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Leases

3 Months Ended

May 02, 2020

We lease all of our retail store locations; nearly all of which are operating leases. Store leases typically provide for initial terms of five to ten years. Many of our store leases contain the following provisions:

•scheduled increases in rent payments over the lease term,

•tenant inducements,

•free rent periods,

•contingent rent based on net sales in excess of stipulated amounts,

•one or more renewal options at our discretion, and

•payments for common area maintenance, insurance and real estate taxes, most of which are variable in nature.

Most of our store leases contain provisions that allow for early termination between the third and fifth year of the term if predetermined sales levels are not met, or upon the occurrence of other specified contingent events. When we have the option to extend the lease term (including by not exercising an available termination option) or purchase the leased asset, and it is reasonably certain that we will do so, we consider these options in determining the classification and measurement of the lease. However, generally at lease commencement, it is not reasonably certain that we will exercise an extension or purchase option. For contingent termination provisions, we generally consider both the likelihood of the contingency occurring in addition to the economic factors we consider when assessing any other termination or renewal option.

We also lease certain office space, office equipment and transportation equipment under operating and finance leases. Generally, these leases have initial terms of two to six years.

We determine whether a contract is or contains a lease at contract inception. We have lease agreements that contain both lease and non-lease components. For store leases, we account for the lease components together with the non-lease components, such as common area maintenance. For office and transportation equipment leases, we separate the non-lease components from the lease components.

In April 2020, the Financial Accounting Standards Board (FASB) issued a staff question-and-answer document (Staff Q&A) to respond to some frequently asked questions about accounting for lease concessions related to the effects of the COVID-19 pandemic. Under current U.S. GAAP, subsequent changes to lease payments that are not stipulated in the original lease are generally accounted for as lease modifications under ASC Topic 842, Leases. The Staff Q&A grants relief by allowing companies to make an accounting policy election to not evaluate lease concessions related to the effects of the COVID-19 pandemic as lease modifications. We did not elect to utilize this alternative accounting.

Our lease agreements do not contain material residual value guarantees or material restrictive covenants. ROU lease assets are periodically reviewed for impairment losses. The Company uses the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant, and Equipment - Overall, to determine when to test ROU assets (or asset groups that contain one or more ROU assets) for impairment, whether ROU assets are impaired, and if so, the amount of the impairment loss to recognize. An asset group impairment charge of approximately $4.1 million and $1.1 million was recognized in the 13-weeks ended May 2, 2020 and May 4, 2019, respectively.

Store operating lease cost and logistics-related transportation equipment operating lease cost are included in cost of goods sold in the unaudited condensed consolidated statements of operations. Office equipment and other transportation equipment operating lease cost is included in store operating, selling and administrative expenses in the unaudited condensed consolidated statements of operations.


	13-weeks ended
	May 2, 2020		May 4, 2019
Operating lease cost	$	17,139	$	17,138
Finance lease cost:
Amortization of assets	235		237
Interest on lease liabilities	48		65
Variable lease cost	(1,208)		385
	$	16,214	$	17,825

Short-term lease cost is immaterial.

Finance right-of-use assets on the unaudited condensed consolidated balance sheet at May 2, 2020, February 1, 2020 and May 4, 2019 are shown net of accumulated amortization of $1.0 million, $0.8 million and $0.2 million, respectively.

The following table provides supplemental balance sheet information related to leases:


	May 2, 2020		February 1, 2020		May 4, 2019
Weighted average remaining lease term (in years):
Operating leases	5		5		5
Finance leases	4		4		4

Weighted average discount rate:
Operating leases	3.9	%	4.1	%	4.2	%
Finance leases	7.6	%	8.8	%	11.6	%

The following table provides supplemental cash flow and other information related to leases (in thousands):

Cash paid for amounts included in the measurement of lease liabilities:


	13-weeks ended
	May 2, 2020		May 4, 2019
Operating cash flows from operating leases	$	19,724	$	17,269
Operating cash flows from finance leases	$	48	$	65
Financing cash flows from finance leases	$	301	$	242

ROU assets obtained in exchange for lease liabilities, net
Operating leases	$	9,524	$	10,142
Finance leases	$	533	$	—

Maturities of lease liabilities as of May 2, 2020 (in thousands):


	Operating		Finance		Total
Remainder of Fiscal 2021	$	57,757	$	840	$	58,597
Fiscal 2022	65,452		740		66,192
Fiscal 2023	50,045		707		50,752
Fiscal 2024	35,575		597		36,172
Fiscal 2025	25,043		178		25,221
Thereafter	43,039		169		43,208
Total minimum lease payments	276,911		3,231		280,142
Less amount representing interest	25,085		361		25,446
	$	251,826	$	2,870	$	254,696

As of May 2, 2020, we have entered into operating leases of approximately $0.9 million related to future store locations that have not yet commenced.

Leases