Income Taxes

9 Months Ended

Oct. 28, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Note 6—Income Taxes

Effective Tax Rate

The effective income tax rate for the third quarter of fiscal 2024 was 34.4%, an income tax benefit on a pre-tax book loss, compared to the rate for the third quarter of fiscal 2023, which was 27.1%, also an income tax benefit on a pre-tax book loss. The effective income tax rate for the first thirty-nine weeks of fiscal 2024 was 17.3%, an income tax benefit on a pre-tax book loss, compared to 27.7%, also an income tax benefit on a pre-tax book loss, for the first thirty-nine weeks of fiscal 2023. The effective tax rate increased from the third quarter of fiscal 2023 to the third quarter of fiscal 2024 primarily because the Company, after considering updated information, including the filing of the fiscal 2023 federal income tax return, reduced the forecasted valuation allowance against a significant portion of the deferred tax asset relating to the disallowed interest expense deduction and related carryover under Section 163(j) of the Internal Revenue Code of 1986 (“the Code”), as amended, along with related state law. The decrease in the effective tax rate from the first thirty-nine weeks of fiscal 2023 to the first thirty-nine weeks of fiscal 2024 was primarily because the Company continues to anticipate, beginning with the first quarter of fiscal 2024, the need to record a valuation allowance for the full year against a significant portion of the Company’s current year deferred tax asset relating to the future carryover of disallowed interest expense deductions for federal and state

income tax purposes under Section 163(j) of the Code, along with related state law. As the anticipated additional valuation allowance is included in the Company’s annual estimated effective tax rate, a portion of the unfavorable valuation allowance impact is included in the net income tax benefit recorded during both the third quarter and first thirty-nine weeks of fiscal 2024.

The effective tax rate is subject to change based on the mix of income from different state jurisdictions, which have different tax rates, as well as the change in status or outcome of uncertain tax positions. The Company evaluates its effective tax rate on a quarterly basis and updates its estimate of the full-year effective rate as necessary.

Reserves for Uncertain Tax Positions

At the end of the third quarter of fiscal 2024, unrecognized tax benefits were $1.0 million, of which $0.8 million would affect the effective tax rate, if recognized. 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 at the end of the third quarter of both fiscal 2024 and fiscal 2023 was $0.1 million. Within the next 12 months, it is reasonably possible that uncertain tax positions could be reduced by approximately $0.1 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.