XML 44 R25.htm IDEA: XBRL DOCUMENT v3.25.1
Income Taxes
 12 Months Ended
Feb. 01, 2025
Income Tax Disclosure [Abstract]  
Income Taxes

13. Income Taxes

On December 22, 2017, the U.S. government enacted comprehensive tax legislation in the form of the Tax Cuts and Jobs Act of 2017 (the "Tax Act”). The Tax Act significantly changed U.S. 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-U.S. corporate subsidiaries of large U.S. shareholders. The Company has elected to treat GILTI as a period expense, and the effect of the GILTI inclusion for Fiscal 2024 is not material.

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

 

 

 

Fiscal Years Ending

 

 

 

February 1,

 

 

February 3,

 

 

January 28,

 

(In thousands)

 

2025

 

 

2024

 

 

2023

 

U.S.

 

$

453,098

 

 

$

208,283

 

 

$

138,023

 

Foreign

 

 

(10,864

)

 

 

31,575

 

 

 

40,471

 

Total

 

$

442,234

 

 

$

239,858

 

 

$

178,494

 

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

 

 

 

Fiscal Years Ending

 

 

 

February 1,

 

 

February 3,

 

(In thousands)

 

2025

 

 

2024

 

Deferred tax assets:

 

 

 

 

 

 

Operating lease ROU assets

 

$

361,549

 

 

$

305,043

 

Capitalized research and development expenses

 

 

28,121

 

 

 

22,014

 

Employee compensation and benefits

 

 

19,820

 

 

 

25,576

 

Net Operating Loss

 

 

12,470

 

 

 

25,071

 

Accruals not currently deductible

 

 

10,508

 

 

 

10,041

 

Deferred compensation

 

 

10,261

 

 

 

9,737

 

Other long-term assets

 

 

8,145

 

 

 

8,169

 

State tax credits

 

 

6,839

 

 

 

7,741

 

Gift card liability

 

 

6,239

 

 

 

5,723

 

Inventories

 

 

6,231

 

 

 

8,828

 

Impairment of investments

 

 

4,659

 

 

 

4,673

 

Allowance for Doubtful Accounts

 

 

2,180

 

 

 

3,114

 

Other

 

 

1,020

 

 

 

690

 

Foreign tax credits

 

 

955

 

 

 

955

 

General Business Credits

 

 

116

 

 

 

116

 

Gross deferred tax assets

 

$

479,113

 

 

$

437,491

 

Valuation allowance

 

 

(18,998

)

 

 

(27,466

)

Total deferred tax assets

 

$

460,115

 

 

$

410,025

 

Deferred tax liabilities:

 

 

 

 

 

 

Operating lease liabilities

 

$

(319,488

)

 

$

(253,229

)

Property and equipment

 

 

(64,429

)

 

 

(69,030

)

Prepaid expenses

 

 

(5,561

)

 

 

(3,572

)

Goodwill

 

 

(1,937

)

 

 

(1,981

)

Other

 

 

(542

)

 

 

(149

)

Total deferred tax liabilities

 

$

(391,957

)

 

$

(327,961

)

Total deferred tax assets, net

 

$

68,158

 

 

$

82,064

 

 

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 and, net operating loss partially offset by a decrease in valuation allowance.

As of February 1, 2025, the Company had deferred tax assets related to federal, state and foreign net operating loss carryovers of $5.5 million, $5.7 million and $1.3 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 $2.9 million and $2.8 million have been recorded on the deferred tax assets related to a portion of the state net operating loss carryovers as of February 1, 2025 and February 3, 2024, respectively. Further, valuation allowances of $1.3 million and $9.4 million have been recorded on the deferred tax assets related to the cumulative foreign net operating loss carryovers as of February 1, 2025 and February 3, 2024, respectively. We also provided for valuation allowances of a nominal amount as of February 3, 2024, related to other foreign deferred tax assets.

The Company had foreign tax credit carryovers in the amount of $1.0 million as of both February 1, 2025 and February 3, 2024. 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 1, 2025 and February 3, 2024.

The Company had state income tax credit carryforwards of $6.8 million and $8.0 million (net of federal tax) as of February 1, 2025 and February 3, 2024, 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 have started to expire in Fiscal 2024 and the deferred tax asset has been adjusted accordingly. 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 $1.0 million and $1.5 million have been recorded on the deferred tax assets related to the cumulative state income tax credit carryovers as of February 1, 2025 and February 3, 2024, respectively.

