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INCOME TAXES
 12 Months Ended
Jan. 28, 2023
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Impact of valuation allowances and other tax benefits during Fiscal 2022

During Fiscal 2022, the Company did not recognize income tax benefits on $136.5 million of pre-tax losses, primarily in Switzerland, resulting in adverse tax impacts of $20.0 million.

As of January 28, 2023, the Company had net deferred tax assets of approximately $8.0 million, $9.1 million, and $15.6 million in China, Japan, and the United Kingdom, respectively. In China, while the Company believes these net deferred tax assets are more-likely-than-not to be realized, it is not a certainty, as the Company continues to evaluate and respond to emerging situations, such as the COVID-19 pandemic. The company is closely monitoring its operations on China. Should circumstances change, the net deferred tax assets may become subject to valuation allowances in the future, which would result in additional tax expense.

Impact of valuation allowances and other tax benefits during Fiscal 2021

During Fiscal 2021, as a result of the improvement seen in business conditions, the Company recognized $42.5 million of tax benefits due to the release of valuation allowances, primarily in the U.S. and Germany, and a discrete tax benefit of $3.9 million due to a rate change in the United Kingdom. The Company did not recognize income tax benefits on $25.3 million of pre-tax losses generated in Fiscal 2021, primarily in Switzerland, resulting in adverse tax impacts of $4.6 million.

As of January 29, 2022, the Company had net deferred tax assets of approximately $9.7 million, $12.2 million, and $20.1 million in China, Japan, and the United Kingdom, respectively.
Impact of valuation allowances and other tax charges during Fiscal 2020

The Company’s effective tax rate for Fiscal 2020 was impacted by $101.4 million of adverse tax impacts, ultimately giving rise to income tax expense on a consolidated pre-tax loss. During Fiscal 2020, due to the significant adverse impacts of COVID-19, the Company did not recognize income tax benefits on $203.4 million of pre-tax losses, resulting in an adverse tax impact of $39.5 million. The Company recognized charges of $61.9 million related to the establishment of valuation allowances and other tax charges in certain jurisdictions during Fiscal 2020, including, but not limited to, the U.S., Switzerland, Germany and Japan, principally as a result of the significant adverse impacts of COVID-19.

Components of Income Taxes

Income (loss) before income taxes consisted of:
(in thousands)Fiscal 2022Fiscal 2021Fiscal 2020
Domestic (1)
$152,608 $283,793 $(33,417)
Foreign(85,592)25,181 (15,326)
Income (loss) before income taxes$67,016 $308,974 $(48,743)
(1)    Includes intercompany charges to foreign affiliates for management fees, cost-sharing, royalties and interest and excludes a portion of foreign income that is currently includable on the U.S. federal income tax return.

Income tax expense (benefit) consisted of:
(in thousands)Fiscal 2022Fiscal 2021Fiscal 2020
Current:
Federal$25,577 $51,321 $9,434 
State10,371 14,061 3,750 
Foreign9,183 5,448 23,041 
Total current$45,131 $70,830 $36,225 
Deferred:
Federal (1)
$4,586 $(15,401)$(73,104)
State122 (8,995)8,829 
Foreign (1)
6,792 (7,526)88,261 
Total deferred11,500 (31,922)23,986 
Income tax expense$56,631 $38,908 $60,211 
(1)    Fiscal 2020 includes federal deferred tax benefit of $79.0 million and foreign deferred tax expense of $88.6 million due to the establishment of an additional valuation allowance in Switzerland.

The Company’s earnings and profits from its foreign subsidiaries could be repatriated to the U.S., without incurring additional U.S. federal income tax. The Company determined that the balance of the Company’s undistributed earnings and profits from its foreign subsidiaries as of February 2, 2019 are considered indefinitely reinvested outside of the U.S., and if these funds were to be repatriated to the U.S., the Company would expect to incur an insignificant amount of state income taxes and foreign withholding taxes. The Company accrues for both state income taxes and foreign withholding taxes with respect to earnings and profits earned after February 2, 2019, in such a manner that these funds may be repatriated without incurring additional tax expense.
Reconciliation between the statutory federal income tax rate and the effective tax rate is as follows:
Fiscal 2022Fiscal 2021Fiscal 2020
U.S. Federal income tax rate21.0 %21.0 %21.0 %
Net change in valuation allowances30.7 (19.7)(177.2)
Foreign taxation of non-U.S. operations (1)
16.2 3.5 32.7 
State income tax, net of U.S. federal income tax effect12.4 4.4 2.6 
Audit and other adjustments to prior years' accruals, net5.9 4.7 2.6 
Internal Revenue Code Section 162(m)4.6 1.6 (5.5)
Additional U.S. taxation of non-U.S.operations1.3 0.6 (0.2)
Tax expense (benefit) recognized on share-based compensation expense (2)
(2.6)(1.3)(7.5)
Credit for increasing research activities(2.5)(0.6)2.6 
Net income attributable to noncontrolling interests(2.4)(0.5)2.2 
Other items, net(0.1)0.1 0.9 
Other statutory tax rate and law changes— (1.2)2.3 
Total84.5 %12.6 %(123.5)%
(1)U.S. branch operations in Puerto Rico were subject to tax at the full U.S. tax rates. As a result, income from these operations do not create reconciling items..
(2)Refer to Note 13, “SHARE-BASED COMPENSATION,” for details on discrete income tax benefits and charges related to share-based compensation awards during Fiscal 2022, Fiscal 2021, and Fiscal 2020.

