Lease Accounting

3 Months Ended

Apr. 30, 2022

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 $25.4 million for leases where the Company has not yet taken possession of the underlying asset as of April 30, 2022. 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 April 30, 2022.

The components of leases are (in thousands):

		Apr 30, 2022		Jan 29, 2022
Assets	Balance Sheet Location
Operating	Operating lease right-of-use assets	$	653,611	$	685,799
Finance	Property and equipment, net	20,557		21,898
Total lease assets		$	674,168	$	707,697
Liabilities	Balance Sheet Location
Current:
Operating	Current portion of operating lease liabilities	$	178,470	$	195,516
Finance	Current portion of borrowings and finance lease obligations	5,729		5,806
Noncurrent:
Operating	Long-term operating lease liabilities	549,293		582,757
Finance	Long-term debt and finance lease obligations	16,050		17,137
Total lease liabilities		$	749,542	$	801,216

The components of lease costs are (in thousands):

		Three Months Ended
	Income Statement Location	Apr 30, 2022		May 1, 2021
Operating lease costs	Cost of product sales	$	44,372	$	46,684
Operating lease costs	Selling, general and administrative expenses	6,301		6,357
Operating lease costs1	Net gains on lease modifications	(601)		(2,145)
Finance lease costs
Amortization of leased assets	Cost of product sales	19		11
Amortization of leased assets	Selling, general and administrative expenses	1,502		1,361
Interest on lease liabilities	Interest expense	287		366
Variable lease costs2	Cost of product sales	21,996		15,739
Variable lease costs2	Selling, general and administrative expenses	956		574
Short-term lease costs	Cost of product sales	96		105
Short-term lease costs	Selling, general and administrative expenses	1,558		1,171
Total lease costs		$	76,486	$	70,223

____________________________________________________________________

Notes:

1During the three months ended April 30, 2022 and May 1, 2021, net gains 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.

2During the three months ended April 30, 2022, and May 1, 2021, variable lease costs included certain rent concessions of approximately $1.3 million and $6.1 million, respectively, received by the Company, primarily in Europe.

Maturities of the Company’s operating and finance lease liabilities as of April 30, 2022 are (in thousands):

	Operating Leases
Maturity of Lease Liabilities	Non-Related Parties		Related Parties		Finance Leases		Total
Fiscal 2023	$	151,147	$	6,164	$	5,246	$	162,557
Fiscal 2024	161,805		7,826		6,711		176,342
Fiscal 2025	117,452		7,204		4,894		129,550
Fiscal 2026	86,607		6,811		4,142		97,560
Fiscal 2027	68,756		7,513		2,346		78,615
After fiscal 2027	154,161		28,431		705		183,297
Total lease payments	739,928		63,949		24,044		827,921
Less: Interest	66,182		9,932		2,265		78,379
Present value of lease liabilities	$	673,746	$	54,017	$	21,779	$	749,542

Other supplemental information is (in thousands):

Lease Term and Discount Rate	Apr 30, 2022
Weighted-average remaining lease term
Operating leases	6.0 years
Finance leases	4.1 years
Weighted-average discount rate
Operating leases	3.4%
Finance leases	5.2%

	Three Months Ended
Supplemental Cash Flow Information	Apr 30, 2022		May 1, 2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	63,896	$	53,428
New operating ROU assets obtained in exchange for lease liabilities	$	35,378	$	22,596

Impairment

During the three months ended April 30, 2022 there were no ROU asset impairment charges. During the three months ended May 1, 2021 there were immaterial ROU asset impairment charges recorded. 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 $25.4 million for leases where the Company has not yet taken possession of the underlying asset as of April 30, 2022. 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 April 30, 2022.

The components of leases are (in thousands):

		Apr 30, 2022		Jan 29, 2022
Assets	Balance Sheet Location
Operating	Operating lease right-of-use assets	$	653,611	$	685,799
Finance	Property and equipment, net	20,557		21,898
Total lease assets		$	674,168	$	707,697
Liabilities	Balance Sheet Location
Current:
Operating	Current portion of operating lease liabilities	$	178,470	$	195,516
Finance	Current portion of borrowings and finance lease obligations	5,729		5,806
Noncurrent:
Operating	Long-term operating lease liabilities	549,293		582,757
Finance	Long-term debt and finance lease obligations	16,050		17,137
Total lease liabilities		$	749,542	$	801,216

The components of lease costs are (in thousands):

		Three Months Ended
	Income Statement Location	Apr 30, 2022		May 1, 2021
Operating lease costs	Cost of product sales	$	44,372	$	46,684
Operating lease costs	Selling, general and administrative expenses	6,301		6,357
Operating lease costs1	Net gains on lease modifications	(601)		(2,145)
Finance lease costs
Amortization of leased assets	Cost of product sales	19		11
Amortization of leased assets	Selling, general and administrative expenses	1,502		1,361
Interest on lease liabilities	Interest expense	287		366
Variable lease costs2	Cost of product sales	21,996		15,739
Variable lease costs2	Selling, general and administrative expenses	956		574
Short-term lease costs	Cost of product sales	96		105
Short-term lease costs	Selling, general and administrative expenses	1,558		1,171
Total lease costs		$	76,486	$	70,223

____________________________________________________________________

Notes:

1During the three months ended April 30, 2022 and May 1, 2021, net gains 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.

2During the three months ended April 30, 2022, and May 1, 2021, variable lease costs included certain rent concessions of approximately $1.3 million and $6.1 million, respectively, received by the Company, primarily in Europe.

Maturities of the Company’s operating and finance lease liabilities as of April 30, 2022 are (in thousands):

	Operating Leases
Maturity of Lease Liabilities	Non-Related Parties		Related Parties		Finance Leases		Total
Fiscal 2023	$	151,147	$	6,164	$	5,246	$	162,557
Fiscal 2024	161,805		7,826		6,711		176,342
Fiscal 2025	117,452		7,204		4,894		129,550
Fiscal 2026	86,607		6,811		4,142		97,560
Fiscal 2027	68,756		7,513		2,346		78,615
After fiscal 2027	154,161		28,431		705		183,297
Total lease payments	739,928		63,949		24,044		827,921
Less: Interest	66,182		9,932		2,265		78,379
Present value of lease liabilities	$	673,746	$	54,017	$	21,779	$	749,542

Other supplemental information is (in thousands):

Lease Term and Discount Rate	Apr 30, 2022
Weighted-average remaining lease term
Operating leases	6.0 years
Finance leases	4.1 years
Weighted-average discount rate
Operating leases	3.4%
Finance leases	5.2%

	Three Months Ended
Supplemental Cash Flow Information	Apr 30, 2022		May 1, 2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	63,896	$	53,428
New operating ROU assets obtained in exchange for lease liabilities	$	35,378	$	22,596

Impairment

During the three months ended April 30, 2022 there were no ROU asset impairment charges. During the three months ended May 1, 2021 there were immaterial ROU asset impairment charges recorded. 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.