INCOME TAXES

12 Months Ended

Feb. 03, 2024

INCOME TAXES

INCOME TAXES

6.   INCOME TAXES

The components of earnings before income taxes consisted of domestic earnings before income taxes of $132.5 million, $168.0 million and $152.5 million in 2023, 2022 and 2021, respectively.  The Company’s international earnings before incomes taxes were $48.8 million, $45.0 million and $36.7 million in 2023, 2022 and 2021, respectively.

The components of income tax provision on earnings were as follows:

($ thousands)	2023		2022		2021
Federal
Current	$	10,849	$	11,506	$	36,388
Deferred		5,138		6,975		(227)
Total federal income tax provision		15,987		18,481		36,161
State
Current		2,423		6,660		4,012
Deferred		(9,819)		3,421		6,531
Total state income tax (benefit) provision		(7,396)		10,081		10,543
International
Current		4,879		4,759		4,615
Deferred		(3,980)		18		(238)
Total international income tax provision		899		4,777		4,377
Total income tax provision	$	9,490	$	33,339	$	51,081

The differences between the income tax provision reflected in the consolidated financial statements and the amounts calculated at the federal statutory income tax rate were as follows:

($ thousands)	2023		2022		2021
Income taxes at statutory rate	$	38,078	$	44,737	$	39,741
State income taxes, net of federal tax benefit		5,710		8,981		8,361
International earnings taxed at differing rates from U.S. statutory		(5,367)		(1,974)		(3,588)
Share-based compensation		(3,106)		(602)		94
Provision for valuation allowance, net of utilization		(30,054)		(20,743)		8,978
Non-deductibility of 162(m) limitations		4,373		3,363		3,377
GILTI, BEAT and FDII provisions		427		422		346
CARES Act NOL, net carryback benefit (1)		—		—		365
International entity restructuring (2)		—		—		(6,697)
Other (3)		(571)		(845)		104
Total income tax provision	$	9,490	$	33,339	$	51,081

(1) The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law during 2020.  Among the Internal Revenue Code provisions modified by the CARES Act was a five-year carryback period for net operating losses incurred in the 2018, 2019 and 2020 tax years; temporary removal of the 80% limitation on net operating loss usage, reinstated for tax years after 2020; a temporary increase in the interest expense limitation and acceleration of refundable AMT credit.  The five-year carryback presented an opportunity to carry back net operating losses from years with a statutory 21% federal tax rate to years when the rate was 35%.

(2) Reflects the deferred tax impacts of the liquidation of certain international subsidiaries, with related impacts presented in the provision for valuation allowance, net of utilization line in the table above.

(3) The other category of income tax provision principally represents the impact of expenses that are not deductible or partially deductible for federal income tax purposes and the impact of any return-to-provision adjustments.

Significant components of the Company’s deferred income tax assets and liabilities were as follows:

($ thousands)	February 3, 2024		January 28, 2023
Deferred Tax Assets
Lease obligations	$	148,242	$	147,910
Goodwill		34,386		38,407
Net operating loss carryforward/carryback		10,107		13,303
Accrued expenses		17,870		19,478
Employee benefits, compensation and insurance		15,689		17,350
Accounts receivable		6,094		6,304
Inventory capitalization and inventory reserves		6,623		6,642
Impairment of investment in nonconsolidated affiliate		1,470		1,470
Postretirement and postemployment benefit plans		207		228
Other		1,605		1,261
Total deferred tax assets, before valuation allowance		242,293		252,353
Valuation allowance		(7,153)		(39,540)
Total deferred tax assets, net of valuation allowance	$	235,140	$	212,813
Deferred Tax Liabilities
Lease right-of-use assets	$	(138,315)	$	(136,618)
Intangible assets		(13,659)		(12,054)
LIFO inventory valuation		(51,021)		(46,551)
Retirement plans		(17,239)		(19,381)
Capitalized software		(1,800)		(3,309)
Depreciation		(16,822)		(10,823)
Other		(3,419)		(3,078)
Total deferred tax liabilities		(242,275)		(231,814)
Net deferred tax liability	$	(7,135)	$	(19,001)

As of February 3, 2024, the Company had various federal, state and international net operating loss (“NOL”) carryforwards with tax values totaling $10.1 million.  The state NOLs totaling $3.4 million have carryforward periods ranging from one to 20 years.  The Company has NOLs in Canada and the United Kingdom of $4.1 million and $2.6 million, respectively.  The Canada NOLs have a carryforward period of 18 years, while the United Kingdom NOLs have no expiration.  

During 2020, as a result of the significant loss before income taxes driven by the impairment of goodwill and intangible assets during the pandemic, the Company entered into a three-year cumulative loss position for federal, state and certain international jurisdictions.  During 2021, the Company also experienced operating losses at its Canadian business division, which were driven by exit-related costs associated with the Naturalizer retail stores.  As a result of the strong earnings before income taxes in both 2021 and 2022, the Company’s net deferred tax asset position declined.  As a result, in 2022, the Company released approximately $17.4 million of its valuation allowances on deferred tax assets.  Due to continued strong earnings in 2023, the Company is no longer in a cumulative three-year loss position as of February 3, 2024.  Accordingly, the Company released valuation allowances on certain deferred tax assets totaling $26.7 million in the fourth quarter of 2023.

As of February 3, 2024, no deferred taxes have been provided on the accumulated unremitted earnings of the Company’s international subsidiaries that are not subject to United States income tax, beyond the amounts recorded for the one-time transition tax for the mandatory deemed repatriation of cumulative international earnings, as required by the Tax Cuts and Jobs Act.  The Company periodically evaluates its international investment opportunities and plans, as well as its international working capital needs, to determine the level of investment required and, accordingly, determines the level of international earnings that is considered indefinitely reinvested.  Based upon that evaluation, earnings of the Company’s international subsidiaries that are not otherwise subject to United States taxation are considered to be indefinitely reinvested, and accordingly, deferred taxes have not been provided.  If changes occur in future investment opportunities and plans, those changes will be reflected when known and may result in providing residual United States deferred taxes

on unremitted international earnings.  If the Company’s unremitted international earnings were not considered indefinitely reinvested as of February 3, 2024, an immaterial amount of additional deferred taxes would have been provided.

Uncertain Tax Positions

ASC 740, Income Taxes, establishes a single model to address accounting for uncertain tax positions.  The standard clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.  The standard also provides guidance on derecognition, measurement classification, interest and penalties, accounting in interim periods, disclosure and transition.  As of February 3, 2024 and January 28, 2023, the Company had no unrecognized tax benefits.  

For federal purposes, the Company’s tax filings for fiscal years 2020 to 2022 remain open to examination but are not currently being examined.   The Company also files tax returns in various international jurisdictions and numerous states for which various tax years are subject to examination and currently involved in audits.  While the Company is involved in examinations in certain jurisdictions, it does not expect any significant changes in its liability for uncertain tax positions during the next 12 months.