The Company had U.S. federal and state impairments of investments of $4.7 million and $4.6 million as of February 1, 2025 and February 3, 2024, respectively. Management believes that it is more likely than not that these impairments of investments will not reduce future years’ tax liabilities. As such, valuation allowances of $4.7 million and $4.6 million have been recorded as of February 1, 2025 and February 3, 2024, respectively, on the deferred tax asset attributable to these impairments of investments. The Company recorded deferred tax assets of $8.1 million and $8.2 million of February 1, 2025 and February 3, 2024, respectively, for other long-term assets related to the acquisition of Quiet Logistics, Inc. and certain other strategic investments. Management believes that it is more likely than not that these other long-term assets will not reduce future years’ tax liabilities. As such, valuation allowances of $8.1 million and $8.2 million were recorded as of February 1, 2025 and February 3, 2024, respectively 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 1,

 

 

February 3,

 

 

January 28,

 

(In thousands)

 

2025

 

 

2024

 

 

2023

 

Current:

 

 

 

 

 

 

 

 

 

Federal

 

$

32,249

 

 

$

66,112

 

 

$

(986

)

Foreign taxes

 

 

52,224

 

 

 

27,958

 

 

 

19,701

 

State

 

 

18,633

 

 

 

19,206

 

 

 

3,594

 

Total current

 

 

103,106

 

 

 

113,276

 

 

 

22,309

 

Deferred:

 

 

 

 

 

 

 

 

 

Federal

 

$

9,940

 

 

$

(31,602

)

 

$

26,758

 

Foreign taxes

 

 

(3,766

)

 

 

(6,317

)

 

 

(1,374

)

State

 

 

3,574

 

 

 

(5,537

)

 

 

5,665

 

Total deferred

 

 

9,748

 

 

 

(43,456

)

 

 

31,049

 

Provision for income taxes

 

$

112,854

 

 

$

69,820

 

 

$

53,358

 

 

As of February 1, 2025, the undistributed earnings of the Company’s foreign subsidiaries were approximately $175.7 million. The Company intends to permanently reinvest a portion of its earnings outside of the U.S. for the foreseeable future. On the remaining earnings, the Company has not recognized deferred tax expense because it expects 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 1,

 

 

February 3,

 

 

January 28,

 

(In thousands)

 

2025

 

 

2024

 

 

2023

 

Unrecognized tax benefits, beginning of the year
   balance

 

$

3,974

 

 

$

2,478

 

 

$

3,259

 

Increases in current period tax positions

 

 

157

 

 

 

2,371

 

 

 

681

 

Increases in tax positions of prior periods

 

 

16,428

 

 

 

10

 

 

 

—

 

Settlements

 

 

(10,620

)

 

 

(275

)

 

 

(454

)

Lapse of statute of limitations

 

 

(73

)

 

 

(75

)

 

 

(277

)

Decreases in tax positions of prior periods

 

 

(32

)

 

 

(535

)

 

 

(731

)

Unrecognized tax benefits, end of the year balance

 

$

9,834

 

 

$

3,974

 

 

$

2,478

 

 

As of February 1, 2025, the gross amount of unrecognized tax benefits was $9.8 million, of which $9.0 million would affect the effective income tax rate if recognized. The gross amount of unrecognized tax benefits as of February 3, 2024 was $4.0 million, of which $3.6 million would affect the effective income tax rate if recognized.

Unrecognized tax benefits increased by $5.9 million during Fiscal 2024 and $1.5 million during Fiscal 2023. Over the next 12 months, the Company believes that it is reasonably possible that the unrecognized tax benefits could decrease by as much as $5.0 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 $1.4 million and $0.8 million as of February 1, 2025 and February 3, 2024, respectively. The amount of interest and penalties related to unrecognized tax benefits recognized in the provision for income taxes was $7.3 million for Fiscal 2024. An immaterial amount was recognized for both Fiscal 2023 and Fiscal 2022.

The Company and its subsidiaries file income tax returns in the U.S. 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 U.S., with limited exceptions, generally, the Company and its subsidiaries are no longer subject to income tax audits for tax years before Fiscal 2018 (ended February 2, 2019). 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 1,

 

 

February 3,

 

 

January 28,

 

 

 

2025

 

 

2024

 

 

2023

 

Federal income tax rate

 

 

21.0

%

 

 

21.0

%

 

 

21.0

%

State income taxes, net of federal income tax effect

 

 

3.7

 

 

 

4.4

 

 

 

3.6

 

Foreign rate differential

 

 

0.6

 

 

 

0.2

 

 

 

0.9

 

International provisions of Tax Act

 

 

(1.3

)

 

 

(2.2

)

 

 

0.1

 

Valuation allowance changes, net

 

 

0.7

 

 

 

0.5

 

 

 

0.5

 

Non-deductible executive compensation

 

 

1.3

 

 

 

3.8

 

 

 

2.0

 

Change in unrecognized tax benefits

 

 

0.7

 

 

 

0.8

 

 

 

(0.1

)

Share Based Payments

 

 

(0.5

)

 

 

0.2

 

 

 

(0.2

)

Note Exchanges

 

 

0.0

 

 

 

0.0

 

 

 

1.4

 

Non-deductible goodwill

 

 

0.0

 

 

 

3.5

 

 

 

0.0

 

Federal Credits

 

 

(0.8

)

 

 

(2.1

)

 

 

(0.4

)

Other

 

 

0.1

 

 

 

(1.0

)

 

 

1.1

 

 

 

 

25.5

%

 

 

29.1

%

 

 

29.9

%

 

The Company recorded income tax expense of $112.9 million (an effective tax rate of 25.5%) in Fiscal 2024, and income tax expense of $69.8 million (an effective tax rate of 29.1%) in Fiscal 2023.