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Income Taxes
 12 Months Ended
Feb. 03, 2024
Income Tax Disclosure [Abstract]  
Income Taxes

14. Income Taxes

On December 22, 2017, the United States government enacted comprehensive tax legislation in the form of the Tax Cuts and Jobs Act (the "Tax Act”). The Tax Act significantly changed United States international tax laws for tax years beginning after December 31, 2017 and included a provision designed to currently tax global intangible low-taxed income (“GILTI”) earned by non-United States corporate subsidiaries of large United States shareholders. The Company has elected to treat GILTI as a period expense, and the effect of the GILTI inclusion for Fiscal 2023 is not material.

The components of income (loss) before income taxes are:

 

 

 

Fiscal Years Ending

 

 

 

February 3,

 

 

January 28,

 

 

January 29,

 

(In thousands)

 

2024

 

 

2023

 

 

2022

 

U.S.

 

$

208,283

 

 

$

138,023

 

 

$

520,952

 

Foreign

 

 

31,575

 

 

 

40,471

 

 

 

37,970

 

Total

 

$

239,858

 

 

$

178,494

 

 

$

558,922

 

The significant components of the Company’s deferred tax assets and liabilities are as follows:

 

 

 

Fiscal Years Ending

 

 

 

February 3,

 

 

January 28,

 

(in thousands)

 

2024

 

 

2023

 

Deferred tax assets:

 

 

 

 

 

 

Operating lease ROU assets

 

$

305,043

 

 

$

353,277

 

Employee compensation and benefits

 

 

25,576

 

 

 

2,896

 

Net Operating Loss

 

 

25,071

 

 

 

27,604

 

Capitalized research and development expenses

 

 

22,014

 

 

 

4,120

 

Accruals not currently deductible

 

 

10,041

 

 

 

11,442

 

Deferred compensation

 

 

9,737

 

 

 

9,498

 

Inventories

 

 

8,828

 

 

 

7,082

 

Other long-term assets

 

 

8,169

 

 

 

8,201

 

State tax credits

 

 

7,741

 

 

 

7,968

 

Gift card liability

 

 

5,723

 

 

 

4,871

 

Capital loss

 

 

4,673

 

 

 

4,210

 

Allowance for Doubtful Accounts

 

 

3,114

 

 

 

911

 

Foreign tax credits

 

 

955

 

 

 

2,761

 

Other

 

 

690

 

 

 

744

 

General Business Credits

 

 

116

 

 

 

1,586

 

Disallowed business interest expense

 

 

—

 

 

 

8,353

 

Gross deferred tax assets

 

 

437,491

 

 

 

455,524

 

Valuation allowance

 

 

(27,466

)

 

 

(25,902

)

Total deferred tax assets

 

 

410,025

 

 

 

429,622

 

Deferred tax liabilities:

 

 

 

 

 

 

Operating lease liabilities

 

$

(253,229

)

 

$

(287,061

)

Property and equipment

 

 

(69,030

)

 

 

(100,958

)

Prepaid expenses

 

 

(3,572

)

 

 

(2,988

)

Goodwill

 

 

(1,981

)

 

 

(1,996

)

Other

 

 

(149

)

 

 

(136

)

2025 Notes

 

 

—

 

 

 

—

 

Total deferred tax liabilities

 

$

(327,961

)

 

$

(393,139

)

Total deferred tax assets, net

 

$

82,064

 

 

$

36,483

 

 

The change in net deferred tax assets was primarily due to a decrease in the net deferred tax asset of Operating lease ROU assets, Operating lease liabilities, Property and equipment and disallowed business interest expense, partially offset by an increase in employee compensation and benefits and capitalized research and development expenses.

