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INCOME TAXES | 12 Months Ended
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Feb. 03, 2024
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The components of Income (loss) before provision (benefit) for income taxes were as follows:
|  | Fiscal Years Ended
|  | February 3, 2024 |  | January 28, 2023 |  | January 29, 2022
|  | (in thousands)
Domestic |  | $ | (156,703) |  |  | $ | (61,065) |  |  | $ | 198,173 |
Foreign |  | 42,905 |  |  | 46,303 |  |  | 58,857 |
Total income (loss) before provision (benefit) for income taxes |  | $ | (113,798) |  |  | $ | (14,762) |  |  | $ | 257,030 |
The components of the Company’s Provision (benefit) for income taxes consisted of the following:
|  | Fiscal Years Ended
|  | February 3, 2024 |  | January 28, 2023 |  | January 29, 2022
|  | (in thousands)
Current: |  |  |  |  |  |
Federal |  | $ | (1,239) |  | $ | 4,172 |  | $ | 29,406
State and local |  | 249 |  | (1,193) |  | 7,389
Foreign |  | 4,758 |  | (2,842) |  | 7,218
|  | 3,768 |  | 137 |  | 44,013
Deferred: |  |  |  |  |  |
Federal |  | 21,125 |  | (12,030) |  | 14,517
State and local |  | 13,019 |  | (2,712) |  | 8,780
Foreign |  | 2,831 |  | 981 |  | 2,549
|  | 36,975 |  | (13,761) |  | 25,846
Total provision (benefit) for income taxes |  | $ | 40,743 |  | $ | (13,624) |  | $ | 69,859
Effective tax rate |  | (35.8) | % |  | 92.3 | % |  | 27.2 | %
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act allows net operating losses (“NOLs”) incurred in taxable years 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to offset 100% of taxable income and to generate a refund of previously paid income taxes. Pursuant to the CARES Act, the Company carried back the taxable year 2020 tax loss of $150.0 million to prior years. During the first quarter of Fiscal 2022, the Company received $22.0 million of this income tax refund and the remaining balance of $19.1 million as of February 3, 2024 is included within Prepaid expenses and other current assets on the Consolidated Balance Sheets. A reconciliation between the calculated tax provision (benefit) based on the U.S. federal statutory rate of 21.0% and the effective tax rate for Fiscal 2023, Fiscal 2022, and Fiscal 2021 follows:
|  | Fiscal Years Ended
|  | February 3, 2024 |  | January 28, 2023 |  | January 29, 2022
|  | (in thousands)
Calculated income tax provision (benefit) at U.S. federal statutory rate |  | $ | (23,898) |  |  | $ | (3,100) |  |  | $ | 53,976 |
State and local income taxes, net of federal benefit |  | (6,901) |  |  | (3,812) |  |  | 14,394 |
Foreign tax rate differential (1) |  | (4,937) |  |  | (5,498) |  |  | (3,598) |
Non-deductible expenses |  | (1,488) |  |  | 3,696 |  |  | 7,301 |
Excess tax detriment (benefit) related to stock compensation |  | 558 |  |  | 816 |  |  | (293) |
Unrecognized tax benefits |  | 3,127 |  |  | (5,324) |  |  | 1,050 |
Change in valuation allowance |  | 68,625 |  |  | 163 |  |  | 358 |
Global intangible low-taxed income |  | 9,505 |  |  | 1,760 |  |  | 1,476 |
Federal tax credits |  | (3,242) |  |  | (2,934) |  |  | (2,882) |
Other |  | (606) |  |  | 609 |  |  | (1,923) |
Total provision (benefit) for income taxes |  | $ | 40,743 |  |  | $ | (13,624) |  |  | $ | 69,859 |
____________________________________________ (1) The Company has substantial operations in Hong Kong, which has a lower statutory income tax rate as compared to the U.S. The Company’s foreign effective tax rate for Fiscal 2023, Fiscal 2022, and Fiscal 2021 was 11.6%, 9.8%, and 16.6%, respectively. This rate will fluctuate from year to year in response to changes in the mix of income by country, as well as changes in tax laws in foreign jurisdictions. The assessment of the amount of value assigned to the Company’s deferred tax assets under the applicable accounting rules is judgmental. The Company is required to consider all available positive and negative evidence in evaluating the likelihood that it will be able to realize the benefit of the Company’s deferred tax assets in the future. Such evidence includes scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and