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Income Taxes | 3 Months Ended
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Aug. 03, 2025
Income Tax Disclosure [Abstract] |
Income Taxes | 15. Income Taxes Effective Income Tax Rate We recorded income tax expense of $1.4 million, or 120.3% of income before income taxes, for the three-month period ended August 3, 2025, compared with income tax expense of $240,000, or (3.4%) of loss before income taxes, for the three-month period ended July 28, 2024. Our consolidated effective income tax rates for the three-month periods ended August 3, 2025, and July 28, 2024, were based upon the estimated effective income tax rate applicable for the full year after giving effect to any significant items related specifically to interim periods. When calculating the annual estimated effective income tax rates for the three-month periods ended August 3, 2025, and July 28, 2024, we were subject to loss limitation rules. These loss limitation rules require any taxable loss associated with our U.S. or foreign operations to be excluded from the annual estimated effective income tax rate calculation if it was determined that no income tax benefit could be recognized during the current fiscal year. The effective income tax rate can be affected over the fiscal year by the mix and timing of actual earnings from our U.S. operations and foreign subsidiaries located in China, Canada, Haiti, and Vietnam versus annual projections, as well as changes in foreign currency exchange rates in relation to the U.S. dollar. The following schedule summarizes the principal differences between income tax expense at the U.S. federal income tax rate and the effective income tax rate reflected in the consolidated financial statements for the three-month periods ended August 3, 2025, and July 28, 2024:
|  | August 3, |  |  | July 28, |
|  | 2025 |  |  | 2024 |
U.S. federal income tax rate |  |  | 21.0 | % |  |  | 21.0 | %
U.S. valuation allowance |  |  | 60.4 |  |  |  | (23.5 | )
Withholding taxes associated with foreign jurisdictions |  |  | 13.4 |  |  |  | (1.0 | )
Foreign income tax rate differential |  |  | 12.7 |  |  |  | 0.7 |
global intangible low tax income tax (GILTI) |  |  | 12.6 |  |  |  | — |
Tax effects of local currency foreign exchange loss |  |  | (1.0 | ) |  |  | (0.4 | )
Uncertain income tax positions |  |  | 0.6 |  |  |  | 1.2 |
Stock-based compensation |  |  | 0.6 |  |  |  | (0.9 | )
Other (1) |  |  | — |  |  |  | (0.5 | )
Consolidated effective income tax rate (2) (3) |  |  | 120.3 | % |  | (3.4)% |
(1) "Other" for all periods presented represents miscellaneous adjustments that pertain to U.S. permanent differences such as meals and entertainment, income tax provision to return adjustments, and other and miscellaneous items. (2) Our consolidated effective income tax rates were adversely affected by the mix of earnings between our U.S. operations and foreign subsidiaries, as our taxable income stemmed from our operations located in China and a gain from the sale of Property located in Canada during the first quarter of fiscal 2026 (see Notes 8 and 10 of the consolidated financial statements for further details), which jurisdictions have higher income tax rates than the U.S. In addition, we applied a full valuation allowance against our U.S. deferred income tax assets during the first quarters of fiscal 2026 and 2025, respectively. Consequently, an income ta x benefit was not recognized for pre-tax losses associated with our U.S. operations totaling ($3.3) million and ($7.0) million that were incurred during the first quarters of fiscal 2026 and 2025, respectively. Lastly, our consolidated effective income tax rates were also adversely affected by pre-tax losses associated with our Haitian operations, which are not subject to income tax. Our Haitian operations are located in an economic zone that permits a 0% income tax rate for the first fifteen years of operations, for which we have seven years remaining. As a result of the 0% income tax rate , an income tax benefit was not recognized for the pre-tax losses associated with our Haitian operations totaling $(362,000) and $(633,000) that were incurred during the first quarters of fiscal 2026 and 2025, respectively. (3) During the first quarter of fiscal 2026, we earned a lower consolidated pre-tax income totaling $1.1 million, compared with a significantly higher consolidated pre-tax loss of $(7.0) million. As a result, we reported a positive effective income tax rate during the first quarter of fiscal 2026, compared with a negative effective income tax rate during the first quarter of fiscal 2025. Accordingly, the principal differences between our income tax expense at the U.S. Federal income tax rate and the effective income tax rate reflected in the consolidated financial statements were more pronounced during the first quarter of fiscal 2026, compared with the first quarter of fiscal 2025. One Big Beautiful Bill Act ("OBBBA") On July 4, 2025, OBBBA was signed into law, making several provisions of the 2017 Tax Cuts and Jobs Act ("TCJA") permanent. Such provisions include: (i) no change to the standard corporate tax rate of 21.0%; (ii) increased depreciation allowances for certain property acquired after January 19, 2025; (iii) deduction of certain U.S. research and development expenditures; (iv) limitations on the deductibility of