Lease Commitments

12 Months Ended

Jan. 01, 2023

(6)

Lease Commitments

The Company has operating and finance leases for the Company’s retail store facilities, distribution center, corporate offices, IT hardware, and distribution center delivery tractors and equipment, and accounts for these leases in accordance with ASC 842. The Company’s operating leases have remaining reasonably certain lease terms of up to 12 years, which typically include options to extend the leases for up to 5 years. The Company’s finance leases have remaining reasonably certain lease terms of up to 6 years.

Certain of the leases for the Company’s retail store facilities provide for variable payments for property taxes, insurance, common area maintenance payments related to triple net leases, rental payments based on future sales volumes at the leased location, as well as certain equipment sales taxes, licenses, fees and repairs, which are not measurable at the inception of the lease, or rental payments that are adjusted periodically for inflation. The Company recognizes variable lease expense for these leases in the period incurred which, for contingent rent, begins in the period in which it becomes probable that the specified target that triggers the variable lease payments will be achieved. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

In accordance with ASC 842, the components of lease expense were as follows:


	Fiscal Year Ended
	January 1, 2023		January 2, 2022			January 3, 2021
	(In thousands)
Lease expense:
Operating lease expense	$	83,412	$	81,734		$	83,030
Variable lease expense		18,803		18,384			15,238
Sublease income		—		(91	)		(1,192	)
Operating lease expense		102,215		100,027			97,076

Amortization of right-of-use assets		3,652		2,940			2,721
Interest on lease liabilities		282		260			297
Finance lease expense		3,934		3,200			3,018
Total lease expense	$	106,149	$	103,227		$	100,094

(1)

Variable lease expense for fiscal 2020 was reduced by $3.1 million for lease abatements related to the effects of the COVID-19 pandemic that resulted in the total payments required by the modified contract being substantially the same as or less than total payments required by the original contract. See Note 2 to the Notes to Consolidated Financial Statements for a further discussion on lease concessions.

In accordance with ASC 842, other information related to leases was as follows:


	Fiscal Year Ended
	January 1, 2023			January 2, 2022			January 3, 2021
	(In thousands)
Operating cash flows from operating leases	$	86,170		$	85,238		$	83,028
Financing cash flows from finance leases		3,504			2,887			2,858
Operating cash flows from finance leases		289			271			313
Cash paid for amounts included in the measurement of lease liabilities	$	89,963		$	88,396		$	86,199

Right-of-use assets obtained in exchange for new finance lease liabilities	$	3,859		$	8,723		$	—
Right-of-use assets obtained in exchange for new operating lease liabilities	$	74,829		$	56,953		$	80,452
Weighted-average remaining lease term—finance leases	3.8 years			3.8 years			2.4 years
Weighted-average remaining lease term—operating leases	5.0 years			4.8 years			5.0 years
Weighted-average discount rate—finance leases		3.8	%		3.1	%		4.8	%
Weighted-average discount rate—operating leases		4.9	%		5.4	%		6.1	%

In accordance with ASC 842, maturities of finance and operating lease liabilities as of January 1, 2023 were as follows:


Fiscal Year Ending:	Finance Leases			Operating Leases
	(In thousands)
2023	$	4,419		$	82,670
2024		2,446			74,426
2025		1,933			57,419
2026		1,414			41,376
2027		620			24,728
Thereafter		267			41,165
Undiscounted cash flows	$	11,099		$	321,784
Reconciliation of lease liabilities:
Weighted-average remaining lease term	3.8 years			5.0 years
Weighted-average discount rate		3.8	%		4.9	%
Present values	$	10,306		$	285,168
Lease liabilities - current		3,217			70,584
Lease liabilities - long-term		7,089			214,584
Lease liabilities - total	$	10,306		$	285,168
Difference between undiscounted and discounted cash flows	$	793		$	36,616