Lease Accounting

12 Months Ended

Jan. 30, 2021

Leases [Abstract]

Lease Accounting

Lease Accounting The Company primarily leases its showrooms, advertising, licensing, sales and merchandising offices, remote distribution and warehousing facilities and retail and factory outlet store locations under operating lease

agreements expiring on various dates through January 2039. The Company also leases some of its equipment as well as computer hardware and software under operating and finance lease agreements expiring on various dates through May 2027.

The Company’s lease agreements primarily provide for lease payments based on a minimum annual rental amount, a percentage of annual sales volume, periodic adjustments related to inflation or a combination of such lease payments. Certain retail store leases provide for rents based upon the minimum annual rental amount and a percentage of annual sales volume, generally ranging from 1% to 23%, when specific sales volumes are exceeded. The Company’s retail concession leases also provide for rents primarily based upon a percentage of annual sales volume which average approximately 33% of annual sales volume. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

In addition to the amounts as disclosed below, the Company has estimated additional operating lease commitments of approximately $1.4 million for leases where the Company has not yet taken possession of the underlying asset as of January 30, 2021. As such, the related operating lease ROU assets and operating lease liabilities have not been recognized in the Company’s consolidated balance sheet as of January 30, 2021.

As of January 30, 2021 and February 1, 2020, the components of leases and lease costs are as follows (in thousands):

	Jan 30, 2021		Feb 1, 2020
Assets					Balance Sheet Location
Operating	$	764,804	$	851,990	Operating right-of-use assets
Finance	20,595		15,972		Property and equipment, net
Total lease assets	$	785,399	$	867,962
Liabilities					Balance Sheet Location
Current:
Operating	$	222,800	$	192,066	Current portion of operating lease liabilities
Finance	4,698		2,273		Current portion of borrowings and finance lease obligations
Noncurrent:
Operating	662,657		714,079		Long-term operating lease liabilities
Finance	17,365		14,262		Long-term debt and finance lease obligations
Total lease liabilities	$	907,520	$	922,680

	Year Ended Jan 30, 2021		Year Ended Feb 1, 2020
					Income Statement Location
Operating lease costs1	$	205,065	$	244,222	Cost of product sales
Operating lease costs1	21,726		24,565		Selling, general and administrative expenses
Operating lease costs1, 2	(2,801)		—		Net gains on lease modifications
Finance lease costs
Amortization of leased assets3	49		289		Cost of product sales
Amortization of leased assets3	3,834		2,234		Selling, general and administrative expenses
Interest on lease liabilities	1,237		1,035		Interest expense
Variable lease costs1, 4	52,304		93,534		Cost of product sales
Variable lease costs1, 4	1,795		2,227		Selling, general and administrative expenses
Short-term lease costs1	694		344		Cost of product sales
Short-term lease costs1	5,023		3,543		Selling, general and administrative expenses
Total lease costs1	$	288,926	$	371,993

______________________________________________________________________

1Rental expense for all property and equipment operating leases during fiscal 2019 aggregated to $292.1 million, including percentage rent of $67.2 million. During fiscal 2019, the Company also recognized insurance, taxes, sales promotion, common area maintenance and certain utility charges that were paid to the landlord totaling $72.3 million related to its operating leases.

2During the year ended January 30, 2021, net gains on lease modifications related primarily to the early termination of lease agreements for certain of the Company’s retail locations. During fiscal 2019, the Company recognized net gains on lease modifications of $0.5 million related primarily to the early termination of lease agreements related to certain of the Company’s retail locations. Operating lease costs for these retail locations prior to the early termination were included in cost of product sales.

3Amortization of leased assets related to finance leases are included in depreciation expense within cost of product sales or selling, general and administrative expenses depending on the nature of the asset in the Company’s consolidated statements of income (loss).

4During the year ended January 30, 2021, variable lease costs included certain rent concessions received by the Company, primarily in Europe, related to the COVID-19 pandemic of approximately $33.1 million. Refer to Note 1 for further information.

Maturities of the Company’s operating and finance lease liabilities as of January 30, 2021 are as follows (in thousands):

	Operating Leases
	Non-Related Parties		Related Parties		Finance Leases		Total
Maturity of Lease Liabilities:
2022	$	240,843	$	8,182	$	6,068	$	255,093
2023	185,107		6,310		5,579		196,996
2024	150,223		6,727		5,388		162,338
2025	106,810		6,370		3,433		116,613
2026	76,403		5,977		2,460		84,840
After 2026	150,859		32,610		3,197		186,666
Total lease payments	910,245		66,176		26,125		1,002,546
Less: Interest	79,219		11,745		4,062		95,026
Present value of lease liabilities	$	831,026	$	54,431	$	22,063	$	907,520

Other supplemental information is as follows (dollars in thousands):

	Jan 30, 2021
Lease Term and Discount Rate:
Weighted-average remaining lease term (years)
Operating leases	5.9 years
Finance leases	5.0 years
Weighted-average discount rate
Operating leases	3.6%
Finance leases	7.1%

	Year Ended Jan 30, 2021		Year Ended Feb 1, 2020
Supplemental Cash Flow Information:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	193,776	$	250,972
New operating ROU assets obtained in exchange for lease liabilities	$	189,412	$	127,232

Impairment of ROU Assets

During fiscal 2021, the Company recorded asset impairment charges of $45.4 million related to ROU assets at certain retail locations primarily in North America and Europe. During fiscal 2020, the Company recorded asset impairment charges of $1.0 million related primarily to ROU assets at certain retail locations in North America. The asset impairment charges were determined based on the excess of the carrying value over the fair value of the ROU assets. The Company uses market participant rents to calculate fair value of ROU assets. Refer to Note 1 for more information on the Company’s impairment testing.

