Leases

6 Months Ended

Aug. 29, 2020

Leases [Abstract]

Leases

Leases

The Company leases retail stores, distribution facilities, offices and equipment under agreements expiring at various dates through 2041. The leases provide for original lease terms that generally range from 10 to 15 years and most leases provide for a series of five year renewal options, often at increased rents, the exercise of which is at the Company’s sole discretion. Certain leases provide for contingent rents (which are based upon store sales exceeding stipulated amounts and are immaterial for the three and six months ended August 29, 2020 and August 31, 2019), scheduled rent increases and renewal options. The Company is obligated under a majority of the leases to pay for taxes, insurance and common area maintenance charges.

Similar to other retailers, during the six months ended August 29, 2020, the Company has withheld portions of and/or delayed payments to certain landlords as the Company seeks to renegotiate payment terms, in order to further maintain liquidity given the temporary store closures. In some instances, the renegotiations have led to agreements with landlords for rent abatements or rental deferrals. Total payments withheld and/or delayed or deferred as of August 29, 2020 were approximately $50.6 million and are included in current liabilities. Additional negotiations of payment terms are still in process.

In accordance with the Financial Accounting Standards Board’s recent Staff Q&A regarding rent concessions related to the effects of the COVID-19 pandemic, the Company has elected to account for the concessions agreed to by landlords that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee as though enforceable rights and obligations for those concessions existed in the original lease agreements and the Company has elected to not remeasure the related lease liabilities and right-of-use assets. For qualifying rent abatement concessions, the Company has recorded negative lease expense for the amount of the concession during the period of relief, and for qualifying deferrals of rental payments, the Company has recognized a non-interest bearing payable in lieu of recognizing a decrease in cash for the lease payment that would have been made based on the original terms of the lease agreement, which will be reduced when the deferred payment is made in the future. During the six months ended August 29, 2020, the Company recognized reduced rent expense of $4.4 million related to rent abatement concessions.

The components of total lease cost for the three and six months ended August 29, 2020 and August 31, 2019, were as follows:

(in thousands)	Statement of Operations Location	Three Months Ended						Six Months Ended
		August 29, 2020			August 31, 2019			August 29, 2020			August 31, 2019
Operating lease cost	Cost of sales and SG&A	$	141,335		$	143,773		$	289,718		$	287,673
Finance lease cost:
Depreciation of property	SG&A	129			648			777			1,296
Interest on lease liabilities	Interest expense, net	2,225			2,214			4,458			4,436
Variable lease cost	Cost of sales and SG&A	49,237			50,275			99,695			98,170
Sublease income	SG&A	(278		)	(278		)	(556		)	(556		)
Total lease cost		$	192,648		$	196,632		$	394,092		$	391,019

As of August 29, 2020 and February 29, 2020, assets and liabilities related to the Company’s operating and finance leases were as follows:

(in thousands)	Consolidated Balance Sheet Location	August 29, 2020		February 29, 2020
Assets
Operating leases	Operating lease assets	$	1,913,719	$	2,006,966
Finance leases	Property and equipment, net	67,991		69,287
Total Lease assets		$	1,981,710	$	2,076,253
Liabilities
Current:
Operating leases	Current operating lease liabilities	$	464,946	$	463,005
Finance leases	Accrued expenses and other current liabilities	1,479		1,541
Noncurrent:
Operating leases	Operating lease liabilities	1,799,504		1,818,783
Finance leases	Other liabilities	101,663		102,412
Total lease liabilities		$	2,367,592	$	2,385,741

As of August 29, 2020, the Company’s lease liabilities mature as follows:

	Operating Leases			Finance Leases
Fiscal Year:
Remainder of 2020	$	309,849		$	5,217
2021	556,659			10,434
2022	465,292			10,407
2023	375,813			10,524
2024	301,730			10,702
2025	226,593			10,503
Thereafter	644,421			238,379
Total lease payments	$	2,880,357		$	296,166
Less imputed interest	(615,907		)	(193,024		)
Present value of lease liabilities	$	2,264,450		$	103,142

At August 29, 2020, the Company has entered into leases that have not commenced at 2 new locations planned for opening in fiscal 2021, for which aggregate minimum rental payments over the term of the leases were approximately $9.9 million.

