INCOME TAXES

12 Months Ended

Feb. 01, 2025

INCOME TAXES

INCOME TAXES

NOTE 14—INCOME TAXES

Our income before income taxes, inclusive of our share of equity method investments loss—net, was as follows:

	YEAR ENDED
	FEBRUARY 1,		FEBRUARY 3,		JANUARY 28,
	2025		2024		2023
	(in thousands)
Domestic	$	59,731	$	143,509	$	418,216
Foreign		17,480		12,313		19,068
Total	$	77,211	$	155,822	$	437,284

Our income tax expense (benefit) consisted of the following:

	YEAR ENDED
	FEBRUARY 1,		FEBRUARY 3,		JANUARY 28,
	2025		2024		2023
	(in thousands)
Current
Federal	$	1,015	$	(3,249)	$	(6,773)
State		2,274		6,032		1,013
Foreign		2,943		179		7,012
Total current tax expense		6,232		2,962		1,252
Deferred
Federal		715		22,236		(78,032)
State		(2,761)		(1,339)		(18,639)
Foreign		613		4,402		4,061
Total deferred tax expense (benefit)		(1,433)		25,299		(92,610)
Total income tax expense (benefit)	$	4,799	$	28,261	$	(91,358)

A reconciliation of the federal statutory tax rate to our effective tax rate was as follows:

	YEAR ENDED
	FEBRUARY 1,		FEBRUARY 3,		JANUARY 28,
	2025		2024		2023
Provision at federal statutory tax rate	21.0	%	21.0	%	21.0	%
State income taxes—net of federal tax impact	(2.3)		2.1		(2.8)
Stock compensation—excess benefits	(19.2)		(3.4)		(50.0)
Non-deductible stock-based compensation	2.8		1.3		0.9
U.S. impact of foreign operations	2.5		0.8		0.6
Valuation allowance	1.1		0.2		0.5
Federal rehabilitation tax credit	—		(7.3)		(0.9)
Tax impact of convertible senior notes repurchase	—		0.1		9.4
Tax rate adjustments and other	(0.6)		1.0		—
Other permanent items	0.9		2.3		0.4
Effective tax rate	6.2	%	18.1	%	(20.9)	%

We have recorded deferred tax assets and liabilities based upon estimates of their realizable value, and such estimates are based upon likely future tax consequences. In assessing the need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets. If, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized, we record a valuation allowance.

Significant components of our deferred tax assets and liabilities were as follows:

	FEBRUARY 1,		FEBRUARY 3,
	2025		2024
	(in thousands)
Non-current deferred tax assets (liabilities)
Lease liabilities	$	363,753	$	341,767
Interest expense carryforwards		70,952		72,765
Net operating loss carryforwards		35,205		60,143
Accrued expenses		22,927		25,906
Stock-based compensation		22,265		19,090
Merchandise inventories		21,174		13,881
Deferred revenue		2,961		3,847
Non-current deferred tax assets		539,237		537,399
Valuation allowance		(3,791)		(4,442)
Non-current deferred tax assets—net	$	535,446	$	532,957
Property and equipment	$	(176,239)	$	(182,580)
Lease right-of-use assets		(165,966)		(165,423)
Prepaid expense and other current assets		(35,453)		(29,927)
Tradename, trademarks and other intangible assets		(11,679)		(11,379)
State benefit		(8,780)		(8,104)
Non-current deferred tax liabilities		(398,117)		(397,413)
Total non-current deferred tax assets—net	$	137,329	$	135,544

A reconciliation of our valuation allowance against deferred tax assets in certain state and foreign jurisdictions due to historical losses was as follows:

	YEAR ENDED
	FEBRUARY 1,		FEBRUARY 3,		JANUARY 28,
	2025		2024		2023
	(in thousands)
Balance at beginning of fiscal year	$	4,442	$	4,202	$	1,959
Net changes in deferred tax assets and liabilities		(651)		240		2,243
Balance at end of fiscal year	$	3,791	$	4,442	$	4,202

As of February 1, 2025, we had federal, state and foreign net operating loss carryovers of $96 million, $104 million and $29 million, respectively. The federal net operating losses do not expire. The state net operating loss carryovers will begin to expire in 2025 and continue to expire at various times depending upon individual state carryforward rules. The foreign net operating losses will begin to expire in 2028. Internal Revenue Code Section 382 and similar state rules place a limitation on the amount of taxable income which can be offset by net operating loss carryforwards after a change in ownership (generally greater than 50% change in ownership). We cannot give any assurances that we will not undergo an ownership change in the future resulting in further limitations on utilization of net operating losses.

A reconciliation of the exposures related to unrecognized tax benefits was as follows:

	YEAR ENDED
	FEBRUARY 1,		FEBRUARY 3,		JANUARY 28,
	2025		2024		2023
	(in thousands)
Balance at beginning of fiscal year	$	8,604	$	8,151	$	8,604
Gross decreases—prior period tax positions		(5,438)		—		—
Gross increases—current period tax positions		431		515		—
Reductions based on the lapse of the applicable statutes of limitations		(213)		(62)		(453)
Balance at end of fiscal year	$	3,384	$	8,604	$	8,151

As of February 1, 2025, $2.7 million of our unrecognized tax benefits 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 February 1, 2025, we have $0.4 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 has been recorded in any fiscal year given the technical nature and amount of the refund claim. As of the first quarter of fiscal 2024, we are no longer appealing this refund claim and have reversed the receivable and related reserve.

We are subject to taxation in the United States and various states and foreign jurisdictions. As of February 1, 2025, we are subject to examination by the tax authorities for fiscal 2021 through fiscal 2024. With few exceptions, as of February 1, 2025, we are no longer subject to U.S. federal, state, local, or foreign examinations by tax authorities for years prior to fiscal 2021.

We have not provided U.S. income or foreign withholding taxes on the undistributed earnings of our foreign subsidiaries as of February 1, 2025 because we intend to permanently reinvest such earnings outside of the U.S. If these foreign earnings were to be repatriated in the future, the related U.S. tax liability is expected to be immaterial, due to the participation exemption put in place in the Tax Cuts and Jobs Act of 2017.

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 fiscal 2024. We will continue to evaluate the impact of these tax law changes in future reporting periods.