NOTE 3 – INCOME TAXES

The effective income tax rate for the three-month period ended April 30, 2011 was 39.3% as compared to 40.4% for the three-month period ended May 1, 2010. The decrease in the effective rate for the three-month period ended April 30, 2011 is primarily related to a decrease in state tax expense. The income tax provision for the three-month period ended May 1, 2010 was determined on a discrete basis since the Company could not reliably estimate its 2010 annual effective tax rate because minor changes in its estimated pre-tax results could have had a significant impact on the annualized effective tax rate.

Components of the Company's income tax expense for the three-month periods ended April 30, 2011 and May 1, 2010 were as follows:


	Three Months Ended
	April 30,		May 1,
	2011		2010
Expected federal income taxes at 35%	$	16,391	$	11,027
State income taxes, net of federal benefit		2,811		3,210
State NOL valuation allowance adjustment		(710)		(1,476)
Effect of settling tax exams and other tax reserve adjustments		(116)		(34)
Other items, net		46		(7)

Provision for income taxes	$	18,422	$	12,720

The Company files a consolidated U.S. federal income tax return as well as state tax returns in multiple state jurisdictions. The Company has completed examinations by the Internal Revenue Service or the statute of limitations has expired for taxable years through February 3, 2007. With respect to state and local jurisdictions, the Company has completed examinations in many jurisdictions through the same period and currently has examinations in progress for several jurisdictions.

The Company's condensed consolidated balance sheet as of April 30, 2011 includes a gross deferred tax asset of $124,311 related to U.S. federal and state net operating loss ("NOL") and alternative minimum tax credit carryforwards. The majority of the net operating loss carryforward is a result of the net operating losses incurred during the fiscal years ended January 30, 2010 and January 31, 2009 due principally to difficult market and macroeconomic conditions. The Company has concluded, based on the weight of all available positive and negative evidence, that all but $29,373 of these tax benefits relating to certain state losses are more likely than not to be realized in the future. Therefore, a valuation allowance for the $29,373 has been established. The Company evaluates the realizability of its deferred tax assets on a quarterly basis. While the Company has incurred a cumulative loss in recent years, after evaluating all available evidence including its past operating results, current year operating income, the macroeconomic factors contributing to the 2009 and 2008 fiscal year losses, the length of the carryforward periods available and the Company's forecast of future taxable income, including the availability of prudent and feasible tax planning strategies, the Company concluded that it is more likely than not that the net deferred tax asset, net of the $29,373 valuation allowance related to state NOLs, will be realized. The Company will continue to assess the need for an additional valuation allowance in the future. If future results are less than projected or tax planning alternatives are no longer viable, then an additional valuation allowance may be required to reduce the deferred tax assets which could have a material impact on the Company's results of operations in the period in which it is recorded.