Leases

9 Months Ended

Oct. 28, 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 October 28, 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 nine months ended October 28, 2023 and October 29, 2022:


	For the three months ended				For the nine months ended
	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
(in thousands)
Operating lease cost	$	11,420	$	11,365	$	33,461	$	33,123
Variable lease costs(1)		3,190		3,261		9,648		9,534
Total lease costs	$	14,610	$	14,626	$	43,109	$	42,657

(1)

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

Supplemental cash flow and balance sheet information related to leases for the first nine months ended October 28, 2023 and October 29, 2022 was as follows:



(dollars in thousands)	For the nine months ended
Cash paid for amounts included in the measurement of lease liabilities:	October 28, 2023			October 29, 2022
Operating cash flows for operating leases (1)	$	34,121		$	42,001
Non-cash operating activities:
Right-of-use assets obtained in exchange for operating lease liabilities	$	39,119		$	20,667

Weighted average remaining lease term	4.8 yrs.			4.3 yrs.
Weighted average discount rate		6.48	%		6.45	%

(1)

The cash paid for the first nine months of fiscal 2023 and fiscal 2022 included prepaid rent of $0.6 million and $4.1 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 October 28, 2023:


(in thousands)
2023 (remaining)	$	12,086
2024		49,316
2025		41,254
2026		28,561
2027		21,131
Thereafter		34,591
Total minimum lease payments	$	186,939
Less: amount of lease payments representing interest		26,599
Present value of future minimum lease payments	$	160,340
Less: current obligations under leases		40,838
Long-term lease obligations	$	119,502

As of October 28, 2023, the Company had entered into a ten-year store lease that has not yet commenced with aggregated estimated future lease payments of approximately $1.5 million, which are not included in the above table. The lease is expected to commence in the first quarter of fiscal 2024.