Income Taxes

12 Months Ended

Feb. 01, 2025

Income Taxes [Abstract]

Income Taxes

10.   Income Taxes

Reconciliations of the federal statutory income tax rate to income tax expense were as follows ($ in millions):

	2025			2024			2023
Federal income tax at the statutory rate	$	272		$	340		$	376
State income taxes, net of federal benefit		52			57			63
Change in unrecognized tax benefits		(5)			(6)			(45)
Expense (benefit) from foreign operations		3			(5)			(2)
Tax credits		(23)			(13)			(8)
Goodwill impairments (non-deductible)		63			-			-
Other		10			8			(14)
Income tax expense	$	372		$	381		$	370
Effective income tax rate		28.7	%		23.5	%		20.7	%

Earnings before income tax expense and equity in income of affiliates by jurisdiction were as follows ($ in millions):

	2025		2024		2023
United States	$	1,095	$	1,389	$	1,533
Foreign		200		232		255
Earnings before income tax expense and equity in income of affiliates	$	1,295	$	1,621	$	1,788

Income tax expense (benefit) was comprised of the following ($ in millions):

	2025		2024		2023
Current:
Federal	$	341	$	452	$	213
State		67		104		64
Foreign		23		39		42
		431		595		319
Deferred:
Federal		(55)		(177)		33
State		(7)		(37)		19
Foreign		3		-		(1)
		(59)		(214)		51
Income tax expense	$	372	$	381	$	370

Deferred taxes are the result of differences between the bases of assets and liabilities for financial reporting and income tax purposes. Deferred tax assets and liabilities were comprised of the following ($ in millions):

	February 1, 2025		February 3, 2024
Deferred revenue	$	125	$	127
Compensation and benefits		75		91
Stock-based compensation		29		32
Other accrued expenses		46		45
Operating lease liabilities		758		730
Loss and credit carryforwards		163		173
Property and equipment		57		-
Other		48		42
Total deferred tax assets		1,301		1,240
Valuation allowance		(172)		(175)
Total deferred tax assets after valuation allowance		1,129		1,065
Inventory		(92)		(45)
Property and equipment		-		(49)
Operating lease assets		(734)		(701)
Goodwill and intangible assets		(61)		(81)
Other		(19)		(22)
Total deferred tax liabilities		(906)		(898)
Net deferred tax assets	$	223	$	167

Net deferred tax assets were included in Other assets on our Consolidated Balance Sheets as of February 1, 2025, and February 3, 2024.

As of February 1, 2025, we had deferred tax assets for net operating loss carryforwards from international operations of $112 million, of which $30 million will expire in various years through 2042 and the remaining amounts have no expiration; acquired U.S. federal net operating loss carryforwards of $3 million, of which $1 million will expire in various years between 2026 and 2029 and the remaining amounts have no expiration; U.S. federal foreign tax credit carryforwards of $29 million, which will expire between 2026 and 2035; state credit carryforwards of $1 million, which will expire between 2026 and 2029; state net operating loss carryforwards of $9 million, which will expire between 2026 and 2045; international credit carryforwards of $2 million, which have no expiration; and international capital loss carryforwards of $7 million, which have no expiration.

As of February 1, 2025, a valuation allowance of $172 million had been established, of which $29 million is against U.S. federal foreign tax credit carryforwards; $13 million is against international, federal and state capital loss carryforwards; $119 million is against international and state net operating loss carryforwards; $2 million is against international and state credit carryforwards; and $9 million is against other foreign deferred tax assets. The decrease in fiscal 2025 was primarily due to tax rate changes and releases relating to certain international net operating loss carryforwards, and expirations relating to U.S. federal foreign tax credit and state credit carryforwards. These decreases were partially offset by the set-up of additional valuation allowances against certain foreign deferred tax assets and state and international net operating loss carryforwards.

Reconciliations of changes in unrecognized tax benefits were as follows ($ in millions):

	2025		2024		2023
Balances at beginning of period	$	140	$	163	$	235
Gross increases related to prior period tax positions		13		10		28
Gross decreases related to prior period tax positions(1)		(10)		(11)		(75)
Gross increases related to current period tax positions		20		20		21
Settlements with taxing authorities		1		(3)		-
Lapse of statute of limitations		(19)		(39)		(46)
Balances at end of period	$	145	$	140	$	163

(1)Represents multi-jurisdiction, multi-year resolutions of certain discrete tax matters.

Unrecognized tax benefits of $116 million, $121 million and $141 million as of February 1, 2025, February 3, 2024, and January 28, 2023, respectively, would favorably impact our effective income tax rate if recognized.

We recognize interest and penalties (not included in the unrecognized tax benefits above), as well as interest received from favorable tax settlements, as components of income tax expense. Interest expense of $1 million, interest expense of $3 million and interest income of $6 million was recognized in fiscal 2025, fiscal 2024 and fiscal 2023, respectively. As of February 1, 2025, February 3, 2024, and January 28, 2023, we had accrued interest of $45 million, $43 million and $42 million, respectively.

We file a consolidated U.S. federal income tax return, as well as income tax returns in various states and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by taxing authorities for years before fiscal 2016.

Changes in state, federal and foreign tax laws may increase or decrease our tax contingencies. The timing of the resolution of income tax examinations and controversies is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued. It is reasonably possible that within the next twelve months we will receive additional assessments by various taxing authorities or reach resolutions of income tax examinations or controversies in one or more jurisdictions. These assessments, resolutions or law changes could result in changes to our gross unrecognized tax benefits. The actual amount of any changes could vary significantly depending on the ultimate timing and nature of any assessments, resolutions or law changes. An estimate of the amount or range of such changes cannot be made at this time.