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Income Taxes
 12 Months Ended
Feb. 02, 2024
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 11. INCOME TAXES

The Company’s income (loss) before income taxes in the United States and in foreign jurisdictions is as follows:

(in thousands)

 

Fiscal 2023

 

 

Fiscal 2022

 

 

Fiscal 2021

 

(Loss) income before income taxes

 

 

 

 

 

 

 

 

 

United States

 

$

(126,745

)

 

$

4,646

 

 

$

52,963

 

Foreign

 

 

(5,072

)

 

 

(19,325

)

 

 

(6,994

)

Total (loss) income before income taxes

 

$

(131,817

)

 

$

(14,679

)

 

$

45,969

 

Certain foreign operations are branches of Lands’ End and are subject to U.S. as well as foreign income tax. The pretax income (loss) by location and the analysis of the income tax provision by taxing jurisdiction are not directly related.

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

(in thousands)

 

Fiscal 2023

 

 

Fiscal 2022

 

 

Fiscal 2021

 

United States

 

$

(1,482

)

 

$

(3,258

)

 

$

12,215

 

Foreign

 

 

349

 

 

 

1,109

 

 

 

385

 

Total (benefit) provision

 

$

(1,133

)

 

$

(2,149

)

 

$

12,600

 

 

(in thousands)

 

Fiscal 2023

 

 

Fiscal 2022

 

 

Fiscal 2021

 

Current:

 

 

 

 

 

 

 

 

 

Federal

 

$

(3,092

)

 

$

(3,928

)

 

$

11,370

 

State

 

 

(192

)

 

 

(273

)

 

 

1,627

 

Foreign

 

 

338

 

 

 

1,125

 

 

 

385

 

Total current

 

 

(2,946

)

 

 

(3,076

)

 

 

13,382

 

Deferred:

 

 

 

 

 

 

 

 

 

Federal

 

 

(316

)

 

 

682

 

 

 

(1,426

)

State

 

 

2,118

 

 

 

261

 

 

 

644

 

Foreign

 

 

11

 

 

 

(16

)

 

 

—

 

Total deferred

 

 

1,813

 

 

 

927

 

 

 

(782

)

Total (benefit) provision

 

$

(1,133

)

 

$

(2,149

)

 

$

12,600

 

A reconciliation of the statutory federal income tax rate to the effective income tax rate is as follows:

 

 

Fiscal 2023

 

 

Fiscal 2022

 

 

Fiscal 2021

 

Tax at statutory federal tax rate

 

 

21.0

 %

 

 

21.0

 %

 

 

21.0

 %

State income taxes, net of federal tax benefit

 

 

(1.1

)%

 

 

0.1

 %

 

 

3.9

 %

Foreign differential

 

 

2.1

 %

 

 

27.2

 %

 

 

(5.2

)%

Permanent differences

 

 

(0.8

)%

 

 

(3.4

)%

 

 

1.9

 %

Uncertain tax benefits

 

 

0.1

 %

 

 

1.1

 %

 

 

1.1

 %

Change in foreign valuation allowance

 

 

(2.2

)%

 

 

(32.4

)%

 

 

4.9

 %

Goodwill impairment

 

 

(17.0

)%

 

 

—

%

 

 

—

%

Other, net

 

 

(1.2

)%

 

 

1.0

 %

 

 

(0.2

)%

Total

 

 

0.9

 %

 

 

14.6

 %

 

 

27.4

 %

 

Deferred tax assets and liabilities consisted of the following:

 

(in thousands)

 

February 2,
2024

 

 

January 27,
2023

 

 

January 28,
2022

 

Deferred tax assets

 

 

 

 

 

 

 

 

 

Deferred revenue

 

$

7,388

 

 

$

5,946

 

 

$

6,528

 

Legal accruals

 

 

1,418

 

 

 

2,053

 

 

 

2,461

 

Deferred compensation

 

 

6,100

 

 

 

10,246

 

 

 

18,328

 

Deferred interest

 

 

640

 

