Leases

9 Months Ended

Apr. 28, 2023

The Company has ground leases for its leased stores and office space leases that are recorded as operating leases under various non-cancellable operating leases. The Company also leases advertising billboards, vehicle fleets, and certain equipment under various non-cancellable operating leases. Additionally, the Company completed sale-leaseback transactions in 2009, 2020 and 2021 (see section below entitled “Sale and Leaseback Transactions”). To determine whether a contract is or contains a lease, the Company determines at contract inception whether it contains the right to control the use of an identified asset for a period of time in exchange for consideration. If the contract has the right to obtain substantially all of the economic benefit from use of the identified asset and the right to direct the use of the identified asset, the Company recognizes a right-of-use asset and lease liability.

The Company’s leases all have varying terms and expire at various dates through 2055. Restaurant leases typically have base terms of ten years with four to five optional renewal periods of five years each. The Company uses a lease life that generally begins on the commencement date, including the rent holiday periods, and generally extends through certain renewal periods that can be exercised at the Company’s option. During rent holiday periods, which include the pre-opening period during construction, the Company has possession of and access to the property, but is not obligated to, and normally does not, make rent payments. The Company has included lease renewal options in the lease term for calculations of the right-of-use asset and liability for which at the commencement of the lease it is reasonably certain that the Company will exercise those renewal options. Additionally, some of the leases have contingent rent provisions and others require adjustments for inflation or index. Contingent rent is determined as a percentage of gross sales in excess of specified levels. The Company records a contingent rent liability and corresponding rent expense when it is probable sales have been achieved in amounts in excess of the specified levels. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company has entered into agreements for real estate leases that are not recorded as right-of-use assets or lease liabilities as we have not yet taken possession. These leases are expected to commence in 2023, 2024 and 2025 with undiscounted future payments of $2,620, $14,855 and $20,400, respectively.

The Company has elected not to separate lease and non-lease components. Additionally, the Company has elected to apply the short term lease exemption to all asset classes and the short term lease expense for the period reasonably reflects the short term lease commitments. As the Company’s leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at the time of commencement or modification date 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 as of the adoption date. Assumptions used in determining the Company’s incremental borrowing rate include the Company’s implied credit rating and an estimate of secured borrowing rates based on comparable market data.

The following table summarizes the components of lease cost for operating leases for the quarters and nine months ended April 28, 2023 and April 29, 2022:

	Quarter Ended				Nine Months Ended
	April 28, 2023		April 29, 2022		April 28, 2023		April 29, 2022
Operating lease cost	$	27,456	$	27,266	$	82,345	$	81,408
Short term lease cost		234		99		2,731		2,324
Variable lease cost		909		622		2,863		1,852
Total lease cost	$	28,599	$	27,987	$	87,939	$	85,584

The following table summarizes supplemental cash flow information and non-cash activity related to the Company’s operating leases for the quarters and nine months ended April 28, 2023 as compared to the same periods in the prior year:

	Quarter Ended						Nine Months Ended
	April 28, 2023			April 29, 2022			April 28, 2023			April 29, 2022
Operating cash flow information:
Cash paid for amounts included in the measurement of lease liabilities	$	23,745		$	23,219		$	71,252		$	69,080
Noncash information:
Right-of-use assets obtained in exchange for new operating lease liabilities		5,990			2,893			15,455			14,550
Lease modifications or reassessments increasing or decreasing right-of-use assets		5,417			4,993			9,115			11,409
Lease modifications removing right-of-use assets		(80	)		(90	)		(371	)		(426	)

The following table summarizes the weighted-average remaining lease term and the weighted-average discount rate for operating leases as of April 28, 2023 and April 29, 2022:

	April 28, 2023			April 29, 2022
Weighted-average remaining lease term	17.00 Years			17.61 Years
Weighted-average discount rate		5.07	%		4.87	%

The following table summarizes the maturities of undiscounted cash flows reconciled to the total operating lease liability as of April 28, 2023:

Year	Total
Remainder of 2023	$	23,957
2024		78,782
2025		70,750
2026		67,645
2027		65,783
Thereafter		853,602
Total future minimum lease payments		1,160,519
Less imputed remaining interest		(401,439	)
Total present value of operating lease liabilities	$	759,080

Sale and Leaseback Transactions

In 2009, the Company completed sale-leaseback transactions involving 15 of its owned stores and its retail distribution center. Under the transactions, the land, buildings and improvements at the locations were sold and leased back for terms of 20 and 15 years, respectively. Equipment was not included. The leases include specified renewal options for up to 20 additional years.

On July 29, 2020, the Company entered into an agreement with the original lessor and a third party financier to obtain ownership of 64 of the 65 Cracker Barrel properties previously covered in the original sale and leaseback arrangement and simultaneously entered into a sale and leaseback transaction with the financier for an aggregate purchase price, net of closing costs, of $198,083. The Company purchased the remaining property for approximately $3,200. In connection with this sale and leaseback transaction, the Company entered into lease agreements for each of the properties for initial terms of 20 years and renewal options up to 50 years. The aggregate initial annual rent payment for the properties is approximately $14,379 and includes 1% annual rent increases over the initial lease terms. All the properties qualified for sale and leaseback and operating lease accounting classification and the Company recorded a gain on the sale and leaseback transaction of $69,954 in the fourth quarter of 2020. The Company recorded operating lease right-of-use assets, including a non-cash asset recognized as a part of accounting for the transaction of $79,049, and corresponding operating lease liabilities of $261,698 and $182,649, respectively.

On August 4, 2020, the Company completed a subsequent sale and leaseback transaction involving 62 of its owned Cracker Barrel stores for an aggregate purchase price, net of closing costs, of $146,357. Under the transaction, the land, buildings and building improvements at the locations were sold and leased back for initial terms of 20 years and renewal options up to 50 years. The aggregate initial annual rent payment for the properties is approximately $10,393 and includes 1% annual rent increases over the initial lease terms. All of the properties qualified for sale and leaseback and operating lease accounting classification, and the Company recorded a gain of $217,722 which is recorded in the gain on sale and leaseback transaction line in the Condensed Consolidated Statement of Income in the first quarter of 2021. The Company also recorded operating lease right-of-use assets, including a non-cash asset recognized as part of accounting for the transaction of $175,960, and corresponding operating lease liabilities of $309,624 and $133,663, respectively.