Facility Exit and Impairment Charges

3 Months Ended

Jun. 03, 2023

Facility Exit and Impairment Charges

Facility Exit and Impairment Charges

4. Facility Exit and Impairment Charges

Facility exit and impairment charges consist of amounts as follows:

	Thirteen Week Period
	Ended
	June 3,		May 28,
	2023		2022
Impairment charges	$	11,738	$	35,036
Facility exit charges		7,954		6,785
	$	19,692	$	41,821

Impairment Charges

These amounts include the write-down of long-lived assets at locations that were assessed for impairment because of management’s intention to relocate or close the location or because of changes in circumstances that indicated the carrying value of an asset may not be recoverable.

The Company utilizes the three-level valuation hierarchy for the recognition and disclosure of fair value measurements. The categorization of assets and liabilities within this hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy consist of the following:

● Level 1—Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

● Level 2—Inputs to the valuation methodology are quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active or inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument.

● Level 3—Inputs to the valuation methodology are unobservable inputs based upon management’s best estimate of inputs market participants could use in pricing the asset or liability at the measurement date, including assumptions about risk.

Non-Financial Assets Measured on a Non-Recurring Basis

Long-lived non-financial assets are measured at fair value on a nonrecurring basis for purposes of calculating impairment using Level 2 and Level 3 inputs as defined in the fair value hierarchy. The fair value of long-lived assets using Level 2 inputs is determined by evaluating the current economic conditions in the geographic area for similar use assets. The fair value of long-lived assets using Level 3 inputs is determined by estimating the amount and timing of net future cash flows (which are unobservable inputs) and discounting them using a risk-adjusted rate of interest (which is Level 1). The Company estimates future cash flows based on its experience and knowledge of the market in which the store is located. Significant increases or decreases in actual cash flows may result in valuation changes. During the thirteen week period ended June 3, 2023, long-lived assets with a carrying value of $11,738, primarily right-of-use assets in connection with stores or leased office spaces, were written down to their fair value of $0, resulting in an impairment charge of $11,738. During the thirteen week period ended May 28, 2022, long-lived assets with a carrying value of $39,228, primarily right-of-use assets in connection with leased office spaces, were written down to their fair value of

$4,192, resulting in an impairment charge of $35,036. If our actual future cash flows differ from our projections materially, certain stores that are either not impaired or partially impaired in the current period may be further impaired in future periods.

The following table presents fair values for those assets measured at fair value on a non-recurring basis at June 3, 2023 and May 28, 2022:

							Fair Values		Total
							as of		Charges
	Level 1		Level 2		Level 3		Impairment Date		June 3, 2023
Long-lived assets held for use	$	—	$	—	$	—	$	—	$	(11,738)
Long-lived assets held for sale	$	—	$	—	$	—	$	—	$	—
Total	$	—	$	—	$	—	$	—	$	(11,738)

							Fair Values		Total
							as of		Charges
	Level 1		Level 2		Level 3		Impairment Date		May 28, 2022
Long-lived assets held for use	$	—	$	4,192	$	—	$	4,192	$	(35,036)
Long-lived assets held for sale	$	—	$	—	$	—	$	—	$	—
Total	$	—	$	4,192	$	—	$	4,192	$	(35,036)

The above assets reflected in the caption ‘Long-lived assets held for sale’ have not been reclassified to assets held for sale due to their immateriality.

Facility Exit Charges

The Company assesses stores and distribution centers for potential closure or relocation. Decisions to close or relocate stores or distribution centers in future periods would result in inventory liquidation charges, as well as impairment of assets at these locations. When a store or distribution center is closed, the Company records executory costs for leases, as well as other store or distribution center closing and liquidation costs, when incurred.

The Company calculates the liability for facility exit or disposal cost obligations to include long-term contract termination costs and costs related to the disposal of long-lived assets.

The following table reflects the accrued facility exit charges:

	Thirteen Week Period
	Ended
	June 3,		May 28,
	2023		2022
Balance—beginning of period	$	2,228	$	1,892
Provision for facility exit charges		155		—
Changes in assumptions and other adjustments		—		—
Interest accretion		—		—
Cash payments		(464)		(36)
Balance—end of period	$	1,919	$	1,856