Income Taxes

12 Months Ended

Jan. 28, 2023

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES:

The income tax provision consisted of the following:

	Fiscal 2022		Fiscal 2021		Fiscal 2020
Current:
Federal	$	26,412	$	12,847	$	(102,046)
State	2,992		658		468
Foreign	226		108		48
Total	29,630		13,613		(101,530)
Deferred:
Federal	(446)		157		(3,902)
State	16		30		5,532
Total	(430)		187		1,630
Income tax provision (benefit)	$	29,200	$	13,800	$	(99,900)

The foreign component of pre-tax income (loss), arising principally from operating foreign stores and other management and cost sharing charges we are required to allocate under U.S. tax law, for fiscal 2022, 2021 and 2020 was $1.2 million, $(0.7) million and $(4.8) million, respectively.

On March 27, 2020, the CARES Act was enacted to provide economic relief to those impacted by the COVID-19 pandemic. The CARES Act made various tax law changes including among other things (i) modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019 and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid income taxes (ii) enhanced recoverability of AMT tax credit carryforwards and (iii) enacted a technical correction so that qualified improvement property can be immediately expensed under IRC Section 168(k).

As a result of the CARES Act, through fiscal 2022, the Company received tax refunds of $96.2 million, and still maintains a $7.9 million income tax receivable related to the carryback of 2020 net operating losses. The Company recorded an additional income tax benefit in fiscal 2021 of $2.5 million, over the $24.6 million that was recorded in fiscal 2020, related to the 2020 carryback as the Company was subject to higher federal corporate income tax rates in prior periods than the current statutory tax rate of 21%.

No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the one-time transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. There were no significant undistributed foreign earnings at January 28, 2023, January 29, 2022 and January 30, 2021.

A reconciliation between the statutory federal income tax rate and the effective income tax rate follows:

 

	Fiscal 2022		Fiscal 2021		Fiscal 2020 (1)
Federal income tax rate	21.0	%	21.0	%	21.0	%
State income tax, net of federal tax benefit	5.1		4.7		3.3
Goodwill impairment with no tax basis	—		—		(3.3)
Impact of the CARES Act	—		(4.2)		8.6
Excess share-based compensation	(1.1)		0.3		(0.3)
Valuation allowance	(5.0)		(1.0)		(7.6)
Executive compensation limitations	0.7		1.1		—
Other items, net	0.4		1.1		—
Total	21.1	%	23.0	%	21.7	%

(1) Since fiscal 2019 is no longer reported, de minimis effective tax rate reconciling items have been combined in Other items, net, for all years presented.

Deferred tax assets and liabilities are recorded due to different carrying amounts for financial and income tax reporting purposes arising from cumulative temporary differences. These differences consist of the following as of January 28, 2023 and January 29, 2022:

	January 28, 2023		January 29, 2022
Deferred tax assets:
Operating lease liabilities	$	129,659	$	141,918
Accrued liabilities and allowances	20,512		18,346
Share-based compensation	3,185		2,661
Property related	579		353
State and foreign net operating loss carryforwards	6,048		10,210
Federal and state tax credit carryforwards	3,553		4,227
Other	2,418		1,438
Total deferred tax assets	165,954		179,153
Valuation allowance	(28,827)		(35,754)
Net deferred tax assets	137,127		143,399
Deferred tax liabilities:
Operating lease assets	(111,458)		(118,808)
Inventories	(3,547)		(4,173)
Prepaid and other expenses	(2,933)		(2,390)
Property related	(14,944)		(14,222)
Other intangible assets	(5,315)		(5,306)
Total deferred tax liabilities	(138,197)		(144,899)
Net deferred taxes	$	(1,070)	$	(1,500)

As of January 28, 2023, the Company had deferred tax assets for state and local net operating losses and federal and state tax credit carryovers in the amounts of $89.7 million and $4.4 million, respectively, on a gross basis that could be utilized to reduce future years' tax liabilities. The net operating losses and tax credit carryovers expire, if unused, in the years 2023 - 2040 and 2023 - 2028, respectively. As of January 28, 2023, the Company had deferred tax assets related to foreign net operating loss carryforwards in the amount of $4.1 million on a gross basis. The foreign carryforwards will begin to expire, if unused, in 2024. Some foreign net operating losses have an indefinite carryforward.

