Leases

3 Months Ended

May 04, 2024

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 May 4, 2024, 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 May 4, 2024 and April 29, 2023:


	For the three months ended
	May 4, 2024		April 29, 2023
(in thousands)
Operating lease cost	$	11,477	$	10,666
Variable lease costs(1)		3,393		3,166
Total lease costs	$	14,870	$	13,832

(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 three months ended May 4, 2024 and April 29, 2023 was as follows:



(dollars in thousands)	For the three months ended
Cash paid for amounts included in the measurement of lease liabilities:	May 4, 2024			April 29, 2023
Operating cash flows for operating leases (1)	$	12,966		$	12,753
Non-cash operating activities:
Right-of-use assets obtained in exchange for operating lease liabilities	$	26,370		$	9,250

Weighted average remaining lease term	5.2 yrs.			4.3 yrs.
Weighted average discount rate		6.45	%		6.39	%

(1)

The cash paid for the first three months of fiscal 2024 and fiscal 2023 included prepaid rent of $4.3 million and $4.2 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 May 4, 2024:


(in thousands)
2024 (remaining)	$	31,965
2025		47,074
2026		35,037
2027		28,001
2028		19,978
Thereafter		39,695
Total minimum lease payments	$	201,750
Less: amount of lease payments representing interest		32,523
Present value of future minimum lease payments	$	169,227
Less: current obligations under leases		34,644
Long-term lease obligations	$	134,583

As of May 4, 2024, the Company had entered into four ten-year store leases that have not yet commenced with aggregated estimated future lease payments of approximately $6.3 million, which are not included in the above table. The leases are expected to commence during the second and third quarters of fiscal 2024.