Income Taxes

6 Months Ended

Aug. 03, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Note 11. Income Taxes

The Company provides for income taxes at the end of each interim period based on the estimated effective tax rate for the full fiscal year. In interim periods where the entity is experiencing losses, an entity must make assumptions concerning its future taxable income and determine whether the realization of future tax benefits is more likely than not. For the six months ended August 3, 2024, the Company has year-to-date ordinary pre-tax losses for the interim period and is anticipating annual ordinary pre-tax income for the fiscal year. The Company has determined that it is more likely than not that the tax benefit of the year-to-date ordinary pre-tax loss will not be realized in the current or future years and as such, tax provisions for the interim periods should not be recognized until the company has year-to-date ordinary pre-tax income. The benefit for income taxes of $794 for the three months ended August 3, 2024 was due to the reversal of the $794 ordinary tax expense recorded during the first quarter of fiscal 2024 from applying the Company’s estimated effective tax rate at the time for the fiscal year to the first quarter pre-tax loss, excluding discrete items. As of the first quarter, the Company was anticipating an annual ordinary pre-tax loss for the fiscal year.

The benefit for income taxes of $1,681 for the six months ended August 3, 2024 represents the discrete tax benefit recorded during the first quarter of fiscal 2024 primarily recognized from the reversal of a portion of the non-cash deferred tax liability related to the Company's equity method investment, which a portion can now be used as a source of income to support the realization of certain deferred tax assets related to the Company's net operating losses.

The benefit for income taxes of $592 for the three months ended July 29, 2023 resulted from applying the Company’s estimated effective tax rate for the fiscal year to the three months (loss) income before income taxes and equity in net income (loss) of equity method investment, excluding discrete items. Discrete items for the second quarter included the $32,043 gain on the sale of Vince intellectual property ("Vince IP Sale Gain") and $2,041 in transaction expenses related to the transaction with Authentic Brands Group. Tax expense associated with these discrete items is not material as the Company has substantial net operating losses, both at the federal and state levels, for which a full valuation allowance is maintained against these deferred tax assets.

The benefit for income taxes of $5,877 for the six months ended July 29, 2023 was due to a $6,127 discrete tax impact from the change in classification of the Company's Vince tradename indefinite-lived intangibles to Assets Held for Sale during the first quarter of fiscal 2023, offset by $250 of tax expense from applying the Company's estimated effective tax rate for the fiscal year to the six-month (loss) income before income taxes and equity in net income (loss) of equity method investment, excluding discrete items. The change in classification of the Company's Vince tradename indefinite-lived intangibles resulted in a reversal of the non-cash deferred tax liability previously created by the amortization of indefinite-lived tradename intangible asset recognized for tax but not for book purposes, as this non-cash deferred tax liability can now be used as a source to support the realization of certain deferred tax assets related to the Company's net operating losses.

Each reporting period, the Company evaluates the realizability of its deferred tax assets and has maintained a full valuation allowance against its deferred tax assets. These valuation allowances will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that these deferred tax assets will be realized.