We consider both positive and negative evidence when measuring the need for a valuation allowance. The weight given to the evidence is commensurate with the extent to which it may be objectively verified. Current and cumulative financial reporting results are a source of objectively verifiable evidence. We give operating results during the most recent three-year period a significant weight in our analysis. We typically only consider forecasts of future profitability when positive cumulative operating results exist in the most recent three-year period. We perform scheduling exercises around the future reversal of existing temporary differences to determine if sufficient taxable income of the appropriate character exists in the periods required in order to realize our deferred tax assets with limited lives (such as tax loss carryforwards and tax credits) prior to their expiration. We consider tax planning strategies that are prudent and feasible to accelerate taxable amounts if required to utilize expiring deferred tax assets. A valuation allowance is not required to the extent that, in our judgment, positive evidence exists with a magnitude and duration sufficient to result in a conclusion that it is more likely than not that our deferred tax assets will be realized.

We consider our current forecasts of future profitability in assessing our ability to realize our deferred tax assets, including our state and local net operating losses and credit carryforwards. These forecasts include the impact of recent trends, including various macroeconomic factors such as the impact of the pandemic and inflation, on our profitability. Macroeconomic factors, including the impact of the pandemic and inflation, possess a high degree of volatility and can significantly impact our profitability. Given this uncertainty and the Company’s cumulative three year losses, we believe we cannot rely on forecasts of future profitability for purposes of our assessment of the realizability of deferred tax assets and as such, we conclude that it is not more likely than not that, at January 28,2023, our U.S. net deferred tax assets will be utilized and a full valuation allowance has been maintained.

For the fiscal years 2022 and 2021, the Company maintained a valuation allowance of $28.8 million and $35.8 million, respectively, attributable to deferred tax assets, state, local and foreign net operating loss carryforwards and federal and state tax credits which are not realizable on a more likely than not basis. The amount of deferred tax assets considered realizable,

however, could be adjusted in the next twelve months if future objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as the Company’s forecasts of future profitability. In such case, the Company will record an adjustment in the period in which such a determination is made.

Accumulated other comprehensive gain is shown net of deferred tax assets and deferred tax liabilities. The amount was not significant at January 28, 2023 or January 29, 2022.

A reconciliation of the beginning and ending amounts of uncertain tax positions for each of fiscal 2022, fiscal 2021 and fiscal 2020 is as follows:

 

	Fiscal 2022		Fiscal 2021		Fiscal 2020
Balance at beginning of year	$	437	$	667	$	747
Additions for tax positions of prior years	258		—		—
Reductions for tax positions of prior years	—		(280)		—
Additions for tax positions for the current year	277		137		—
Settlements/payments with tax authorities	—		(87)		—
Reductions due to lapse of applicable statutes of limitation	(63)		—		(80)
Balance at end of year	$	909	$	437	$	667

At January 28, 2023, January 29, 2022 and January 30, 2021, balances included $0.7 million, $0.3 million and $0.5 million respectively, of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate in future periods. We do not expect any events to occur that would cause a change to our unrecognized tax benefits or income tax expense within the next twelve months.

Our continuing practice is to recognize potential accrued interest and penalties relating to unrecognized tax benefits in the income tax provision. We incurred no interest and penalties for each of the fiscal years 2022, 2021 and 2020. We had no accruals for the payment of interest and penalties at January 28, 2023, January 29, 2022 and January 30, 2021 .

In fiscal 2006, we began participating in the IRS’s real time audit program, Compliance Assurance Process (“CAP”). Under the CAP program, material tax issues and initiatives are disclosed to the IRS throughout the year with the objective of reaching an agreement as to the proper reporting treatment when the federal return is filed. Previous years through fiscal 2020 have been accepted. Fiscal 2021 is in the post-filing review process.

We are no longer subject to state and local examinations for years before fiscal 2018. Various foreign examinations are currently underway for fiscal periods spanning from 2013 through 2019; however, we do not expect any significant change to our uncertain tax positions within the next year.