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Note 8 - Income Taxes | 12 Months Ended
--- | ---
Feb. 03, 2024
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, China, and Ireland), is as follows (in thousands):
|  | Fiscal year ended |
|  | February 3, |  |  | January 28, |
|  | 2024 |  |  | 2023 |
Domestic |  | $ | 61,110 |  |  | $ | 57,595 |
Foreign |  |  | 5,219 |  |  |  | 4,329 |
Total income before income taxes |  | $ | 66,329 |  |  | $ | 61,924 |
The components of the income tax expense are as follows (in thousands):
|  | Fiscal year ended |
|  | February 3, |  |  | January 28, |
|  | 2024 |  |  | 2023 |
Current: |  |  |  |  |  |  |  |
U.S. Federal |  | $ | 12,080 |  |  | $ | 10,190 |
U.S. State |  |  | 3,205 |  |  |  | 2,617 |
Foreign |  |  | 145 |  |  |  | 30 |
Deferred: |  |  |  |  |  |  |  |
U.S. Federal |  |  | (537 | ) |  |  | 368 |
U.S. State |  |  | (212 | ) |  |  | 285 |
Foreign |  |  | (1,157 | ) |  |  | 449 |
Income tax expense |  | $ | 13,524 |  |  | $ | 13,939 |
A reconciliation of the significant differences between the U.S. statutory tax rate and the effective income tax rate on pre-tax income is as follows:
|  | February 3, |  |  | January 28, |
|  | 2024 |  |  | 2023 |
Income before income taxes |  | $ | 66,329 |  |  | $ | 61,924 |
U.S. federal statutory income tax rate |  |  | 21 | % |  |  | 21 | %
Income tax expense at statutory federal rate |  |  | 13,929 |  |  |  | 13,004 |
Valuation allowance |  |  | (5,075 | ) |  |  | (328 | )
State and local income taxes, net of federal tax benefit |  |  | 2,354 |  |  |  | 2,202 |
Non deductible executive compensation |  |  | 1,038 |  |  |  | 1,091 |
Effect of lower foreign taxes |  |  | 639 |  |  |  | (33 | )
Adjustment for unrecognized tax positions |  |  | 3 |  |  |  | (30 | )
Other items, net |  |  | 636 |  |  |  | (1,967 | )
Income tax expense (benefit) |  | $ | 13,524 |  |  | $ | 13,939 |
Effective tax rate |  |  | 20.4 | % |  |  | 22.5 | %
The 2023 effective rate of 20.4% differed from the statutory rate of 21% primarily due to the reversal of the valuation allowance in the U.K. partially offset by state income tax expense. The 2022 effective rate of 22.5% differed from the statutory rate of 21% primarily due to state income tax expense. The Company periodically assesses whether it is more likely than not that it will generate sufficient taxable income to realize its deferred income tax assets based on all available positive and negative evidence. In the fourth quarter of fiscal 2023, as the Company was in a cumulative income position in the U.K. and continues to be profitable in the jurisdiction, the Company recorded a benefit of $5.1 million for the reversal of the valuation allowance on deferred tax assets expected to be realized in the U.K. Changes in the valuation allowance in fiscal 2023 primarily related to the U.K. valuation reversal, balance sheet adjustments and functional currency fluctuations. Temporary differences that gave rise to deferred tax assets and liabilities are as follows (in thousands):
|  | February 3, |  |  | January 28, |
|  | 2024 |  |  | 2023 |
Deferred tax assets: |  |  |  |  |  |  |  |
Operating lease liability |  | $ | 21,091 |  |  | $ | 21,877 |
Deferred revenue |  |  | 3,173 |  |  |  | 3,116 |
Accrued compensation |  |  | 2,249 |  |  |  | 2,941 |
Net operating loss carryforwards |  |  | 849 |  |  |  | 2,776 |
Depreciation |  |  | 1,063 |  |  |  | 1,581 |
Investment in affiliates |  |  | - |  |  |  | 1,576 |
Accrued expenses |  |  | 334 |  |  |  | 1,213 |
Deferred compensation |  |  | 822 |  |  |  | 962 |
Inventories |  |  | 871 |  |  |  | 842 |
Receivables write-offs |  |  | 806 |  |  |  | 563 |
Carryforward of tax credits |  |  | 222 |  |  |  | 311 |
Intangible assets |  |  | 2,954 |  |  |  | 240 |
Other |  |  | 163 |  |  |  | 404 |
Total gross deferred tax assets |  |  | 34,597 |  |  |  | 38,402 |
Less: Valuation allowance |  |  | (1,546 | ) |  |  | (8,000 | )
Total deferred tax assets, net of valuation allowance |  |  | 33,051 |  |  |  | 30,402 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Operating lease right-of-use assets |  |  | (17,999 | ) |  |  | (17,828 | )
Depreciation |  |  | (4,222 | ) |  |  | (3,634 | )
Deferred expense |  |  | (1,451 | ) |  |  | (1,402 | )
Inventories |  |  | (682 | ) |  |  | (928 | )
Other |  |  | (15 | ) |  |  | (18 | )
Total deferred tax liabilities |  |  | (24,369 | ) |  |  | (23,810 | )
Net deferred tax assets |  | $ | 8,682 |  |  | $ | 6,592 |
As of February 3, 2024, the Company had gross net operating loss (NOL) carryforwards of approximately $3.3 million, $1.9 million of which relate to the U.K. where NOLs have no expiration date. The remaining NOLs in certain other foreign jurisdictions are not expected to be utilized. 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 February 3, 2024, 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 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. 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 February 3, 2024 and January 28, 2023. 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 February 3, 2024 and January 28, 2023, the Company recognized an (expense) benefit of less than ($0.1) million and $0.1 million, respectively, for interest and penalties. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|  | February 3, |  |  | January 28, |
|  | 2024 |  |  | 2023 |
Balance at beginning of year |  |  | 66 |  |  |  | 334 |
Increases for prior year tax positions |  |  | - |  |  |  | - |
Settlements |  |  | - |  |  |  | (268 | )
Balance at end of year |  |  | 66 |  |  |  | 66 |
Management does not expect the amount of unrecognized tax benefits to change by a material amount in the next twelve months. The following tax years remain open in the Company’s major taxing jurisdictions as of February 3, 2024:
United States (Federal) | 2020 through 2023
United Kingdom | 2019 through 2023

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