Lease Accounting

6 Months Ended

Jul. 31, 2021

Leases [Abstract]

Lease Accounting

Lease AccountingThe Company primarily leases its showrooms, advertising, licensing, sales and merchandising offices, remote distribution and warehousing facilities and retail and factory outlet store locations under operating lease agreements expiring on various dates through January 2039. The Company also leases some of its equipment, as well as computer hardware and software, under operating and finance lease agreements expiring on various dates through May 2027.

The Company’s lease agreements primarily provide for lease payments based on a minimum annual rental amount, a percentage of annual sales volume, periodic adjustments related to inflation or a combination of such lease payments. Certain retail store leases provide for lease payments based upon the minimum annual rental amount and a percentage of annual sales volume, generally ranging from 3% to 28%, when specific sales volumes are exceeded. The Company’s retail concession leases also provide for lease payments primarily based upon a percentage of annual sales volume, which averages approximately 34%.

In addition to the amounts as disclosed below, the Company has estimated additional operating lease commitments of approximately $15.1 million for leases where the Company has not yet taken possession of the underlying asset as of July 31, 2021. As such, the related operating lease ROU assets and operating lease liabilities have not been recognized in the Company’s condensed consolidated balance sheet as of July 31, 2021.

The components of leases are (in thousands):

		Jul 31, 2021		Jan 30, 2021
Assets	Balance Sheet Location
Operating	Operating lease right-of-use assets	$	727,636	$	764,804
Finance	Property and equipment, net	23,172		20,595
Total lease assets		$	750,808	$	785,399
Liabilities	Balance Sheet Location
Current:
Operating	Current portion of operating lease liabilities	$	214,392	$	222,800
Finance	Current portion of borrowings and finance lease obligations	6,153		4,698
Noncurrent:
Operating	Long-term operating lease liabilities	623,040		662,657
Finance	Long-term debt and finance lease obligations	18,641		17,365
Total lease liabilities		$	862,226	$	907,520

The components of lease costs are (in thousands):

		Three Months Ended				Six Months Ended
	Income Statement Location	Jul 31, 2021		Aug 1, 2020		Jul 31, 2021		Aug 1, 2020
Operating lease costs	Cost of product sales	$	45,776	$	50,005	$	92,460	$	105,374
Operating lease costs	Selling, general and administrative expenses	6,189		5,355		12,546		10,531
Operating lease costs1, 2	Net gains on lease modifications	(420)		(885)		(2,565)		(429)
Finance lease costs
Amortization of leased assets3	Cost of product sales	17		20		28		32
Amortization of leased assets3	Selling, general and administrative expenses	1,406		474		2,767		1,338
Interest on lease liabilities	Interest expense	263		208		629		490
Variable lease costs4	Cost of product sales	16,640		13,209		32,379		27,557
Variable lease costs4	Selling, general and administrative expenses	445		638		1,019		1,217
Short-term lease costs	Cost of product sales	126		181		231		420
Short-term lease costs	Selling, general and administrative expenses	1,123		170		2,294		1,959
Total lease costs1		$	71,565	$	69,375	$	141,788	$	148,489

____________________________________________________________________

Notes:

1The Company has made certain reclassifications to prior period amounts to conform to the current period presentation.

2During the three and six months ended July 31, 2021 and August 1, 2020, net gains on lease modifications related primarily to the early termination of lease agreements for certain of the Company’s retail locations. Operating lease costs for these retail locations prior to the early termination were included in cost of product sales.

3Amortization of leased assets related to finance leases are included in depreciation expense within cost of product sales or selling, general and administrative expenses depending on the nature of the asset in the Company’s condensed consolidated statements of income (loss).

4During the three and six months ended July 31, 2021, variable lease costs included certain rent concessions of approximately $5.8 million and $11.9 million, respectively, received by the Company, primarily in Europe, related to the COVID-19 pandemic. During the three and six months ended August 1, 2020, variable lease costs included certain rent concessions of approximately $7.7 million and $10.5 million, respectively, received by the Company, primarily in Europe, related to the COVID-19 pandemic.

