Lease Accounting

9 Months Ended

Oct. 28, 2023

Leases [Abstract]

Lease Accounting

Lease Accounting

The 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 October 2028.

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 25%.

In addition to the amounts as disclosed below, the Company has estimated additional operating lease commitments of approximately $19.3 million for leases where the Company has not yet taken possession of the underlying asset as of October 28, 2023. 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 October 28, 2023.

The components of leases are (in thousands):

		Oct 28, 2023		Jan 28, 2023
Assets	Balance Sheet Location
Operating	Operating lease right-of-use assets	$	657,363	$	636,148
Finance	Property and equipment, net	16,536		19,055
Total lease assets		$	673,899	$	655,203
Liabilities	Balance Sheet Location
Current:
Operating	Current portion of operating lease liabilities	$	165,420	$	170,192
Finance	Current portion of borrowings and finance lease obligations	6,999		6,684
Noncurrent:
Operating	Long-term operating lease liabilities	538,731		528,236
Finance	Long-term debt and finance lease obligations	10,793		13,181
Total lease liabilities		$	721,943	$	718,293

The components of lease costs are (in thousands):

		Three Months Ended				Nine Months Ended
	Income Statement Location	Oct 28, 2023		Oct 29, 2022		Oct 28, 2023		Oct 29, 2022
Operating lease costs	Cost of product sales	$	44,964	$	43,361	$	136,367	$	131,450
Operating lease costs	Selling, general and administrative expenses	6,744		6,000		19,941		18,582
Operating lease costs1	Net (gains) losses on lease modifications	537		(146)		(1,894)		(1,654)
Finance lease costs
Amortization of leased assets	Cost of product sales	9		21		61		60
Amortization of leased assets	Selling, general and administrative expenses	1,635		1,510		4,747		4,585
Interest on lease liabilities	Interest expense	179		209		577		747
Variable lease costs2	Cost of product sales	23,400		21,682		71,551		64,462
Variable lease costs2	Selling, general and administrative expenses	804		669		2,551		2,438
Short-term lease costs	Cost of product sales	92		87		241		273
Short-term lease costs	Selling, general and administrative expenses	2,015		1,722		4,306		4,600
Total lease costs		$	80,379	$	75,115	$	238,448	$	225,543

______________________________________________________________________

Notes:

1During the three and nine months ended October 28, 2023 and October 29, 2022, net (gains) losses on lease modifications related primarily to the early termination of certain lease agreements. Operating lease costs for these locations prior to the early termination were included in cost of product sales.

2During the three and nine months ended October 28, 2023, variable lease costs included certain rent concessions of approximately $0.4 million and $1.4 million, respectively, received by the Company, primarily in Europe. During the three and nine months ended October 29, 2022, variable lease costs included certain rent concessions of approximately $1.1 million and $4.6 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 October 28, 2023 are (in thousands):

	Operating Leases
Maturity of Lease Liabilities	Non-Related Parties		Related Parties		Finance Leases		Total
Fiscal 2024	$	62,999	$	2,723	$	2,806	$	68,528
Fiscal 2025	160,784		7,626		6,092		174,502
Fiscal 2026	125,306		7,199		5,593		138,098
Fiscal 2027	108,543		7,760		3,129		119,432
Fiscal 2028	81,470		7,681		1,334		90,485
After fiscal 2028	222,361		20,755		287		243,403
Total lease payments	761,463		53,744		19,241		834,448
Less: Interest	99,732		11,324		1,449		112,505
Present value of lease liabilities	$	661,731	$	42,420	$	17,792	$	721,943

Other supplemental information is (in thousands):

Lease Term and Discount Rate	Oct 28, 2023
Weighted-average remaining lease term
Operating leases	6.2 years
Finance leases	3.3 years
Weighted-average discount rate
Operating leases	4.8%
Finance leases	5.1%

	Nine Months Ended
Supplemental Cash Flow Information	Oct 28, 2023		Oct 29, 2022
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	155,379	$	166,910
New operating ROU assets obtained in exchange for lease liabilities	$	128,756	$	106,427

Impairment

During the three and nine months ended October 28, 2023 and October 29, 2022, there were immaterial ROU asset impairment charges. Asset impairment charges are generally 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 Accounting

The 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 October 2028.

