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Leases

12 Months Ended

Jan. 30, 2021

LEASES

We lease our retail store locations, nearly all of which are operating leases. Store leases typically provide for initial terms of five to ten years. Many of our leases contain the following provisions:

•scheduled increases in rent payments over the lease term;

•tenant inducements;

•free rent periods;

•contingent rent based on net sales in excess of stipulated amounts;

•one or more renewal options at our discretion; and

•payments for common area maintenance, insurance and real estate taxes, most of which are variable in nature.

Most of our store leases contain provisions that allow for early termination between the third and fifth year of the term if predetermined sales levels are not met, or upon the occurrence of other specified contingent events. When we have the option to extend the lease term (including by not exercising an available termination option) or purchase the leased asset, and it is reasonably certain that we will do so, we consider these options in determining the classification and measurement of the lease. However, generally at lease commencement, it is not reasonably certain that we will exercise an extension or purchase option. For contingent termination provisions, we consider both the likelihood of the contingency occurring in addition to the economic factors we consider when assessing any other termination or renewal option.

We also lease certain office, transportation and technology equipment under operating and finance leases. Generally, these leases have initial terms of two to six years.

We determine whether an arrangement is a lease at inception. We have lease agreements that contain both lease and non-lease components. For store leases, we account for the lease components together with the non-lease components, such as common area maintenance. For office and transportation equipment leases, we separate the non-lease components from the lease components.

Beginning in Fiscal 2020, operating lease liabilities are recognized based on the present value of remaining fixed lease payments over the lease term. Operating lease ROU assets are recognized based on the calculated lease liability, adjusted for lease prepayments, initial direct costs and tenant inducements. Because the implicit rate is generally not readily determinable for our leases, we use our estimated incremental borrowing rate, on a collateralized basis over a similar term, as the discount rate to measure operating lease liabilities. Due to the absence of an independently published credit rating, our estimated incremental borrowing rate is determined based on a synthetic credit rating. We use a blend of a financial ratio analysis and a Z-spread analysis to calculate our synthetic credit rating. Our most recent debt instrument terms and interest rates are also considered. The collateralized synthetic credit rating is then used to determine the yield most consistent with the tenor of our portfolio lease term and is adjusted on an ongoing basis by the movement in the market rates. The collateralized synthetic credit rating is reevaluated periodically as needed based on company-specific and market conditions. Operating lease cost for fixed lease payments is recognized on a straight-line basis over the lease term. Variable lease payments are generally expensed as incurred.

ROU lease assets are periodically reviewed for impairment losses. We use the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant, and Equipment - Overall, to determine when to evaluate assets and asset groups, including ROU assets, for impairment and to calculate any impairment loss to be recognized. Asset group impairment charges of approximately $8.5 million and $1.5 million were recognized during Fiscal 2021 and Fiscal 2020, respectively.

In April 2020, FASB issued interpretive guidance to respond to some frequently asked questions about accounting for lease concessions related to the effects of the COVID-19 pandemic. Under current U.S. GAAP, subsequent changes to lease payments that are not stipulated in the original lease are generally accounted for as lease modifications under ASC Topic 842. The

interpretive guidance grants relief by allowing companies to make an accounting policy election to not evaluate lease concessions related to the effects of the COVID-19 pandemic as lease modifications.

We elected not to utilize this exception and accounted for the COVID-19 pandemic related lease concessions as modifications triggering lease remeasurement. The majority of the lease modifications during the 52 weeks ended January 30, 2021, were in the form of deferred lease payments totaling $1.9 million which will generally be repaid by us over the next 4 to 16 months and rent abatements with lease term extensions which resulted in $7.9 million of additional lease payments considered in our remeasurement.

Store operating lease cost and logistics-related transportation equipment operating lease cost are included in cost of goods sold in the consolidated statements of operations. Office equipment and other transportation equipment operating lease cost is included in store operating, selling and administrative expenses in the consolidated statements of operations.


	January 30, 2021 (52 weeks)		February 1, 2020 (52 weeks)
Operating lease cost	$	67,030	$	71,096
Finance lease cost:
Amortization of assets	913		943
Interest on lease liabilities	179		223
Variable lease cost (1)	13,328		11,757
	$	81,450	$	84,019

1) Includes rent based on a percent of sales, common area maintenance, insurance and property tax.

Short-term leases are not recorded on our consolidated balance sheet and short-term lease cost is immaterial.

Finance right-of-use assets on the consolidated balance sheet at January 30, 2021 and February 1, 2020 are shown net of accumulated amortization of $1.7 million and $0.8 million, respectively.

The following table provides supplemental balance sheet information related to leases:


	January 30, 2021 (52 weeks)		February 1, 2020 (52 weeks)
Weighted average remaining lease term (in years):
Operating leases	5		5
Finance leases	4		4

Weighted average discount rate:
Operating leases	3.5	%	4.1	%
Finance leases	5.5	%	8.8	%

Maturities of lease liabilities (in thousands):


	January 30, 2021 (52 Weeks)
	Operating		Finance		Total
Fiscal 2022	$	66,241	$	1,102	$	67,343
Fiscal 2023	60,107		1,069		$	61,176
Fiscal 2024	46,202		955		$	47,157
Fiscal 2025	34,585		397		$	34,982
Fiscal 2026	24,001		302		$	24,303
Thereafter	36,614		42		$	36,656
Total minimum lease payments	267,750		3,867		271,617
Less amount representing interest	23,004		312		23,316
	$	244,746	$	3,555	$	248,301

As of January 30, 2021, we have entered into operating leases of approximately $3.0 million related to future store locations that have not yet commenced.

Leases