Maturities of the Company’s operating and finance lease liabilities as of July 31, 2021 are (in thousands):

	Operating Leases
Maturity of Lease Liabilities	Non-Related Parties		Related Parties		Finance Leases		Total
20221	$	133,685	$	4,450	$	3,826	$	141,961
2023	185,793		7,716		7,131		200,640
2024	151,520		7,939		7,121		166,580
2025	108,827		7,309		4,298		120,434
2026	78,057		6,916		2,996		87,969
After 2026	189,134		36,362		3,109		228,605
Total lease payments	847,016		70,692		28,481		946,189
Less: Interest	68,825		11,451		3,687		83,963
Present value of lease liabilities	$	778,191	$	59,241	$	24,794	$	862,226

______________________________________________________________________

Notes:

1Represents the maturity of lease liabilities for the remainder of fiscal 2022 and also includes rent payments that have been deferred due to the COVID-19 pandemic. This amount does not include payments made during the six months ended July 31, 2021.

Other supplemental information is (dollars in thousands):

Lease Term and Discount Rate	Jul 31, 2021
Weighted-average remaining lease term
Operating leases	6.0 Years
Finance leases	4.4 Years
Weighted-average discount rate
Operating leases	3.4%
Finance leases	6.5%

	Six Months Ended
Supplemental Cash Flow Information	Jul 31, 2021		Aug 1, 2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	115,264	$	70,890
New operating ROU assets obtained in exchange for lease liabilities	$	63,238	$	19,566

Impairment

During the three and six months ended July 31, 2021, there were minimal ROU asset impairment charges recorded primarily in Europe. During the three and six months ended August 1, 2020, the Company recorded ROU asset impairment charges of $8.2 million and $36.5 million, respectively, related to ROU assets at certain retail locations in North America and Europe. The asset impairment charges were determined based on the excess of carrying value over the fair value of the ROU assets. The Company uses estimates of market participant rents to calculate fair value of the ROU assets. Refer to Note 15 for more information on the Company’s impairment testing.

Lease Accounting

Lease AccountingThe Company primarily leases its showrooms, advertising, licensing, sales and merchandising offices, remote distribution and warehousing facilities and retail and factory outlet store locations under operating lease agreements expiring on various dates through January 2039. The Company also leases some of its equipment, as well as computer hardware and software, under operating and finance lease agreements expiring on various dates through May 2027.

The Company’s lease agreements primarily provide for lease payments based on a minimum annual rental amount, a percentage of annual sales volume, periodic adjustments related to inflation or a combination of such lease payments. Certain retail store leases provide for lease payments based upon the minimum annual rental amount and a percentage of annual sales volume, generally ranging from 3% to 28%, when specific sales volumes are exceeded. The Company’s retail concession leases also provide for lease payments primarily based upon a percentage of annual sales volume, which averages approximately 34%.

In addition to the amounts as disclosed below, the Company has estimated additional operating lease commitments of approximately $15.1 million for leases where the Company has not yet taken possession of the underlying asset as of July 31, 2021. As such, the related operating lease ROU assets and operating lease liabilities have not been recognized in the Company’s condensed consolidated balance sheet as of July 31, 2021.

The components of leases are (in thousands):

		Jul 31, 2021		Jan 30, 2021
Assets	Balance Sheet Location
Operating	Operating lease right-of-use assets	$	727,636	$	764,804
Finance	Property and equipment, net	23,172		20,595
Total lease assets		$	750,808	$	785,399
Liabilities	Balance Sheet Location
Current:
Operating	Current portion of operating lease liabilities	$	214,392	$	222,800
Finance	Current portion of borrowings and finance lease obligations	6,153		4,698
Noncurrent:
Operating	Long-term operating lease liabilities	623,040		662,657
Finance	Long-term debt and finance lease obligations	18,641		17,365
Total lease liabilities		$	862,226	$	907,520

The components of lease costs are (in thousands):

