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Income taxes | 12 Months Ended
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Feb. 03, 2024
Income Tax Disclosure [Abstract] |
Income taxes | Income taxes Signet and its Bermuda domiciled subsidiaries were not subject to income tax in Bermuda in Fiscal 2024 and prior. On December 27, 2023, Bermuda enacted a 15% corporate income tax that will generally become effective for the Company in Fiscal 2026. The legislation includes a provision referred to as the economic transition adjustment (“ETA”) which is intended to provide a fair and equitable transition into the tax regime. The ETA allows companies to establish tax basis in the assets and liabilities at fair value as of September 30, 2023, excluding goodwill, of any entity subject to the tax. As a result of this provision, the Company has recorded a $263.3 million deferred tax asset in the fourth quarter of Fiscal 2024 related to the tax basis of certain intangible assets, which it expects to utilize to reduce future cash taxes paid in Bermuda over approximately a 10-year period. Signet has global subsidiaries that are subject to tax in the jurisdictions in which they operate. The primary jurisdictions in which the Company’s subsidiaries are currently subject to tax are the United States, Canada, the United Kingdom, and Ireland.
(in millions) | Fiscal 2024 |  | Fiscal 2023 |  | Fiscal 2022
Income before income taxes: |  |  |  |  |
– US | $ | 320.5 |  |  | $ | 281.2 |  |  | $ | 665.9 |
– Foreign | 319.3 |  |  | 170.0 |  |  | 218.5 |
Total income before income taxes | $ | 639.8 |  |  | $ | 451.2 |  |  | $ | 884.4 |
Current taxation: |  |  |  |  |
– US | $ | (14.8) |  |  | $ | 157.1 |  |  | $ | 108.1 |
– Foreign | 24.5 |  |  | 16.7 |  |  | 7.6 |
Deferred taxation: |  |  |  |  |
– US | 82.0 |  |  | (70.4) |  |  | 8.4 |
– Foreign | (262.3) |  |  | (28.9) |  |  | (9.6) |
Total income tax expense (benefit) | $ | (170.6) |  |  | $ | 74.5 |  |  | $ | 114.5 |
As the statutory rate of corporation tax in Bermuda is 0%, the differences between the US federal income tax rate and the effective tax rates for Signet have been presented below:
| Fiscal 2024 |  | Fiscal 2023 |  | Fiscal 2022
US federal income tax rates | 21.0 | % |  | 21.0 | % |  | 21.0 | %
US state income taxes | 2.7 | % |  | 2.9 | % |  | 3.3 | %
Differences between US federal and foreign statutory income tax rates | 0.4 | % |  | 0.8 | % |  | (0.1) | %
Expenditures permanently disallowable for tax purposes, net of permanent tax benefits | (0.4) | % |  | (1.4) | % |  | — | %
Impact of global reinsurance arrangements | (5.8) | % |  | (8.7) | % |  | (2.2) | %
Impact of global financing arrangements | (1.5) | % |  | (2.2) | % |  | (0.6) | %
Bermuda economic transition adjustment | (41.1) | % |  | — | % |  | — | %
CARES Act | — | % |  | — | % |  | (1.4) | %
Valuation allowance | (0.3) | % |  | — | % |  | (6.5) | %
Other items | (1.7) | % |  | 4.1 | % |  | (0.6) | %
Effective tax rate | (26.7) | % |  | 16.5 | % |  | 12.9 | %
In Fiscal 2024, the Company’s effective tax rate was lower than the US federal income tax rate primarily as a result of the favorable impact of the benefit of $263.3 million from the Bermuda ETA described above, as well as an uncertain tax position of $20.5 million which was settled in Fiscal 2024, the favorable impact of foreign rate differences, benefits from global reinsurance and financing arrangements, and discrete tax benefits of $13.5 million recognized in Fiscal 2024. Discrete tax benefits relate to the reclassification of remaining taxes on the pension settlement out of AOCI, the excess tax benefit for share-based compensation which vested during the year, and a reversal of a valuation allowance related to capital losses in the UK. In Fiscal 2023, the Company’s effective tax rate was lower than the US federal income tax rate primarily as a result of the favorable impacts from the Company’s global reinsurance and financing arrangements, partially offset by the unfavorable impact of an uncertain tax position related to a prior year of $20.5 million recorded in Fiscal 2023. Deferred taxes Deferred tax assets (liabilities) consisted of the following:
