Leases

3 Months Ended

May 02, 2020

(3)

Leases

The Company determines if an arrangement contains a lease at the inception of a contract. Operating lease assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease assets and operating lease liabilities are recognized at the commencement date based on the present value of the remaining future minimum lease payments. As the rate implicit in the lease is not readily determinable for the Company's leases, the Company utilizes its incremental borrowing rate to determine the present value of future lease payments. The incremental borrowing rate represents a significant judgment and is determined based on an analysis of the Company's synthetic credit rating, prevailing financial market conditions, corporate bond yields, treasury bond yields, and the effect of collateralization. The operating lease assets also include lease payments made before commencement and exclude lease incentives.

The Company’s real estate leases typically contain options that permit renewals for additional periods of up to five years. For real estate leases, except for renewals that generally take the lease to a ten-year term, the options to renew are not considered reasonably certain at lease commencement because the Company reevaluates each lease on a regular basis to consider the economic and strategic benefits of exercising the renewal options, and regularly opens, relocates or closes stores to align with its operating strategy. Therefore, generally, except for renewals that take the lease to a ten-year term, the renewal option periods are not included within the lease term and the associated payments are not included in the measurement of the operating lease asset and operating lease liability as the exercise of such options is not reasonably certain. The Company’s operating lease agreements, including assumed renewals, which are generally those that take the lease to a ten-year term, expire through fiscal 2034. Similarly, renewal options are not included in the lease term for non-real estate leases because they are not considered reasonably certain of being exercised at lease commencement. Leases with an initial term of 12 months or less are not recorded on the balance sheets and lease expense is recognized on a straight-line basis over the term of the short-term lease.

For certain real estate leases, the Company accounts for lease components and nonlease components as a single lease component. Certain real estate leases require additional payments for reimbursement of real estate taxes, common area maintenance and insurance as well as payments based on sales volume, all of which are expensed as incurred as variable lease costs. Other real estate leases contain one fixed lease payment that includes real estate taxes, common area maintenance and insurance. These fixed payments are considered part of the lease payment and included in the operating lease assets and operating lease liabilities.

During the thirteen weeks ended May 2, 2020, the Company committed to 31 new store leases with average terms of approximately 10 years that have future minimum lease payments of approximately $56.6 million.

All of the Company's leases are classified as operating leases and the associated assets and liabilities are presented as separate captions in the consolidated balance sheets. As of May 2, 2020 and May 4, 2019, the weighted average remaining lease term for the Company's operating leases is 8.1 years and 7.8 years, respectively, and the weighted average discount rate is 6.5% and 7.6%, respectively.

The following table is a summary of the Company's components for net lease costs (in thousands):



	Thirteen Weeks Ended
Lease Cost	May 2, 2020		May 4, 2019
Operating lease cost	$	40,348	$	33,099
Variable lease cost	11,343		9,290
Net lease cost*	$	51,691	$	42,389

* Excludes short-term lease cost, which is immaterial.

The following table summarizes the maturity of lease liabilities under operating leases as of May 2, 2020 (in thousands):



Maturity of Lease Liabilities	Operating Leases
2020	$	142,021
2021	171,812
2022	165,066
2023	157,535
2024	146,355
After 2024	502,948
Total lease payments	1,285,737
Less: imputed interest	281,574
Present value of lease liabilities	$	1,004,163

The following table summarizes the supplemental cash flow disclosures related to leases (in thousands):



	Thirteen Weeks Ended
	May 2, 2020		May 4, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Cash payments arising from operating lease liabilities⁽¹⁾	$	10,322	$	29,176
Supplemental non-cash information:
Operating lease liabilities arising from obtaining right-of-use assets	$	60,928	$	49,517

(1) Included within operating activities in the Company's Consolidated Statements of Cash Flows.