The Company leases all of its retail locations, a manufacturing facility, and certain 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. For operating leases, 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 and consideration of any unusual nonrecurring events, 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 fair value of the lease right-of-use assets is determined utilizing projected cash flows for each store location, discounted using a risk-adjusted discount rate, subject to a market floor based on current market lease rates. The Company recorded no asset impairment charges in the thirteen weeks and asset impairment charges of $2.0 million for the thirty-nine weeks ended October 29, 2022. For the thirteen and thirty-nine weeks ended October 30, 2021, the Company recorded asset impairment charges of $1.1 million and $3.4 million, respectively. The impairment charges are primarily related to capitalized software and underperforming retail stores. Refer to Note 14 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 pandemic, certain leases were amended to provide rent abatements and/or deferral of lease payments. Deferred payments continue to be reflected in lease obligations on the condensed consolidated balance sheets. Under relief provided by the FASB, entities could make a policy election to account for COVID-19-related lease concessions as if the enforceable rights existed under the original contract, accounting for them as variable rent rather than lease modifications. The Company made a policy election to account for rent abatements as variable rent. Accordingly, during the thirteen and thirty-nine weeks ended October 29, 2022, the Company recorded $0.4 million and $1.1 million, respectively, in lease concessions as a reduction of rent expense within selling and administrative expenses in the condensed consolidated statements of earnings. During the thirteen and thirty-nine-weeks October 30, 2021, the Company recorded $0.1 million and $1.7 million, respectively, in lease concessions. Rent concessions for leases that were extended were recognized as a lease modification.

During the thirty-nine weeks ended October 29, 2022, the Company entered into new or amended leases that resulted in the recognition of right-of-use assets and lease obligations of $130.7 million on the condensed consolidated balance sheets. As of October 29, 2022, the Company has entered into lease commitments for five retail locations for which the leases have not yet commenced. The Company anticipates that one lease will begin in the current fiscal year and four 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 $3.4 million will be recorded 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 29, 2022 and October 30, 2021 were as follows:

(1)

Cash paid for lease liabilities for the thirty-nine weeks ended October 29, 2022 includes payment of certain lease payments deferred in 2020, as described above, as well as lease termination costs associated with the Naturalizer retail store closings, as further discussed in Note 5 to the condensed consolidated financial statements.