Income Taxes

12 Months Ended

Jan. 29, 2022

Income Taxes

Income Taxes

Note 10. Income Taxes

The following table summarizes our distribution between domestic and foreign earnings (loss) before income taxes and the provision (benefit) for income taxes (in thousands):

	Fiscal		Fiscal		Fiscal
	2021		2020		2019
Earnings (loss) before income taxes:
Domestic	$	161,233	$	(129,129)	$	86,528
Foreign		3,326		3,252		5,902
Earnings (loss) before income taxes	$	164,559	$	(125,877)	$	92,430
Income taxes:
Current:
Federal	$	24,998	$	(11,498)	$	18,565
State		3,780		(1,060)		5,459
Foreign		409		735		1,650
		29,187		(11,823)		25,674
Deferred—Domestic		4,155		(17,780)		(1,870)
Deferred—Foreign		(104)		(582)		133
Income taxes	$	33,238	$	(30,185)	$	23,937

Reconciliations of the United States federal statutory income tax rates and our effective tax rates are summarized as follows:

	Fiscal		Fiscal		Fiscal
	2021		2020		2019
Statutory federal income tax rate	21.0	%	21.0	%	21.0	%
State income taxes—net of federal income tax benefit	3.7	%	3.6	%	4.4	%
Impact of foreign operations rate differential	0.1	%	(0.2)	%	0.2	%
Impairment of non-deductible Southern Tide goodwill	—	%	(3.7)	%	—	%
Change in reserve for uncertain tax positions	(1.0)	%	(2.5)	%	—	%
Rate benefit from NOL carryback to pre-U.S. Tax Reform periods due to the CARES Act	—	%	5.5	%	—	%
Utilization of capital loss benefit for the gain on sale of our interest in an unconsolidated entity	(2.9)	%	—	%	—	%
Other, net	(0.7)	%	0.3	%	0.3	%
Effective tax rate for continuing operations	20.2	%	24.0	%	25.9	%

Deferred tax assets and liabilities included in our consolidated balance sheets are comprised of the following (in thousands):

	January 29,		January 30,
	2022		2021
Deferred Tax Assets:
Inventories	$	16,947	$	16,338
Accrued compensation and benefits		9,058		8,759
Receivable allowances and reserves		2,814		2,109
Operating lease liabilities		59,711		73,917
Operating loss and other carry-forwards		3,675		4,617
Other, net		3,529		3,686
Deferred tax assets		95,734		109,426
Deferred Tax Liabilities:
Operating lease assets		(51,909)		(66,341)
Depreciation and amortization		(12,427)		(9,682)
Acquired intangible assets		(26,792)		(25,047)
Deferred tax liabilities		(91,128)		(101,070)
Valuation allowance		(6,050)		(5,668)
Net deferred tax asset (liability)	$	(1,444)	$	2,688

As of January 29, 2022 and January 30, 2021, our operating loss and other carry-forwards primarily relate to our operations in Canada and Hong Kong as well as certain capital loss carry-forwards. The majority of the operating loss carry-forwards allow for carry-forward of at least 20 years and in some cases, indefinitely, while the capital loss carry-forwards are generally limited to five years. The majority of our valuation allowance of $6 million and $6 million as of January 29, 2022 and January 30, 2021, respectively, relates to our operating loss carry-forwards and the deferred tax assets in those jurisdictions as well as our capital loss carry-forwards. The recent history of operating losses in the respective jurisdictions and the short carry-forward period for the capital losses, which can only offset qualifying capital gain income, are considered significant negative evidence against the future realizability of these tax benefits. The amount of the valuation allowance could change in the future if our operating results or estimates of future taxable operating results changes.

Certain amounts of foreign earnings are subject to U.S. federal tax currently pursuant to the GILTI rules regardless of whether those earnings are distributed, and actual distributions of foreign earnings are generally no longer

subject to U.S. federal tax. We continue to assert that our investments in our foreign subsidiaries and substantially all of the related earnings are permanently reinvested outside the United States. We believe that any other taxes such as foreign withholding or U.S. state tax payable would be immaterial if we were to repatriate the foreign earnings. Therefore, we have not recorded any deferred tax liabilities related to investments and earnings in our consolidated balance sheets as of January 29, 2022 and January 30, 2021.

Accounting for income taxes requires that we offset deferred tax liabilities and assets within each tax jurisdiction and present the net deferred tax amount for each jurisdiction as a net deferred tax amount in our consolidated balance sheets. The amounts of deferred income taxes included in our consolidated balance sheets are as follows (in thousands):

	January 29,		January 30,
	2022		2021
Assets:
Deferred tax assets	$	1,467	$	2,688
Liabilities:
Deferred tax liabilities		(2,911)		—
Net deferred tax asset (liability)	$	(1,444)	$	2,688

A reconciliation of the changes in the gross amount of unrecognized tax benefits, which are included in other non-current liabilities, is as follows (in thousands):

	Fiscal 2021		Fiscal 2020		Fiscal 2019
Balance of unrecognized tax benefits at beginning of year	$	5,261	$	1,212	$	975
Increase related to prior period tax positions		10		303		—
Decrease related to prior period tax positions		—		(1)		(27)
Increase related to current period tax positions		527		3,960		287
Decrease related to settlements with taxing authorities		(2,305)		—		—
Decrease related to lapse of statute of limitations		(103)		(213)		(23)
Balance of unrecognized tax benefits at end of year	$	3,390	$	5,261	$	1,212

Approximately $2 million of our uncertain tax positions as of January 29, 2022, if recognized, would reduce the future effective tax rate in the period settled. The total amount of unrecognized tax benefits relating to our tax positions is subject to change based on future events including, but not limited to, settlements of ongoing audits and assessments and the expiration of applicable statutes of limitation. We expect that the balance of gross unrecognized tax benefits will decrease by approximately $2 million during Fiscal 2022. However, changes in the expected occurrence, outcomes, and timing of such events could cause our current estimate to change materially in the future. Interest and penalties associated with unrecognized tax positions are recorded within income tax expense in our consolidated statements of operations. During each of Fiscal 2021, Fiscal 2020 and Fiscal 2019, we recognized less than $1 million of interest and penalties associated with unrecognized tax positions in our consolidated statements of operations.