| February 3, 2024 |  | January 28, 2023
(in millions) | Assets |  | (Liabilities) |  | Total |  | Assets |  | (Liabilities) |  | Total
Intangible assets | $ | — |  |  | $ | (99.6) |  |  | $ | (99.6) |  |  | $ | — |  |  | $ | (100.6) |  |  | $ | (100.6) |
US property, plant and equipment | — |  |  | (37.2) |  |  | (37.2) |  |  | — |  |  | (70.0) |  |  | (70.0) |
Foreign property, plant and equipment | — |  |  | (1.4) |  |  | (1.4) |  |  | 0.7 |  |  | — |  |  | 0.7 |
Inventory valuation | — |  |  | (243.7) |  |  | (243.7) |  |  | — |  |  | (208.1) |  |  | (208.1) |
Revenue deferral | 69.0 |  |  | — |  |  | 69.0 |  |  | 79.3 |  |  | — |  |  | 79.3 |
Lease assets | — |  |  | (225.6) |  |  | (225.6) |  |  | — |  |  | (230.3) |  |  | (230.3) |
Lease liabilities | 249.0 |  |  | — |  |  | 249.0 |  |  | 262.2 |  |  | — |  |  | 262.2 |
Deferred compensation | 9.1 |  |  | — |  |  | 9.1 |  |  | 8.0 |  |  | — |  |  | 8.0 |
Retirement benefit obligations | — |  |  | — |  |  | — |  |  | — |  |  | (0.2) |  |  | (0.2) |
Share-based compensation | 11.0 |  |  | — |  |  | 11.0 |  |  | 8.6 |  |  | — |  |  | 8.6 |
Other temporary differences | 33.4 |  |  | — |  |  | 33.4 |  |  | 95.6 |  |  | — |  |  | 95.6 |
Bermuda economic transition adjustment | 263.3 |  |  | — |  |  | 263.3 |  |  | — |  |  | — |  |  | — |
163(j) interest carryforward | 12.3 |  |  | — |  |  | 12.3 |  |  | 13.8 |  |  | — |  |  | 13.8 |
Net operating losses | 66.0 |  |  | — |  |  | 66.0 |  |  | 65.9 |  |  | — |  |  | 65.9 |
Value of capital losses | 11.5 |  |  | — |  |  | 11.5 |  |  | 13.2 |  |  | — |  |  | 13.2 |
Total gross deferred tax assets (liabilities) | $ | 724.6 |  |  | $ | (607.5) |  |  | $ | 117.1 |  |  | $ | 547.3 |  |  | $ | (609.2) |  |  | $ | (61.9) |
Valuation allowance | (18.3) |  |  | — |  |  | (18.3) |  |  | (19.0) |  |  | — |  |  | (19.0) |
Deferred tax assets (liabilities) | $ | 706.3 |  |  | $ | (607.5) |  |  | $ | 98.8 |  |  | $ | 528.3 |  |  | $ | (609.2) |  |  | $ | (80.9) |
Disclosed as: |  |  |  |  |  |  |  |  |  |  |
Non-current assets |  |  |  |  | $ | 300.5 |  |  |  |  |  |  | $ | 36.7 |
Non-current liabilities |  |  |  |  | (201.7) |  |  |  |  |  |  | (117.6) |
Deferred tax assets (liabilities) |  |  |  |  | $ | 98.8 |  |  |  |  |  |  | $ | (80.9) |
The following table is a rollforward of the Company’s deferred tax asset valuation allowance:
(in millions) | Fiscal 2024 |  | Fiscal 2023 |  | Fiscal 2022
Beginning balance | $ | 19.0 |  |  | $ | 27.9 |  |  | $ | 83.9 |
Charged (credited) to income tax expense | (2.0) |  |  | — |  |  | (43.8) |
Increases from acquisitions | 1.4 |  |  | 1.9 |  |  | — |
Lapsed due to expiration of benefit | (0.3) |  |  | (9.7) |  |  | (11.9) |
Foreign currency translation | 0.2 |  |  | (1.1) |  |  | (0.3) |
Ending balance | $ | 18.3 |  |  | $ | 19.0 |  |  | $ | 27.9 |
