LEASES (Notes)

3 Months Ended

May 02, 2020

Lessee, Operating Leases [Text Block]

LEASES

We have operating leases for retail stores, corporate offices, distribution facilities, and certain equipment. Our leases have remaining lease terms of less than 1 year up to 10 years, some of which may include options to extend the leases for up to five years, and some of which may include options to early terminate the lease.

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 May 2, 2020, the Company's finance leases were not material to the consolidated balance sheets, consolidated statements of operations, or consolidated statements of cash flows.

We have 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. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

We record all occupancy costs in cost of sales, except administrative office buildings, which are recorded in selling, general, and administrative expenses.

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

	Thirteen Weeks Ended		Thirteen Weeks Ended
	May 2, 2020		May 4, 2019
	(in thousands)		(in thousands)
Operating lease cost	$	40,152	$	38,731
Variable lease cost1	11,133		15,937
Total lease cost	$	51,285	$	54,668

¹Includes short term leases with lease periods of less than 12 months.

As of May 2, 2020, the weighted-average remaining operating lease term was 4.5 years, and the weighted-average discount rate for operating leases was 5.0%.

Cash paid for amounts included in the measurement of operating lease liabilities in the First Quarter 2020 was approximately $11.8 million.

ROU assets obtained in exchange for new operating lease liabilities were approximately $37.8 million.

During the First Quarter 2020, the Company recorded ROU assets impairment of approximately $17.9 million.

As of May 2, 2020, the future minimum annual lease payments under operating lease agreements were as follows:

	May 2, 2020
	Operating Leases
	(in thousands)
Remainder of 2020	$	135,620
2021	112,628
2022	75,372
2023	45,371
2024	27,026
Thereafter	69,085
Total lease payments	$	465,102
Less: imputed interest	$	(32,800)
Present value of lease liabilities	$	432,302