LEASES

9 Months Ended

Oct. 31, 2020

LEASES

LEASES

Note 9    Leases

The Company leases all of its retail locations and certain manufacturing facilities, office locations, distribution centers and equipment.  At contract inception, leases are evaluated and classified as either operating or finance leases.  Leases with an initial term of 12 months or less are not recorded on the balance sheet.

Lease right-of-use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term.  The majority of the Company’s leases do not provide an implicit rate and therefore, the Company uses an incremental borrowing rate based on information available at the commencement date to determine the present value of future payments.  Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Variable lease payments are expensed as incurred.

The Company regularly analyzes the results of all of its stores and assesses the viability of underperforming stores to determine whether events or circumstances exist that indicate the stores should be closed or whether the carrying amount of their long-lived assets may not be recoverable.  After allowing for an appropriate start-up period, unusual nonrecurring events or favorable trends, property and equipment at stores and the lease right-of-use assets indicated as impaired are written down to fair value as calculated using a discounted cash flow method.  The Company recorded asset impairment charges of $0.4 million and $2.2 million during the thirteen weeks ended October 31, 2020 and November 2, 2019, respectively.  The Company recorded asset impairment charges, primarily related to underperforming retail stores, of $35.6 million and $5.1 million in the thirty-nine weeks ended October 31, 2020 and November 2, 2019, respectively.  The impairment charges recorded in the thirty-nine weeks ended October 31, 2020, including $21.1 million associated with operating lease right-of-use assets and $14.5 million associated with property and equipment, reflect the impact of the COVID-19 pandemic on the Company’s retail operations and estimates of remaining cash flows for each store.  Refer to Note 5 and Note 15 to the condensed consolidated financial statements for further discussion on these impairment charges.

As a result of the temporary store closures during the first half of 2020 associated with the COVID-19 pandemic, the Company is negotiating with landlords to modify payment terms for certain leases.  Deferred payments for these leases are reflected in lease obligations on the condensed consolidated balance sheets.  As further discussed in Note 2 to the condensed consolidated financial statements, under relief provided by the FASB, entities may make a policy election to account for the lease concessions as if the enforceable rights existed under the original contract, accounting for them as variable rent rather than lease modifications.  The Company has made a policy election to account for rent abatements as variable rent.  Accordingly, the Company recorded $1.7 million and $3.7 million in the thirteen and thirty-nine weeks ended October 31, 2020, respectively, in lease concessions as a reduction of rent expense within selling and administrative expenses in the condensed consolidated statements of earnings (loss).  Rent deferrals for leases that were extended in connection with the rent concession will continue to be recognized consistent with the original lease agreement.

During the thirty-nine weeks ended October 31, 2020, the Company entered into new or amended leases that resulted in the recognition of right-of-use assets and lease obligations of $63.1 million on the condensed consolidated balance sheets.  As of October 31, 2020, the Company has entered into lease commitments for four retail locations for which the leases have not yet commenced.  The Company anticipates that one lease will begin in the current fiscal year and three leases will begin in the next fiscal year.  Upon commencement, right-of-use assets and lease liabilities of approximately $0.9 million will be recorded in the current fiscal year and $3.9 million in the next fiscal year on the condensed consolidated balance sheets.

The components of lease expense for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019 were as follows:

	Thirteen Weeks Ended
($thousands)	October 31, 2020		November 2, 2019
Operating lease expense	$	38,568	$	47,068
Variable lease expense		12,739		11,794
Short-term lease expense		1,775		577
Sublease income		(29)		(73)
Total lease expense	$	53,053	$	59,366

	Thirty-Nine Weeks Ended
($thousands)	October 31, 2020		November 2, 2019
Operating lease expense	$	124,906	$	139,380
Variable lease expense		36,090		35,277
Short-term lease expense		3,872		2,654
Sublease income		(76)		(220)
Total lease expense	$	164,792	$	177,091

Supplemental cash flow information related to leases is as follows:

	Thirty-Nine Weeks Ended
($thousands)		October 31, 2020		November 2, 2019
Cash paid for lease liabilities		$	99,517	$	136,497
Cash received from sublease income			76		220