Long-lived Asset Impairment Charges Related to the Pandemic

12 Months Ended

Jan. 30, 2021

Property, Plant and Equipment [Abstract]

Long-lived Asset Impairment Charges Related to the Pandemic

LONG-LIVED ASSET IMPAIRMENT CHARGES RELATED TO THE 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 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.

The Company experienced varying degrees of business disruptions as a result of the pandemic, which had a material adverse impact on our business operations and operating results and operating cash flows during fiscal 2020. 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 certain of its long-lived assets and operating lease assets for impairment during fiscal 2020.

As a result of the pandemic, during fiscal 2020, we completed an evaluation of certain long-lived assets for indicators of impairment, and consequently, recorded pre-tax impairment charges of approximately $29.7 million, of which consisted of $19.1 million in leasehold improvements at certain underperforming stores and $10.5 million which primarily consisted of capitalized implementation costs related to our cloud computing arrangements and other technology-related assets. The $29.7 million in pre-tax impairment charges are reflected in the financial statements as $20.8 million in COGS and $8.9 million in SG&A expenses in the accompanying consolidated statements of (loss) income. 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.

As a result of the impact of the pandemic, during fiscal 2020, we completed an evaluation of our operating lease assets for indicators of impairment, and consequently, recorded pre-tax impairment charges of approximately $4.8 million, of which $3.2 million consisted of impairment on operating lease assets at certain underperforming stores. The $4.8 million in pre-tax impairment charges are reflected in the financial statements as $3.2 million in COGS and $1.6 million in SG&A expenses in the accompanying consolidated statements of (loss) income.