Leases

6 Months Ended

Jun. 19, 2022

The Company leases certain retail store and supply chain center locations, supply chain vehicles, equipment and its corporate headquarters with expiration dates through 2041.

The components of operating and finance lease cost for the second quarter and two fiscal quarters of 2022 and the second quarter and two fiscal quarters of 2021 were as follows:


	Fiscal Quarter Ended				Two Fiscal Quarters Ended
	June 19,		June 20,		June 19,		June 20,
	2022		2021		2022		2021
Operating lease cost	$	10,789	$	10,326	$	21,064	$	20,750
Finance lease cost:
Amortization of right-of-use assets		1,195		1,003		2,403		1,922
Interest on lease liabilities		732		722		1,836		1,748
Total finance lease cost	$	1,927	$	1,725	$	4,239	$	3,670

Rent expense totaled $19.0 million and $37.9 million in the second quarter and two fiscal quarters of 2022, respectively. Rent expense totaled $17.9 million and $36.1 million in the second quarter and two fiscal quarters of 2021, respectively. Rent expense includes operating lease cost, as well as expense for non-lease components including common area maintenance, real estate taxes and other costs for the Company’s real estate leases. Rent expense also includes the variable rate per mile driven and fixed maintenance charges for the Company’s supply chain center tractors and trailers and expense for short-term rentals. Rent expense for certain short-term supply chain center tractor and trailer rentals was $1.6 million and $3.8 million in the second quarter and two fiscal quarters of 2022, respectively. Rent expense for short-term supply chain center tractor and trailer rentals was $2.0 million and $3.8 million in the second quarter and two fiscal quarters of 2021, respectively. Variable rent expense and rent expense for other short-term leases were immaterial in both the second quarter and two fiscal quarters of 2022 and 2021.

Supplemental balance sheet information related to the Company’s finance leases as of June 19, 2022 and January 2, 2022 was as follows:


	June 19,			January 2,
	2022			2022
Land and buildings	$	86,839		$	86,965
Accumulated depreciation and amortization		(16,804	)		(14,423	)
Finance lease assets, net	$	70,035		$	72,542

Current portion of long-term debt	$	4,154		$	4,088
Long-term debt, less current portion		70,309			72,250
Total principal payable on finance leases	$	74,463		$	76,338

As of June 19, 2022 and January 2, 2022, the weighted average remaining lease term and weighted average discount rate for the Company’s operating and finance leases were as follows:


	June 19, 2022		January 2, 2022
	Operating	Finance	Operating	Finance
	Leases	Leases	Leases	Leases
Weighted average remaining lease term	7 years	15 years	7 years	15 years
Weighted average discount rate	3.6%	5.8%	3.5%	5.8%

Supplemental cash flow information related to leases for the second quarter and two fiscal quarters of 2022 and the second quarter and two fiscal quarters of 2021 were as follows:


	Fiscal Quarter Ended				Two Fiscal Quarters Ended
	June 19,		June 20,		June 19,		June 20,
	2022		2021		2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	7,858	$	9,105	$	18,495	$	19,292
Operating cash flows from finance leases		732		722		1,836		1,748
Financing cash flows from finance leases		792		593		1,778		1,297
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		23,407		6,681		31,164		11,353
Finance leases		—		5,261		—		5,660

Maturities of lease liabilities as of June 19, 2022 were as follows:


	Operating			Finance
	Leases			Leases
2022	$	29,410		$	4,722
2023		43,207			7,523
2024		42,579			8,100
2025		37,063			7,919
2026		34,410			8,615
Thereafter		79,923			77,842
Total future minimum rental commitments		266,592			114,721
Less – amounts representing interest		(30,236	)		(40,258	)
Total lease liabilities	$	236,356		$	74,463

As of June 19, 2022, the Company had additional leases for one supply chain center, one storage warehouse facility and certain supply chain tractors and trailers that had not yet commenced with estimated future minimum rental commitments of approximately $61.1 million. These leases are expected to commence in 2022 and 2023 with lease terms of up to 16 years. These undiscounted amounts are not included in the table above.

The Company has guaranteed lease payments related to certain franchisees’ and others' lease arrangements. The maximum amount of potential future payments under these guarantees was $7.9 million and $9.1 million as of June 19, 2022 and January 2, 2022, respectively. The Company does not believe these arrangements have or are likely to have a material effect on its results of operations, financial condition, revenues, expenses or liquidity.