the results of recent operations. Since this evaluation requires consideration of events that may occur some years into the future, there is an element of judgment involved. Realization of the Company’s deferred tax assets is dependent on generating sufficient taxable income in future periods. The Company believes that it is not more likely than not that future taxable income will be sufficient to allow it to recover substantially all of the value assigned to the Company’s deferred tax assets. Thus, in the fourth quarter of Fiscal 2023, the Company increased its valuation allowance accordingly. The tax effects of temporary differences which give rise to deferred tax assets and liabilities were as follows:
|  | February 3, 2024 |  | January 28, 2023
|  | (in thousands)
Deferred tax assets: |  |  |  |
Operating lease liabilities |  | $ | 48,122 |  |  | $ | 48,079 |
Capitalized research and development, net |  | 23,653 |  |  | 17,856 |
Net operating loss carryforward |  | 13,704 |  |  | 3,453 |
Reserves |  | 10,167 |  |  | 12,038 |
Interest expense carryforward |  | 9,980 |  |  | 1,106 |
Tax credits |  | 6,630 |  |  | 2,727 |
Inventory |  | 3,333 |  |  | 4,612 |
Tradenames and customer databases, net |  | 3,304 |  |  | — |
Charitable contributions |  | 1,084 |  |  | — |
Stock-based compensation |  | 924 |  |  | 2,461 |
Subtotal |  | 120,901 |  |  | 92,332 |
Less: valuation allowance |  | (69,898) |  |  | (1,273) |
Total deferred tax assets |  | 51,003 |  |  | 91,059 |
Deferred tax liabilities: |  |  |  |
Right-of-use assets |  | (44,844) |  |  | (43,576) |
Property and equipment, net |  | (3,149) |  |  | (2,407) |
Prepaid expenses |  | (2,038) |  |  | (3,704) |
Foreign and state tax on unremitted earnings |  | (1,554) |  |  | (1,554) |
Tradenames and customer databases, net |  | — |  |  | (3,202) |
Total deferred tax liabilities |  | (51,585) |  |  | (54,443) |
Total deferred tax assets (liabilities), net |  | $ | (582) |  |  | $ | 36,616 |
The Company has gross federal NOL carryforwards of approximately $24.5 million which do not expire, state NOL carryforwards of approximately $133.3 million which either expire between two and twenty years, or carryforward indefinitely, and foreign NOL carryforwards of approximately $3.7 million which expire between five and twenty years. The Company also has an Alternative Minimum Tax credit (“AMT”) in Puerto Rico of approximately $0.6 million. The Company has concluded that it is not more likely than not that its deferred tax assets, including NOLs, can be utilized in the foreseeable future. Thus, the Company’s valuation allowance increased $68.6 million to $69.9 million in Fiscal 2023, primarily related to deferred tax assets in the U.S, compared to $1.3 million in Fiscal 2022. However, to the extent that tax benefits related to these deferred tax assets are realized in the future, the reduction of the valuation allowance will reduce income tax expense accordingly. As discussed in “Note 18. Subsequent Events” of the Consolidated Financial Statements, “Item 8. Financial Statements and Supplementary Data” of this Form 10-K, subsequent to the end of Fiscal 2023, there was a change of control of the Company. This change of control constitutes an “ownership change” under Internal Revenue Code Section 382, where the Company will be subject to an annual limitation on its ability to utilize its existing NOLs and tax credits as of the ownership change date to offset future taxable income. The application of such limitation may cause U.S. federal income taxes to be paid by the Company earlier than they otherwise would be paid if such limitation was not in effect, which would adversely affect the Company’s operating results and cash flows if it has taxable income in the future. In addition to the aforementioned federal income tax implications pursuant to Section 382 of the Code, most U.S. states follow the general provision of Section 382 of the Code, either explicitly or implicitly resulting in separate state NOL limitations. This could cause state income taxes to be paid earlier than otherwise would be paid if such limitation was not in effect and