Long-lived Asset Impairment Charges Related to the Covid-19 Pandemic

6 Months Ended

Aug. 01, 2020

Property, Plant and Equipment [Abstract]

Long-lived Asset Impairment Charges Related to the Covid-19 Pandemic

LONG-LIVED ASSET IMPAIRMENT CHARGES RELATED TO THE COVID-19 PANDEMIC

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. 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 thirteen and twenty-six weeks ended August 1, 2020, the Company experienced varying degrees of business disruptions and periods of store closures or reduced operating hours as a result of the pandemic. In light of the impact of the pandemic 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 thirteen and twenty-six weeks ended August 1, 2020.

During the twenty-six weeks ended August 1, 2020, we completed an evaluation of our long-lived assets which primarily consisted of leasehold improvements at certain underperforming stores for indicators of impairment as a result of the impact of the pandemic, and consequently, recorded pre-tax impairment charges of approximately $18.5 million. These charges are primarily included in cost of goods sold in the accompanying unaudited condensed consolidated statements of loss. Pre-tax impairment charges reduced the net carrying value of long-lived assets at retail stores to their estimated fair value, as determined using a discounted cash flow model. Pre-tax impairment charges for the thirteen weeks ended August 1, 2020 and thirteen and twenty-six weeks ended May 4, 2019 were immaterial.

During the thirteen and twenty-six ended August 1, 2020, we completed an evaluation of our operating lease assets for indicators of impairment as a result of the impact of the pandemic, and consequently, recorded pre-tax impairment charges of approximately $0.8 million and $3.2 million, respectively, which is included in cost of goods sold within the accompanying unaudited condensed consolidated statements of loss.