Income Taxes

9 Months Ended

Sep. 27, 2025

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The income tax provision for interim periods is generally determined using an estimate of the Company’s annual effective tax rate adjusted for discrete items. Each quarter the estimate of the annual effective tax rate is updated, and if the Company’s estimated tax rate changes, a cumulative adjustment is made.

The effective tax rate for the thirteen and thirty-nine weeks ended September 27, 2025 was 19.2% and 94.7%, respectively. The effective tax rate for these periods was primarily driven by a decrease in income before income taxes, the disproportionate impact of permanent differences including limitations on the deductibility of executive compensation under Internal Revenue Code Section 162(m), a tax shortfall related to stock-based compensation and the recording of a valuation allowance against certain non-domestic deferred tax assets.

The effective tax rate for the thirteen and thirty-nine weeks ended September 28, 2024 was 38.8% and 33.5%, respectively. The effective tax rate differed from the federal statutory rate primarily due to Internal Revenue Code Section 162(m) excess compensation.

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%. 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 the thirteen and thirty-nine weeks ended September 27, 2025. We will continue to evaluate the impact of these tax law changes in future reporting periods.

The One Big Beautiful Bill Act (“OB3”) was enacted on July 4, 2025, which includes wide-ranging tax reforms for businesses. OB3 extends and modifies certain provisions of the Tax Cuts & Jobs Act ("TCJA") and makes certain key elements permanent, including 100% bonus depreciation, immediate expensing of domestic research costs and the deductibility of business interest expense. GAAP requires the effect of a change in tax law to be recognized in the interim period that includes the enactment date. Accordingly, the Company’s unaudited interim condensed consolidated financial statements for the thirteen and thirty-nine weeks ended September 27, 2025 reflect adjustments related to OB3 based on the Company's best estimate using currently available information. The primary effect of OB3 is expected to be a favorable change in the timing of cash taxes for fiscal 2025, resulting from certain accelerated deductions. We currently do not anticipate a material impact to our effective tax rate in fiscal 2025 as a result of OB3. The final impact of OB3 may differ from this initial estimate due to factors such as final regulations, interpretive guidance, changes in state tax law conformity and evolving business strategies. The Company will continue to evaluate the implications of OB3 and record any adjustments in its results of operations, financial position and cash flows in the upcoming quarter as necessary.

In the normal course of business, the Company is required to make estimated tax payments throughout the year based on the expected tax liability for the full year. This typically results in a prepaid balance during the first half of the year, as the Company earns most of its profit in the second half of the year. The prepaid balance as of September 27, 2025 also reflects the impact of the aforementioned new legislation based on the Company’s preliminary assessment. As stated above, the Company will further evaluate its full impact and report any adjustments in upcoming quarters. As of September 27, 2025, the Company had a $35.6 million balance in prepaid income taxes, which is classified in prepaid expenses and other current assets in the unaudited interim Condensed Consolidated Balance Sheets.