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 25%.

In addition to the amounts as disclosed below, the Company has estimated additional operating lease commitments of approximately $19.3 million for leases where the Company has not yet taken possession of the underlying asset as of October 28, 2023. 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 October 28, 2023.

The components of leases are (in thousands):

		Oct 28, 2023		Jan 28, 2023
Assets	Balance Sheet Location
Operating	Operating lease right-of-use assets	$	657,363	$	636,148
Finance	Property and equipment, net	16,536		19,055
Total lease assets		$	673,899	$	655,203
Liabilities	Balance Sheet Location
Current:
Operating	Current portion of operating lease liabilities	$	165,420	$	170,192
Finance	Current portion of borrowings and finance lease obligations	6,999		6,684
Noncurrent:
Operating	Long-term operating lease liabilities	538,731		528,236
Finance	Long-term debt and finance lease obligations	10,793		13,181
Total lease liabilities		$	721,943	$	718,293

The components of lease costs are (in thousands):

		Three Months Ended				Nine Months Ended
	Income Statement Location	Oct 28, 2023		Oct 29, 2022		Oct 28, 2023		Oct 29, 2022
Operating lease costs	Cost of product sales	$	44,964	$	43,361	$	136,367	$	131,450
Operating lease costs	Selling, general and administrative expenses	6,744		6,000		19,941		18,582
Operating lease costs1	Net (gains) losses on lease modifications	537		(146)		(1,894)		(1,654)
Finance lease costs
Amortization of leased assets	Cost of product sales	9		21		61		60
Amortization of leased assets	Selling, general and administrative expenses	1,635		1,510		4,747		4,585
Interest on lease liabilities	Interest expense	179		209		577		747
Variable lease costs2	Cost of product sales	23,400		21,682		71,551		64,462
Variable lease costs2	Selling, general and administrative expenses	804		669		2,551		2,438
Short-term lease costs	Cost of product sales	92		87		241		273
Short-term lease costs	Selling, general and administrative expenses	2,015		1,722		4,306		4,600
Total lease costs		$	80,379	$	75,115	$	238,448	$	225,543

______________________________________________________________________

Notes:

1During the three and nine months ended October 28, 2023 and October 29, 2022, net (gains) losses on lease modifications related primarily to the early termination of certain lease agreements. Operating lease costs for these locations prior to the early termination were included in cost of product sales.

2During the three and nine months ended October 28, 2023, variable lease costs included certain rent concessions of approximately $0.4 million and $1.4 million, respectively, received by the Company, primarily in Europe. During the three and nine months ended October 29, 2022, variable lease costs included certain rent concessions of approximately $1.1 million and $4.6 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 October 28, 2023 are (in thousands):

	Operating Leases
Maturity of Lease Liabilities	Non-Related Parties		Related Parties		Finance Leases		Total
Fiscal 2024	$	62,999	$	2,723	$	2,806	$	68,528
Fiscal 2025	160,784		7,626		6,092		174,502
Fiscal 2026	125,306		7,199		5,593		138,098
Fiscal 2027	108,543		7,760		3,129		119,432
Fiscal 2028	81,470		7,681		1,334		90,485
After fiscal 2028	222,361		20,755		287		243,403
Total lease payments	761,463		53,744		19,241		834,448
Less: Interest	99,732		11,324		1,449		112,505
Present value of lease liabilities	$	661,731	$	42,420	$	17,792	$	721,943

Other supplemental information is (in thousands):

Lease Term and Discount Rate	Oct 28, 2023
Weighted-average remaining lease term
Operating leases	6.2 years
Finance leases	3.3 years
Weighted-average discount rate
Operating leases	4.8%
Finance leases	5.1%

	Nine Months Ended
Supplemental Cash Flow Information	Oct 28, 2023		Oct 29, 2022
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	155,379	$	166,910
New operating ROU assets obtained in exchange for lease liabilities	$	128,756	$	106,427

Impairment

During the three and nine months ended October 28, 2023 and October 29, 2022, there were immaterial ROU asset impairment charges. Asset impairment charges are generally 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.