As of February 3, 2024, the Company had deferred tax assets related to federal, state and foreign net operating loss carryovers of $10.2 million, $5.4 million and $9.4 million, respectively, that could be utilized to reduce future years’ tax liabilities. A portion of these net operating loss carryovers expire in future years and some have an indefinite carryforward period. Management believes it is more likely than not that a portion of state net operating loss and the foreign net operating

loss carryovers will not reduce future years’ tax liabilities in certain jurisdictions. As such, valuation allowances of $2.8 and $2.7 have been recorded on the deferred tax assets related to a portion of the state net operating loss carryovers as of February 3, 2024 and January 28, 2023, respectively. Further, valuation allowances of $9.4 million and $6.7 million have been recorded on the deferred tax assets related to the cumulative foreign net operating loss carryovers as of February 3, 2024 and January 28, 2023, respectively. We also provided for valuation allowances of a nominal amount as of February 3, 2024 and $1.6 million as of January 28, 2023, related to other foreign deferred tax assets.

The Company had foreign tax credit carryovers in the amount of $1.0 million and $2.8 million as of February 3, 2024 and January 28, 2023, respectively. The foreign tax credit carryovers begin to expire in Fiscal 2028 to the extent not utilized. Management believes it is more likely than not that a certain category of foreign tax credit carryover will not reduce future years’ tax liabilities. As such, valuation allowances of $1.0 million have been recorded on the deferred tax assets related to the foreign tax credit carryovers as of both February 3, 2024 and January 28, 2023.

The Company had state income tax credit carryforwards of $8.0 million (net of federal tax) as of both February 3, 2024 and January 28, 2023, respectively. These income tax credits can be utilized to offset future state income taxes, with the majority having a carryforward period of 16 years. They will begin to expire in Fiscal 2024. Management believes it is more likely than not that a portion of the state income tax credit carryovers will not reduce future years’ tax liabilities in certain jurisdictions. As such, valuation allowances of $1.5 million have been recorded on the deferred tax assets related to the cumulative state income tax credit carryovers as of both February 3, 2024 and January 28, 2023.

The Company had United States federal and state capital loss carryforwards of $4.6 million and $4.2 million as of February 3, 2024 and January 28, 2023, respectively. Generally, the capital loss has a carryforward period of five years. The Company has recorded a valuation allowance of $4.6 million and $4.2 million as of February 3, 2024 and January 28, 2023, on the deferred tax asset attributable to these capital losses. The Company recorded deferred tax assets of $8.2 million as of both February 3, 2024 and January 28, 2023, for other long-term assets related to the acquisition of Quiet Logistics, Inc. and certain other strategic investments. Management believes it is more likely than not that these other long-term assets will not reduce future years’ tax liabilities. As such, valuation allowances of $8.2 million was recorded as of both February 3, 2024 and January 28, 2023 for the deferred tax asset attributable to these assets.

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

 

 

 

Fiscal Years Ending

 


 

 

February 3,

 

 

January 28,

 

 

January 29,

 

(In thousands)

 

2024

 

 

2023

 

 

2022

 

Current:

 

 

 

 

 

 

 

 

 

Federal

 

$

66,112

 

 

$

(986

)

 

$

107,493

 

Foreign taxes

 

 

27,958

 

 

 

19,701

 

 

 

19,671

 

State

 

 

19,206

 

 

 

3,594

 

 

 

24,979

 

Total current

 

 

113,276

 

 

 

22,309

 

 

 

152,143

 

Deferred:

 

 

 

 

 

 

 

 

 

Federal

 

$

(31,602

)

 

$

26,758

 

 

$

(12,637

)

Foreign taxes

 

 

(6,317

)

 

 

(1,374

)

 

 

(1,284

)

State

 

 

(5,537

)

 

 

5,665

 

 

 

1,071

 

Total deferred

 

 

(43,456

)

 

 

31,049

 

 

 

(12,850

)

Provision for income taxes

 

$

69,820

 

 

$

53,358

 

 

$

139,293

 

 

As of February 3, 2024, the undistributed earnings of the Company’s foreign subsidiaries were approximately $139.2 million. The Company intends to permanently reinvest a portion of its earnings outside of the United States for the foreseeable future. On the remaining earnings, the Company has not recognized deferred tax expense because we expect any potential distribution to be made from previously taxed earnings, or qualify for the 100% dividends received deduction, along with negligible foreign withholding taxes.

