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Note 3 - Leases

6 Months Ended

Aug. 01, 2020

3. Leases

The majority of the Company's leases relate to retail stores and corporate offices. For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of lease payments over the term. Most retail store leases have an original term of a five to ten-year base period and may include renewal options to extend the lease term beyond the initial base period and are typically much shorter than the original lease term giving the Company lease optionality. Some leases also include early termination options, which can be exercised under specific conditions. Additionally, the Company may operate stores for a period of time on a month-to-month basis after the expiration of the lease term. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants. Additionally, certain leases contain incentives, such as construction allowances from landlords and/or rent abatements subsequent to taking possession of the leased property.

The table below presents certain information related to the lease costs for operating leases for the thirteen and twenty-six weeks ended August 1, 2020 and August 3, 2019 (in thousands).

	*Thirteen weeks ended*				*Twenty-six weeks ended*
	*August 1, 2020*		*August 3, 2019*		*August 1, 2020*		*August 3, 2019*

Operating lease costs		9,928		9,273		19,584		20,770
Variable lease costs		148		694		422		1,314
Short term lease costs		6		298		94		685
Total Operating Lease costs	$	10,082	$	10,265	$	20,100	$	22,769

Other information

The table below presents supplemental cash flow information related to leases for the thirteen and twenty-six weeks ended August 1, 2020 and August 3, 2019 (in thousands).

Thirteen weeks ended

Twenty-six weeks ended

August 1, 2020

August 3, 2019

August 1, 2020

August 3, 2019

Operating cash flows for operating leases

8,474

10,990

15,929

22,188

As of August 1, 2020 and August 3, 2019, the weighted-average remaining operating lease term was 5 years and 6 years, respectively, and the weighted-average discount rate was 6.0% and 5.9%, respectively, for operating leases recognized on the Company's Condensed Consolidated Balance Sheets.

As discussed above, the Company incurred impairment charges during the thirteen and twenty-six weeks ended August 1, 2020, of $1.2 million and $3.6 million, respectively, against right-of-use operating lease assets.

During the quarter, the Company renegotiated a large portion of its store lease portfolio resulting in a combination of rent reductions, deferments, and abatements. These negotiations have increased the percentage of leases with variable rent structures to one-third of its North American fleet, which is intended to increase flexibility in an environment with expected high sales volatility and provide a natural hedge against potential sales declines. For these renegotiated leases, under ASC 842 Leases, the Company assessed if the renegotiated leases represented a new, separate contract or a modification of the existing lease. The Company concluded all renegotiated leases represented a modification of terms of each existing agreement. As such, the Company remeasured the lease liability and decreased the carrying amount of the right-of-use asset in proportion to the modification of the existing lease and recognized in profit or loss any difference between the reduction in the lease liability and the reduction in the right-of-us asset, which had an immaterial impact on the second quarter results. The Company remains in negotiations with certain landlords and expects further rent reductions, deferments or abatements to be recognized in the third quarter of the current fiscal year.

Undiscounted cash flows

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities recorded on the balance sheet (in thousands).

Operating Leases
2020		28,837
2021		35,248
2022		29,824
2023		25,444
2024		21,427
Thereafter		35,593
Total minimum lease payments		176,373
Less: amount of lease payments representing interest		(24,816	)
Present value of future minimum lease payments		151,557
Less: current obligations under leases		(39,917	)
Long-term lease obligations	$	111,640

As of August 1, 2020, the Company had an additional executed leases that had not yet commenced with operating lease liabilities of $0.1 million. This lease is expected to commence in 2020 with a lease term of three years.