 

 

10,011

 

 

 

—

 

Reserve for returns

 

 

2,867

 

 

 

2,938

 

 

 

2,958

 

Inventory

 

 

4,510

 

 

 

4,303

 

 

 

3,730

 

CTA investment in foreign subsidiaries

 

 

4,271

 

 

 

4,525

 

 

 

3,361

 

Operating lease liabilities

 

 

7,017

 

 

 

8,112

 

 

 

8,677

 

Other

 

 

1,369

 

 

 

1,980

 

 

 

2,402

 

Net operating loss carryforward

 

 

26,544

 

 

 

11,057

 

 

 

5,211

 

Total deferred tax assets

 

 

62,124

 

 

 

61,171

 

 

 

53,656

 

Less valuation allowance

 

 

(16,292

)

 

 

(11,207

)

 

 

(6,009

)

Net deferred tax assets

 

$

45,832

 

 

$

49,964

 

 

$

47,647

 

 

 

 

 

 

 

 

 

 

 

Deferred tax liabilities

 

 

 

 

 

 

 

 

 

Intangible assets

 

$

61,785

 

 

$

61,715

 

 

$

62,295

 

LIFO reserve

 

 

19,137

 

 

 

21,263

 

 

 

18,118

 

Property and equipment

 

 

5,662

 

 

 

4,461

 

 

 

4,396

 

Operating lease right-of-use assets

 

 

5,709

 

 

 

6,670

 

 

 

7,089

 

Catalog advertising

 

 

1,559

 

 

 

1,808

 

 

 

1,940

 

Total deferred tax liabilities

 

 

93,852

 

 

 

95,917

 

 

 

93,838

 

Net deferred tax liability

 

$

48,020

 

 

$

45,953

 

 

$

46,191

 

As of February 2, 2024, the Company had $125.2 million of federal and state net operating loss (“NOL”) carryforwards (generating a $14.4 million deferred tax asset) available to offset future taxable income. The federal NOL Carryforward has an indefinite life. The state NOL carryforwards generally expire between 2024 and 2043 with certain state NOLs generated after 2017 having indefinite carryforward. The Company’s foreign subsidiaries had $41.9 million of NOL carryforwards (generating a $12.1 million deferred tax asset) available to offset future taxable income. These foreign NOLs can be carried forward indefinitely, however, a valuation allowance was established since the future utilization of these NOLs is uncertain.

A reconciliation of the beginning and ending gross amount of unrecognized tax benefits (“UTBs”) is as follows:

 

 

Fiscal 2023

 

 

Fiscal 2022

 

 

Fiscal 2021

 

Gross UTBs balance at beginning of period

 

$

1,297

 

 

$

1,477

 

 

$

1,012

 

Tax positions related to the prior periods - gross
   (decreases) increases

 

 

(156

)

 

 

(180

)

 

 

539

 

Settlements

 

 

—

 

 

 

—

 

 

 

(74

)

Gross UTBs balance at end of period

 

$

1,141

 

 

$

1,297

 

 

$

1,477

 

As of February 2, 2024, the Company had gross UTBs of $1.1 million. Of this amount, $1.0 million would, if recognized, impact its effective tax rate. The Company does not expect that UTBs will fluctuate significantly in the next 12 months for tax audit settlements and the expiration of the statute of limitations for certain jurisdictions. Tax years 2020 through 2023 remain open for examination by the Internal Revenue Service as well as various state and foreign jurisdictions.

The Company classifies interest expense and penalties related to UTBs and interest income on tax overpayments as components of income tax expense. As of February 2, 2024, the total amount of interest expense and penalties recognized on the balance sheet was $0.6 million ($0.5 million net of federal benefit). As of January 27, 2023, the total amount of interest and penalties recognized on the balance sheet was $0.6 million ($0.5 million net of federal

benefit). The total amount of net interest expense recognized in the Consolidated Statements of Operations was insignificant for all periods presented. The Company files income tax returns in both the United States and various foreign jurisdictions.