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Note 3 - Leases

9 Months Ended

Oct. 29, 2022

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 new 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. The extension periods are typically much shorter than the original lease term given the Company's strategic decision to maintain a high level of 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 thirty-nine weeks ended October 29, 2022 and October 30, 2021 (in thousands).

	*Thirteen weeks ended*				*Thirty-nine weeks ended*
	*October 29, 2022*		*October 30, 2021*		*October 29, 2022*		*October 30, 2021*

Operating lease costs		8,905		8,537		25,874		25,849
Variable lease costs (1)		2,039		1,596		6,228		3,762
Short term lease costs		19		16		46		46
Total Operating Lease costs	$	10,963	$	10,149	$	32,148	$	29,657

(1)

Variable lease costs consist of leases with variable rent structures, which are intended to increase flexibility in an environment with expected high sales volatility and provide a natural hedge against potential sales declines.

Other information

The table below presents supplemental cash flow information related to leases for the thirteen and thirty-nine weeks ended October 29, 2022 and October 30, 2021 (in thousands).

Thirteen weeks ended

Thirty-nine weeks ended

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

Operating cash flows for operating leases

9,497

10,817

27,772

33,289

Operating cash flows for operating leases for the third quarter and year-to-date fiscal 2022 decreased from the operating cash flows for operating leases for the same periods in fiscal 2021, which is expected to continue for the remainder of fiscal 2022, as the Company made payments related to lease deferrals in fiscal 2021 that were negotiated in fiscal 2020 during the pandemic.

As of October 29, 2022 and October 30, 2021, the weighted-average remaining operating lease term was 4.1 years and 4.5 years, respectively, and the weighted-average discount rate was 5.8% and 6.0%, respectively, for operating leases recognized on the Company's Condensed Consolidated Balance Sheets.

For the thirteen and thirty-nine weeks ended October 29, 2022 the Company incurred immaterial right-of-use asset impairment charges. For the thirteen and thirty-nine weeks ended October 30, 2021, the Company did not incur impairment charges against its right-of-use operating lease assets.

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
2022		7,013
2023		33,615
2024		24,635
2025		15,993
2026		9,264
Thereafter		12,967
Total minimum lease payments		103,487
Less: amount of lease payments representing interest		11,631
Present value of future minimum lease payments		91,856
Less: current obligations under leases		(27,644	)
Long-term lease obligations	$	64,212

As of October 29, 2022, the Company had additional executed leases that had not yet commenced with operating lease liabilities of $4.8 million. These leases are expected to commence in the fourth quarter of fiscal 2022 with lease terms of ten years.