Lease Accounting

Lease Accounting The Company primarily leases its showrooms, advertising, licensing, sales and merchandising offices, remote distribution and warehousing facilities and retail and factory outlet store locations under operating lease

agreements expiring on various dates through January 2039. The Company also leases some of its equipment as well as computer hardware and software under operating and finance lease agreements expiring on various dates through May 2027.

The Company’s lease agreements primarily provide for lease payments based on a minimum annual rental amount, a percentage of annual sales volume, periodic adjustments related to inflation or a combination of such lease payments. Certain retail store leases provide for rents based upon the minimum annual rental amount and a percentage of annual sales volume, generally ranging from 1% to 23%, when specific sales volumes are exceeded. The Company’s retail concession leases also provide for rents primarily based upon a percentage of annual sales volume which average approximately 33% of annual sales volume. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

In addition to the amounts as disclosed below, the Company has estimated additional operating lease commitments of approximately $1.4 million for leases where the Company has not yet taken possession of the underlying asset as of January 30, 2021. As such, the related operating lease ROU assets and operating lease liabilities have not been recognized in the Company’s consolidated balance sheet as of January 30, 2021.

As of January 30, 2021 and February 1, 2020, the components of leases and lease costs are as follows (in thousands):

	Jan 30, 2021		Feb 1, 2020
Assets					Balance Sheet Location
Operating	$	764,804	$	851,990	Operating right-of-use assets
Finance	20,595		15,972		Property and equipment, net
Total lease assets	$	785,399	$	867,962
Liabilities					Balance Sheet Location
Current:
Operating	$	222,800	$	192,066	Current portion of operating lease liabilities
Finance	4,698		2,273		Current portion of borrowings and finance lease obligations
Noncurrent:
Operating	662,657		714,079		Long-term operating lease liabilities
Finance	17,365		14,262		Long-term debt and finance lease obligations
Total lease liabilities	$	907,520	$	922,680

	Year Ended Jan 30, 2021		Year Ended Feb 1, 2020
					Income Statement Location
Operating lease costs1	$	205,065	$	244,222	Cost of product sales
Operating lease costs1	21,726		24,565		Selling, general and administrative expenses
Operating lease costs1, 2	(2,801)		—		Net gains on lease modifications
Finance lease costs
Amortization of leased assets3	49		289		Cost of product sales
Amortization of leased assets3	3,834		2,234		Selling, general and administrative expenses
Interest on lease liabilities	1,237		1,035		Interest expense
Variable lease costs1, 4	52,304		93,534		Cost of product sales
Variable lease costs1, 4	1,795		2,227		Selling, general and administrative expenses
Short-term lease costs1	694		344		Cost of product sales
Short-term lease costs1	5,023		3,543		Selling, general and administrative expenses
Total lease costs1	$	288,926	$	371,993

______________________________________________________________________

1Rental expense for all property and equipment operating leases during fiscal 2019 aggregated to $292.1 million, including percentage rent of $67.2 million. During fiscal 2019, the Company also recognized insurance, taxes, sales promotion, common area maintenance and certain utility charges that were paid to the landlord totaling $72.3 million related to its operating leases.

2During the year ended January 30, 2021, net gains on lease modifications related primarily to the early termination of lease agreements for certain of the Company’s retail locations. During fiscal 2019, the Company recognized net gains on lease modifications of $0.5 million related primarily to the early termination of lease agreements related to certain of the Company’s retail locations. Operating lease costs for these retail locations prior to the early termination were included in cost of product sales.

3Amortization of leased assets related to finance leases are included in depreciation expense within cost of product sales or selling, general and administrative expenses depending on the nature of the asset in the Company’s consolidated statements of income (loss).

4During the year ended January 30, 2021, variable lease costs included certain rent concessions received by the Company, primarily in Europe, related to the COVID-19 pandemic of approximately $33.1 million. Refer to Note 1 for further information.

Maturities of the Company’s operating and finance lease liabilities as of January 30, 2021 are as follows (in thousands):

	Operating Leases
	Non-Related Parties		Related Parties		Finance Leases		Total
Maturity of Lease Liabilities:
2022	$	240,843	$	8,182	$	6,068	$	255,093
2023	185,107		6,310		5,579		196,996
2024	150,223		6,727		5,388		162,338
2025	106,810		6,370		3,433		116,613
2026	76,403		5,977		2,460		84,840
After 2026	150,859		32,610		3,197		186,666
Total lease payments	910,245		66,176		26,125		1,002,546
Less: Interest	79,219		11,745		4,062		95,026
Present value of lease liabilities	$	831,026	$	54,431	$	22,063	$	907,520

Other supplemental information is as follows (dollars in thousands):

	Jan 30, 2021
Lease Term and Discount Rate:
Weighted-average remaining lease term (years)
Operating leases	5.9 years
Finance leases	5.0 years
Weighted-average discount rate
Operating leases	3.6%
Finance leases	7.1%

	Year Ended Jan 30, 2021		Year Ended Feb 1, 2020
Supplemental Cash Flow Information:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	193,776	$	250,972
New operating ROU assets obtained in exchange for lease liabilities	$	189,412	$	127,232

Impairment of ROU Assets

During fiscal 2021, the Company recorded asset impairment charges of $45.4 million related to ROU assets at certain retail locations primarily in North America and Europe. During fiscal 2020, the Company recorded asset impairment charges of $1.0 million related primarily to ROU assets at certain retail locations in North America. The asset impairment charges were determined based on the excess of the carrying value over the fair value of the ROU assets. The Company uses market participant rents to calculate fair value of ROU assets. Refer to Note 1 for more information on the Company’s impairment testing.