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Lease Accounting | 3 Months Ended
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May 01, 2021
Leases [Abstract] |
Lease Accounting | Lease Accounting The Company primarily leases its showrooms, advertising, licensing, sales and merchandising offices, remote distribution and warehousing facilities and retail and factory outlet store locations under operating lease agreements expiring on various dates through January 2039. The Company also leases some of its equipment as well as computer hardware and software under operating and finance lease agreements expiring on various dates through May 2027. The Company’s lease agreements primarily provide for lease payments based on a minimum annual rental amount, a percentage of annual sales volume, periodic adjustments related to inflation or a combination of such lease payments. Certain retail store leases provide for lease payments based upon the minimum annual rental amount and a percentage of annual sales volume, generally ranging from 3% to 28%, when specific sales volumes are exceeded. The Company’s retail concession leases also provide for lease payments primarily based upon a percentage of annual sales volume, which averages approximately 33%. In addition to the amounts as disclosed below, the Company has estimated additional operating lease commitments of approximately $5.0 million for leases where the Company has not yet taken possession of the underlying asset as of May 1, 2021. As such, the related operating lease ROU assets and operating lease liabilities have not been recognized in the Company’s condensed consolidated balance sheet as of May 1, 2021. The components of leases are as follows (in thousands):
|  | May 1, 2021 |  | Jan 30, 2021 |  |
Assets | Balance Sheet Location |  |  |  |  |
Operating | Operating lease right-of-use assets | $ | 738,544 |  |  | $ | 764,804 |  |  |
Finance | Property and equipment, net | 21,405 |  |  | 20,595 |  |  |
Total lease assets | $ | 759,949 |  |  | $ | 785,399 |  |  |
Liabilities | Balance Sheet Location |  |  |  |  |
Current: |  |  |  |  |  |
Operating | Current portion of operating lease liabilities | $ | 224,676 |  |  | $ | 222,800 |  |  |
Finance | Current portion of borrowings and finance lease obligations | 4,551 |  |  | 4,698 |  |  |
Noncurrent: |  |  |  |  |  |
Operating | Long-term operating lease liabilities | 632,574 |  |  | 662,657 |  |  |
Finance | Long-term debt and finance lease obligations | 17,870 |  |  | 17,365 |  |  |
Total lease liabilities | $ | 879,671 |  |  | $ | 907,520 |  |  |
The components of lease costs are as follows (in thousands):
|  | Three Months Ended |  |
| Income Statement Location | May 1, 2021 |  | May 2, 2020 |  |  |  |
Operating lease costs | Cost of product sales | $ | 46,684 |  |  | $ | 55,369 |  |  |  |  |
Operating lease costs | Selling, general and administrative expenses | 6,357 |  |  | 5,176 |  |  |  |  |
Operating lease costs 1, 2 | Net (gains) losses on lease modifications | (2,145) |  |  | 456 |  |  |  |  |
Finance lease costs |  |  |  |  |  |  |  |
Amortization of leased assets 1, 3 | Cost of product sales | 11 |  |  | 12 |  |  |  |  |
Amortization of leased assets 1, 3 | Selling, general and administrative expenses | 1,361 |  |  | 864 |  |  |  |  |
Interest on lease liabilities | Interest expense | 366 |  |  | 282 |  |  |  |  |
Variable lease costs 4 | Cost of product sales | 15,739 |  |  | 14,348 |  |  |  |  |
Variable lease costs 4 | Selling, general and administrative expenses | 574 |  |  | 579 |  |  |  |  |
Short-term lease costs | Cost of product sales | 105 |  |  | 239 |  |  |  |  |
Short-term lease costs | Selling, general and administrative expenses | 1,171 |  |  | 1,789 |  |  |  |  |
Total lease costs 1 | $ | 70,223 |  |  | $ | 79,114 |  |  |  |  |
____________________________________________________________________ Notes: 1 The Company has made certain reclassifications to prior period amounts to conform to the current period presentation. 2 During the three months ended May 1, 2021 and May 2, 2020, net (gains) losses on lease modifications related primarily to the early termination of lease agreements for certain of the Company’s retail locations. Operating lease costs for these retail locations prior to the early termination were included in cost of product sales. 3 Amortization of leased assets related to finance leases are included in depreciation expense within cost of product sales or selling, general and administrative expenses depending on the nature of the asset in the Company’s condensed consolidated statements of income (loss). 4 During the three months ended May 1, 2021 and May 2, 2020, variable lease costs included certain rent concessions of approximately $6.1 million and $2.7 million, respectively, received by the Company, primarily in Europe, related to the COVID-19 pandemic. Maturities of the Company’s operating and finance lease liabilities as of May 1, 2021 are as follows (in thousands):
| Operating Leases |  |  |  |  |  |
