Leases

6 Months Ended

Jul. 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. As of July 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 and six months ended July 29, 2023 and July 30, 2022:


	For the three months ended				For the six months ended
	July 29, 2023		July 30, 2022		July 29, 2023		July 30, 2022
(in thousands)
Operating lease cost	$	11,374	$	10,744	$	22,041	$	21,758
Variable lease costs(1)		3,293		3,119		6,458		6,273
Total lease costs	$	14,667	$	13,863	$	28,499	$	28,031

(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 six months ended July 29, 2023 and July 30, 2022 was as follows:



(dollars in thousands)	For the six months ended
Cash paid for amounts included in the measurement of lease liabilities:	July 29, 2023		July 30, 2022
Operating cash flows for operating leases (1)	$	24,513	$	28,281
Non-cash operating activities:
Right-of-use assets obtained in exchange for operating lease liabilities	$	23,533	$	14,167

Weighted average remaining lease term	4.4 yrs.		4.4 yrs.
Weighted average discount rate	6.41%		6.56%

(1)

The cash paid for the first six months of fiscal 2023 and fiscal 2022 included prepaid rent of $3.7 million and $3.6 million, respectively.

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 July 29, 2023:


(in thousands)
2023 (remaining)	$	21,518
2024		47,118
2025		38,081
2026		25,440
2027		17,863
Thereafter		21,902
Total minimum lease payments	$	171,922
Less: amount of lease payments representing interest		22,288
Present value of future minimum lease payments	$	149,634
Less: current obligations under leases		37,727
Long-term lease obligations	$	111,907

As of July 29, 2023, the Company had entered into a ten-year store lease that has not yet commenced with aggregated estimated future lease payments of approximately $3.0 million, which are not included in the above table. The lease is expected to commence in the fall of 2023.