Leases

12 Months Ended

Feb. 03, 2024

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.

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 $1.5 million, $0.6 million and $2.9 million were recognized during Fiscal 2024, Fiscal 2023 and Fiscal 2022, respectively.

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 equipment operating lease cost is included in store operating, selling and administrative expenses in the consolidated statements of operations.


	February 3, 2024 (53-weeks)		January 28, 2023 (52-weeks)		January 29, 2022 (52-weeks)
Operating lease cost	$	81,957	$	76,051	$	68,359
Finance lease cost:
Amortization of assets	1,049		977		849
Interest on lease liabilities	102		116		136
Variable lease cost (1)	19,926		18,188		18,379
	$	103,034	$	95,332	$	87,723

(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 February 3, 2024 and January 28, 2023 are shown net of accumulated amortization of $4.4 million and $3.3 million, respectively.

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


	February 3, 2024 (53-weeks)		January 28, 2023 (52-weeks)
Weighted average remaining lease term (in years):
Operating leases	5		5
Finance leases	4		3

Weighted average discount rate:
Operating leases	4.2	%	3.5	%
Finance leases	4.6	%	5.2	%

Maturities of lease liabilities (in thousands):


	February 3, 2024 (53-Weeks)
	Operating		Finance		Total
Fiscal 2025	$	83,183	$	615	$	83,798
Fiscal 2026	79,916		535		80,451
Fiscal 2027	65,973		381		66,354
Fiscal 2028	49,688		362		50,050
Fiscal 2029	32,157		268		32,425
Thereafter	42,734		—		42,734
Total minimum lease payments	353,651		2,161		355,812
Less amount representing interest	36,554		200		36,754
	$	317,097	$	1,961	$	319,058

As of February 3, 2024, we have entered into operating leases of approximately $8.4 million related to future store locations that have not yet commenced.

Leases