Leases

6 Months Ended

Jul. 02, 2022

We lease our retail, office and manufacturing space under operating leases which, in addition to the minimum lease payments, may require payment of a proportionate share of the real estate taxes and certain building operating expenses. While our local market development approach generally results in long-term participation in given markets, our retail store leases generally provide for an initial lease term of five to 10 years. Our office and manufacturing leases provide for an initial lease term of up to 15 years. In addition, our mall-based retail store leases may require payment of variable rent based on net sales in excess of certain thresholds. Certain leases may contain options to extend the term of the original lease. The exercise of lease renewal options is at our sole discretion. Lease options are included in the lease term only if exercise is reasonably certain at lease commencement. Our lease agreements do not contain any material residual value guarantees. We also lease vehicles and certain equipment under operating leases with an initial lease term of three to five years.

Our operating lease costs include facility, vehicle and equipment lease costs, but exclude variable lease costs. Operating lease costs are recognized on a straight-line basis over the lease term, after consideration of rent escalations and rent holidays. The lease term for purposes of the calculation begins on the earlier of the lease commencement date or the date we take possession of the property. During lease renewal negotiations that extend beyond the original lease term, we estimate straight-line rent expense based on current market conditions. Variable lease costs are recorded when it is probable the cost has been incurred and the amount can be reasonably estimated. Future payments for real estate taxes and certain building operating expenses for which we are obligated are not included in operating lease costs.

At July 2, 2022, our finance right-of-use assets and lease liabilities were not significant.

Lease costs were as follows (in thousands):


	Three Months Ended				Six Months Ended
	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021
Operating lease costs(1)	$	27,025	$	24,352	$	54,103	$	47,991
Variable lease costs	$	262	$	840	$	593	$	1,355

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(1)Includes short-term lease costs which are not significant.

The maturities of operating lease liabilities as of July 2, 2022, were as follows(1) (in thousands):


2022 (excluding the six months ended July 2, 2022)	$	49,989
2023	95,063
2024	82,667
2025	72,361
2026	60,823
2027	45,401
Thereafter	96,838
Total operating lease payments(2)	503,142
Less: Interest	82,626
Present value of operating lease liabilities	$	420,516

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(1)Total operating lease payments exclude $101 million of legally binding minimum lease payments for leases signed but not yet commenced.

(2)Includes the current portion of $76 million for operating lease liabilities.

Other information related to operating leases was as follows:


	July 2, 2022		January 1, 2022
Weighted-average remaining lease term (in years)	6.3		6.4
Weighted-average discount rate	6.0	%	6.1	%


	Six Months Ended
(in thousands)	July 2, 2022		July 3, 2021
Cash paid for amounts included in present value of operating lease liabilities	$	48,964	$	43,414
Right-of-use assets obtained in exchange for operating lease liabilities	$	36,180	$	50,667