		Three Months Ended				Six Months Ended
	Income Statement Location	Jul 31, 2021		Aug 1, 2020		Jul 31, 2021		Aug 1, 2020
Operating lease costs	Cost of product sales	$	45,776	$	50,005	$	92,460	$	105,374
Operating lease costs	Selling, general and administrative expenses	6,189		5,355		12,546		10,531
Operating lease costs1, 2	Net gains on lease modifications	(420)		(885)		(2,565)		(429)
Finance lease costs
Amortization of leased assets3	Cost of product sales	17		20		28		32
Amortization of leased assets3	Selling, general and administrative expenses	1,406		474		2,767		1,338
Interest on lease liabilities	Interest expense	263		208		629		490
Variable lease costs4	Cost of product sales	16,640		13,209		32,379		27,557
Variable lease costs4	Selling, general and administrative expenses	445		638		1,019		1,217
Short-term lease costs	Cost of product sales	126		181		231		420
Short-term lease costs	Selling, general and administrative expenses	1,123		170		2,294		1,959
Total lease costs1		$	71,565	$	69,375	$	141,788	$	148,489

____________________________________________________________________

Notes:

1The Company has made certain reclassifications to prior period amounts to conform to the current period presentation.

2During the three and six months ended July 31, 2021 and August 1, 2020, net gains on lease modifications related primarily to the early termination of lease agreements for certain of the Company’s retail locations. Operating lease costs for these retail locations prior to the early termination were included in cost of product sales.

3Amortization of leased assets related to finance leases are included in depreciation expense within cost of product sales or selling, general and administrative expenses depending on the nature of the asset in the Company’s condensed consolidated statements of income (loss).

4During the three and six months ended July 31, 2021, variable lease costs included certain rent concessions of approximately $5.8 million and $11.9 million, respectively, received by the Company, primarily in Europe, related to the COVID-19 pandemic. During the three and six months ended August 1, 2020, variable lease costs included certain rent concessions of approximately $7.7 million and $10.5 million, respectively, received by the Company, primarily in Europe, related to the COVID-19 pandemic.

Maturities of the Company’s operating and finance lease liabilities as of July 31, 2021 are (in thousands):

	Operating Leases
Maturity of Lease Liabilities	Non-Related Parties		Related Parties		Finance Leases		Total
20221	$	133,685	$	4,450	$	3,826	$	141,961
2023	185,793		7,716		7,131		200,640
2024	151,520		7,939		7,121		166,580
2025	108,827		7,309		4,298		120,434
2026	78,057		6,916		2,996		87,969
After 2026	189,134		36,362		3,109		228,605
Total lease payments	847,016		70,692		28,481		946,189
Less: Interest	68,825		11,451		3,687		83,963
Present value of lease liabilities	$	778,191	$	59,241	$	24,794	$	862,226

______________________________________________________________________

Notes:

1Represents the maturity of lease liabilities for the remainder of fiscal 2022 and also includes rent payments that have been deferred due to the COVID-19 pandemic. This amount does not include payments made during the six months ended July 31, 2021.

Other supplemental information is (dollars in thousands):

Lease Term and Discount Rate	Jul 31, 2021
Weighted-average remaining lease term
Operating leases	6.0 Years
Finance leases	4.4 Years
Weighted-average discount rate
Operating leases	3.4%
Finance leases	6.5%

	Six Months Ended
Supplemental Cash Flow Information	Jul 31, 2021		Aug 1, 2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	115,264	$	70,890
New operating ROU assets obtained in exchange for lease liabilities	$	63,238	$	19,566

Impairment

During the three and six months ended July 31, 2021, there were minimal ROU asset impairment charges recorded primarily in Europe. During the three and six months ended August 1, 2020, the Company recorded ROU asset impairment charges of $8.2 million and $36.5 million, respectively, related to ROU assets at certain retail locations in North America and Europe. The asset impairment charges were determined based on the excess of carrying value over the fair value of the ROU assets. The Company uses estimates of market participant rents to calculate fair value of the ROU assets. Refer to Note 15 for more information on the Company’s impairment testing.