Maturity of Lease Liabilities | Non-Related Parties |  | Related Parties |  | Finance Leases |  | Total |  |
2022 1 | $ | 193,515 |  |  | $ | 5,965 |  |  | $ | 4,294 |  |  | $ | 203,774 |  |  |
2023 | 181,879 |  |  | 7,260 |  |  | 5,974 |  |  | 195,113 |  |  |
2024 | 146,015 |  |  | 7,678 |  |  | 5,887 |  |  | 159,580 |  |  |
2025 | 103,560 |  |  | 7,321 |  |  | 3,946 |  |  | 114,827 |  |  |
2026 | 73,458 |  |  | 6,928 |  |  | 3,034 |  |  | 83,420 |  |  |
After 2026 | 170,672 |  |  | 36,410 |  |  | 3,158 |  |  | 210,240 |  |  |
Total lease payments | 869,099 |  |  | 71,562 |  |  | 26,293 |  |  | 966,954 |  |  |
Less: Interest | 71,415 |  |  | 11,996 |  |  | 3,872 |  |  | 87,283 |  |  |
Present value of lease liabilities | $ | 797,684 |  |  | $ | 59,566 |  |  | $ | 22,421 |  |  | $ | 879,671 |  |  |
______________________________________________________________________ Notes: 1 Represents the maturity of lease liabilities for the remainder of fiscal 2022 and also includes rent payments that have been deferred due to the COVID-19 pandemic. This amount does not include payments made during the three months ended May 1, 2021. Other supplemental information is as follows (dollars in thousands):
Lease Term and Discount Rate | May 1, 2021 |  |  |  |  |  |
Weighted-average remaining lease term |  |  |  |  |  |  |
Operating leases | 6.1 Years |  |  |  |  |  |
Finance leases | 4.8 Years |  |  |  |  |  |
Weighted-average discount rate |  |  |  |  |  |  |
Operating leases | 3.5% |  |  |  |  |  |
Finance leases | 6.8% |  |  |  |  |  |
| Three Months Ended
Supplemental Cash Flow Information | May 1, 2021 |  | May 2, 2020
Cash paid for amounts included in the measurement of lease liabilities |  |  |
Operating cash flows from operating leases | $ | 53,428 |  |  | $ | 32,618 |
New operating ROU assets obtained in exchange for lease liabilities | $ | 22,596 |  |  | $ | 16,332 |
Impairment During the three months ended May 1, 2021, there was minimal ROU asset impairment charges recorded. During the three months ended May 2, 2020, the Company recorded ROU asset impairment charges of $28.2 million related primarily to certain retail locations in North America and, to a lesser extent, Europe. The asset impairment charges were determined based on the excess of carrying value over the fair value of the ROU assets. The Company uses estimates of market participant rents to calculate fair value of the ROU assets. Refer to Note 15 for more information on the Company’s impairment testing.
Lease Accounting | Lease Accounting The Company primarily leases its showrooms, advertising, licensing, sales and merchandising offices, remote distribution and warehousing facilities and retail and factory outlet store locations under operating lease agreements expiring on various dates through January 2039. The Company also leases some of its equipment as well as computer hardware and software under operating and finance lease agreements expiring on various dates through May 2027. The Company’s lease agreements primarily provide for lease payments based on a minimum annual rental amount, a percentage of annual sales volume, periodic adjustments related to inflation or a combination of such lease payments. Certain retail store leases provide for lease payments based upon the minimum annual rental amount and a percentage of annual sales volume, generally ranging from 3% to 28%, when specific sales volumes are exceeded. The Company’s retail concession leases also provide for lease payments primarily based upon a percentage of annual sales volume, which averages approximately 33%. In addition to the amounts as disclosed below, the Company has estimated additional operating lease commitments of approximately $5.0 million for leases where the Company has not yet taken possession of the underlying asset as of May 1, 2021. As such, the related operating lease ROU assets and operating lease liabilities have not been recognized in the Company’s condensed consolidated balance sheet as of May 1, 2021. The components of leases are as follows (in thousands):
|  | May 1, 2021 |  | Jan 30, 2021 |  |
Assets | Balance Sheet Location |  |  |  |  |
Operating | Operating lease right-of-use assets | $ | 738,544 |  |  | $ | 764,804 |  |  |
Finance | Property and equipment, net | 21,405 |  |  | 20,595 |  |  |
Total lease assets | $ | 759,949 |  |  | $ | 785,399 |  |  |
Liabilities | Balance Sheet Location |  |  |  |  |
Current: |  |  |  |  |  |
Operating | Current portion of operating lease liabilities | $ | 224,676 |  |  | $ | 222,800 |  |  |
Finance | Current portion of borrowings and finance lease obligations | 4,551 |  |  | 4,698 |  |  |
Noncurrent: |  |  |  |  |  |
Operating | Long-term operating lease liabilities | 632,574 |  |  | 662,657 |  |  |
Finance | Long-term debt and finance lease obligations | 17,870 |  |  | 17,365 |  |  |
Total lease liabilities | $ | 879,671 |  |  | $ | 907,520 |  |  |
