Income Taxes

6 Months Ended

Nov. 02, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Note 4. Income Taxes

For the three and six months ended November 2, 2024, the Company utilized the discrete effective tax rate method, treating the year-to-date period as if it was the annual period to calculate its interim income tax provision, as allowed by ASC 740-270-30-18, “Income Taxes-Interim Reporting.” The Company concluded it could not use the estimated annual effective tax rate method as it could not calculate a reliable estimate of the annual effective tax rate due to it being highly sensitive to minor changes in the forecasted amounts, thus generating significant variability in the estimated annual effective tax rate and distorting the customary relationship between income tax expense and pre-tax income in interim periods.

The Company’s income tax expense and effective tax rate for the three and six months ended November 2, 2024 and October 28, 2023 were as follows:

	Three Months Ended						Six Months Ended
	November 2, 2024			October 28, 2023			November 2, 2024			October 28, 2023
($ in millions)	(14 Weeks)			(13 Weeks)			(27 Weeks)			(26 Weeks)
Pre-tax income (loss)	$	1.6		$	(55.5	)	$	(11.5	)	$	(54.5	)
Income tax expense (benefit)		3.2		$	(0.2	)		8.4		$	(0.1	)
Effective tax rate		200.0	%		0.4	%		(73.0	)%		0.2	%

The effective tax rate for the three and six months ended November 2, 2024 differs from the U.S. federal statutory tax rate of 21% primarily due to an increase in a valuation allowance for U.S. deferred tax assets and an unfavorable impact of the global intangible low-tax income (“GILTI”), partially offset by the impact of income derived from foreign operations with lower statutory tax rates, research deductions claimed in foreign jurisdictions and foreign exchange loss. The effective tax rate for the three and six months ended October 28, 2023 differs from the U.S. federal statutory tax rate of 21% primarily due to the impact of an impairment of goodwill which is non-deductible for tax purposes, income derived from foreign operations with lower statutory tax rates and research deductions claimed in foreign jurisdictions, offset by an unfavorable impact of GILTI.

As of November 2, 2024, the Company determined that recovery of some of its U.S. deferred tax assets was not more likely than not, and a valuation allowance of $7.5 million has been recorded on those deferred tax assets, based on the evaluation of all available evidence.

The Organization for Economic Cooperation and Development’s (“OECD”) Pillar II Initiative introduced a 15% global minimum tax for certain multinational groups exceeding minimum annual global revenue thresholds. Some countries in which the Company operates have enacted legislation adopting the minimum tax effective January 1, 2024. To date, the Company has determined that there is an immaterial global minimum tax liability as a result of Pillar II, as certain tax jurisdictions either will not have Pillar II enacted until after December 31, 2024, or have satisfied the safe harbor test to prevent any minimum tax under Pillar II. The Company continues to monitor its jurisdictions for any changes and include any appropriate minimum tax throughout the fiscal year.

The Company’s gross unrecognized income tax benefits were $4.5 million and $4.4 million as of November 2, 2024 and April 27, 2024, respectively. If any portion of the Company’s unrecognized tax benefits is recognized, it would impact the Company’s effective tax rate. The unrecognized tax benefits are reviewed periodically and adjusted for changing facts and circumstances, such as tax audits, the lapsing of applicable statutes of limitations and changes in tax law. The Company recognizes interest and penalties related to income tax uncertainties in income tax expense. Accrued interest and penalties were $0.5 million and $0.4 million as of November 2, 2024 and April 27, 2024, respectively.