Income taxes

12 Months Ended

Jan. 31, 2025

Income taxes

Income taxes

3.Income taxes

The provision (benefit) for income taxes consists of the following:

(In thousands)	2024		2023		2022
Current:
Federal	$	296,598	$	324,339	$	400,752
Foreign		422		880		279
State		47,878		59,181		63,562
		344,898		384,400		464,593
Deferred:
Federal		(24,547)		72,769		195,529
Foreign		4		(297)		(24)
State		(5,854)		1,373		40,527
		(30,397)		73,845		236,032
	$	314,501	$	458,245	$	700,625

A reconciliation between actual income taxes and amounts computed by applying the federal statutory rate to income before income taxes is summarized as follows:

(Dollars in thousands)	2024				2023				2022
U.S. federal statutory rate on earnings before income taxes	$	302,349	21.0	%	$	445,098	21.0	%	$	654,489	21.0	%
State income taxes, net of federal income tax benefit		33,270	2.3			47,855	2.2			82,134	2.6
Jobs credits, net of federal income taxes		(33,345)	(2.3)			(34,279)	(1.6)			(37,639)	(1.2)
Other, net		12,227	0.8			(429)	—			1,641	0.1
	$	314,501	21.8	%	$	458,245	21.6	%	$	700,625	22.5	%

The effective income tax rate for 2024 was 21.8% compared to a rate of 21.6% for 2023 which represents a net increase of 0.2 percentage points. The effective income tax rate was higher in 2024 primarily due to a higher state effective tax rate and a decreased benefit from stock-based compensation partially offset by the effect of certain rate-impacting items on lower earnings before taxes.

The effective income tax rate for 2023 was 21.6% compared to a rate of 22.5% for 2022 which represents a net decrease of 0.9 percentage points. The effective income tax rate was lower in 2023 primarily due to the effect of certain rate-impacting items (such as federal tax credits) on lower earnings before taxes and a lower state effective rate resulting from increased recognition of state tax credits.

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

	January 31,		February 2,
(In thousands)	2025		2024
Deferred tax assets:
Deferred compensation expense	$	12,914	$	13,441
Accrued expenses		14,586		13,112
Accrued rent		195		306
Lease liabilities		2,864,218		2,852,395
Accrued insurance		10,200		8,732
Accrued incentive compensation		10,605		5,356
Share based compensation		19,006		17,052
Tax benefit of income tax and interest reserves related to uncertain tax positions		1,155		1,028
State and foreign tax net operating loss carry forwards, net of federal tax		18,984		9,781
State tax credit carry forwards, net of federal tax		16,187		19,463
Other		21,368		22,882
		2,989,418		2,963,548
Less valuation allowances, net of federal income taxes		(22,975)		(17,000)
Total deferred tax assets		2,966,443		2,946,548
Deferred tax liabilities:
Property and equipment		(707,318)		(736,322)
Lease assets		(2,806,870)		(2,815,466)
Inventories		(224,933)		(199,603)
Trademarks		(304,673)		(306,915)
Prepaid insurance		(24,874)		(20,275)
Other		(1,213)		(1,751)
Total deferred tax liabilities		(4,069,881)		(4,080,332)
Net deferred tax liabilities	$	(1,103,438)	$	(1,133,784)

The Company has state tax credit carryforwards of approximately $16.2 million (net of federal benefit) that will expire beginning in 2028 through 2048. The Company has approximately $2.9 million of state apportioned net operating loss carryforwards, which will begin to expire in 2036 and will continue through 2041 and approximately $63.0 million of foreign net operating loss carryforwards, which will begin to expire in 2032 through 2034.

The Company has a valuation allowance for certain state tax credit carryforwards and foreign net operating loss carryforwards and deferred tax assets, in the amount of $23.0 million and $17.0 million (net of federal benefit) which increased income tax expense by $6.0 million and $8.0 million in 2024 and 2023, respectively. Management believes that the results from operations will not generate sufficient taxable income to realize the state deferred tax assets before they expire and, with respect to the foreign deferred tax assets, will assess the existing positive and negative evidence in evaluating a potential release of the valuation allowance on the deferred tax assets in future periods.

Management believes that it is more likely than not that the Company’s results of operations and its existing deferred tax liabilities will generate sufficient taxable income to realize the remaining deferred tax assets.

The Company’s 2020 and earlier tax years are not open for further examination by the Internal Revenue Service (“IRS”). The IRS, at its discretion, may choose to examine the Company’s 2021 through 2023 fiscal year income tax filings. The Company has various state income tax examinations that are currently in progress. Generally, with few exceptions, the Company’s 2021 and later tax years remain open for examination by the various state taxing authorities.

As of January 31, 2025, accruals for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $11.6 million, $1.7 million and $0.8 million, respectively, for a total of $14.1 million. As of February 2, 2024, accruals for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $14.4 million, $1.0 million and $0.0 million, respectively, for a total of $15.4 million. These totals are reflected in noncurrent Other liabilities in the consolidated balance sheets.

The Company’s reserve for uncertain tax positions is expected to be reduced by $3.5 million in the coming twelve months as a result of expiring statutes of limitations or settlements. As of January 31, 2025 and February 2, 2024, approximately $11.6 million and $11.5 million, respectively, of the uncertain tax positions would impact the Company’s effective income tax rate if the Company were to recognize the tax benefit for these positions.

The amounts associated with uncertain tax positions included in income tax expense consists of the following:

(In thousands)	2024		2023		2022
Income tax expense (benefit)	$	163	$	3,930	$	1,797
Income tax related interest expense (benefit)		773		710		28
Income tax related penalty expense (benefit)		826		—		—

A reconciliation of the uncertain income tax positions from January 28, 2022 through January 31, 2025 is as follows:

(In thousands)	2024		2023		2022
Beginning balance	$	14,377	$	7,988	$	6,191
Increases—tax positions taken in the current year		189		665		—
Increases—tax positions taken in prior years		4,893		8,101		3,499
Decreases—tax positions taken in prior years		(5,722)		—		—
Statute expirations		(2,111)		(1,931)		(1,239)
Settlements		—		(446)		(463)
Ending balance	$	11,626	$	14,377	$	7,988

The Organization of Economic Cooperation and Development has proposed a global minimum tax of 15% on a country-by-country basis (“Pillar Two”). Pursuant to Pillar Two, some countries have enacted minimum tax rates of 15% effective for the 2024 tax year while other countries have enacted or proposed legislation making the 15% minimum tax rate effective for the 2025 tax year or later. The Company operates in a country that is currently assessing the enactment of the 15% minimum tax rate beginning in 2025. If enacted, the Company does not believe it will have a material impact on tax expense.