Leases

9 Months Ended

Oct. 02, 2022

Leases

Leases

6.Leases

Subsequent to the adoption of ASC 842

On January 3, 2022, the Company adopted ASC 842 using the alternative transition method and applied the standard only to leases that existed at that date. Under the alternative transition method, the Company did need to restate the comparative periods in transition and will continue to present financial information and disclosures for periods before January 3, 2022, in accordance with FASB ASC 840, Leases. The Company elected the practical expedient package, which among other practical expedients, includes the option to retain the historical classification of leases entered into prior to January 3, 2022, and allows entities to recognize lease payments on a straight-line basis over the lease term for leases with a term of 12 months or less. The Company also elected the practical expedient to combine lease and non-lease components.

The Company is a lessee under various lease agreements. The determination of whether an arrangement contains a lease and the lease classification is made at lease commencement (date upon which the Company takes possession of the asset). At lease commencement, the Company also measures and recognizes a right-of-use asset, representing the Company’s right to use the underlying asset, and a lease liability, representing the Company’s obligation to make lease payments under the terms of the arrangement. The lease term is defined as the noncancelable portion of the lease term plus any periods covered by an option to extend the lease if it is reasonably certain that the option will be exercised. For the purposes of recognizing right-of-use assets and lease liabilities associated with the Company’s leases, the Company has elected the practical expedient of not recognizing a right-of-use asset or lease liability for short-term leases, which are leases with a term of 12 months or less. The Company has one finance lease and multiple operating leases that are combined and included in the lease right-of-use assets, lease liabilities, current, and lease liabilities, noncurrent on the Company’s condensed consolidated balance sheets.

The Company primarily leases its distribution facilities and corporate offices under operating lease agreements expiring on various dates through December 2031, most of which contain options to extend. As of January 3, 2022, the Company had various operating leases with a lease term of less than 12 months for its office spaces. In addition to payment of base rent, the Company is also required to pay property taxes, insurance, and common area maintenance expenses. The Company records lease expense on a straight-line basis over the term of the lease. As of October 2, 2022, the Company had immaterial remaining obligations for the base rent related to the short-term leases.

The Company also leases equipment under one master finance lease agreement, with two equipment leases that commenced in March 2022 and August 2022, and both expire in March 2026 with lease payments due quarterly through December 2025.

As of October 2, 2022, the future minimum lease payments for the Company’s operating and finance leases for each of the fiscal years were as follows (in thousands):

Fiscal Year Ending:		Operating Leases	Finance Leases		Total
2022 (remaining thirteen weeks)	$	1,200	$	271	$	1,471
2023		4,487		1,252		5,739
2024		4,636		1,252		5,888
2025		5,217		1,252		6,469
2026		4,516		—		4,516
Thereafter		16,604		—		16,604
Total undiscounted lease payment		36,660		4,027		40,687
Present value adjustment		(8,010)		(191)		(8,201)
Total lease liabilities		28,650		3,836		32,486
Less: lease liabilities, current		2,779		1,153		3,932
Lease liabilities, noncurrent	$	25,871	$	2,683	$	28,554

Under the terms of the remaining lease agreements, the Company is also responsible for certain variable lease payments that are not included in the measurement of the lease liability, including non-lease components such as common area maintenance fees, taxes, and insurance.

The following information represents supplemental disclosure of lease costs, components of the statement of cash flows related to operating and finance leases and components of right-of-use assets (in thousands):

		Thirteen Weeks Ended		Thirty-nine Weeks Ended
		October 2,		October 2,
	2022			2022
Finance lease cost
Amortization of ROU assets	$	303	$	617
Interest on lease liabilities		30		62
Operating lease cost		1,177		3,440
Short-term lease cost		188		583
Variable lease cost		188		555
Total lease cost	$	1,886	$	5,257
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	491	$	3,399
Operating cash flows from finance leases	$	—	$	—
Financing cash flows from finance leases	$	197	$	541
Right-of-use assets obtained in exchange for new finance lease liabilities	$	987	$	4,750
Right-of-use assets obtained in exchange for new operating lease liabilities	$	—	$	1,839
Weighted-average remaining lease term - finance leases		42 months		42 months
Weighted-average remaining lease term - operating leases		93 months		93 months
Weighted-average discount rate - finance leases		3.00%		3.00%
Weighted-average discount rate - operating leases		6.54%		6.54%

Prior to the adoption of ASC 842

Rent expense for non-cancelable operating leases was $0.7 million and $2.2 million for the thirteen and thirty-nine weeks ended October 3, 2021, respectively, and was included within general and administrative expenses in the condensed consolidated statements of operations and comprehensive income.

Future minimum lease payments under non-cancelable operating leases as of January 2, 2022 were as follows (in

thousands):

Fiscal Year Ending:		Amounts
2022	$	4,899
2023		4,263
2024		3,879
2025		4,017
2026		2,427
Thereafter		5,037
Total	$	24,522