Quarterly report pursuant to Section 13 or 15(d)

LEASES

v3.20.1
LEASES
3 Months Ended
May 02, 2020
LEASES  
LEASES

4. LEASES

We lease our retail store locations, distribution centers, office facilities and certain equipment under non-cancelable operating leases. Substantially all store leases have initial lease terms of approximately 10 years, the majority of which provide for one or more five-year renewal options. The exercise of lease renewal options is at the Company’s sole discretion. We include the lease renewal option periods in the calculation of our operating lease assets and liabilities when it is reasonably certain that we will renew the lease.

Our operating lease assets represent our right to use an underlying asset for the lease term and our operating lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The commencement date is the earlier of the date when we become legally obligated for the rent payments or the date when we take possession of the building for construction purposes. In addition, operating lease assets are net of lease incentives received. As our leases do not contain an implicit rate of return, we use our estimated incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. For operating leases that commenced prior to the adoption date of the new lease accounting standard, we used the incremental borrowing rate as of the adoption date. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

We have lease agreements with lease and non-lease components, which are generally accounted for as a single lease component. Our short-term non-real estate leases, which have a non-cancelable lease term of less than one year, are not included in the operating lease assets or liabilities. Short-term lease expense is recognized on a straight-line basis over the lease term.

The components of lease costs are as follows (in thousands):

13 Weeks Ended

May 2,

May 4,

2020

2019

Operating lease cost (1)

  

$

106,430

$

105,465

Variable lease cost (2)

 

39,445

 

36,440

Total lease cost

$

145,875

$

141,905

(1) Includes an immaterial amount related to short-term non-real estate leases.
(2) Includes taxes, insurance and common areas maintenance costs for our leased facilities which are paid based on actual cost incurred by the lessor. Also includes contingent rent which is immaterial in the periods presented.

Additional information related to our operating leases is as follows (in thousands, except weighted-average data):

13 Weeks Ended

May 2,

May 4,

2020

2019

Operating cash outflows included in the measurement of lease liabilities

$

60,936

$

106,998

Operating lease assets obtained in exchange for new operating lease liabilities

$

56,806

$

52,709

Weighted-average remaining lease term

6.0 years

6.2 years

Weighted-average discount rate

6.3%

5.6%

Maturities of our lease liabilities are as follows as of May 2, 2020 (in thousands):

Fiscal Year

2020

$

335,426

2021

 

397,761

2022

 

337,630

2023

 

275,742

2024

 

214,431

Thereafter

 

463,794

Total lease payments

$

2,024,784

Less: Interest

(349,719)

Present value of lease liabilities

$

1,675,065

Lease payments exclude $57.4 million related to 17 leases that have been signed as of May 2, 2020 but have not yet commenced.