Leases

3 Months Ended

Apr. 29, 2023

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 headquarters is 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 29, 2023, 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 Statements of Operations.

The following table is a summary of the Company’s components of net lease cost for the three months ended April 29, 2023 and April 30, 2022:


	For the three months ended
	April 29, 2023		April 30, 2022
(in thousands)
Operating lease cost	$	10,666	$	11,014
Variable lease costs(1)		3,166		3,154
Total lease costs	$	13,832	$	14,168

(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 29, 2023 and April 30, 2022 was as follows:



(dollars in thousands)	For the three months ended
Cash paid for amounts included in the measurement of lease liabilities:	April 29, 2023		April 30, 2022
Operating cash flows for operating leases (1)	$	12,753	$	16,098
Non-cash operating activities:
Right-of-use assets obtained in exchange for operating lease liabilities	$	9,250	$	8,608

Weighted average remaining lease term	4.3 yrs.		4.4 yrs.
Weighted average discount rate	6.39%		6.69%

(1)

The cash paid for the first three months of fiscal 2023 and fiscal 2022 included prepaid rent of $4.2 million and $4.1 million, respectively. The decrease in cash paid was due to the timing of prepaid rents, which resulted in approximately four months of rent payments in the first quarter of fiscal 2022 as opposed to three months of rent payments in the first quarter of fiscal 2023.

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 29, 2023:


(in thousands)
2023 (remaining)	$	33,252
2024		43,815
2025		34,947
2026		22,449
2027		14,867
Thereafter		14,762
Total minimum lease payments	$	164,092
Less: amount of lease payments representing interest		20,176
Present value of future minimum lease payments	$	143,916
Less: current obligations under leases		37,071
Long-term lease obligations	$	106,845

At April 29, 2023, the Company entered into a ten-year store lease that has not yet commenced with aggregated estimated future lease payments of approximately $2.1 million, which are not included in the above table. The lease is expected to commence in the fall of 2023.