Leases

9 Months Ended

Oct. 30, 2021

4. Leases

The Company leases all of its store locations and its corporate headquarters, which also includes its distribution center, which are classified as operating leases. The store leases typically have initial terms of 5 years to 10 years, with options that usually permit renewal for additional five-year periods. The initial term of the lease for the corporate headquarter was for 20 years, with the opportunity to extend for six additional consecutive periods of five years, beginning in fiscal 2026. The Company also leases certain equipment and other assets under operating leases, typically with initial terms of 3 to 5 years. The Company is generally obligated for the cost of property taxes, insurance and common area maintenance fees relating to its leases, which are considered variable lease costs and are expensed as incurred.

ASC 842 requires the assessment of any lease modification to determine if the modification should be treated as a separate lease and if not, modification accounting would be applied. Lease modification accounting requires the recalculation of the ROU asset, lease liability and lease expense over the respective lease term. In April 2020, the FASB issued guidance allowing entities to make a policy election to account for lease concessions related to the COVID-19 pandemic as though enforceable rights and obligations for those concessions existed. The election applies to any lessor-provided lease concession related to the impact of the COVID-19 pandemic, provided the concession does not result in a substantial increase in the rights of the lessor or in the obligations of the lessee. The Company opted not to elect this practical expedient and instead accounted for these rent concessions as lease modifications in accordance with ASC 842. As of October 30, 2021, the Company’s operating leases liabilities represent the present value of the remaining future minimum lease payments updated based on concessions and lease modifications.

The following table is a summary of the Company’s components of net lease cost for the three and nine months ended October 30, 2021 and October 31, 2020:


	For the three months ended				For the nine months ended
	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
(in thousands)
Operating lease cost	$	11,064	$	11,824	$	32,698	$	35,756
Variable lease costs(1)		3,284		3,690		10,473		10,759
Total lease costs	$	14,348	$	15,514	$	43,171	$	46,515

(1)

Variable lease costs include the cost of property taxes, insurance and common area maintenance fees related to its leases.

Supplemental cash flow and balance sheet information related to leases for the first nine months ended October 30, 2021 and October 31, 2020 is as follows:



(dollars in thousands)	For the nine months ended
Cash paid for amounts included in the measurement of lease liabilities:	October 30, 2021		October 31, 2020
Operating cash flows for operating leases (1)	$	43,846	$	33,233
Non-cash operating activities:
Right-of-use assets obtained in exchange for operating lease liabilities	$	6,099	$	645
Net decrease in right-of-use assets due to lease modifications associated with rent concessions and lease exits	$	-	$	(2,283	)

Weighted average remaining lease term	4.1 yrs.		4.7 yrs.
Weighted average discount rate	6.95%		6.46%

(1)

The increase in cash payments for the first nine months of fiscal 2021 as compared to the first nine months of fiscal 2020 is due to rent abatements and deferments negotiated in the second quarter of fiscal 2020 for rent obligations while stores were closed. The cash paid for the first nine months of fiscal 2021 also includes prepaid rent for November 2021 of $3.8 million.

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities recorded on the Consolidated Balance Sheet as of October 30, 2021:


(in thousands)
2021 (remaining)	$	8,999
2022		49,149
2023		41,972
2024		32,173
2025		23,755
Thereafter		16,674
Total minimum lease payments	$	172,722
Less: amount of lease payments representing interest		23,320
Present value of future minimum lease payments	$	149,402
Less: current obligations under leases		37,150
Long-term lease obligations	$	112,252