Long-lived Asset Impairment Charges Related to the Pandemic

3 Months Ended

May 01, 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 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 last year's first quarter, 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. Consequently, 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 last year's first quarter 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 last year's first quarter.

As a result of the impact of the pandemic during last year's first quarter, we completed an evaluation of certain long-lived assets, primarily leasehold improvements, at certain underperforming stores for indicators of impairment and consequently, recorded pre-tax impairment charges of approximately $18.5 million during last year's first quarter, which is included in cost of goods sold in the accompanying unaudited condensed consolidated statements of loss. These charges reduced the net carrying value of certain long-lived assets to their estimated fair value, as determined using a DCF model.

During the first quarter, the Company considered whether events or changes in circumstances existed that would indicate the carrying amount of long-lived assets at retail stores may not be recoverable. Based on a review of both quantitative and qualitative factors, only a small number of underperforming stores had triggering events and were assessed for impairment during the first quarter. Pre-tax impairment charges for long-lived assets at retail stores during the first quarter were immaterial.

As a result of the impact of the pandemic during last year's first quarter, we completed an evaluation of our operating lease assets at certain underperforming stores for indicators of impairment, and consequently, recorded pre-tax impairment charges of approximately $2.4 million during last year's first quarter, which is included in cost of goods sold within the accompanying unaudited condensed consolidated statements of loss. We did not record impairment charges related to our operating lease assets during the first quarter.