The Company’s lease terms and discount rates were as follows:

	August 29, 2020		February 29, 2020
Weighted-average remaining lease term (in years)
Operating leases	6.5		6.6
Finance leases	25.3		25.7
Weighted-average discount rate
Operating leases	6.6	%	6.2	%
Finance leases	9.0	%	9.0	%

Other information with respect to the Company’s leases is as follows:

(in thousands)	Six Months Ended
	August 29, 2020		August 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	196,503	271,669
Operating cash flows from finance leases	5,253		5,160
Operating lease assets obtained in exchange for new operating lease liabilities	101,643		262,315

Leases

Leases

The Company leases retail stores, distribution facilities, offices and equipment under agreements expiring at various dates through 2041. The leases provide for original lease terms that generally range from 10 to 15 years and most leases provide for a series of five year renewal options, often at increased rents, the exercise of which is at the Company’s sole discretion. Certain leases provide for contingent rents (which are based upon store sales exceeding stipulated amounts and are immaterial for the three and six months ended August 29, 2020 and August 31, 2019), scheduled rent increases and renewal options. The Company is obligated under a majority of the leases to pay for taxes, insurance and common area maintenance charges.

Similar to other retailers, during the six months ended August 29, 2020, the Company has withheld portions of and/or delayed payments to certain landlords as the Company seeks to renegotiate payment terms, in order to further maintain liquidity given the temporary store closures. In some instances, the renegotiations have led to agreements with landlords for rent abatements or rental deferrals. Total payments withheld and/or delayed or deferred as of August 29, 2020 were approximately $50.6 million and are included in current liabilities. Additional negotiations of payment terms are still in process.

In accordance with the Financial Accounting Standards Board’s recent Staff Q&A regarding rent concessions related to the effects of the COVID-19 pandemic, the Company has elected to account for the concessions agreed to by landlords that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee as though enforceable rights and obligations for those concessions existed in the original lease agreements and the Company has elected to not remeasure the related lease liabilities and right-of-use assets. For qualifying rent abatement concessions, the Company has recorded negative lease expense for the amount of the concession during the period of relief, and for qualifying deferrals of rental payments, the Company has recognized a non-interest bearing payable in lieu of recognizing a decrease in cash for the lease payment that would have been made based on the original terms of the lease agreement, which will be reduced when the deferred payment is made in the future. During the six months ended August 29, 2020, the Company recognized reduced rent expense of $4.4 million related to rent abatement concessions.

The components of total lease cost for the three and six months ended August 29, 2020 and August 31, 2019, were as follows:

(in thousands)	Statement of Operations Location	Three Months Ended						Six Months Ended
		August 29, 2020			August 31, 2019			August 29, 2020			August 31, 2019
Operating lease cost	Cost of sales and SG&A	$	141,335		$	143,773		$	289,718		$	287,673
Finance lease cost:
Depreciation of property	SG&A	129			648			777			1,296
Interest on lease liabilities	Interest expense, net	2,225			2,214			4,458			4,436
Variable lease cost	Cost of sales and SG&A	49,237			50,275			99,695			98,170
Sublease income	SG&A	(278		)	(278		)	(556		)	(556		)
Total lease cost		$	192,648		$	196,632		$	394,092		$	391,019

As of August 29, 2020 and February 29, 2020, assets and liabilities related to the Company’s operating and finance leases were as follows:

(in thousands)	Consolidated Balance Sheet Location	August 29, 2020		February 29, 2020
Assets
Operating leases	Operating lease assets	$	1,913,719	$	2,006,966
Finance leases	Property and equipment, net	67,991		69,287
Total Lease assets		$	1,981,710	$	2,076,253
Liabilities
Current:
Operating leases	Current operating lease liabilities	$	464,946	$	463,005
Finance leases	Accrued expenses and other current liabilities	1,479		1,541
Noncurrent:
Operating leases	Operating lease liabilities	1,799,504		1,818,783
Finance leases	Other liabilities	101,663		102,412
Total lease liabilities		$	2,367,592	$	2,385,741

As of August 29, 2020, the Company’s lease liabilities mature as follows:

	Operating Leases			Finance Leases
Fiscal Year:
Remainder of 2020	$	309,849		$	5,217
2021	556,659			10,434
2022	465,292			10,407
2023	375,813			10,524
2024	301,730			10,702
2025	226,593			10,503
Thereafter	644,421			238,379
Total lease payments	$	2,880,357		$	296,166
Less imputed interest	(615,907		)	(193,024		)
Present value of lease liabilities	$	2,264,450		$	103,142

At August 29, 2020, the Company has entered into leases that have not commenced at 2 new locations planned for opening in fiscal 2021, for which aggregate minimum rental payments over the term of the leases were approximately $9.9 million.

The Company’s lease terms and discount rates were as follows:

	August 29, 2020		February 29, 2020
Weighted-average remaining lease term (in years)
Operating leases	6.5		6.6
Finance leases	25.3		25.7
Weighted-average discount rate
Operating leases	6.6	%	6.2	%
Finance leases	9.0	%	9.0	%

Other information with respect to the Company’s leases is as follows:

(in thousands)	Six Months Ended
	August 29, 2020		August 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	196,503	271,669
Operating cash flows from finance leases	5,253		5,160
Operating lease assets obtained in exchange for new operating lease liabilities	101,643		262,315