LEASES

9 Months Ended

Oct. 30, 2021

The Company has operating leases for retail stores, corporate offices, distribution facilities, and certain equipment. The Company’s leases have remaining lease terms ranging from less than one year up to nine years, some of which may include options to extend the leases for up to five years, and some of which may include options to terminate the lease early.

The lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date. For operating leases, the ROU asset is initially and subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, less any accrued lease payments and unamortized lease incentives. For finance leases, the ROU asset is initially measured at cost and subsequently amortized using the straight-line method generally from the lease commencement date to the earlier of the end of its useful life or the end of the lease term.

The discount rate is the rate implicit in the lease unless that rate cannot be readily determined. In that case, the Company is required to use its incremental borrowing rate. The discount rate for a lease is determined based on the information available at lease commencement. In general, the Company accounts for the underlying leased asset and applies a discount rate at the lease level. However, there are certain non-real estate leases for which the Company utilizes the portfolio method by aggregating similar leased assets based on the underlying lease term.

The Company has made an accounting policy election by class of underlying asset to not apply the recognition requirements of FASB ASC 842—Leases (“Topic 842”) to leases with an initial term of 12 months or less. Leases with an initial lease term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

The Company has lease agreements with lease and non-lease components. The Company has elected a policy to account for lease and non-lease components as a single component for all asset classes.

In certain leases, the Company has the right to exercise lease renewal options. Renewal option periods are included in the measurement of lease ROU assets and lease liabilities where the exercise is reasonably certain to occur.

As of the periods presented, the Company’s finance leases were not material to the consolidated balance sheets, consolidated statements of operations, or consolidated statements of cash flows.

The Company has certain lease agreements structured with both a fixed base rent and a contingent rent based on a percentage of sales over contractual levels, others with only contingent rent based on a percentage of sales, and some with a fixed base rent adjusted periodically for inflation or changes in fair market value of the underlying real estate. Contingent rent is recognized as sales occur. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company records all occupancy costs in cost of sales, except costs for administrative office buildings, which are recorded in selling, general, and administrative expenses.

In April 2020, the FASB staff released guidance regarding rent concessions related to the effects of the COVID-19 pandemic to allow for a temporary practical expedient (the “COVID-19 expedient”) to account for rent concessions as though enforceable rights and obligations for those concessions existed in the lease agreements. The election is available for concessions related to the effects of the COVID-19 pandemic that result in the total payments required by the modified contract being substantially the same as or less than total payments required by the original contract.

Upon the temporary closure of the Company’s store fleet in March 2020, the Company began negotiating for concessions of certain rent payments for the time the stores were impacted. While more than 99% of the Company’s stores have reopened, these discussions and negotiations had remained ongoing and were substantially completed at the end of the second quarter of 2021. For the lease concessions that have been agreed upon and executed, the Company did not reassess each existing contract to determine whether enforceable rights and obligations for concessions existed and elected not to apply the lease modification guidance in ASC 842 to those contracts that shared similar characteristics. Rather, the Company accounts for COVID-19 lease concessions as reductions to variable lease cost.

The following components of lease expense are included in the Company’s consolidated statements of operations.


	Thirteen Weeks Ended				Thirty-nine Weeks Ended
	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
	(in thousands)



Operating lease cost	$	28,378	$	29,218	$	78,408	$	108,412
Variable lease cost (1)	15,459		16,871		29,680		36,696
Total lease cost	$	43,837	$	46,089	$	108,088	$	145,108

____________________________________________

(1)Includes short term leases with lease periods of less than 12 months as well as lease abatements accounted for as reductions to variable lease costs under the COVID-19 expedient of $0.7 million and $11.0 million during the Third Quarter 2021 and Year-To-Date 2021, respectively.

As of October 30, 2021, the weighted-average remaining operating lease term was 4.3 years, and the weighted-average discount rate for operating leases was 5.3%.

Cash paid for amounts included in the measurement of operating lease liabilities during Year-To-Date 2021 was $142.6 million.

ROU assets obtained in exchange for new operating lease liabilities were approximately $6.1 million during Year-To-Date 2021.

As of October 30, 2021, the maturities of lease liabilities were as follows:


	October 30, 2021
	(in thousands)
Remainder of 2021	$	36,503
2022	89,827
2023	50,651
2024	30,406
2025	18,456
Thereafter	50,082
Total lease payments	275,925
Less: imputed interest	(27,478)
Present value of lease liabilities	$	248,447