Income Taxes

12 Months Ended

Jan. 28, 2022

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 9. INCOME TAXES

The Company’s income (loss) before income taxes in the United States and in foreign jurisdictions is as follows:

(in thousands)	Fiscal 2021			Fiscal 2020		Fiscal 2019
Income (loss) before income taxes
United States	$	52,963		$	173	$	21,406
Foreign		(6,994	)		12,419		(44	)
Total income before income taxes	$	45,969		$	12,592	$	21,362

Certain foreign operations are branches of Lands’ End and are subject to U.S. as well as foreign income tax.  The pretax income (loss) by location and the analysis of the income tax provision by taxing jurisdiction are not directly related.

The components of the provision for (benefit from) income taxes are as follows:

(in thousands)	Fiscal 2021		Fiscal 2020		Fiscal 2019
United States	$	12,215	$	725	$	2,105
Foreign		385		1,031		(33	)
Total provision	$	12,600	$	1,756	$	2,072

(in thousands)	Fiscal 2021			Fiscal 2020			Fiscal 2019
Current:
Federal	$	11,370		$	8,334		$	979
State		1,627			3,675			1,549
Foreign		385			517			—
Total current		13,382			12,526			2,528
Deferred:
Federal		(1,426	)		(8,413	)		340
State		644			(2,871	)		(763	)
Foreign		—			514			(33	)
Total deferred		(782	)		(10,770	)		(456	)
Total provision	$	12,600		$	1,756		$	2,072

A reconciliation of the statutory federal income tax rate to the effective income tax rate is as follows:

	Fiscal 2021			Fiscal 2020			Fiscal 2019
Tax at statutory federal tax rate		21.0	%		21.0	%		21.0	%
State income taxes, net of federal tax benefit		3.9	%		5.0	%		2.9	%
Foreign differential		(5.2	)%		2.7	%		(4.0	)%
Permanent differences		1.9	%		16.8	%		4.3	%
CARES Act		—	%		(24.6	)%		—	%
Uncertain tax benefits		1.1	%		(1.6	)%		(0.8	)%
Change in foreign valuation allowance		4.9	%		(3.8	)%		4.2	%
Foreign branches		—	%		—	%		(15.9	)%
Other, net		(0.2	)%		(1.6	)%		(2.0	)%
Total		27.4	%		13.9	%		9.7	%

Deferred tax assets and liabilities consisted of the following:

(in thousands)	January 28, 2022			January 29, 2021			January 31, 2020
Deferred tax assets
Deferred revenue	$	6,528		$	4,882		$	3,797
Legal accruals		2,461			3,551			1,938
Deferred compensation		18,328			16,147			12,507
Reserve for returns		2,958			3,072			2,654
Inventory		3,730			6,390			3,413
CTA investment in foreign subsidiaries		3,361			2,987			3,453
Operating lease liabilities		8,677			9,677			10,319
Other		2,402			2,668			2,764
Net operating loss carryforward		5,211			3,093			6,018
Total deferred tax assets		53,656			52,467			46,863
Less valuation allowance		(6,009	)		(3,896	)		(6,526	)
Net deferred tax assets	$	47,647		$	48,571		$	40,337
Deferred tax liabilities
Intangible assets	$	62,295		$	62,372		$	62,397
LIFO reserve		18,118			15,191			17,503
Property and equipment		4,396			8,660			7,208
Operating lease right-of-use assets		7,089			7,882			8,586
Catalog advertising		1,940			1,812			2,294
Total deferred tax liabilities		93,838			95,917			97,988
Net deferred tax liability	$	46,191		$	47,346		$	57,651

As of January 28, 2022, the Company had $11.3 million of state net operating loss (“NOL”) carryforwards (generating a $0.7 million deferred tax asset) available to offset future taxable income. The state NOL carryforwards generally expire between 2023 and 2039 with certain state NOLs generated after 2017 having indefinite carryforward. The Company’s foreign subsidiaries had $15.2 million of NOL carryforwards (generating a $4.5 million deferred tax asset) available to offset future taxable income. These foreign NOLs can be carried forward indefinitely, however, a valuation allowance was established since the future utilization of these NOLs is uncertain.

A reconciliation of the beginning and ending amount of UTBs is as follows:

	Fiscal 2021			Fiscal 2020			Fiscal 2019
Gross UTB balance at beginning of period	$	1,012		$	1,202		$	1,458
Tax positions related to the prior periods - gross    increases (decreases)		539			(190	)		(179	)
Settlements		(74	)		—			(77	)
Gross UTB balance at end of period	$	1,477		$	1,012		$	1,202

As of January 28, 2022, the Company had UTBs of $1.5 million. Of this amount, $1.3 million would, if recognized, impact its effective tax rate. The Company does not expect that UTBs will fluctuate significantly in the next 12 months for tax audit settlements and the expiration of the statute of limitations for certain jurisdictions. Tax years 2018 through 2020 remain open for examination by the Internal Revenue Service as well as various state and foreign jurisdictions.

The Company classifies interest expense and penalties related to UTBs and interest income on tax overpayments as components of income tax expense. As of January 28, 2022, the total amount of interest expense and penalties recognized on the balance sheet was $0.6 million ($0.5 million net of federal benefit). As of January 29, 2021, the total amount of interest and penalties recognized on the balance sheet was $0.6 million ($0.5 million net of federal benefit). The total amount of net interest expense recognized in the Consolidated Statements of

Operations was insignificant for all periods presented. The Company files income tax returns in both the United States and various foreign jurisdictions.

Impacts of the CARES Act

In response to the COVID pandemic, the CARES Act was signed into law on March 27, 2020. The CARES Act, among other things, includes provisions related to refundable payroll tax credits, deferment of employer side social security payments, net operating loss utilization and carryback periods, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. In Fiscal 2020, the Company recorded a $3.1 million benefit related to the technical corrections aspect of the CARES Act related to carryback of net operating losses in years beginning in 2017.