Leases

6 Months Ended

Jun. 18, 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 second quarter and two fiscal quarters of 2023, and the second quarter and two fiscal quarters of 2022 were as follows:


	Fiscal Quarter Ended				Two Fiscal Quarters Ended
	June 18,		June 19,		June 18,		June 19,
	2023		2022		2023		2022
Operating lease cost	$	10,867	$	10,789	$	21,675	$	21,064
Finance lease cost:
Amortization of right-of-use assets		1,313		1,195		2,512		2,403
Interest on lease liabilities		1,015		732		1,998		1,836
Total finance lease cost	$	2,328	$	1,927	$	4,510	$	4,239

Rent expense totaled $19.7 million and $39.0 million in the second quarter and two fiscal quarters of 2023, respectively. Rent expense totaled $19.0 million and $37.9 million in the second quarter and two fiscal quarters 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 $1.3 million and $2.7 million in the second quarter and two fiscal quarters of 2023, respectively. 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. Variable rent expense and rent expense for other short-term leases were immaterial in both the second quarter and two fiscal quarters of 2023 and 2022.

Supplemental balance sheet information related to the Company’s finance leases as of June 18, 2023 and January 1, 2023 was as follows:


	June 18,			January 1,
	2023			2023
Land and buildings	$	83,982		$	83,902
Equipment		3,951			1,606
Finance lease assets		87,933			85,508
Accumulated depreciation and amortization		(21,468	)		(19,405	)
Finance lease assets, net	$	66,465		$	66,103

Current portion of long-term debt	$	4,245		$	3,313
Long-term debt, less current portion		71,316			70,886
Total principal payable on finance leases	$	75,561		$	74,199

As of June 18, 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:


	June 18, 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%	6.0%	3.9%	6.0%

Supplemental cash flow information related to leases for the second quarter and two fiscal quarters of 2023 and the second quarter and two fiscal quarters of 2022 were as follows:


	Fiscal Quarter Ended				Two Fiscal Quarters Ended
	June 18,		June 19,		June 18,		June 19,
	2023		2022		2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	9,771	$	7,858	$	20,092	$	18,495
Operating cash flows from finance leases		1,015		732		1,998		1,836
Financing cash flows from finance leases		412		792		1,436		1,778
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		2,870		23,407		12,175		31,164
Finance leases		2,183		—		3,054		—

Maturities of lease liabilities as of June 18, 2023 were as follows:


	Operating			Finance
	Leases			Leases
2023	$	25,474		$	4,485
2024		44,198			8,670
2025		39,406			8,749
2026		37,763			9,350
2027		30,955			8,181
Thereafter		86,873			68,816
Total future minimum rental commitments		264,669			108,251
Less, amounts representing interest		(38,364	)		(32,690	)
Total lease liabilities	$	226,305		$	75,561

As of June 18, 2023, the Company had additional leases for certain supply chain real estate and certain supply chain and U.S. Company-owned store vehicles that had not yet commenced with estimated future minimum rental commitments of $43.1 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 $21.6 million and $24.5 million as of June 18, 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.