Leases

3 Months Ended

May 28, 2022

Leases

Leases

12. Leases

The Company leases most of its retail stores and certain distribution facilities under noncancelable operating and finance leases, most of which have initial lease terms ranging from 5 to 22 years. The Company also leases certain of its equipment and other assets under noncancelable operating leases with initial terms ranging from 3 to 10 years. In addition to minimum rental payments, certain store leases require additional payments based on sales volume, as well as reimbursements for taxes, maintenance and insurance. Most leases contain renewal options, certain of which involve rent increases.

The following table is a summary of the Company’s components of net lease cost for the thirteen week periods ended May 28, 2022 and May 29, 2021:

	Thirteen Week Period Ended
	May 28, 2022		May 29, 2021
Operating lease cost	$	159,845	$	169,494
Financing lease cost:
Amortization of right-of-use asset		809		1,011
Interest on long-term finance lease liabilities		501		568
Total finance lease costs	$	1,310	$	1,579
Short-term lease costs		457		1,099
Variable lease costs		42,645		46,038
Less: sublease income		(3,223)		(3,343)
Net lease cost	$	201,034	$	214,867

Supplemental cash flow information related to leases for the thirteen week periods ended May 28, 2022 and May 29, 2021:

	Thirteen Week Period Ended
	May 28, 2022		May 29, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases	$	175,414	$	176,591
Operating cash flows paid for interest portion of finance leases		501		568
Financing cash flows paid for principal portion of finance leases		945		1,111
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		57,986		76,314
Finance leases		—		—

Supplemental balance sheet information related to leases as of May 28, 2022 and February 26, 2022 (in thousands, except lease term and discount rate):

	May 28,			February 26,
	2022			2022
Operating leases:
Operating lease right-of-use asset	$	2,723,405		$	2,813,535
Short-term operating lease liabilities	$	574,392		$	575,651
Long-term operating lease liabilities		2,526,607			2,597,090
Total operating lease liabilities	$	3,100,999		$	3,172,741
Finance leases:
Property, plant and equipment, net	$	13,151		$	13,950
Current maturities of long-term debt and lease financing obligations	$	5,016		$	5,544
Lease financing obligations, less current maturities		14,392			14,830
Total finance lease liabilities	$	19,408		$	20,374
Weighted average remaining lease term
Operating leases		7.5			7.7
Finance leases		8.7			8.7
Weighted average discount rate
Operating leases		6.0	%		6.0	%
Finance leases		9.8	%		10.0	%

The following table summarizes the maturity of lease liabilities under finance and operating leases as of May 28, 2022:

	May 28, 2022
	Finance		Operating
Fiscal year	Leases		Leases (1)		Total
2023 (remaining forty weeks)	$	6,065	$	519,021	$	525,086
2024		4,234		647,443		651,677
2025		3,149		554,618		557,767
2026		2,367		465,409		467,776
2027		1,500		383,097		384,597
Thereafter		12,048		1,302,201		1,314,249
Total lease payments		29,363		3,871,789		3,901,152
Less: imputed interest		(9,955)		(770,790)		(780,745)
Total lease liabilities	$	19,408	$	3,100,999	$	3,120,407

(1) – Future operating lease payments have not been reduced by minimum sublease rentals of $34 million due in the future under noncancelable leases.

During the thirteen week period ended May 28, 2022, the Company did not enter into any sale-leaseback transactions. During the thirteen week period ended May 29, 2021, the Company sold two owned and operating stores to independent third parties. Net proceeds from the sales were $7,456 for the thirteen week period ended May 29, 2021. Concurrent with these sales, the Company entered into agreements to lease the properties back from the purchasers over a minimum lease term of 15 years. The Company accounted for these leases as operating lease right-of-use assets and corresponding operating lease liabilities in accordance with the Lease Standard. The transaction resulted in a gain of $3,688 which is included in the gain on sale of assets, net for the thirteen week period ended May 29, 2021.

The Company has additional capacity under its outstanding debt agreements to enter into additional sale-leaseback transactions.