XML 42 R19.htm IDEA: XBRL DOCUMENT v3.25.1
INCOME TAXES
 12 Months Ended
Feb. 01, 2025
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Impact of valuation allowances and other tax benefits during Fiscal 2024

During Fiscal 2024, the Company did not recognize income tax benefits on $53.8 million of pre-tax losses, primarily in Switzerland, resulting in adverse tax impacts of $8.2 million.

As of February 1, 2025, the Company had foreign net deferred tax assets of approximately $35.7 million, including $8.2 million, $5.4 million, and $13.4 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 situations as they emerge. 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.

Impact of valuation allowances and other tax benefits during Fiscal 2023

During Fiscal 2023, the Company did not recognize income tax benefits on $103.0 million of pre-tax losses, primarily in Switzerland, resulting in adverse tax impacts of $15.6 million.

As of February 3, 2024, the Company had foreign net deferred tax assets of approximately $36.7 million, including $7.6 million, $7.5 million, and $12.6 million in China, Japan, and the United Kingdom, respectively.

Impact of valuation allowances and other tax charges 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 foreign net deferred tax assets of approximately $43.8 million, including $8.0 million, $9.1 million, and $15.6 million in China, Japan, and the United Kingdom, respectively.

Components of Income Taxes

Income before income taxes consisted of:
(in thousands)Fiscal 2024Fiscal 2023Fiscal 2022
Domestic (1)
$757,835 $526,967 $152,608 
Foreign10,842 (42,668)(85,592)
Income before income taxes$768,677 $484,299 $67,016 
(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 consisted of:
(in thousands)Fiscal 2024Fiscal 2023Fiscal 2022
Current:
Federal$150,061 $113,765 $25,577 
State40,942 32,299 10,371 
Foreign15,936 7,565 9,183 
Total current$206,939 $153,629 $45,131 
Deferred:
Federal
$(11,664)$(9,160)$4,586 
State(834)(1,196)122 
Foreign
220 5,613 6,792 
Total deferred(12,278)(4,743)11,500 
Income tax expense$194,661 $148,886 $56,631 

The Company’s earnings and profits from its foreign subsidiaries could be repatriated to the U.S., without incurring additional 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 2024Fiscal 2023Fiscal 2022
U.S. Federal income tax rate21.0 %21.0 %21.0 %
State income tax, net of U.S. federal income tax effect4.5 4.9 12.4 
Foreign taxation of non-U.S. operations1.4 1.4 16.2 
Internal Revenue Code Section 162(m)0.7 1.4 4.6 
Net change in valuation allowances0.6 3.4 30.7 
Additional U.S. taxation of non-U.S. operations0.1 0.1 1.3 
Credit for increasing research activities(0.1)(0.5)(2.5)
Audit and other adjustments to prior years' accruals, net(0.2)(0.2)5.9 
Net income attributable to noncontrolling interests(0.2)(0.3)(2.4)
Tax benefit recognized on share-based compensation expense (2)
(2.5)(0.5)(2.6)
Other items, net— — (0.1)
Total25.3 %30.7 %84.5 %
(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 2024, Fiscal 2023, and Fiscal 2022.

For certain years, 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 sensitive to 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 2024, Fiscal 2023, and Fiscal 2022, 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 that gives rise to deferred income tax assets (liabilities) were as follows:
(in thousands)February 1, 2025February 3, 2024
Deferred income tax assets:
Operating lease liabilities$241,873 $211,863 
Intangibles, foreign step-up in basis
58,755 62,464 
Net operating losses (NOL), tax credit and other carryforwards91,995 84,872 
Accrued expenses and reserves35,402 35,866 
Deferred compensation18,275 15,717 
Inventory9,996 5,518 
Property and equipment and intangibles1,129 — 
Rent509 1,874 
Other4,971 1,683 
Valuation allowances(151,810)(146,973)
Total deferred income tax assets$311,095 $272,884 
Deferred income tax liabilities:
Operating lease right-of-use assets$(223,384)$(192,020)
Prepaid expenses(2,809)(1,832)
Store supplies(1,835)(2,100)
Undistributed profits of non-U.S. subsidiaries(1,400)(1,271)
U.S. offset to foreign deferred tax assets, excluding intangibles, foreign step-up in basis (1)
(125)(187)
Property and equipment and intangibles— (7,472)
Other(2,215)(781)
Total deferred income tax liabilities$(231,768)$(205,663)
Net deferred income tax assets (1)
$79,327 $67,221 
(1)This table does not reflect deferred taxes classified within AOCL. As of February 1, 2025 and February 3, 2024, AOCL included deferred tax liabilities of $1.0 million and deferred tax liabilities of $0.1 million, respectively.

As of February 1, 2025, the Company had deferred tax assets related to foreign and state NOL and credit carryforwards of $91.9 million and $0.1 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 Fiscal 2026 and a portion of state NOL carryforwards will begin to expire in Fiscal 2029. Some foreign NOLs have an indefinite carryforward period. As of February 1, 2025, 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 2024 and 2023 were $151.8 million and $147.0 million, respectively. The valuation allowances as of Fiscal 2024 have been established against deferred tax assets, primarily in Switzerland. All valuation allowances have been reflected through the Consolidated Statements of Operations and Comprehensive Income (Loss). 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 2024, Fiscal 2023 and Fiscal 2022.
Other

The amount of uncertain tax positions as of February 1, 2025, February 3, 2024 and January 28, 2023, 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 2024Fiscal 2023Fiscal 2022
Uncertain tax positions, beginning of the year$2,751 $2,293 $1,114 
Gross addition for tax positions of the current year611 572 339 
Gross addition for tax positions of prior years1,725 75 907 
Reductions of tax positions of prior years for:
Lapses of applicable statutes of limitations(155)(70)(66)
Settlements during the period(350)(119)(1)
Uncertain tax positions, end of year$4,582 $2,751 $2,293 

The IRS is currently conducting an examination of the Company’s U.S. federal income tax returns for Fiscal 2024 and 2023 as part of the IRS’ Compliance Assurance Process program. The IRS examinations for Fiscal 2022 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.