LEASES |
NOTE 10—LEASES Lease costs—net consist of the following: | | | | | | | | | | | | YEAR ENDED | | | FEBRUARY 3, | | JANUARY 28, | | JANUARY 29, | | | 2024 | | 2023 | | 2022 | | | | (in thousands) | Operating lease cost(1) | | $ | 116,553 | | $ | 100,646 | | $ | 99,985 | Finance lease costs | | | | | | | | | | Amortization of leased assets(1) | | | 54,596 | | | 52,346 | | | 43,964 | Interest on lease liabilities(2) | | | 33,822 | | | 32,051 | | | 26,412 | Variable lease costs(3) | | | 23,517 | | | 27,848 | | | 36,914 | Sublease income(4) | | | (5,544) | | | (4,455) | | | (4,184) | Total lease costs—net | | $ | 222,944 | | $ | 208,436 | | $ | 203,091 |
(1) | Operating lease costs and amortization of finance lease right-of-use assets are included in cost of goods sold or selling, general and administrative expenses on the consolidated statements of income based on our accounting policy. Refer to Note 3—Significant Accounting Policies. |
(2) | Included in interest expense—net on the consolidated statements of income. |
(3) | Represents variable lease payments under operating and finance lease agreements, primarily associated with contingent rent based on a percentage of retail sales over contractual levels of $14 million, $19 million and $28 million in fiscal 2023, fiscal 2022 and fiscal 2021, respectively, as well as charges associated with common area maintenance of $9.1 million, $9.3 million and $8.8 million in fiscal 2023, fiscal 2022 and fiscal 2021, respectively. Other variable costs, which include single lease cost related to variable lease payments based on an index or rate that were not included in the measurement of the initial lease liability and right-of-use asset, were not material in any period presented. |
(4) | Included in selling, general and administrative expenses on the consolidated statements of income. |
Lease right-of-use assets and lease liabilities consist of the following: | | | | | | | | | | | | | FEBRUARY 3, | | JANUARY 28, | | | | | 2024 | | 2023 | | | | | | (in thousands) | | | Balance Sheet Classification | | | | | | | Assets | | | | | | | | | Operating leases | | Operating lease right-of-use assets | | $ | 625,801 | | $ | 527,246 | Finance leases(1)(2)(3)(4) | | Property and equipment—net | | | 836,814 | | | 1,078,979 | Total lease right-of-use assets | | | | $ | 1,462,615 | | $ | 1,606,225 | Liabilities | | | | | | | | | Current(5) | | | | | | | | | Operating leases | | Operating lease liabilities | | $ | 85,523 | | $ | 80,384 | Finance leases(4) | | Other current liabilities | | | 14,668 | | | 17,007 | Total lease liabilities—current | | | | | 100,191 | | | 97,391 | Non-current | | | | | | | | | Operating leases | | Non-current operating lease liabilities | | | 576,166 | | | 505,809 | Finance leases(4) | | Non-current finance lease liabilities | | | 566,829 | | | 653,050 | Total lease liabilities—non-current | | | | | 1,142,995 | | | 1,158,859 | Total lease liabilities | | | | $ | 1,243,186 | | $ | 1,256,250 |
(1) | Includes capitalized amounts related to our completed construction activities to design and build leased assets, which are reclassified from other non-current assets upon lease commencement. |
(2) | Recorded net of accumulated amortization of $268 million and $224 million as of February 3, 2024 and January 28, 2023, respectively. |
(3) | Includes $37 million and $39 million as of February 3, 2024 and January 28, 2023, respectively, related to an RH Design Gallery lease with a landlord that is an affiliate of the managing member of the Aspen LLCs. Refer to Note 7—Variable Interest Entities. |
(4) | During fiscal 2023, we purchased the building and land of our RH Guesthouse New York location and terminated the lease associated with the property. As a result, the right-of-use asset and lease liability was reclassified to property and equipment—net on the consolidated balance sheets as of the purchase date. Refer to Note 5—Property and Equipment. |
