Taxes on Earnings

3 Months Ended

May 03, 2025

Income Tax Disclosure [Abstract]

Taxes on Earnings

Taxes on Earnings

The Company’s effective tax rate is impacted by changes in tax laws and accounting guidance, location of new stores, level of earnings, tax effects associated with stock-based compensation, and the resolution of tax positions with various tax authorities. For the three month period ended May 3, 2025, the Company’s effective tax rate was approximately 25% compared to approximately 23% for the three month period ended May 4, 2024. The increase in the effective tax rate of 2% for the three month period ended May 3, 2025 compared to the three month period ended May 4, 2024 was primarily due to the tax effects associated with stock-based compensation.

As of May 3, 2025, February 1, 2025, and May 4, 2024, the reserves for unrecognized tax benefits were $64.9 million, $62.2 million, and $60.0 million, inclusive of $9.0 million, $7.9 million, and $7.0 million of related interest and penalties, respectively. The Company accounts for interest and penalties related to unrecognized tax benefits as a part of its provision for taxes on earnings. If recognized, $51.5 million would impact the Company’s effective tax rate. It is reasonably possible that certain federal and state tax matters may be concluded or statutes of limitations may lapse during the next 12 months. Accordingly, the total amount of unrecognized tax benefits may decrease by up to $12.7 million. The difference between the total amount of unrecognized tax benefits and the amounts that would impact the effective tax rate relates to amounts attributable to deferred income tax assets and liabilities. These amounts are net of federal and state income taxes.

The Company is open to audit by the Internal Revenue Service under the statute of limitations for fiscal years 2021 through 2024. The Company’s state income tax returns are generally open to audit under the various statutes of limitations for fiscal years 2020 through 2024. Certain state tax returns are currently under audit by various tax authorities. The Company does not expect the results of these audits to have a material impact on the condensed consolidated financial statements.