The impact of various tax items on the Company's effective tax rate were amplified on a percentage basis at lower levels of consolidated pre-tax income (loss) in absolute dollars. The effective tax rate remains dependent on jurisdictional mix. The taxation of non-U.S. operations line items in the table above excludes items related to the Company's non-U.S. operations reported separately in the appropriate corresponding line items.

For Fiscal 2022, Fiscal 2021 and Fiscal 2020, the impact of taxation of non-U.S. operations on the Company's effective income tax rate was related to the Company's jurisdictional mix driven primarily by the Company’s operations within Switzerland.
Components of Deferred Income Tax Assets and Deferred Income Tax Liabilities

The effect of temporary differences which gives rise to deferred income tax assets (liabilities) were as follows:
(in thousands)January 28, 2023January 29, 2022
Deferred income tax assets:
Operating lease liabilities$237,699 $242,290 
Intangibles, foreign step-up in basis (1)
61,030 64,281 
Net operating losses (NOL), tax credit and other carryforwards68,874 52,970 
Accrued expenses and reserves27,435 30,026 
Deferred compensation16,023 16,050 
Inventory5,475 3,578 
Rent1,502 — 
Other946 45 
Valuation allowances(130,622)(110,057)
Total deferred income tax assets$288,362 $299,183 
Deferred income tax liabilities:
Operating lease right-of-use assets$(205,827)$(202,916)
Property and equipment and intangibles(14,273)(10,150)
Prepaid expenses(1,634)(2,451)
Store supplies(1,933)(1,811)
Undistributed profits of non-U.S. subsidiaries(1,111)(1,082)
Rent— (360)
U.S. offset to foreign deferred tax assets, excluding intangibles, foreign step-up in basis (2)
(175)— 
Other(428)(30)
Total deferred income tax liabilities$(225,381)$(218,800)
Net deferred income tax assets (2)
$62,981 $80,383 
(1)During Fiscal 2021 an agreement was reached with the Swiss taxing authorities to decrease the basis step up to be amortized in the future thus decreasing the deferred asset by $14.8 million. Because of the valuation allowance, there is no impact on consolidated tax expense from this agreement.
(2)This table does not reflect deferred taxes classified within AOCL. As of January 28, 2023 and January 29, 2022, AOCL included deferred tax assets of $0.9 million and deferred tax liabilities of $1.1 million, respectively.

As of January 28, 2023, the Company had deferred tax assets related to foreign and state NOL and credit carryforwards of $68.6 million and $0.3 million, respectively, that could be utilized to reduce future years’ tax liabilities. If not utilized, a portion of the foreign NOL carryforwards will begin to expire in 2025 and a portion of state NOL carryforwards will begin to expire in 2025. Some foreign NOLs have an indefinite carryforward period. As of January 28, 2023, the Company did not have any deferred tax assets related to federal NOL and credit carryforwards that could be utilized to reduce future years’ tax liabilities.

The valuation allowances for Fiscal 2022, 2021, 2020 and 2019 was $130.6 million, $110.1 million, $174.3 million and $8.9 million, respectively. The valuation allowances as of Fiscal 2022 have been established against deferred tax assets, primarily in Japan and Switzerland. All valuation allowances have been reflected through the Consolidated Statements of Operations and Comprehensive (Loss) Income. The valuation allowances will remain until there is sufficient positive evidence to release them, such positive evidence would include having positive income within the jurisdiction. In such case, the Company will record an adjustment in the period in which a determination is made. The Company continues to review the need for valuation allowances on a quarterly basis.
Share-based Compensation

Refer to Note 13, “SHARE-BASED COMPENSATION,” for details on income tax benefits and charges related to share-based compensation awards during Fiscal 2022, Fiscal 2021 and Fiscal 2020.

Other

The amount of uncertain tax positions as of January 28, 2023, January 29, 2022 and January 30, 2021, which would impact the Company’s effective tax rate if recognized and a reconciliation of the beginning and ending amounts of uncertain tax positions, excluding accrued interest and penalties, are as follows:
(in thousands)Fiscal 2022Fiscal 2021Fiscal 2020
Uncertain tax positions, beginning of the year$1,114 $995 $1,794 
Gross addition for tax positions of the current year339 490 235 
Gross addition (reduction) for tax positions of prior years907 (136)395 
Reductions of tax positions of prior years for:
Lapses of applicable statutes of limitations(66)(81)(48)
Settlements during the period(1)(154)(1,381)
Uncertain tax positions, end of year$2,293 $1,114 $995 

The IRS is currently conducting an examination of the Company’s U.S. federal income tax returns for Fiscal 2022 and Fiscal 2021 as part of the IRS’ Compliance Assurance Process program. The IRS examinations for Fiscal 2020 and prior years have been completed. State and foreign returns are generally subject to examination for a period of three to five years after the filing of the respective return. The Company typically has various state and foreign income tax returns in the process of examination, administrative appeals or litigation. The outcome of the examinations is not expected to have a material impact on the Company’s financial statements. The Company believes that some of these audits and negotiations will conclude within the next 12 months and that it is reasonably possible the amount of uncertain income tax positions, including interest, may change by an immaterial amount due to settlement of audits and expiration of statues of limitations.

The Company does not expect material adjustments to the total amount of uncertain tax positions within the next 12 months, but the outcome of tax matters is uncertain and unforeseen results can occur.

Refer to Note 2, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Income Taxes,” for discussion regarding significant accounting policies related to the Company’s income taxes.