Income Taxes

12 Months Ended

Jan. 29, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Note 9—Income Taxes

The significant components of the income tax provision were as follows:

	Fiscal Year Ended
	January 29, 2022			January 30, 2021			February 1, 2020
	(Dollars in millions)
Current:
Federal	$	11.7		$	18.9		$	2.3
State and local		1.7			13.0			1.9
		13.4			31.9			4.2
Deferred:
Federal		0.1			(1.8	)		7.5
State and local		(0.5	)		(2.1	)		0.4
		(0.4	)		(3.9	)		7.9
Income tax provision	$	13.0		$	28.0		$	12.1

The reconciliation of the income tax provision at the statutory rate to the income tax provision was as follows:

	Fiscal Year Ended
	January 29, 2022					January 30, 2021					February 1, 2020
	(Dollars in millions)
Federal income tax provision (benefit) at the statutory rate	$	14.6		21.0	%	$	50.5		21.0	%	$	(112.2	)	21.0	%
Effect of:
Goodwill impairment		—		—			—		—			101.2		(18.9	)
Changes in valuation allowances		(0.4	)	(0.6	)		(25.5	)	(10.6	)		29.3		(5.5	)
State and local taxes, net of federal benefit		1.7		2.4			12.8		5.3			(4.6	)	0.9
Revaluation of federal NOL carryback		—		—			(4.8	)	(2.0	)		—		—
Officers’ life insurance		(1.3	)	(1.9	)		(0.4	)	(0.2	)		(1.1	)	0.2
Uncertain tax positions (inclusive of penalties and interest)		0.1		0.1			(0.5	)	(0.2	)		1.1		(0.2	)
Federal general business credits		(1.0	)	(1.4	)		(0.8	)	(0.3	)		(0.9	)	0.1
Revaluation of deferred tax liability due to state tax law changes		(1.0	)	(1.4	)		(0.2	)	(0.1	)		(0.4	)	0.1
Other, net		0.3		0.5			(3.1	)	(1.2	)		(0.3	)	—
Income tax provision	$	13.0		18.7	%	$	28.0		11.7	%	$	12.1		(2.3	)%

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law by the President on March 27, 2020. Among other things, it provides economic relief to individuals and businesses. Tax law changes in the CARES Act impacted the Company in a number of different ways, including enhanced interest expense deductibility for fiscal 2020 and fiscal 2021 resulting from changes to the computation of the related limitation, the ability to carry back net operating losses for fiscal 2020 and fiscal 2021 to the five prior years, including tax years with a 35 percent corporate income tax rate, and a technical correction to the Tax Cuts and Jobs Act of 2017 allowing qualified improvement property to be fully depreciated in the year the property is placed in service.

The Company’s effective income tax rate for fiscal 2022 was 18.7% compared to 11.7% for fiscal 2021. The increase in the effective income tax rate in fiscal 2022, as compared to fiscal 2021, resulted primarily from fiscal 2021 rate-lowering activity, including the reversal of the valuation allowance for the deferred tax asset relating to the interest expense carryover, and an effective tax rate benefit for a net operating loss carried back to tax years with a Federal tax rate of 35% versus 21%.

The Company recorded additional valuation allowances during fiscal 2020 to reflect that the deferred tax assets relating to the federal interest expense deduction, the federal charitable contribution deduction and state income/franchise tax credits were determined to be not realizable based on the available sources of income. However, during fiscal 2021, the Company released the valuation allowances relating to the federal interest expense deduction and the federal charitable contribution deduction because there was an increase in pre-tax income and changes to the associated tax law through the CARES Act which resulted in sufficient taxable income in the current fiscal year to fully utilize the related carryforwards.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company’s deferred tax assets and liabilities were as follows:

	January 29, 2022			January 30, 2021
	(Dollars in millions)
Deferred tax assets:
Lease obligations	$	231.1		$	245.2
Interest expense carryforward		1.8			1.9
Team member benefits		11.6			11.0
Inventory items		9.3			7.3
State credits		2.1			2.6
Federal net operating loss carryforwards		1.0			1.3
State net operating loss carryforwards		0.4			1.1
Other		5.3			4.6
Subtotal		262.6			275.0
Valuation allowances		(3.9	)		(4.4	)
Total deferred tax assets		258.7			270.6
Deferred tax liabilities:
Depreciation		(43.7	)		(45.9	)
Identified intangibles		(94.4	)		(96.9	)
Operating lease assets		(208.3	)		(215.1	)
Total deferred tax liabilities		(346.4	)		(357.9	)
Net deferred taxes	$	(87.7	)	$	(87.3	)

Income taxes are estimated for federal and each state jurisdiction in which the Company operates. This approach involves assessing the current tax exposure together with temporary differences which result from differing treatment of items for tax and book purposes. Deferred tax assets and liabilities are established based on these assessments. Deferred tax assets are evaluated for recoverability based on future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in carryback years and tax planning strategies. To the extent that recovery is deemed unlikely, a valuation allowance is recorded. The Company’s valuation allowance was $3.9 million and $4.4 million as of January 29, 2022 and January 30, 2021, respectively. The valuation allowance decreased due to the utilization of the related state tax credits on state tax returns filed during fiscal 2022. Many years of data have been incorporated into the determination of tax reserves and the Company’s estimates have historically proven to be reasonable.

The Company has approximately $4.8 million of gross federal net operating loss (“NOL”) carryforwards and $0.4 million of gross state NOL carryforwards, which expire in fiscal 2023 through fiscal 2027 and fiscal 2023 through fiscal 2041, respectively. The Company has net state tax credits of $2.1 million, with a full valuation allowance of $2.1 million related to state tax credits.

The Company files income tax returns in various jurisdictions, including the U.S., China and certain states, counties and municipalities, in accordance with applicable nexus requirements. For U.S. federal, state and local purposes, the Company is no longer subject to income tax examinations by taxing authorities for fiscal years prior to fiscal 2017, with some exceptions for state and local purposes due to longer statutes of limitations or the extensions of statutes of limitations. The Company expects to decrease its uncertain tax positions by $0.4 million within the next fiscal year due to settlement with state taxing authorities and the expiration of statues of limitations, all of which is expected to be recognized as an income tax benefit.

A reconciliation of the beginning and ending amounts of uncertain tax positions for the past three fiscal years is as follows:

	Fiscal Year Ended
	January 29, 2022			January 30, 2021			February 1, 2020
	(Dollars in millions)
Balance at beginning of fiscal year	$	1.2		$	9.9		$	2.8
Increases related to prior year tax positions		0.4			0.3			7.1
Decreases related to prior year tax positions		—			—			—
Settlements		(0.2	)		(8.7	)		—
Lapse of statute of limitations		(0.2	)		(0.3	)		—
Balance at end of fiscal year	$	1.2		$	1.2		$	9.9

At the end of fiscal 2022, the Company’s uncertain tax positions are $1.2 million, of which $0.9 million would affect the effective tax rate, if recognized. Within the next 12 months, it is reasonably possible that uncertain tax positions could be reduced by approximately $0.4 million resulting from resolution or closure of tax examinations. Any increase in the amount of uncertain tax positions within the next 12 months is expected to be insignificant.

The Company records interest and penalties on uncertain tax positions as a component of the income tax provision. The total amount of interest and penalties accrued as of the end of fiscal 2022 and fiscal 2021 were $0.1 million and $0.2 million, respectively.

During fiscal 2021, the Company settled a dispute with the IRS relating the fiscal 2015-2018 tax years. Prior to the settlement, the Company had an unrecognized income tax benefit of $8.7 million relating to these tax years.