Lease Accounting

9 Months Ended

Oct. 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 lease payments based upon the minimum annual rental amount and a percentage of annual sales volume, generally ranging from 3% to 28%, when specific sales volumes are exceeded. The Company’s retail concession leases also provide for lease payments primarily based upon a percentage of annual sales volume, which averages approximately 32%.

In addition to the amounts as disclosed below, the Company has estimated additional operating lease commitments of approximately $20.3 million for leases where the Company has not yet taken possession of the underlying asset as of October 30, 2021. As such, the related operating lease ROU assets and operating lease liabilities have not been recognized in the Company’s condensed consolidated balance sheet as of October 30, 2021.

The components of leases are (in thousands):

		Oct 30, 2021		Jan 30, 2021
Assets	Balance Sheet Location
Operating	Operating lease right-of-use assets	$	706,161	$	764,804
Finance	Property and equipment, net	18,425		20,595
Total lease assets		$	724,586	$	785,399
Liabilities	Balance Sheet Location
Current:
Operating	Current portion of operating lease liabilities	$	209,072	$	222,800
Finance	Current portion of borrowings and finance lease obligations	4,939		4,698
Noncurrent:
Operating	Long-term operating lease liabilities	599,472		662,657
Finance	Long-term debt and finance lease obligations	15,122		17,365
Total lease liabilities		$	828,605	$	907,520

The components of lease costs are (in thousands):

		Three Months Ended				Nine Months Ended
	Income Statement Location	Oct 30, 2021		Oct 31, 2020		Oct 30, 2021		Oct 31, 2020
Operating lease costs	Cost of product sales	$	44,729	$	50,684	$	137,189	$	156,058
Operating lease costs	Selling, general and administrative expenses	6,300		5,191		18,846		15,722
Operating lease costs1	Net (gains) losses on lease modifications	3,006		(21)		441		(450)
Finance lease costs
Amortization of leased assets2	Cost of product sales	5		5		33		37
Amortization of leased assets2	Selling, general and administrative expenses	1,233		1,185		4,000		2,523
Interest on lease liabilities	Interest expense	474		353		1,103		843
Variable lease costs3	Cost of product sales	19,321		14,755		51,700		42,312
Variable lease costs3	Selling, general and administrative expenses	552		33		1,571		1,250
Short-term lease costs	Cost of product sales	99		142		330		562
Short-term lease costs	Selling, general and administrative expenses	1,341		2,407		3,635		4,366
Total lease costs		$	77,060	$	74,734	$	218,848	$	223,223

____________________________________________________________________

Notes:

1During the three and nine months ended October 30, 2021 and October 31, 2020, net (gains) losses on lease modifications related primarily to the early termination of lease agreements for 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.

2Amortization 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 condensed consolidated statements of income (loss).

3During the three and nine months ended October 30, 2021, variable lease costs included certain rent concessions of approximately $2.6 million and $14.5 million, respectively, received by the Company, primarily in Europe, related to the COVID-19 pandemic. During the three and nine months ended October 31, 2020, variable lease costs included certain rent concessions of approximately $8.0 million and $18.4 million, respectively, received by the Company, primarily in Europe, related to the COVID-19 pandemic.

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

	Operating Leases
Maturity of Lease Liabilities	Non-Related Parties		Related Parties		Finance Leases		Total
20221	$	82,693	$	2,235	$	1,607	$	86,535
2023	185,312		7,695		5,911		198,918
2024	154,744		7,916		5,796		168,456
2025	112,165		7,284		3,864		123,313
2026	81,444		6,892		2,959		91,295
After 2026	201,303		36,265		2,995		240,563
Total lease payments	817,661		68,287		23,132		909,080
Less: Interest	66,551		10,853		3,071		80,475
Present value of lease liabilities	$	751,110	$	57,434	$	20,061	$	828,605

______________________________________________________________________

Notes:

1Represents the maturity of lease liabilities for the remainder of fiscal 2022 and also includes rent payments that have been deferred due to the COVID-19 pandemic. This amount does not include payments made during the nine months ended October 30, 2021.

Other supplemental information is (dollars in thousands):

Lease Term and Discount Rate	Oct 30, 2021
Weighted-average remaining lease term
Operating leases	6.1 years
Finance leases	4.4 years
Weighted-average discount rate
Operating leases	3.4%
Finance leases	6.8%

	Nine Months Ended
Supplemental Cash Flow Information	Oct 30, 2021		Oct 31, 2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	167,444	$	133,776
New operating ROU assets obtained in exchange for lease liabilities	$	99,603	$	49,810

Impairment

During the three and nine months ended October 30, 2021, there were $0.7 million ROU asset impairment charges recorded primarily in Europe. During the three and nine months ended October 31, 2020, the Company recorded ROU asset impairment charges of $5.6 million and $42.1 million, respectively, related to ROU assets at certain retail locations in North America and Europe. The asset impairment charges were determined based on the excess of carrying value over the fair value of the ROU assets. The Company uses estimates of market participant rents to calculate fair value of the ROU assets. Refer to Note 15 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 lease payments based upon the minimum annual rental amount and a percentage of annual sales volume, generally ranging from 3% to 28%, when specific sales volumes are exceeded. The Company’s retail concession leases also provide for lease payments primarily based upon a percentage of annual sales volume, which averages approximately 32%.

