Income Taxes

9 Months Ended

Oct. 29, 2022

Income Taxes

Income Taxes

5. Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. If there is a change in tax rates, the Company would recognize the impact of such change in income in the period that includes the enactment date.

For the thirty-nine weeks ended October 29, 2022 and October 30, 2021, the Company utilized the annual effective tax rate method to calculate income taxes. The effective income tax rate was 23.0% for the first thirty-nine weeks of 2022, compared to 21.5% for the first thirty-nine weeks of 2021. The difference in the tax rate was due to a favorable tax impact of restricted stock vestings in the prior year.

On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022 ("IRA"). The IRA contains a number of revisions to the Internal Revenue Code, including a 15% corporate alternative minimum income tax and a 1% excise tax on corporate stock repurchases in tax years beginning after December 31, 2022. The Company is continuing to evaluate the IRA and its potential impact on future periods, and at this time the Company does not expect the IRA to have a material impact on its consolidated financial statements.