Leases

3 Months Ended

Mar. 26, 2023

7. Leases

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

The components of operating and finance lease cost for the first quarter of 2023 and the first quarter of 2022 were as follows:


	Fiscal Quarter Ended
	March 26,		March 27,
	2023		2022
Operating lease cost	$	10,808	$	10,275
Finance lease cost:
Amortization of right-of-use assets		1,199		1,208
Interest on lease liabilities		983		1,104
Total finance lease cost	$	2,182	$	2,312

Rent expense totaled $19.3 million and $18.9 million in the first quarter of 2023 and the first quarter of 2022, respectively. Rent expense includes operating lease cost, as well as expense for non-lease components including common area maintenance, real estate taxes and insurance 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 $1.4 million and $2.2 million in the first quarter of 2023 and the first quarter of 2022, respectively. Variable rent expense and rent expense for other short-term leases were immaterial in both the first quarter of 2023 and the first quarter of 2022.

Supplemental balance sheet information related to the Company’s finance leases as of March 26, 2023 and January 1, 2023 was as follows:


	March 26,			January 1,
	2023			2023
Land and buildings	$	83,824		$	83,902
Equipment		2,501			1,606
Finance lease assets		86,325			85,508
Accumulated depreciation and amortization		(20,591	)		(19,405	)
Finance lease assets, net	$	65,734		$	66,103

Current portion of long-term debt	$	3,728		$	3,313
Long-term debt, less current portion		70,276			70,886
Total principal payable on finance leases	$	74,004		$	74,199

As of March 26, 2023 and January 1, 2023, the weighted average remaining lease term and weighted average discount rate for the Company’s operating and finance leases were as follows:


	March 26, 2023		January 1, 2023
	Operating	Finance	Operating	Finance
	Leases	Leases	Leases	Leases
Weighted average remaining lease term	7 years	14 years	7 years	14 years
Weighted average discount rate	4.0%	6.1%	3.9%	6.0%

Supplemental cash flow information related to leases for the first quarter of 2023 and the first quarter of 2022 were as follows:


	Fiscal Quarter Ended
	March 26,		March 27,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	10,320	$	10,637
Operating cash flows from finance leases		983		1,104
Financing cash flows from finance leases		1,024		986
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		9,305		7,758
Finance leases		872		—

Maturities of lease liabilities as of March 26, 2023 were as follows:


	Operating			Finance
	Leases			Leases
2023	$	35,586		$	5,893
2024		43,630			8,232
2025		38,817			8,048
2026		37,110			8,733
2027		30,478			8,008
Thereafter		85,253			68,420
Total future minimum rental commitments		270,874			107,334
Less, amounts representing interest		(39,834	)		(33,330	)
Total lease liabilities	$	231,040		$	74,004

As of March 26, 2023, the Company had additional leases for 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 $40.9 million. These leases are expected to commence in 2023 and 2024 with lease terms of up to 11 years. These undiscounted amounts are not included in the table above.

The Company has guaranteed lease payments related to certain franchisees’ lease arrangements. The maximum amount of potential future payments under these guarantees was $23.3 million and $24.5 million as of March 26, 2023 and January 1, 2023, 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.