Income Taxes

12 Months Ended

Feb. 03, 2024

Income Taxes

Income Taxes

Note 11. 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
	2023		2022		2021
Earnings (loss) before income taxes:
Domestic	$	62,772	$	206,944	$	161,233
Foreign		12,174		8,781		3,326
Earnings (loss) before income taxes	$	74,946	$	215,725	$	164,559
Income taxes:
Current:
Federal	$	28,183	$	41,776	$	24,998
State		7,530		8,835		3,780
Foreign		2,419		1,191		409
		38,132		51,802		29,187
Deferred—Domestic		(24,083)		71		4,155
Deferred—Foreign		194		(1,883)		(104)
Income taxes	$	14,243	$	49,990	$	33,238

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

	Fiscal		Fiscal		Fiscal
	2023		2022		2021
Statutory federal income tax rate	21.0	%	21.0	%	21.0	%
State income taxes—net of federal income tax benefit	1.6	%	3.6	%	3.7	%
Change in reserve for uncertain tax positions & method change	1.5	%	0.2	%	(1.0)	%
Impact of foreign operations rate differential	0.3	%	0.1	%	0.1	%
U.S. federal tax credits	(3.0)	%	(0.7)	%	(0.6)	%
Impact of prior year true-ups	(1.9)	%	(0.3)	%	(0.7)	%
Excess Tax Benefit, Restricted Stock Vesting	(1.6)	%	(0.1)	%	(0.3)	%
Impact of valuation allowances related to operating losses	(0.9)	%	(1.6)	%	(0.8)	%
Impact of valuation allowances related to capital losses	—	%	—	%	1.2	%
Impact of capital losses	—	%	—	%	(2.9)	%
Other, net	2.0	%	1.0	%	0.5	%
Effective tax rate for continuing operations	19.0	%	23.2	%	20.2	%

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

	February 3,		January 28,
	2024		2023
Deferred Tax Assets:
Inventories	$	21,254	$	20,561
Accrued compensation and benefits		10,982		9,637
Receivable allowances and reserves		2,433		2,580
Operating lease liabilities		77,150		71,871
Operating loss and other carry-forwards		709		757
Other, net		5,902		4,901
Deferred tax assets		118,430		110,307
Deferred Tax Liabilities:
Operating lease assets		(74,004)		(66,145)
Depreciation and amortization		(16,907)		(15,289)
Acquired intangible assets		(1,051)		(26,030)
Deferred tax liabilities		(91,962)		(107,464)
Valuation allowance		(2,289)		(2,448)
Net deferred tax asset (liability)	$	24,179	$	395

The majority of our valuation allowance of $2 million as of February 3, 2024 and January 28, 2023 relates to our capital loss carry-forwards. 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 substantially all of 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 these foreign investments and earnings in our consolidated balance sheets as of February 3, 2024 and January 28, 2023.

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):

	February 3,		January 28,
	2024		2023
Assets:
Deferred tax assets	$	24,179	$	3,376
Liabilities:
Deferred tax liabilities		—		(2,981)
Net deferred tax asset (liability)	$	24,179	$	395

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 2023		Fiscal 2022		Fiscal 2021
Balance of unrecognized tax benefits at beginning of year	$	3,664	$	3,390	$	5,261
Increase related to prior period tax positions		233		110		10
Decrease related to prior period tax positions		(2,027)		—		—
Increase related to current period tax positions		1,940		646		527
Decrease related to settlements with taxing authorities		—		—		(2,305)
Decrease related to lapse of statute of limitations		(100)		(482)		(103)
Balance of unrecognized tax benefits at end of year	$	3,710	$	3,664	$	3,390

Approximately $2 million of our uncertain tax positions as of February 3, 2024, 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. The ultimate occurrence, outcomes, and timing of such events could differ from our current expectations. Interest and penalties associated with unrecognized tax positions are recorded within income tax expense in our consolidated statements of operations. During each of Fiscal 2023, Fiscal 2022 and Fiscal 2021, we recognized less than $1 million of interest and penalties associated with unrecognized tax positions in our consolidated statements of operations.

Inflation Reduction Act of 2022

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act (“IRA”) into law. The IRA implemented a corporate alternative minimum tax, subject to certain thresholds being met, and a 1% excise tax on share repurchases effective beginning January 1, 2023. We do not currently expect that the tax-related provisions of the IRA will have a material effect on our reported results, cash flows or financial position. For Fiscal 2023, excise taxes included as part of the price of common stock repurchased during the period did not have a material effect on our reported results.

Pillar Two Directive

In December 2022, the EU Member States formally adopted the Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development Pillar Two Framework. The EU effective dates are January 1, 2024, and January 1, 2025, for different aspects of the directive. A significant number of other countries are expected to also implement similar legislation with varying effective dates in the future. We are continuing to evaluate the potential effect on future periods of the Pillar Two Framework, pending legislative adoption by additional individual countries.