Leases

9 Months Ended

Nov. 02, 2024

Leases

Leases

Note 9    Leases

The Company leases all of its retail locations, a manufacturing facility, and certain office locations, distribution centers and equipment.  At contract inception, leases are evaluated and classified as either operating or finance leases.  Leases with an initial term of 12 months or less are not recorded on the balance sheet.

Lease right-of-use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term.  The majority of the Company’s leases do not provide an implicit rate and therefore, the Company uses an incremental borrowing rate based on information available at the commencement date to determine the present value of future payments.  For operating leases, lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.  Variable lease payments are expensed as incurred.

The Company regularly analyzes the results of all of its stores and assesses the viability of underperforming stores to determine whether events or circumstances exist that indicate the stores should be closed or whether the carrying amount of their long-lived assets may not be recoverable.  After allowing for an appropriate start-up period and consideration of any unusual nonrecurring events, property and equipment

at stores and the lease right-of-use assets indicated as impaired are written down to fair value as calculated using a discounted cash flow method.  The fair value of the lease right-of-use assets is determined utilizing projected cash flows for each store location, discounted using a risk-adjusted discount rate, subject to a market floor based on current market lease rates.  Refer to Note 14 to the condensed consolidated financial statements for further discussion of impairment charges on the Company’s operating lease right-of-use assets and property and equipment in retail stores.

During the thirty-nine weeks ended November 2, 2024, the Company entered into new or amended leases that resulted in the recognition of right-of-use assets and lease obligations of $166.0 million on the condensed consolidated balance sheets.  As of November 2, 2024, the Company has entered into lease commitments for four retail locations for which the leases have not yet commenced.  The Company anticipates that two leases will begin in the current fiscal year, one will begin in fiscal 2025 and one will begin in fiscal 2026.  Upon commencement, right-of-use assets and lease liabilities of approximately $2.0 million will be recorded in the current fiscal year, $0.7 million will be recorded in fiscal 2025 and $1.0 million will be recorded in fiscal 2026 on the condensed consolidated balance sheets.

The components of lease expense for the thirteen and thirty-nine weeks ended November 2, 2024 and October 28, 2023 were as follows:

	Thirteen Weeks Ended
($ thousands)	November 2, 2024		October 28, 2023
Operating lease expense	$	40,773	$	39,308
Variable lease expense		10,490		10,404
Short-term lease expense		233		727
Total lease expense	$	51,496	$	50,439

	Thirty-Nine Weeks Ended
($ thousands)	November 2, 2024		October 28, 2023
Operating lease expense	$	121,046	$	117,241
Variable lease expense		32,096		32,154
Short-term lease expense		902		2,157
Total lease expense	$	154,044	$	151,552

During the thirty-nine weeks ended November 2, 2024 and October 28, 2023, the Company paid cash for lease liabilities of $126.4 million and $124.7 million, respectively.