INCOME TAXES

3 Months Ended

May 04, 2024

INCOME TAXES

INCOME TAXES

NOTE 12—INCOME TAXES

Our income tax expense (benefit) and effective tax rates were as follows:

	THREE MONTHS ENDED
	MAY 4,		APRIL 29,
	2024		2023
	(dollars in thousands)
Income tax expense (benefit)	$	(2,091)	$	16,585
Effective tax rate		36.6%		28.4%

The increase in our effective tax rate for the three months ended May 4, 2024 compared to the three months ended April 29, 2023 is primarily attributable to the net loss in the current period, as well as higher net excess tax benefits from stock-based compensation in the three months ended May 4, 2024 as compared to the three months ended April 29, 2023.

As of May 4, 2024, we had $3.2 million of unrecognized tax benefits, of which $2.5 million would reduce income tax expense and the effective tax rate, if recognized. The remaining unrecognized tax benefits would offset other deferred tax assets, if recognized. As of May 4, 2024, we had $0.2 million of exposures related to unrecognized tax benefits that are expected to decrease in the next 12 months.

In October 2017, we filed an amended federal tax return claiming a $5.4 million refund, however, no income tax benefit was recorded at the time due to the technical nature and amount of the refund claim. As of May 4, 2024, we are no longer appealing this refund claim and have reversed the receivable and related reserve.

The Organization for Economic Cooperation and Development (“OECD”) proposed model rules to ensure a minimal level of taxation (commonly referred to as Pillar II) and the European Union member states have agreed to implement Pillar II’s proposed global corporate minimum tax rate of 15%. Many countries are actively considering, have proposed or have enacted, changes to their tax laws based upon the Pillar II proposals, which could increase our tax obligations in countries where we do business or cause us to change the way we operate our business. To mitigate the administrative burden for multinational enterprises in complying with the OECD Global Anti-Base Erosion rules during the initial years of implementation, the OECD developed the temporary “Transitional Country-by-Country Safe Harbor.” We considered the applicable tax law changes from Pillar II implementation in the relevant countries in which we operate, and there is no material impact to our tax provision for the three months ended May 4, 2024. We will continue to evaluate the impact of these tax law changes in future reporting periods.