The components of lease costs are as follows (in thousands):
|  | Three Months Ended |  |
| Income Statement Location | May 1, 2021 |  | May 2, 2020 |  |  |  |
Operating lease costs | Cost of product sales | $ | 46,684 |  |  | $ | 55,369 |  |  |  |  |
Operating lease costs | Selling, general and administrative expenses | 6,357 |  |  | 5,176 |  |  |  |  |
Operating lease costs 1, 2 | Net (gains) losses on lease modifications | (2,145) |  |  | 456 |  |  |  |  |
Finance lease costs |  |  |  |  |  |  |  |
Amortization of leased assets 1, 3 | Cost of product sales | 11 |  |  | 12 |  |  |  |  |
Amortization of leased assets 1, 3 | Selling, general and administrative expenses | 1,361 |  |  | 864 |  |  |  |  |
Interest on lease liabilities | Interest expense | 366 |  |  | 282 |  |  |  |  |
Variable lease costs 4 | Cost of product sales | 15,739 |  |  | 14,348 |  |  |  |  |
Variable lease costs 4 | Selling, general and administrative expenses | 574 |  |  | 579 |  |  |  |  |
Short-term lease costs | Cost of product sales | 105 |  |  | 239 |  |  |  |  |
Short-term lease costs | Selling, general and administrative expenses | 1,171 |  |  | 1,789 |  |  |  |  |
Total lease costs 1 | $ | 70,223 |  |  | $ | 79,114 |  |  |  |  |
____________________________________________________________________ Notes: 1 The Company has made certain reclassifications to prior period amounts to conform to the current period presentation. 2 During the three months ended May 1, 2021 and May 2, 2020, net (gains) losses on lease modifications related primarily to the early termination of lease agreements for certain of the Company’s retail locations. Operating lease costs for these retail locations prior to the early termination were included in cost of product sales. 3 Amortization of leased assets related to finance leases are included in depreciation expense within cost of product sales or selling, general and administrative expenses depending on the nature of the asset in the Company’s condensed consolidated statements of income (loss). 4 During the three months ended May 1, 2021 and May 2, 2020, variable lease costs included certain rent concessions of approximately $6.1 million and $2.7 million, respectively, received by the Company, primarily in Europe, related to the COVID-19 pandemic. Maturities of the Company’s operating and finance lease liabilities as of May 1, 2021 are as follows (in thousands):
| Operating Leases |  |  |  |  |  |
Maturity of Lease Liabilities | Non-Related Parties |  | Related Parties |  | Finance Leases |  | Total |  |
2022 1 | $ | 193,515 |  |  | $ | 5,965 |  |  | $ | 4,294 |  |  | $ | 203,774 |  |  |
2023 | 181,879 |  |  | 7,260 |  |  | 5,974 |  |  | 195,113 |  |  |
2024 | 146,015 |  |  | 7,678 |  |  | 5,887 |  |  | 159,580 |  |  |
2025 | 103,560 |  |  | 7,321 |  |  | 3,946 |  |  | 114,827 |  |  |
2026 | 73,458 |  |  | 6,928 |  |  | 3,034 |  |  | 83,420 |  |  |
After 2026 | 170,672 |  |  | 36,410 |  |  | 3,158 |  |  | 210,240 |  |  |
Total lease payments | 869,099 |  |  | 71,562 |  |  | 26,293 |  |  | 966,954 |  |  |
Less: Interest | 71,415 |  |  | 11,996 |  |  | 3,872 |  |  | 87,283 |  |  |
Present value of lease liabilities | $ | 797,684 |  |  | $ | 59,566 |  |  | $ | 22,421 |  |  | $ | 879,671 |  |  |
______________________________________________________________________ Notes: 1 Represents the maturity of lease liabilities for the remainder of fiscal 2022 and also includes rent payments that have been deferred due to the COVID-19 pandemic. This amount does not include payments made during the three months ended May 1, 2021. Other supplemental information is as follows (dollars in thousands):
Lease Term and Discount Rate | May 1, 2021 |  |  |  |  |  |
Weighted-average remaining lease term |  |  |  |  |  |  |
Operating leases | 6.1 Years |  |  |  |  |  |
Finance leases | 4.8 Years |  |  |  |  |  |
Weighted-average discount rate |  |  |  |  |  |  |
Operating leases | 3.5% |  |  |  |  |  |
Finance leases | 6.8% |  |  |  |  |  |
| Three Months Ended
Supplemental Cash Flow Information | May 1, 2021 |  | May 2, 2020
Cash paid for amounts included in the measurement of lease liabilities |  |  |
Operating cash flows from operating leases | $ | 53,428 |  |  | $ | 32,618 |
New operating ROU assets obtained in exchange for lease liabilities | $ | 22,596 |  |  | $ | 16,332 |
Impairment During the three months ended May 1, 2021, there was minimal ROU asset impairment charges recorded. During the three months ended May 2, 2020, the Company recorded ROU asset impairment charges of $28.2 million related primarily to certain retail locations in North America and, to a lesser extent, Europe. The asset impairment charges were determined based on the excess of carrying value over the fair value of the ROU assets. The Company uses estimates of market participant rents to calculate fair value of the ROU assets. Refer to Note 15 for more information on the Company’s impairment testing.

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