The following table summarizes the activity related to our unrecognized tax benefits:

 

 

 

Fiscal Years Ending

 


 

 

February 3,

 

 

January 28,

 

 

January 29,

 

(In thousands)

 

2024

 

 

2023

 

 

2022

 

Unrecognized tax benefits, beginning of the year
   balance

 

$

2,478

 

 

$

3,259

 

 

$

2,563

 

Increases in current period tax positions

 

 

2,371

 

 

 

681

 

 

 

251

 

Increases in tax positions of prior periods

 

 

10

 

 

 

—

 

 

 

688

 

Settlements

 

 

(275

)

 

 

(454

)

 

 

—

 

Lapse of statute of limitations

 

 

(75

)

 

 

(277

)

 

 

(93

)

Decreases in tax positions of prior periods

 

 

(535

)

 

 

(731

)

 

 

(150

)

Unrecognized tax benefits, end of the year balance

 

$

3,974

 

 

$

2,478

 

 

$

3,259

 

 

As of February 3, 2024, the gross amount of unrecognized tax benefits was $4.0 million, of which $3.6 million would affect the effective income tax rate if recognized. The gross amount of unrecognized tax benefits as of January 28, 2023 was $2.5 million, of which $2.0 million would affect the effective income tax rate if recognized.

Unrecognized tax benefits increased by $1.5 million during Fiscal 2023, and decreased by $0.8 million during Fiscal 2022. Over the next 12 months, the Company believes it is reasonably possible that the unrecognized tax benefits could decrease by as much as $1.1 million as a result of federal and state tax settlements, statute of limitations lapses, and other changes to the reserves.

The Company records accrued interest and penalties related to unrecognized tax benefits in income tax expense. Accrued interest and penalties related to unrecognized tax benefits included in the Consolidated Balance Sheets were $0.8 million as of both February 3, 2024 and January 28, 2023.

The Company and its subsidiaries file income tax returns in the United States and various state and foreign jurisdictions. The IRS has completed examinations through February 1, 2020. With respect to state and local jurisdictions and countries outside of the United States, with limited exceptions, generally, the Company and its subsidiaries are no longer subject to income tax audits for tax years before Fiscal 2017 (ended February 3, 2018). Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, interest, and penalties have been provided for any adjustments that are expected to result from these years.

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

 

 

 

Fiscal Years Ending

 

 

 

February 3,

 

 

January 28,

 

 

January 29,

 

 

 

2024

 

 

2023

 

 

2022

 

Federal income tax rate

 

 

21.0

%

 

 

21.0

%

 

 

21.0

%

State income taxes, net of federal income tax effect

 

 

4.4

 

 

 

3.6

 

 

 

4.1

 

Foreign rate differential

 

 

0.2

 

 

 

0.9

 

 

 

0.6

 

International provisions of Tax Act

 

 

(2.2

)

 

 

0.1

 

 

 

(0.5

)

Valuation allowance changes, net

 

 

0.5

 

 

 

0.5

 

 

 

0.2

 

Non-deductible executive compensation

 

 

3.8

 

 

 

2.0

 

 

 

1.3

 

Change in unrecognized tax benefits

 

 

0.8

 

 

 

(0.1

)

 

 

0.1

 

Share Based Payments

 

 

0.2

 

 

 

(0.2

)

 

 

(0.8

)

Note Exchanges

 

 

0.0

 

 

 

1.4

 

 

 

0.0

 

Non-deductible goodwill impairment

 

 

3.5

 

 

 

0.0

 

 

 

0.0

 

Federal Credits

 

 

(2.1

)

 

 

(0.4

)

 

 

(1.0

)

Other

 

 

(1.0

)

 

 

1.1

 

 

 

(0.1

)

 

 

 

29.1

%

 

 

29.9

%

 

 

24.9

%

 

The Company recorded income tax expense of $69.8 million (an effective tax rate of 29.1%) in Fiscal 2023, and income tax expense of $53.4 million (an effective tax rate of 29.9%) in Fiscal 2022.