(5) | Current portion of lease liabilities represents the reduction of the related lease liability over the next 12 months. |
The maturities of lease liabilities were as follows as of February 3, 2024: | | | | | | | | | | | | | | | | OPERATING | | FINANCE | | | FISCAL YEAR | | | | LEASES | | LEASES | | TOTAL | | | | | | (in thousands) | 2024 | | | | $ | 117,806 | | $ | 42,887 | | $ | 160,693 | 2025 | | | | | 117,916 | | | 47,942 | | | 165,858 | 2026 | | | | | 110,067 | | | 48,709 | | | 158,776 | 2027 | | | | | 102,787 | | | 49,516 | | | 152,303 | 2028 | | | | | 69,215 | | | 48,551 | | | 117,766 | Thereafter | | | | | 330,183 | | | 728,022 | | | 1,058,205 | Total lease payments(1)(2) | | | | | 847,974 | | | 965,627 | | | 1,813,601 | Less—imputed interest(3) | | | | | (186,285) | | | (384,130) | | | (570,415) | Present value of lease liabilities | | | | $ | 661,689 | | $ | 581,497 | | $ | 1,243,186 |
(1) | Total lease payments include future obligations for renewal options that are reasonably certain to be exercised and are included in the measurement of the lease liability. Total lease payments exclude $686 million of legally binding payments under the non-cancellable term for leases signed but not yet commenced under our accounting policy as of February 3, 2024, of which $26 million, $41 million, $38 million, $40 million and $41 million will be paid in fiscal 2024, fiscal 2025, fiscal 2026, fiscal 2027 and fiscal 2028, respectively, and $500 million will be paid subsequent to fiscal 2028. |
(2) | Excludes an immaterial amount of future commitments under short-term lease agreements as of February 3, 2024. |
(3) | Calculated using the discount rate for each lease at lease commencement. |
Supplemental information related to leases consists of the following: | | | | | | | | | | | | | | | YEAR ENDED | | | | | | FEBRUARY 3, | | JANUARY 28, | | | | | | 2024 | | 2023 | Weighted-average remaining lease term (years) | | | | | | | | | | Operating leases | | | | | | 8.7 | | | 8.3 | Finance leases | | | | | | 19.7 | | | 21.9 | Weighted-average discount rate | | | | | | | | | | Operating leases | | | | | | 5.17% | | | 4.08% | Finance leases | | | | | | 5.07% | | | 5.32% |
Other information related to leases consists of the following: | | | | | | | | | | | | YEAR ENDED | | | FEBRUARY 3, | | JANUARY 28, | | JANUARY 29, | | | 2024 | | 2023 | | 2022 | | | | (in thousands) | Cash paid for amounts included in the measurement of lease liabilities | | | | | | | | | | Operating cash flows from operating leases | | $ | (122,220) | | $ | (101,513) | | $ | (102,097) | Operating cash flows from finance leases | | | (37,819) | | | (32,090) | | | (26,775) | Financing cash flows from finance leases—net(1) | | | (13,972) | | | (10,146) | | | (14,158) | Total cash outflows from leases | | $ | (174,011) | | $ | (143,749) | | $ | (143,030) | Non-cash transactions: | | | | | | | | | | Lease right-of-use assets obtained in exchange for lease obligations—net of lease terminations | | | | | | | | | | Operating leases | | $ | 170,542 | | $ | 49,702 | | $ | 172,393 | Finance leases | | | 1,648 | | | 109,015 | | | 89,617 | Reclassification of finance lease right-of-use asset to property and equipment(2) | | | 188,515 | | | — | | | — | Reclassification of finance lease liability to property and equipment(2) | | | (71,612) | | | — | | | — |
(1) | Represents the principal portion of finance lease payments offset by tenant allowances received under finance leases subsequent to lease commencement of $2.4 million and $4.7 million in fiscal 2023 and fiscal 2022, respectively. No such tenant allowances were received in fiscal 2021. |
(2) | Represents the reclassification of the right-of-use asset and lease liability upon the purchase of the building and land of our RH Guesthouse New York location and termination of the associated lease agreement. Refer to Note 5—Property and Equipment. |
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