Commitments and Contingencies

3 Months Ended

Apr. 25, 2020

11. Commitments and Contingencies

Leases

We assess whether a contract contains a lease on its execution date. If the contract contains a lease, lease classification is assessed upon its commencement date under ASC 842. For leases that are determined to qualify for treatment as operating leases, rent expense is recognized on a straight-line basis over the lease term. Leases that are determined to qualify for treatment as finance leases recognize interest expense as determined using the effective interest method with corresponding amortization of the right-of-use assets.

We enter into leases primarily for real estate assets to support our operations in the normal course of business. As of April 25, 2020, our material operating leases consist of our corporate headquarters, distribution centers and the majority of our store properties. We also have two real estate leases for store properties that qualify for treatment as finance leases. Our leases generally have terms of 5 to 20 years, with renewal options that generally range from 5 to 20 years in the aggregate and are subject to escalating rent increases. Our leases may include variable charges at the discretion of the lessor. Certain of our leases include rent escalations based on inflation indexes and/or contingent rental provisions that include a fixed base rent plus an additional percentage of the respective stores’ sales in excess of stipulated amounts. Operating lease liabilities are calculated using the prevailing index or rate at the commencement of the lease. Subsequent escalations in the index or rate and contingent rental payments are recognized as variable lease expenses. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The components of lease cost were as follows (in thousands):


	Thirteen weeks ended
	April 25, 2020		April 27, 2019

Operating lease cost^(a)	$	39,646	$	33,045
Variable lease cost		6,212		5,117
Finance lease cost:
Amortization of right-of-use assets		74		74
Interest on lease liabilities		29		34
Total lease cost^(b)	$	45,961	$	38,270

(a)	Net of an immaterial amount of sublease income.

(b)	Short-term lease cost for the thirteen weeks ended April 25, 2020 and April 27, 2019 was immaterial.

The table below presents additional information related to our leases as of April 25, 2020.


Weighted average remaining lease term
Operating leases	12.3	years
Finance leases	4.4	years
Weighted average discount rate
Operating leases	6.13	%
Finance leases	8.35	%

Supplemental disclosures of cash flow information related to leases were as follows (in thousands):


	Thirteen weeks ended
	April 25, 2020		April 27, 2019

Cash paid for operating lease liabilities^(a)(b)	$	22,414	$	33,786
Right-of-use assets obtained in exchange for operating lease liabilities	$	60,643	$	117,718
Cash paid for finance lease liabilities	$	77	$	72

(a)	As of April 25, 2020, we had negotiated or were in the process of negotiating rent deferral or abatement with certain lessors.

(b)	Includes $5.1 million in variable lease payments for the thirteen weeks ended April 27, 2019.

Litigation

We are subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.