business interest expense; and (v) modifications to GILTI and foreign-derived intangible income. Topic 740 Income Taxes, requires the income tax effects of changes in tax laws or rates to be recognized at the date of enactment. Accordingly, as of August 3, 2025, we evaluated the provisions of OBBBA and determined OBBBA did not impact our consolidated effective income tax rate, income tax expense, or our U.S. net deferred income tax assets during the three-months ended August 3, 2025, due to the application of a full valuation allowance applied against our U.S. net deferred income tax assets described in the below section titled - U.S. Valuation Allowance. U.S. Valuation Allowance We evaluate the realizability of our U.S. net deferred income tax assets to determine if a valuation allowance is required. We assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more-likely-than-not” standard, with significant weight being given to evidence that can be objectively verified. Since the company operates in multiple jurisdictions, we assess the need for a valuation allowance on a jurisdiction-by-jurisdiction basis, considering the effects of local tax law. As of August 3, 2025, we evaluated the realizability of our U.S. net deferred income tax assets to determine if a full valuation allowance was required. Based on our assessment, we determined we still have a recent history of significant cumulative U.S. pre-tax losses in that we experienced U.S. pre-tax losses during each of the last three fiscal years from 2023 through 2025, and we currently expect significant U.S. pre-tax losses to continue during fiscal 2026. As a result of the significant weight of this negative evidence, we believe it is more-likely-than-not that our U.S. net deferred income tax assets will not be fully realizable, and therefore we provided for a full valuation allowance against our U.S. net deferred income tax assets. Based on our assessments as of August 3, 2025, July 28, 2024, and April 27, 2025, valuation allowances against our net deferred income tax assets pertain to the following:
(dollars in thousands) |  | August 3, 2025 |  |  | July 28, 2024 |  |  | April 27, 2025 |
U.S. federal and state net deferred income tax assets |  | $ | 24,661 |  |  | $ | 21,326 |  |  | $ | 23,973 |
U.S. capital loss carryforward |  |  | 2,330 |  |  |  | 2,330 |  |  |  | 2,330 |
|  | $ | 26,991 |  |  | $ | 23,656 |  |  | $ | 26,303 |
Undistributed Earnings We assess whether the undistributed earnings from our foreign subsidiaries will be reinvested indefinitely or eventually distributed to our U.S. parent company and whether we are required to record a deferred income tax liability for those undistributed earnings from foreign subsidiaries that will not be reinvested indefinitely. As of August 3, 2025, we assessed the liquidity requirements of our U.S. parent company and determined that our undistributed earnings and profits from our foreign subsidiaries would not be reinvested indefinitely and would eventually be distributed to our U.S. parent company. The conclusion reached from this assessment was consistent with prior reporting periods. As a result of the TCJA, a U.S. corporation is allowed a 100% dividend-received deduction for earnings and profits received from a 10% or more owned foreign corporation. Therefore, a deferred income tax liability will be required only for unremitted withholding taxes associated with earnings and profits generated by our foreign subsidiaries that will ultimately be repatriated to the U.S. parent company. As a result, as of August 3, 2025, July 28, 2024, and April 27, 2025, we recorded a deferred income tax liability of $5.3 million, $4.9 million, and $5.2 million, respectively. Uncertain Income Tax Positions An unrecognized income tax benefit for an uncertain income tax position can be recognized in the first interim period if the more-likely-than-not recognition threshold is met by the end of the reporting period, or is effectively settled through examination, negotiation, or litigation, or if the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired. If it is determined that any of the above conditions occur regarding our uncertain income tax positions, an adjustment to our unrecognized income tax benefit will be recorded at that time. As of August 3, 2025, July 28, 2024, and April 27, 2025, we had $841,000, $1.3 million, and $790,000 of total gross unrecognized income tax benefits, of which the entire amount was classified as income taxes payable – long-term in the accompanying Consolidated Balance Sheets. These unrecognized income tax benefits would favorably affect income tax expense in future periods by $841,000, $1.3 million, and $790,000 as of August 3, 2025, July 28, 2024, and April 27, 2025, respectively. Our gross unrecognized income tax benefit of $841,000 as of August 3, 2025, relates to an income tax position for which significant change is currently not expected within the next year. Income Taxes Paid The following table sets forth taxes paid by jurisdiction:
|  | Three Months |  |  | Three Months |
|  | Ended |  |  | Ended |
|  | August 3, |  |  | July 28, |
(dollars in thousands) |  | 2025 |  |  | 2024 |
China Income Taxes, Net of Refunds |  |  | 46 |  |  |  | 561 |
Canada - Income Taxes, Net of Refunds |  |  | — |  |  |  | — |
|  | $ | 46 |  |  | $ | 561 |

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