Note 9 - Leases

3 Months Ended

May 02, 2020

Notes to Financial Statements

Leases of Lessee Disclosure [Text Block]

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, primarily related to underperforming retail stores, of $35.2 million and $1.2 million in thirteen weeks ended May 2, 2020 and May 4, 2019, respectively.  The impairment charges recorded in the thirteen weeks ended May 2, 2020, including $20.4 million associated with operating lease right-of-use assets and $14.8 million associated with property and equipment, reflect the impact of the temporary store closures related to the outbreak of the COVID-19 pandemic and the Company's estimates of remaining cash flows.  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 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 not yet made a policy election with respect to lease concessions.

During the thirteen weeks ended May 2, 2020, the Company entered into new or amended leases that resulted in the recognition of right-of-use assets and lease obligations of $22.4 million on the condensed consolidated balance sheets.  As of May 2, 2020, the Company has entered into lease commitments for three retail locations for which the leases have not yet commenced.  The Company anticipates that the leases for all new retail locations will begin in the current fiscal year.  Upon commencement, right-of-use assets and lease liabilities of approximately $4.0 million will be recorded on the condensed consolidated balance sheets. 

The components of lease expense for the thirteen weeks ended May 2, 2020 were as follows:

	Thirteen Weeks Ended
($ thousands)	May 2, 2020			May 4, 2019
Operating lease expense	$	45,240		$	46,461
Variable lease expense		11,334			12,184
Short-term lease expense		712			1,115
Sublease income		(19	)		(73	)
Total lease expense	$	57,267		$	59,687

Supplemental cash flow information related to leases is as follows:

	Thirteen Weeks Ended
($ thousands)	May 2, 2020		May 4, 2019
Cash paid for lease liabilities	$	15,117		46,511
Cash received from sublease income		19		73