Income Taxes

12 Months Ended

Jan. 29, 2022

Income Tax Disclosure [Abstract]

Income Taxes

14. Income Taxes

Income tax expense (benefit) consisted of the following (in thousands):

	Fiscal years ended
	January 29, 2022			January 30, 2021			February 1, 2020
	(52 weeks)			(52 weeks)			(52 weeks)
Current:
Federal	$	4,550		$	(29,869	)	$	4,273
State		11,182			984			5,156
	$	15,732		$	(28,885	)	$	9,429
Deferred:
Federal	$	39,087		$	19,604		$	(34,814	)
State		(1,346	)		5,944			(10,273	)
	$	37,741		$	25,548		$	(45,087	)
Income tax expense (benefit)	$	53,473		$	(3,337	)	$	(35,658	)

A reconciliation of income tax expense (benefit) at the federal statutory rate with the provision for income taxes is as follows (in thousands):

	Fiscal years ended
	January 29, 2022					January 30, 2021					February 1, 2020
	(52 weeks)					(52 weeks)					(52 weeks)
Income tax expense (benefit) at federal statutory rate	$	45,751		21.0	%	$	(6,251	)	21.0	%	$	(27,524	)	21.0	%
Non-deductible expenses		1,425		0.7			986		(3.3	)		363		(0.3	)
Equity compensation		5,988		2.7			2,212		(7.4	)		1,623		(1.2	)
State taxes, net of federal tax benefit		7,636		3.5			5,473		(18.4	)		(4,073	)	3.1
Tax credits		(2,500	)	(1.1	)		(1,907	)	6.4			(4,150	)	3.2
Uncertain tax positions		925		0.4			4,593		(15.4	)		2		—
CARES Act – carryback rate differential		—		—			(8,752	)	29.3			—		—
IPO transaction costs		(5,201	)	(2.4	)		—		—			—		—
Other, net		(551	)	(0.3	)		309		(1.0	)		(1,899	)	1.5
	$	53,473		24.5	%	$	(3,337	)	11.2	%	$	(35,658	)	27.3	%

The effective tax rate is based on expected taxable income, statutory tax rates and tax planning opportunities available to the Company. Reserves are established when positions are “more likely than not” to be challenged and not sustained. Reserves are adjusted at each financial statement date to reflect the impact of audit settlements, expiration of statutes of limitation, developments in the tax law and ongoing discussions with the tax authorities. Accrued interest and penalties associated with uncertain tax positions are recognized as part of the income tax provision.

On March 27, 2020, in response to the COVID-19 pandemic, the “Coronavirus Aid, Relief and Economic Security Act” (“CARES Act”) was signed into law by the President of the United States. The CARES Act includes, among other things, U.S. corporate income tax provisions related to net operating loss carryback periods, alternative minimum tax credits, modifications to interest deduction limitations and technical corrections on tax depreciation methods for qualified improvement property. The Company re-measured deferred tax assets related to $67.4 million net operating losses available under the CARES Act that are expected to be carried back to the fiscal years before the Tax Act was enacted, which resulted in a benefit of $8.8 million that increased the effective tax rate in the fiscal year ended January 30, 2021.

During the fiscal year ended January 29, 2022, the Company completed its analysis of third party legal, consulting, accounting, and other transaction costs incurred by the Company in connection with its initial public offering on January 13, 2021, which resulted in a benefit of $5.2 million that decreased the effective tax rate in the fiscal year ended January 29, 2022.

Significant components of the Company’s deferred tax assets and liabilities were as follows (in thousands):

	January 29, 2022			January 30, 2021
Deferred tax assets:
Inventory	$	21,203		$	20,212
Accrued employee benefits		38,670			44,437
Net operating losses, state tax credit carryforwards		5,856			5,733
Interest expense limitation carry-forward under    IRC §163(j)		14,696			22,726
Lease-related items		359,677			355,321
Other		11,646			3,392
Total deferred tax assets		451,748			451,821
Valuation allowance		(5,863	)		(6,149	)
Net deferred tax assets		445,885			445,672
Deferred tax liabilities:
Fixed assets		(115,621	)		(91,769	)
Intangible assets		(267,597	)		(264,720	)
Debt restructuring		(2,248	)		(7,493	)
Lease-related items		(347,501	)		(345,123	)
Investments in joint ventures		(31,273	)		(16,830	)
Other		—			(657	)
Total deferred tax liabilities		(764,240	)		(726,592	)
	$	(318,355	)	$	(280,920	)

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. With the exception to certain state net operating losses discussed below, management believes that it is more likely than not that the Company will realize the benefits of these deductible differences. This is based upon future reversals of existing taxable temporary differences over the periods in which the deferred tax assets are deductible.

As of January 29, 2022, the Company has recorded a deferred tax asset of $2.5 million reflecting the benefit of $48.4 million in state income tax net operating loss carryforwards, which will begin to expire in fiscal 2023. The Company believes that it is more likely than not that the state net operating loss carryforward will not be realized and recorded a valuation allowance of $2.5 million on the deferred tax asset related to these state net operating loss carryforwards as of January 29, 2022. The Company recorded a deferred tax asset of $3.5 million for certain state

tax credits as of January 29, 2022. The Company believes it is more likely than not that a portion of these credits will not be realized and has recorded a $2.8  million valuation allowance related to these credits. If or when recognized, the tax benefits related to any reversal of the valuation allowance on deferred tax assets will be accounted for as a reduction of income tax expense.

The Company has approximately $16.4 million of unrecognized tax benefits as of January 29, 2022, of which $4.2 million, if recognized, would impact the effective tax rate and $12.2 million would result in an adjustment to the net deferred tax liability.

Changes in unrecognized tax benefits, excluding interest and penalties, were as follows (in thousands):

	January 29, 2022		January 30, 2021
Beginning balance	$	16,421	$	74
Additions for tax positions taken in prior years		—		16,421
Decreases related to lapse of statute limitation		—		(74	)
Ending balance	$	16,421	$	16,421

The Company has approximately $1.7 million accrued for interest and penalties as of January 29, 2022 in the consolidated balance sheets and recorded $0.9 million in interest during fiscal 2021 in the consolidated statements of operations. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company does not anticipate that unrecognized tax benefits will significantly increase or decrease over the next 12 months.

The Company is no longer subject to examination for U.S. federal income tax for periods prior to fiscal 2018. The Company is no longer subject to examination by state tax authorities for tax periods prior to fiscal 2016. The Company is currently under audit by various state jurisdictions for various years. Though the estimated completion dates of these audits are not known, it is possible that these audits will be completed within the next 12 months. In addition, the Company does not foresee other material changes to the federal or state uncertain tax positions affecting income tax expense within the next 12 months. The Company has no material foreign operations.