Leases

8 Months Ended

Sep. 10, 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 third quarter and three fiscal quarters of 2023 and the third quarter and three fiscal quarters of 2022 were as follows:


	Fiscal Quarter Ended				Three Fiscal Quarters Ended
	September 10,		September 11,		September 10,		September 11,
	2023		2022		2023		2022
Operating lease cost	$	11,058	$	11,302	$	32,734	$	32,366
Finance lease cost:
Amortization of right-of-use assets		1,282		1,228		3,794		3,631
Interest on lease liabilities		1,010		1,086		3,008		2,922
Total finance lease cost	$	2,292	$	2,314	$	6,802	$	6,553

Rent expense totaled $19.7 million and $58.8 million in the third quarter and three fiscal quarters of 2023, respectively. Rent expense totaled $17.5 million and $55.4 million in the third quarter and three 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 $1.4 million and $4.1 million in the third quarter and three fiscal quarters of 2023, respectively. 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. Variable rent expense and rent expense for other short-term leases were immaterial in both the third quarter and three fiscal quarters of 2023 and 2022.

Supplemental balance sheet information related to the Company’s finance leases as of September 10, 2023 and January 1, 2023 was as follows:


	September 10,			January 1,
	2023			2023
Land and buildings	$	83,854		$	83,902
Equipment		3,941			1,606
Finance lease assets		87,795			85,508
Accumulated depreciation and amortization		(22,382	)		(19,405	)
Finance lease assets, net	$	65,413		$	66,103

Current portion of long-term debt	$	4,347		$	3,313
Long-term debt, less current portion		70,157			70,886
Total principal payable on finance leases	$	74,504		$	74,199

As of September 10, 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:


	September 10, 2023		January 1, 2023
	Operating	Finance	Operating	Finance
	Leases	Leases	Leases	Leases
Weighted average remaining lease term	7 years	13 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 third quarter and three fiscal quarters of 2023 and the third quarter and three fiscal quarters of 2022 were as follows:


	Fiscal Quarter Ended				Three Fiscal Quarters Ended
	September 10,		September 11,		September 10,		September 11,
	2023		2022		2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	11,798	$	11,581	$	31,889	$	30,076
Operating cash flows from finance leases		1,010		1,086		3,008		2,922
Financing cash flows from finance leases		1,288		1,038		2,724		2,816
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		5,230		4,241		17,405		35,405
Finance leases		398		453		3,452		453

Maturities of lease liabilities as of September 10, 2023 were as follows:


	Operating			Finance
	Leases			Leases
2023	$	15,320		$	2,499
2024		45,493			8,738
2025		41,006			8,816
2026		38,893			9,425
2027		31,281			8,239
Thereafter		86,761			68,448
Total future minimum rental commitments		258,754			106,165
Less, amounts representing interest		(37,078	)		(31,661	)
Total lease liabilities	$	221,676		$	74,504

As of September 10, 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 $40.5 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 $20.0 million and $24.5 million as of September 10, 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.