396

Prior to the adoption of ASC 842, the fiscal years ended December 26, 2021 and December 27, 2020 were in accordance with ASC 840. As such, the following table below outlines the components of rent expense for the fiscal years ended December 26, 2021 and December 27, 2020:


(dollar amounts in thousands)	Fiscal Year Ended December 26, 2021		Fiscal Year Ended December 27, 2020
Base rent	$	31,901	$	30,248
Contingent rent	696		367
Pre-opening rent	3,098		1,829
Less: sublease income	(247)		(493)
Net rent	$	35,448	$	31,951

Rent expense for the fiscal years ended December 26, 2021 and December 27, 2020 was $35.4 million and $32.0 million, respectively, of which $29.8 million and $27.7 million, respectively, is included in occupancy and related expenses, $2.5 million and $2.4 million, respectively, is included in general and administrative expenses and $3.1 million and $1.8 million, respectively, is included in pre-opening costs in the accompanying consolidated statements of operations.

In April 2020, the FASB issued guidance allowing entities to make a policy election whether to account for lease concessions related to the COVID-19 pandemic as lease modifications. The election applies to any lessor-provided lease concession related to the impact of the COVID-19 pandemic, provided the concession does not result in a substantial increase in the rights of the lessor or in the obligations of the lessee. During the fiscal year ended December 27, 2020, the Company received non-substantial concessions from certain landlords in the form of rent deferrals and abatements. The Company elected to not account for these rent concessions as lease modifications. The rent deferrals are recorded as part of accrued expenses and the rent abatements are accounted for as variable lease payments. The recognition of rent abatements did not have a material impact on the Company’s consolidated financial statements as of December 26, 2021. The Company recorded $1.7 million and $2.5 million of rent deferrals within accrued expenses as of December 25, 2022 and December 26, 2021, respectively, see Note 7.

Future minimum lease payments under ASC 840 required under existing lease obligations as of December 26, 2021 were as follows:


(dollar amounts in thousands)
2022	$	42,513
2023	45,795
2024	45,669
2025	44,967
2026	43,467
Thereafter	162,818
Total	$	385,229