Leases

8 Months Ended

Sep. 11, 2022

8. Leases

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 third quarter and three fiscal quarters of 2022 and the third quarter and three fiscal quarters of 2021 were as follows:


	Fiscal Quarter Ended				Three Fiscal Quarters Ended
	September 11,		September 12,		September 11,		September 12,
	2022		2021		2022		2021
Operating lease cost	$	11,302	$	10,451	$	32,366	$	31,201
Finance lease cost:
Amortization of right-of-use assets		1,228		1,022		3,631		2,944
Interest on lease liabilities		1,086		1,050		2,922		2,798
Total finance lease cost	$	2,314	$	2,072	$	6,553	$	5,742

Rent expense totaled $17.5 million and $55.4 million in the third quarter and three fiscal quarters of 2022, respectively. Rent expense totaled $18.3 million and $54.4 million in the third quarter and three 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 $1.3 million and $5.1 million in the third quarter and three fiscal quarters of 2022, respectively. Rent expense for short-term supply chain center tractor and trailer rentals was $1.8 million and $5.6 million in the third quarter and three fiscal quarters of 2021, respectively. Variable rent expense and rent expense for other short-term leases were immaterial in both the third quarter and three fiscal quarters of 2022 and 2021.

Supplemental balance sheet information related to the Company’s finance leases as of September 11, 2022 and January 2, 2022 was as follows:


	September 11,			January 2,
	2022			2022
Land and buildings	$	85,489		$	86,965
Equipment		1,802			—
Finance lease assets		87,291			86,965
Accumulated depreciation and amortization		(18,031	)		(14,423	)
Finance lease assets, net	$	69,260		$	72,542

Current portion of long-term debt	$	4,287		$	4,088
Long-term debt, less current portion		69,591			72,250
Total principal payable on finance leases	$	73,878		$	76,338

As of September 11, 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:


	September 11, 2022		January 2, 2022
	Operating	Finance	Operating	Finance
	Leases	Leases	Leases	Leases
Weighted average remaining lease term	6 years	14 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 third quarter and three fiscal quarters of 2022 and the third quarter and three fiscal quarters of 2021 were as follows:


	Fiscal Quarter Ended				Three Fiscal Quarters Ended
	September 11,		September 12,		September 11,		September 12,
	2022		2021		2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	11,581	$	10,236	$	30,076	$	29,528
Operating cash flows from finance leases		1,086		1,050		2,922		2,798
Financing cash flows from finance leases		1,038		771		2,816		2,068
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		4,241		7,785		35,405		19,138
Finance leases		453		390		453		6,050

Maturities of lease liabilities as of September 11, 2022 were as follows:


	Operating			Finance
	Leases			Leases
2022	$	18,493		$	2,745
2023		43,705			7,623
2024		43,399			8,209
2025		37,856			8,028
2026		35,257			8,724
Thereafter		81,564			77,868
Total future minimum rental commitments		260,274			113,197
Less – amounts representing interest		(29,203	)		(39,319	)
Total lease liabilities	$	231,071		$	73,878

As of September 11, 2022, the Company had additional leases for one supply chain center, one storage warehouse facility and certain supply chain and U.S. Company-owned store vehicles that had not yet commenced with estimated future minimum rental commitments of approximately $72.3 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 $7.1 million and $9.1 million as of September 11, 2022 and January 2, 2022, respectively. The Company does not believe these arrangements have had or are likely to have a material effect on its results of operations, financial condition, revenues, expenses or liquidity.