As of February 3, 2024, Signet had deferred tax assets associated with US Federal and state net operating loss carry forwards of $36.3 million, of which $25.1 million are subject to ownership change limitations rules under Section 382 of the IRC and various US state regulations. Federal net operating losses can be carried forward indefinitely and state net operating losses expire between 2023 and 2040. Signet had deferred tax assets associated with foreign net operating loss carryforwards of $29.7 million as of February 3, 2024, most of which can be carried forward indefinitely. As of February 3, 2024, Signet had foreign capital loss carryforward deferred tax assets of $11.5 million (Fiscal 2023: $13.2 million), which can be carried forward over an indefinite period, which are only available to offset future capital gains. The decrease in the total valuation allowance in Fiscal 2024 was $0.7 million. The valuation allowance as of February 3, 2024 primarily relates to certain state deferred tax assets and foreign capital loss carry forwards that, in the judgment of management, are not more likely than not to be realized. Signet believes that it is more likely than not that deferred tax assets not subject to a valuation allowance as of February 3, 2024 will be offset where permissible by deferred tax liabilities or realized on future tax returns, primarily from the generation of future taxable income. Uncertain tax positions The following table summarizes the activity related to the Company’s unrecognized tax benefits for US federal, US state and non-US tax jurisdictions:
(in millions) | Fiscal 2024 |  | Fiscal 2023 |  | Fiscal 2022
Unrecognized tax benefits, beginning of period | $ | 85.9 |  |  | $ | 24.9 |  |  | $ | 25.4 |
Increases related to current year tax positions | 1.5 |  |  | 1.6 |  |  | 2.0 |
Increases from acquisitions | — |  |  | 2.3 |  |  | — |
Increases related to prior year tax positions | — |  |  | 59.6 |  |  | 0.4 |
Settlements with tax authorities | (59.6) |  |  | — |  |  | — |
Lapse of statute of limitations | (1.8) |  |  | (2.4) |  |  | (2.9) |
Foreign currency translation | — |  |  | (0.1) |  |  | — |
Unrecognized tax benefits, end of period | $ | 26.0 |  |  | $ | 85.9 |  |  | $ | 24.9 |
As of February 3, 2024, Signet had approximately $26.0 million of unrecognized tax benefits in respect to uncertain tax positions. The unrecognized tax benefits relate primarily to intercompany deductions, including financing arrangements and intra-group charges which are subject to different and changing interpretations of tax law. Signet recognizes accrued interest and, where appropriate, penalties related to unrecognized tax benefits within income tax expense (benefit) in the consolidated statements of operations. As of February 3, 2024, Signet had accrued interest of $12.0 million and $0.5 million of accrued penalties. If all of these unrecognized tax benefits were settled in Signet’s favor, the effective income tax rate would be favorably impacted by $35.6 million. Over the next twelve months management believes that it is reasonably possible that there could be a reduction of some or all of the unrecognized tax benefits as of February 3, 2024 due to settlement of the uncertain tax positions with the tax authorities. Signet has business activity in all states within the US and files income tax returns for the US federal jurisdiction and all applicable states. Signet also files income tax returns in the UK, Canada and certain other foreign jurisdictions. Signet is subject to examinations by the US federal and state and Canadian tax authorities for tax years ending after November 1, 2011 and is subject to examination by the UK tax authority for tax years ending after February 1, 2014. The Company has not received any material assessments to date related to open examinations in any of the above jurisdictions; however, the Company has been engaged with various tax authorities related to inquiries in the normal course of their examinations. Should these tax authorities assess the Company for one or more of the tax positions taken within the Company’s income tax filings, and should the tax authorities prevail in such assessments, there could be a material impact on our results of operations and cash flows in future periods.

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