could cause such NOLs to expire unused. On December 22, 2017, the U.S. government passed the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act is a comprehensive tax legislation that implements complex changes to the U.S. tax code including, but not limited to, the reduction of the corporate tax rate from 35% to 21% and a move from a global tax regime to a modified territorial regime which requires U.S. companies to pay a mandatory one-time transition tax on historical offshore earnings that have not been repatriated to the U.S. The remaining unpaid transition tax, which had begun to be repaid in Fiscal 2023, amounted to $17.1 million at February 3, 2024. This balance is shown as $9.5 million as long-term Income taxes payable and $7.6 million is shown net in Prepaid expenses and other current assets on the Consolidated Balance Sheet as of February 3, 2024. While the Company is no longer permanently reinvested to the extent earnings were subject to the transition tax under the Tax Act, no additional income taxes have been provided on any earnings subsequent to the transition tax or for any additional outside basis differences inherent in the Company’s foreign subsidiaries, as these amounts continue to be permanently reinvested in foreign operations. Determining the amount of the unrecognized deferred tax liability related to any additional outside basis differences in the Company’s foreign subsidiaries (i.e., basis differences in excess of that subject to the one-time transition tax) is not practicable. The unremitted foreign earnings earned subsequent to the transition tax, which are permanently reinvested, were $255.5 million at February 3, 2024. Unrecognized Tax Benefits Tax positions are evaluated in a two-step process. First, the Company determines whether it is more-likely-than-not that a tax position will be sustained upon examination. Second, if a tax position meets the more-likely-than-not recognition threshold, it is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement. A reconciliation of the gross amounts of unrecognized tax benefits, excluding accrued interest and penalties, is as follows:
|  | Fiscal Years Ended
|  | February 3, 2024 |  | January 28, 2023
|  | (in thousands)
Beginning Balance |  | $ | 3,626 |  |  | $ | 8,937 |
Additions for current year tax positions |  | 1,756 |  |  | 750 |
Additions for prior year tax positions |  | 1,608 |  |  | 261 |
Reductions for prior year tax positions |  | — |  |  | (6,322) |
Ending Balance |  | $ | 6,990 |  |  | $ | 3,626 |
Unrecognized tax benefits of $6.5 million, excluding accrued interest and penalties, at February 3, 2024 would affect the Company’s effective tax rate in future periods, if recognized. The Company believes that it is reasonably possible that the total amount of unrecognized tax benefits as of February 3, 2024 could decrease by up to $0.6 million in the next 12 months as a result of settlements with taxing authorities or the expiration of statutes of limitations. The Company accrues interest and penalties related to unrecognized tax benefits as part of the provision for income taxes. At February 3, 2024 and January 28, 2023, accrued interest and penalties of $0.6 million and $0.4 million, respectively, were included in unrecognized tax benefits. Interest, penalties, and reversals thereof, net of taxes, amounted to an expense of $0.3 million in Fiscal 2023 and a benefit of $(0.1) million in Fiscal 2022. The Company is subject to tax in the U.S. and foreign jurisdictions, including Canada and Hong Kong. The Company files a consolidated U.S. income tax return for federal income tax purposes. The Company is no longer subject to income tax examinations by U.S. federal, state and local or foreign tax authorities for tax years 2015 and prior. The IRS is currently conducting an examination of the Company’s tax return for Fiscal 2020 in conjunction with its review of the CARES Act NOL carryback to fiscal year 2015 through fiscal year 2019. The Company believes that its reserves for uncertain tax positions are adequate to cover existing risks or exposures.

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