Income Taxes

6 Months Ended

Aug. 03, 2024

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The quarterly provision for income taxes is based on the current estimate of the annual effective income tax rate and the tax effect of discrete items occurring during the quarter. The Company’s quarterly provision and the estimate of the annual effective tax rate are subject to significant variation due to several factors. These factors include variability in the pre-tax jurisdictional mix of earnings, changes in how the Company does business including entering into new businesses or geographies, changes in foreign currency exchange rates, changes in laws, regulations, interpretations and administrative practices, relative changes in expenses or losses for which tax benefits are not recognized and the impact of discrete items. In addition, jurisdictions where the Company anticipates an ordinary loss for the fiscal year for which the Company does not anticipate future tax benefits are excluded from the overall computation of estimated annual effective tax rate and no tax benefits are recognized in the period related to losses in such jurisdictions. The impact of these items on the effective tax rate will be greater at lower levels of pre-tax earnings.

Impact of valuation allowances

During the thirteen and twenty-six weeks ended August 3, 2024, the Company did not recognize income tax benefits on $7.0 million and $14.6 million respectively, of pretax losses, primarily in Switzerland, resulting in adverse tax impacts of $1.1 million and $2.2 million, respectively.

As of August 3, 2024, the Company had foreign net deferred tax assets of approximately $40.3 million, including $9.7 million, $7.7 million, and $13.0 million in China, Japan and the United Kingdom, respectively. While the Company believes that 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. Should circumstances change, the net deferred tax assets may become subject to additional valuation allowances in the future. Additional valuation allowances would result in additional tax expense.

During the thirteen and twenty-six weeks ended July 29, 2023, the Company did not recognize income tax benefits on $22.7 million and $43.0 million of pretax losses, primarily in Switzerland, resulting in adverse tax impacts of $3.4 million and $6.5 million, respectively.

As of February 3, 2024, there were approximately $7.6 million, $7.5 million, and $12.6 million of net deferred tax assets in China, Japan, and the United Kingdom, respectively.

Share-based compensation

Refer to Note 11, “SHARE-BASED COMPENSATION,” for details on income tax benefits and charges related to share-based compensation awards during the thirteen and twenty-six weeks ended August 3, 2024 and July 29, 2023.