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Leases

12 Months Ended

Mar. 04, 2023

17. Leases

The Company leases most of its retail stores and certain distribution facilities under noncancellable 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 noncancellable 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 fiscal years ended March 4, 2023, February 26, 2022 and February 27, 2021:


	Year Ended
	March 4, 2023		February 26, 2022		February 27, 2021
Operating lease cost	$	641,394	$	669,421	$	651,261
Financing lease cost:
Amortization of right-of-use asset		3,471		3,638		4,359
Interest on long-term finance lease liabilities		1,968		2,167		2,505
Total finance lease costs	$	5,439	$	5,805	$	6,864
Short-term lease costs		3,126		3,180		3,214
Variable lease costs		178,263		175,697		172,088
Less: sublease income		(12,871)		(13,510)		(14,886)
Net lease cost	$	815,351	$	840,593	$	818,541

Supplemental cash flow information related to leases for the fiscal years ended March 4, 2023, February 26, 2022 and February 27, 2021:


	Year Ended
	March 4, 2023		February 26, 2022		February 27, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases	$	706,506	$	703,326	$	683,226
Operating cash flows paid for interest portion of finance leases		1,968		2,167		2,505
Financing cash flows paid for principal portion of finance leases		4,019		4,117		4,744
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		264,507		350,132		513,215
Finance leases		—		—		—

Supplemental balance sheet information related to leases as of March 4, 2023 and February 26, 2022 (in thousands, except lease term and discount rate):


	March 4,			February 26,
	2023			2022
Operating leases:
Operating lease right-of-use asset	$	2,497,206		$	2,813,535

Short-term operating lease liabilities	$	502,403		$	575,651
Long-term operating lease liabilities		2,372,943			2,597,090
Total operating lease liabilities	$	2,875,346		$	3,172,741

Finance leases:
Property, plant and equipment, net	$	13,576		$	13,950

Current maturities of long-term debt and lease financing obligations	$	6,332		$	5,544
Lease financing obligations, less current maturities		12,580			14,830
Total finance lease liabilities	$	18,912		$	20,374
Weighted average remaining lease term
Operating leases		7.5			7.7
Finance leases		8.0			8.7

Weighted average discount rate
Operating leases		6.5	%		6.0	%
Finance leases		9.0	%		10.0	%

As a result of the Sale to WBA and the related Amended and Restated Asset Purchase Agreement, the Company has lease guarantee obligations related to 676 former stores. The Company is only obligated to pay for the lease guarantees in the event that WBA fails to perform under the lease agreements, as WBA is the primary obligor.

The following table summarizes the maturity of lease liabilities under finance and operating leases as of March 4, 2023:


	March 4, 2023
	Finance		Operating
Fiscal year	Leases		Leases⁽¹⁾		Total
2024	$	3,188	$	677,631	$	680,819
2025		7,732		593,857		601,589
2026		2,421		507,388		509,809
2027		1,567		426,503		428,070
2028		1,500		351,942		353,442
Thereafter		10,923		1,148,719		1,159,642
Total lease payments		27,331		3,706,040		3,733,371
Less: imputed interest		(8,419)		(830,694)		(839,113)
Total lease liabilities	$	18,912	$	2,875,346	$	2,894,258

(1)	Future operating lease payments have not been reduced by minimum sublease rentals of $24.0 million due in the future under noncancelable leases.

Sale-Leaseback Transactions:

During the year ended March 4, 2023, the Company sold twelve owned and operated properties, including the Pontiac, MI and Liverpool, NY distribution centers and ten retail stores to independent third parties. Net proceeds from the sales were $73,344. 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 for the retail stores and over a minimum lease term of three years for the distribution centers. 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 transactions resulted in a gain of $38,214 which is included in the (gain) loss on sale of assets, net for fifty-three weeks ended March 4, 2023.

During the year ended February 26, 2022, the Company sold twenty owned and operating properties to independent third parties. Net proceeds from the sale were $57,498. 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 transactions resulted in a gain of $8,600 which is included in the (gain) loss on sale of assets, net for the fifty-two weeks ended February 26, 2022.

During the year ended February 27, 2021, the Company sold eleven owned and operating properties, including the Company’s Perryman, MD, Woodland, CA, and Lancaster, CA distribution centers, the Company’s Ice Cream Plant and seven retail stores to independent third parties. Net proceeds from the sales were $177,892. Concurrent with these sales, the Company entered into agreements to lease the properties back from the purchasers over minimum lease terms between 15 and 20 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 transactions resulted in a gain of $93,841 which is included in the (gain) loss on sale of assets, net for the fifty-two weeks ended February 27, 2021.

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