Leases

6 Months Ended

Sep. 02, 2023

Leases

Leases

11. 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 and twenty-six week periods ended September 2, 2023 and August 27, 2022:

	Thirteen Week Period Ended				Twenty-Six Week Period Ended
	September 2, 2023		August 27, 2022		September 2, 2023		August 27, 2022
Operating lease cost	$	148,896	$	157,956	$	301,568	$	317,801
Financing lease cost:
Amortization of right-of-use asset		775		863		1,594		1,672
Interest on long-term finance lease liabilities		454		503		921		1,004
Total finance lease costs	$	1,229	$	1,366	$	2,515	$	2,676
Short-term lease costs		2,086		585		1,310		1,042
Variable lease costs		44,646		43,652		90,879		86,297
Less: sublease income		(3,104)		(3,393)		(5,841)		(6,616)
Net lease cost	$	193,753	$	200,166	$	390,431	$	401,200

Supplemental cash flow information related to leases for the twenty-six week periods ended September 2, 2023 and August 27, 2022:

	Twenty-Six Week Period Ended
	September 2, 2023		August 27, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases	$	330,492	$	350,177
Operating cash flows paid for interest portion of finance leases		921		1,004
Financing cash flows paid for principal portion of finance leases		1,969		1,940
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		163,569		155,710
Finance leases		—		—

Supplemental balance sheet information related to leases as of September 2, 2023 and March 4, 2023 (in thousands, except lease term and discount rate):

	September 2,			March 4,
	2023			2023
Operating leases:
Operating lease right-of-use asset	$	2,239,043		$	2,497,206
Short-term operating lease liabilities	$	422,233		$	502,403
Long-term operating lease liabilities		2,373,953			2,372,943
Total operating lease liabilities	$	2,796,186		$	2,875,346
Finance leases:
Property, plant and equipment, net	$	12,674		$	13,576
Current maturities of lease financing obligations	$	6,006		$	6,332
Lease financing obligations, less current maturities		11,718			12,580
Total finance lease liabilities	$	17,724		$	18,912
Weighted average remaining lease term
Operating leases		7.3			7.5
Finance leases		8.0			8.0
Weighted average discount rate
Operating leases		7.5	%		6.5	%
Finance leases		10.5	%		9.0	%

The following table summarizes the maturity of lease liabilities under finance and operating leases as of September 2, 2023:

	September 2, 2023
	Finance		Operating
Fiscal year	Leases		Leases(1)		Total
2024 (remaining twenty-six weeks)	$	5,301	$	335,247	$	340,548
2025		5,048		622,993		628,041
2026		1,883		500,523		502,406
2027		1,500		472,118		473,618
2028		1,500		399,881		401,381
Thereafter		10,174		1,280,351		1,290,525
Total lease payments		25,406		3,611,113		3,636,519
Less: imputed interest		(7,682)		(814,927)		(822,609)
Total lease liabilities	$	17,724	$	2,796,186	$	2,813,910

(1) – Future operating lease payments have not been reduced by minimum sublease rentals of $23 million due in the future under noncancelable leases.

During the thirteen and twenty-six week periods ended September 2, 2023, the Company sold three owned and operated stores to independent third parties. Net proceeds from the sales were $5,454 for the thirteen and twenty-six week periods ended September 2, 2023. 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 loss of $706 which is included in the gain on sale of assets, net for the thirteen and twenty-six week periods ended September 2, 2023

During the thirteen and twenty-six week periods ended August 27, 2022, the Company sold three owned and operated properties, including the Pontiac, MI and Liverpool, NY distribution centers and one retail store to independent third parties. Net proceeds from the sales were $45,986 for the thirteen and twenty-six week periods ended August 27, 2022. 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 store 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 $23,313 which is included in the gain on sale of assets, net for the thirteen and twenty-six week periods ended August 27, 2022.

Additionally, certain of the Company’s lease obligations and other outstanding contracts include events of default, cross default or cross acceleration provisions, which could result in rights to accelerate or terminate obligations, including upon the commencement of the Chapter 11 proceedings. However, the exercise or enforcement of any remedies have been automatically stayed as a result of such proceedings.