Quarterly report [Sections 13 or 15(d)]

Commitments and Contingencies

v3.25.2
Commitments and Contingencies
 6 Months Ended
Jun. 26, 2025
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and Contingencies
Lease Commitments
The Company accounts for leases in accordance with ASC 842, Leases. The majority of the Company’s long-term operating lease agreements are for its retail locations, distribution centers, and corporate office, which expire in various years through 2055. Most of these agreements are retail leases wherein both the land and building are leased. The Company also has ground leases in which only the land is leased. The initial lease terms for the Company’s retail locations, distribution centers, and corporate office typically range from 10-20 years. The majority of the Company’s leases also include options to extend, which are factored into the recognition of their respective assets and liabilities when appropriate based on management’s assessment of the probability that the options will be exercised.
When readily determinable, the rate implicit in the lease is used to discount lease payments to present value; however, substantially all of the Company’s leases do not provide a readily determinable implicit rate. If the rate implicit in the lease is not readily determinable, the Company uses a third party to assist in the determination of a secured incremental borrowing rate, determined on a collateralized basis, to discount lease payments based on information available at lease commencement. The secured incremental borrowing rate is estimated based on yields obtained from Bloomberg for U.S. consumers with a BB credit rating and is adjusted for collateralization as well as inflation. As of June 26, 2025 and June 27, 2024, the Company’s weighted average discount rate was 6.0% and 5.8%, respectively. As of both June 26, 2025 and June 27, 2024, the weighted average remaining lease term of the Company’s leases was approximately 12 years.
Lease Costs
The table below presents components of lease expense for operating leases within the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income:
Thirteen Weeks Ended Twenty-six Weeks Ended
in thousands June 26, 2025 June 27, 2024 June 26, 2025 June 27, 2024
Fixed operating lease cost: Selling and store operating $ 47,324  $ 43,840  $ 94,601  $ 86,575 
Cost of sales 13,693  6,461  23,920  12,913 
Pre-opening 1,724  4,151  3,255  7,214 
General and administrative 1,135  1,031  2,264  2,060 
Total fixed operating lease cost $ 63,876  $ 55,483  $ 124,040  $ 108,762 
Variable lease cost (1): Selling and store operating $ 20,836  $ 17,999  $ 42,427  $ 36,091 
Cost of sales 2,076  1,067  3,727  2,350 
Pre-opening 125  162  286  335 
General and administrative 447  578  796  1,157 
Total variable lease cost $ 23,484  $ 19,806  $ 47,236  $ 39,933 
Sublease income Cost of sales (875) (680) (1,630) (1,362)
Total operating lease cost (2) $ 86,485  $ 74,609  $ 169,646  $ 147,333 
(1) Includes variable costs for common area maintenance, property taxes, and insurance on leased real estate.
(2) Excludes short-term lease costs, which were immaterial for the thirteen and twenty-six weeks ended June 26, 2025 and June 27, 2024.
Undiscounted Cash Flows
Future minimum lease payments under non-cancelable operating leases as of June 26, 2025 were as follows:
in thousands Amount
Twenty-six weeks ending December 25, 2025 $ 121,692 
2026 249,904 
2027 239,690 
2028 219,532 
2029 207,159 
Thereafter 1,542,698 
Total minimum lease payments (1) (2) 2,580,675 
Less: amount of lease payments representing interest 825,259 
Present value of future minimum lease payments 1,755,416 
Less: current obligations under leases 148,871 
Long-term lease obligations $ 1,606,545 
(1) Future lease payments exclude approximately $64.7 million of legally binding minimum lease payments for operating leases signed but not yet commenced.
(2) Operating lease payments include $283.4 million related to options to extend lease terms that are reasonably certain of being exercised.
For the twenty-six weeks ended June 26, 2025 and June 27, 2024, cash paid for amounts included in the measurement of operating lease liabilities was $121.3 million and $103.5 million, respectively.
Litigation
On November 15, 2021, the Company was added as a defendant in a wrongful death lawsuit, Nguyen v. Inspections Now, Inc., No. 21-DCV-287142, pending in the 434th Judicial District Court of Fort Bend County, Texas. Bestview International Company (“Bestview International”) is also named as a defendant in the case; former defendants Inspections Now, Inc., Jason Post Homes, LLC and Bestview (Fuzhou) Import & Export Co. LTD have been dismissed. Plaintiff’s petition alleges that “wood paneling” allegedly purchased from the Company was installed in the vicinity of plaintiff’s fireplace and caught fire while the fireplace was lit. The fire consumed plaintiff’s home and resulted in injuries to plaintiff and another occupant and the death of plaintiff’s three children and mother. Plaintiff alleges product defect and failure to warn claims against the Company and product defect, failure to warn, and strict liability claims against Bestview International. Plaintiff’s petition seeks damages in excess of $1.0 million for property damage, personal injury, and wrongful death. The petition also seeks exemplary damages. Plaintiff’s ex-husband, brother, and the additional occupant have since intervened as plaintiffs in the lawsuit. Intervenors allege the same claims against the Company and Bestview International and collectively seek damages in excess of $11.0 million for property damage, personal injury (as to the other occupant), wrongful death, and exemplary damages. The Company has answered all petitions, denying the allegations. The case is currently set for trial in the fourth quarter of fiscal 2025.
The Company maintains insurance that may cover liability arising out of the above-referenced litigation up to the policy limits and subject to meeting certain deductibles and to other terms and conditions thereof. Estimating an amount or range of possible losses resulting from litigation proceedings is inherently difficult, particularly where the matters involve indeterminate claims for monetary damages and are in the stages of the proceedings where key factual and legal issues have not been resolved. For these reasons, the Company is currently unable to predict the ultimate timing or outcome of or reasonably estimate the possible losses or a range of possible losses that may result from the above-referenced litigation.
The Company is also subject to various other legal actions, claims, and proceedings arising in the ordinary course of business, which may include claims related to general liability, workers’ compensation, product liability, intellectual property, and employment-related matters resulting from its business activities. As with most actions such as these, an estimation of any possible and/or ultimate liability cannot always be determined. The Company establishes reserves for specific legal proceedings when it determines that the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated. These various other ordinary course proceedings are not expected to have a material impact on the Company’s consolidated financial position, cash flows, or results of operations. Regardless of the outcome, however, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.