In addition to the amounts as disclosed below, the Company has estimated additional operating lease commitments of approximately $20.3 million for leases where the Company has not yet taken possession of the underlying asset as of October 30, 2021. As such, the related operating lease ROU assets and operating lease liabilities have not been recognized in the Company’s condensed consolidated balance sheet as of October 30, 2021.

The components of leases are (in thousands):

		Oct 30, 2021		Jan 30, 2021
Assets	Balance Sheet Location
Operating	Operating lease right-of-use assets	$	706,161	$	764,804
Finance	Property and equipment, net	18,425		20,595
Total lease assets		$	724,586	$	785,399
Liabilities	Balance Sheet Location
Current:
Operating	Current portion of operating lease liabilities	$	209,072	$	222,800
Finance	Current portion of borrowings and finance lease obligations	4,939		4,698
Noncurrent:
Operating	Long-term operating lease liabilities	599,472		662,657
Finance	Long-term debt and finance lease obligations	15,122		17,365
Total lease liabilities		$	828,605	$	907,520

The components of lease costs are (in thousands):

		Three Months Ended				Nine Months Ended
	Income Statement Location	Oct 30, 2021		Oct 31, 2020		Oct 30, 2021		Oct 31, 2020
Operating lease costs	Cost of product sales	$	44,729	$	50,684	$	137,189	$	156,058
Operating lease costs	Selling, general and administrative expenses	6,300		5,191		18,846		15,722
Operating lease costs1	Net (gains) losses on lease modifications	3,006		(21)		441		(450)
Finance lease costs
Amortization of leased assets2	Cost of product sales	5		5		33		37
Amortization of leased assets2	Selling, general and administrative expenses	1,233		1,185		4,000		2,523
Interest on lease liabilities	Interest expense	474		353		1,103		843
Variable lease costs3	Cost of product sales	19,321		14,755		51,700		42,312
Variable lease costs3	Selling, general and administrative expenses	552		33		1,571		1,250
Short-term lease costs	Cost of product sales	99		142		330		562
Short-term lease costs	Selling, general and administrative expenses	1,341		2,407		3,635		4,366
Total lease costs		$	77,060	$	74,734	$	218,848	$	223,223

____________________________________________________________________

Notes:

1During the three and nine months ended October 30, 2021 and October 31, 2020, net (gains) losses on lease modifications related primarily to the early termination of lease agreements for 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.

2Amortization 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 condensed consolidated statements of income (loss).

3During the three and nine months ended October 30, 2021, variable lease costs included certain rent concessions of approximately $2.6 million and $14.5 million, respectively, received by the Company, primarily in Europe, related to the COVID-19 pandemic. During the three and nine months ended October 31, 2020, variable lease costs included certain rent concessions of approximately $8.0 million and $18.4 million, respectively, received by the Company, primarily in Europe, related to the COVID-19 pandemic.

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

	Operating Leases
Maturity of Lease Liabilities	Non-Related Parties		Related Parties		Finance Leases		Total
20221	$	82,693	$	2,235	$	1,607	$	86,535
2023	185,312		7,695		5,911		198,918
2024	154,744		7,916		5,796		168,456
2025	112,165		7,284		3,864		123,313
2026	81,444		6,892		2,959		91,295
After 2026	201,303		36,265		2,995		240,563
Total lease payments	817,661		68,287		23,132		909,080
Less: Interest	66,551		10,853		3,071		80,475
Present value of lease liabilities	$	751,110	$	57,434	$	20,061	$	828,605

______________________________________________________________________

Notes:

1Represents the maturity of lease liabilities for the remainder of fiscal 2022 and also includes rent payments that have been deferred due to the COVID-19 pandemic. This amount does not include payments made during the nine months ended October 30, 2021.

Other supplemental information is (dollars in thousands):

Lease Term and Discount Rate	Oct 30, 2021
Weighted-average remaining lease term
Operating leases	6.1 years
Finance leases	4.4 years
Weighted-average discount rate
Operating leases	3.4%
Finance leases	6.8%

	Nine Months Ended
Supplemental Cash Flow Information	Oct 30, 2021		Oct 31, 2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	167,444	$	133,776
New operating ROU assets obtained in exchange for lease liabilities	$	99,603	$	49,810

Impairment

During the three and nine months ended October 30, 2021, there were $0.7 million ROU asset impairment charges recorded primarily in Europe. During the three and nine months ended October 31, 2020, the Company recorded ROU asset impairment charges of $5.6 million and $42.1 million, respectively, related to ROU assets at certain retail locations in North America and Europe. The asset impairment charges were determined based on the excess of carrying value over the fair value of the ROU assets. The Company uses estimates of market participant rents to calculate fair value of the ROU assets. Refer to Note 15 for more information on the Company’s impairment testing.