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Note 8 - Income Taxes
 12 Months Ended
Jan. 28, 2023
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

(8)

Income Taxes

 

The Company’s income before income taxes from domestic and foreign operations (which include the U.K., Canada, Ireland, China, and Denmark (prior to its closing in January 2021)), is as follows (in thousands):

 

  

Fiscal year ended

 
  

January 28,

  

January 29,

 
  

2023

  

2022

 

Domestic

 $57,595  $46,473 

Foreign

  4,329   4,237 

Total income (loss) before income taxes

 $61,924  $50,710 

 

The components of the income tax expense are as follows (in thousands):

 

  

Fiscal year ended

 
  

January 28,

  

January 29,

 
  

2023

  

2022

 
         

Current:

        

U.S. Federal

 $10,190  $8,921 

U.S. State

  2,617   2,017 

Foreign

  30   128 

Deferred:

        

U.S. Federal

  368   (4,870)

U.S. State

  285   (2,140)

Foreign

  449   (611)

Income tax expense

 $13,939  $3,445 

 

The provision for income taxes was $13.9 million in fiscal 2022 compared to $3.4 million in fiscal 2021. The 2022 effective rate of 22.5% differed from the statutory rate of 21% primarily due to state income tax expense. The 2021 effective rate of 6.8% differed from the statutory rate of 21% primarily due to the tax benefit resulting from the reversal of the $7.8 million valuation allowance in North America.

 

Temporary differences that gave rise to deferred tax assets and liabilities are as follows (in thousands):

 

  

January 28,

  

January 29,

 
  

2023

  

2022

 
         

Deferred tax assets:

        

Operating lease liability

 $21,877  $27,504 

Deferred revenue

  3,116   3,228 

Accrued compensation

  2,941   2,678 

Net operating loss carryforwards

  2,776   3,496 

Depreciation

  1,581   1,636 

Investment in affiliates

  1,576   1,583 

Accrued expenses

  1,213   820 

Deferred compensation

  962   1,149 

Inventories

  842   634 

Receivables write-offs

  563   704 

Carryforward of tax credits

  311   227 

Intangible assets

  240   321 

Other

  404   920 

Total gross deferred tax assets

  38,402   44,900 

Less: Valuation allowance

  (8,000)  (9,795)

Total deferred tax assets, net of valuation allowance

  30,402   35,105 
         

Deferred tax liabilities:

        

Operating lease right-of-use assets

  (17,828)  (21,395)

Depreciation

  (3,634)  (4,369)

Deferred expense

  (1,402)  (1,708)

Inventories

  (928)  - 

Other

  (18)  (20)

Total deferred tax liabilities

  (23,810)  (27,492)

Net deferred tax assets

 $6,592  $7,613 

 

As of January 28, 2023, the Company had gross net operating loss (NOL) carryforwards of approximately $11.1 million, most of which relate to the U.K. where NOLs have no expiration date.

 

The Company continues to assert its investments in foreign subsidiaries are permanent in duration and it is not practical to estimate the income tax liability on the outside basis differences.

 

As of January 28, 2023, the Company had total unrecognized tax benefits of $0.1 million, of which approximately $0.1 million would favorably impact the Company’s provision for income taxes if recognized. As of January 29, 2022, the Company had total unrecognized tax benefits of $0.3 million, of which approximately $0.3 million would favorably impact the Company’s provision for income taxes if recognized. The Company reviews its uncertain tax positions periodically and accrues interest and penalties accordingly. Accrued interest and penalties included within other liabilities in the consolidated balance sheets were less than $0.1 million for both years ended as of  January 28, 2023 and January 29, 2022. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes within the consolidated statement of operations. For the years ended  January 28, 2023 and  January 29, 2022, the Company recognized a benefit of less than $0.1 million for interest and penalties.

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

 

 

  

January 28,

  

January 29,

 
  

2023

  

2022

 
         

Balance at beginning of year

  334   170 

Increases for prior year tax positions

  -   164 

Settlements

  (268)  - 

Balance at end of year

  66   334 

 

Management estimates it is reasonably possible that the amount of unrecognized tax benefits could decrease by as much as $0.1 million in the next twelve months as a result of the resolution of audits currently in progress involving issues common to multinational corporations.

 

The following tax years remain open in the Company’s major taxing jurisdictions as of January 28, 2023:

 

United States (Federal)2018 through 2021
United Kingdom2017 through 2021

 

The Company also files tax returns in various other international jurisdictions and numerous states for which various tax years are subject to examination and currently involved in audits.