Leases

The Company leases retail store facilities, corporate office space, warehouse facilities and certain vehicles and equipment under operating leases with terms generally ranging up to 10 years and expiring at various dates through 2029. Most of the retail store lease agreements include an initial term with renewal options and provide for minimum fixed rental payments. The Company does not include lease renewal options in the lease term for calculations of its right-of-use assets and liabilities until it is reasonably certain that the Company plans to renew these leases. A few retail store lease agreements have only variable lease payments based on a percentage of sales, while other store leases contain contingent rentals based on sales performance in excess of specified minimums in addition to minimum fixed rentals.

The majority of the Company’s leases have monthly fixed rent with variable components (e.g., real estate taxes and insurance costs) and variable non-lease components (e.g., common area maintenance). These variable payments are excluded from the calculation of the lease liability and right-of-use asset. For leases where the lease and non-lease components are fixed, the Company has elected an accounting policy to account for lease and non-lease components as a single component. The Company’s leases do not provide an implicit rate, so the incremental borrowing rate, based on the information available at commencement or modification date, is used in determining the present value of lease payments. For operating leases that commenced prior to the date of adoption of the new lease accounting guidance, the Company used the incremental borrowing rate that corresponded to the remaining lease term as of the date of adoption.

The Company’s classification of lease cost on the Company’s condensed consolidated statements of operations is as follows (in thousands):



	13 Weeks Ended ⁽¹⁾
	May 4, 2019
Cost of sales ⁽²⁾
Operating lease cost	$	13,588
Short-term lease cost	324
Variable lease cost	257
Total lease cost in cost of sales	$	14,169
Other operating expenses
Operating lease cost	$	730
Short-term lease cost	46
Total lease cost in other operating expenses	$	776


⁽¹⁾	Total lease cost for the 13-week period ended May 4, 2019 excludes expense for variable non-lease components including common area maintenance and excludes costs that are not a component of the lease including real estate taxes, insurance, sales taxes and utilities for the Company’s leases. Short-term lease cost is immaterial.


⁽²⁾	Cost of sales includes all distribution center lease costs and store occupancy-related lease cost.

As of May 4, 2019, future minimum payments, by year and in the aggregate, under all operating leases with initial terms of one year or more consist of the following (in thousands):



	Operating Leases
2019 (excluding the 13 weeks ended May 4, 2019)	$	45,083
2020	62,907
2021	53,967
2022	44,890
2023	36,363
After 2023	93,196
Total lease payments ⁽¹⁾	336,406
Less: Interest	(55,971		)
Present value of lease liabilities	$	280,435

⁽¹⁾ Operating lease payments exclude $21.3 million of legally binding minimum lease payments for leases signed but not yet commenced for four new store leases and a logistics agreement with a third-party for storage, distribution and inventory management services including the lease of 200,000 square feet of distribution center space and related equipment.

The Company’s lease term and discount rate is as follows:



	May 4, 2019
Weighted-average remaining lease term (years)	6.5
Weighted-average discount rate	5.6	%

Cash paid for amounts included in the measurement of lease liabilities is as follows (in thousands):



	13 Weeks Ended
	May 4, 2019
Operating cash flows from operating leases	$	16,765

The Company adopted new lease accounting guidance as of the beginning of fiscal 2019 as discussed in Note 1 and Note 12, and as required, the following disclosure is provided for periods prior to adoption. As of February 2, 2019, future minimum payments, by year and in the aggregate, under all operating leases with initial terms of one year or more consist of the following (in thousands):



	Operating Leases
2019	$	67,354
2020	62,102
2021	53,164
2022	44,087
2023	35,606
Thereafter	91,629
Total minimum lease payments	$	353,942