Long-lived Asset Impairment Charges

3 Months Ended

May 02, 2020

Property, Plant and Equipment [Abstract]

Long-lived Asset Impairment Charges

LONG-LIVED ASSET IMPAIRMENT CHARGES

Long-lived assets, including definite-lived intangibles, are reviewed periodically for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. During the first quarter of fiscal 2020, the Company experienced significant current-period operating and cash flow losses as a result of the COVID-19 pandemic. As a result, the Company reduced its level of forecasted earnings for fiscal 2020 and future periods across all of its brands. In light of the temporary closure of all its stores across North America during the first quarter of fiscal 2020 and lower-than-expected earnings for fiscal 2020 and future periods, the Company concluded that these factors, among other factors, represented impairment indicators which required the Company to test its long-lived assets for impairment during the first quarter of fiscal 2020.

The Company performed its impairment test on long-lived assets using a quantitative approach as of May 2, 2020. The Company uses market participant rent assumptions to calculate the fair value of right of use ("ROU") assets and discounted future cash flows of the asset or asset group using projected financial information and a discount rate that approximates the cost of capital of a market participant to quantify fair value for other long-lived assets. The asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets, which for our retail stores, is primarily at the store level.

During the first quarter of fiscal 2020, we completed an evaluation of our long-lived assets, primarily leasehold improvements, at certain underperforming stores for indicators of impairment as a result of the impact of the COVID-19 pandemic, and consequently, recorded pre-tax store impairment charges of approximately $18.5 million, which is included in cost of goods sold in the accompanying unaudited condensed consolidated statements of (loss) income. These charges reduced the net carrying

value of certain long-lived assets to their estimated fair value, as determined using a discounted cash flow model. Impairment charges related to long-lived assets at certain underperforming stores for the thirteen weeks ended May 4, 2019 were immaterial.

During the first quarter of fiscal 2020, we completed an evaluation of our operating lease assets for indicators of impairment as a result of the impact of the COVID-19 pandemic, and consequently, recorded pre-tax impairment charges of approximately $2.4 million, which is included in cost of goods sold within the accompanying unaudited condensed consolidated statements of (loss) income.