Leases

3 Months Ended

Apr. 30, 2022

4. Leases

The Company leases all of its store locations and its corporate headquarters, which also includes its distribution center, under 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 April 30, 2022, the Company’s operating leases liabilities represent the present value of the remaining future minimum lease payments updated based on concessions and lease modifications.

Lease costs related to store locations are included in cost of goods sold including occupancy costs on the Consolidated Statements of Operations, and expenses and lease costs related to the corporate headquarters and equipment leases are included in selling, general and administrative expenses on the Consolidated Statement of Operations.

The following table is a summary of the Company’s components of net lease cost for the three months ended April 30, 2022 and May 1, 2021:


	For the three months ended
	April 30, 2022		May 1, 2021
(in thousands)
Operating lease cost	$	11,014	$	11,126
Variable lease costs(1)		3,154		3,774
Total lease costs	$	14,168	$	14,900

(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 three months ended April 30, 2022 and May 1, 2021 is as follows:



(dollars in thousands)	For the three months ended
Cash paid for amounts included in the measurement of lease liabilities:	April 30, 2022		May 1, 2021
Operating cash flows for operating leases (1)	$	16,098	$	17,112
Non-cash operating activities:
Right-of-use assets obtained in exchange for operating lease liabilities	$	8,608	$	2,137

Weighted average remaining lease term	4.4 yrs.		4.4 yrs.
Weighted average discount rate	6.69%		6.72%

(1)

The cash paid for the first quarter of fiscal 2022 and fiscal 2021 includes prepaid rent of $4.1 million and $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 April 30, 2022:


(in thousands)
2022 (remaining)	$	33,151
2023		47,109
2024		37,935
2025		29,657
2026		17,200
Thereafter		13,881
Total minimum lease payments	$	178,933
Less: amount of lease payments representing interest		23,488
Present value of future minimum lease payments	$	155,445
Less: current obligations under leases		36,504
Long-term lease obligations	$	118,941