We lease certain property and equipment used in our operations. Some of our store leases include additional rental payments based on a percentage of sales over contractual levels or payments that are adjusted periodically for inflation. Our typical store lease has an initial term of 20 to 25 years and four to eight five-year renewal options.

Lease assets represent our right to use an underlying asset for the lease term. Lease assets are recognized at commencement date based on the value of the lease liability and are adjusted for any lease payments made to the lessor at or before commencement date, minus any lease incentives received and any initial direct costs incurred by the lessee.

Lease liabilities represent our contractual obligation to make lease payments and include renewal options that are reasonably assured of being exercised. At the commencement date, the lease liabilities equal the present value of minimum lease payments over the accounting lease term. As the implicit interest rate is not readily identifiable in our leases, we estimate our collateralized incremental borrowing rate to calculate the present value of lease payments.

Leases with a term of 12 months or less are excluded from the balance; we recognize lease expense for these leases on a straight-line basis over the lease term. We combine lease and non-lease components for new and modified leases.

The following tables summarize our operating and finance leases, which are predominately store related, and where they are presented in our Consolidated Financial Statements:


Consolidated Balance Sheets
(Dollars in Millions)	Classification	August 2, 2025	February 1, 2025	August 3, 2024
Assets
Operating leases	Operating leases	$2,363	$2,394	$2,507
Finance leases	Property and equipment, net	1,612	1,666	1,763
Total operating and finance leases		$3,975	$4,060	$4,270
Liabilities
Current
Operating leases	Current portion of operating leases	96	102	92
Finance leases	Current portion of finance leases and financing obligations	75	72	73
Noncurrent
Operating leases	Operating leases	2,672	2,703	2,795
Finance leases	Finance leases and financing obligations	1,959	2,008	2,138
Total operating and finance leases		$4,802	$4,885	$5,098


Consolidated Statement of Operations		Three Months Ended		Six Months Ended
(Dollars in Millions)	Classification	August 2, 2025	August 3, 2024	August 2, 2025	August 3, 2024
Operating leases	Selling, general, and administrative	$68	$69	$135	$138
Finance leases
Amortization of leased assets	Depreciation and amortization	27	29	54	58
Interest on leased assets	Interest expense, net	30	35	60	71
Total operating and finance leases		$125	$133	$249	$267


Consolidated Statement of Cash Flows	Six Months Ended
(Dollars in Millions)	August 2, 2025	August 3, 2024
Cash paid for amounts included in the measurement of leased liabilities
Operating cash flows from operating leases	$146	$134
Operating cash flows from finance leases	59	69
Financing cash flows from finance leases	42	38

The following table summarizes future lease payments by fiscal year:


	August 2, 2025
(Dollars in Millions)	Operating Leases	Finance Leases	Total
2025	$129	$90	$219
2026	264	189	453
2027	262	188	450
2028	258	183	441
2029	257	180	437
After 2029	3,729	2,735	6,464
Total lease payments	$4,899	$3,565	$8,464
Amount representing interest	(2,131)	(1,531)	(3,662)
Lease liabilities	$2,768	$2,034	$4,802

Total lease payments include $3.7 billion related to options to extend operating lease terms that are reasonably certain of being exercised and $2.7 billion related to options to extend finance lease terms that are reasonably certain of being exercised. Additionally, total lease payments exclude $9 million of legally binding lease payments for leases signed but not yet commenced.

The following table summarizes weighted-average remaining lease term, weighted-average remaining contractually obligated lease term, and discount rate:


	August 2, 2025	February 1, 2025
Weighted-average remaining term (years)
Operating leases	19	19
Finance leases	18	19
Weighted-average remaining contractually obligated term (years)
Operating leases	4	4
Finance leases	5	5
Weighted-average discount rate
Operating leases	6%	6%
Finance leases	6%	6%

The remaining contractually obligated term represents only the remaining noncancelable portion of the leases.

Historical failed sale-leasebacks that did not qualify for sale-leaseback accounting upon adoption of ASC 842 continue to be accounted for as financing obligations.

The following tables summarize our financing obligations, which are all store related, and where they are presented in our Consolidated Financial Statements:


Consolidated Balance Sheets
(Dollars in Millions)	Classification	August 2, 2025	February 1, 2025	August 3, 2024
Assets
Financing obligations	Property and equipment, net	$37	$39	$42
Liabilities
Current	Current portion of finance leases and financing obligations	9	9	8
Noncurrent	Finance leases and financing obligations	450	448	436
Total financing obligations		$459	$457	$444


Consolidated Statement of Operations		Three Months Ended		Six Months Ended
(Dollars in Millions)	Classification	August 2, 2025	August 3, 2024	August 2, 2025	August 3, 2024
Amortization of financing obligation assets	Depreciation and amortization	$1	$1	$2	$2
Interest on financing obligations	Interest expense, net	19	19	37	37
Total financing obligations		$20	$20	$39	$39

The following table summarizes future financing obligation payments by fiscal year:


	August 2, 2025
(Dollars in Millions)	Financing Obligations
2025	$40
2026	82
2027	81
2028	78
2029	77
After 2029	1,108
Total financing obligation payments	$1,466
Non-cash gain on future sale of property	116
Amount representing interest	(1,123)
Financing obligation liability	$459

Total financing obligation payments include $1.1 billion related to options to extend terms that are reasonably certain of being exercised.

The remaining contractually obligated term represents only the remaining noncancelable portion of the financing obligations.