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Income Taxes
 12 Months Ended
Feb. 01, 2025
Income Tax Disclosure [Abstract]  
Income Taxes

Note 11. Income Taxes

The (benefit) provision for income taxes consisted of the following:

 

Fiscal Year

 

(in thousands)

2024

 

 

 

2023

 

Current:

 

 

 

 

 

 

 

Domestic:

 

 

 

 

 

 

Federal

$

103

 

 

 

$

—

 

State

 

508

 

 

 

 

514

 

Foreign

 

29

 

 

 

 

29

 

Total current

 

640

 

 

 

 

543

 

Deferred:

 

 

 

 

 

 

Domestic:

 

 

 

 

 

 

Federal

 

(1,854

)

 

 

 

(2,017

)

State

 

(2,428

)

 

 

 

(2,004

)

Foreign

 

—

 

 

 

 

—

 

Total deferred

 

(4,282

)

 

 

 

(4,021

)

Total benefit for income taxes

$

(3,642

)

 

 

$

(3,478

)

The sources of (loss) income before income taxes and equity in net income of equity method investment are from the United States, the Company's subsidiaries in the United Kingdom and the Company's French branch. The Company files U.S. federal income tax returns and income tax returns in various state and local jurisdictions.

Current income taxes are the amounts payable under the respective tax laws and regulations on each year's earnings. Deferred income tax assets and liabilities represent the tax effects of revenues, costs and expenses, which are recognized for tax purposes in different periods from those used for financial statement purposes.

The benefit for income taxes was $3,642 for the year ended February 1, 2025. This benefit was primarily driven by a tax benefit of $3,006 associated with the impairment of goodwill primarily due to the reversal of the non-cash deferred tax liability previously created by the amortization of the Vince goodwill indefinite-lived intangible asset recognized for tax, but not for book purposes, which previously could not be used as a source of income to support the realization of certain deferred tax assets related to the Company's net operating losses. The tax benefit was also driven by a tax benefit of $1,276 related to the reversal of a portion of the non-cash deferred tax liability related to the Company's equity method investment, which a portion can now be used as a source of income to support the realization of certain deferred tax assets related to the Company's net operating losses. The tax benefit was offset primarily by the current federal and state tax expense of $611.

The benefit for income taxes was $3,478 for the year ended February 3, 2024. This benefit was primarily driven by a tax benefit of $5,523 associated with the Authentic Transaction primarily due to the reversal of a portion of the non-cash deferred tax liability

previously created by the amortization of the Vince tradename indefinite-lived intangible asset recognized for tax, but not for book purposes, which previously could not be used as a source to support the realization of certain deferred tax assets related to the Company's net operating losses. This benefit was offset by a portion of the non-cash deferred tax liability related to the Company's equity method investment which cannot be used as a source of income to support the realization of certain deferred tax assets related to the Company's net operating losses which resulted in deferred tax expense of $1,907.

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

 

 

Fiscal Year

 

 

2024

 

 

 

2023

 

Statutory federal rate

 

21.0

%

 

 

 

 

21.0

%

State taxes, net of federal benefit

 

(80.4

)%

 

 

 

12.0

%

NOL Adjustments

 

(267.3

)%

 

 

 

6.7

%

Sale of Rebecca Taylor

 

40.7

%

 

 

 

0.0

%

Release of uncertain tax provision

 

2.2

%

 

 

 

0.0

%

Cancellation of Debt Income

 

(6.1

)%

 

 

 

0.0

%

Deferred Adjustments

 

(2.9

)%

 

 

 

3.6

%

Valuation allowance

 

310.2

%

 

 

 

(61.3

)%

Return to provision adjustment

 

(1.1

)%

 

 

 

0.2

%

Transaction Costs

 

(0.6

)%

 

 

 

0.0

%

Non-deductible Officers Compensation

 

0.0

%

 

 

 

0.3

%

Rate Differential on Foreign Income

 

0.0

%

 

 

 

0.4

%

Other

 

(0.1

)%

 

 

 

0.1

%

Total

 

15.6

%

 

 

 

(17.0

)%

Deferred income tax assets and liabilities consisted of the following:

 

February 1,

 

 

February 3,

 

(in thousands)

2025

 

 

2024

 

Deferred tax assets:

 

 

 

 

 

Depreciation and amortization

$

2,221

 

 

$

2,706

 

Employee related costs

 

1,495

 

 

 

426

 

Allowance for asset valuations

 

1,670

 

 

 

1,664

 

Accrued expenses

 

213

 

 

 

317

 

Lease liability

 

27,140

 

 

 

22,601

 

Net operating losses

 

44,450

 

 

 

122,382

 

Tax credits

 

92

 

 

 

92

 

Interest expense

 

5,110

 

 

 

5,428

 

Other

 

322

 

 

 

288

 

Total deferred tax assets

 

82,713

 

 

 

155,904

 

Less: valuation allowances

 

(53,394

)

 

 

(125,913

)

Net deferred tax assets

 

29,319

 

 

 

29,991

 

Deferred tax liabilities:

 

 

 

 

 

Indefinite lived intangibles

 

—

 

 

 

(8,584

)

ROU assets

 

(23,869

)

 

 

(19,548

)

Equity method investment

 

(6,081

)

 

 

(6,772

)

Total deferred tax liabilities

 

(29,950

)

 

 

(34,904

)

Net deferred tax (liability) asset

$

(631

)

 

$

(4,913

)

Included in:

 

 

 

 

 

Deferred income tax asset

$

—

 

 

$

—

 

Deferred income tax liability

 

(631

)

 

 

(4,913

)

Net deferred tax liability

$

(631

)

 

$

(4,913

)

 

 

 

As of February 1, 2025, the Company had a gross federal net operating loss of $186,821 (federal tax effected amount of $39,232) that may be used to reduce future federal taxable income. Federal net operating losses of 12,044 that were incurred in tax years that began before January 1, 2018 will expire through 2038. Net operating losses of $174,777 incurred in tax years beginning after January 1, 2018 have an indefinite carryforward period.

As of February 1, 2025, the Company had gross state net operating loss carryforward of $175,240 (tax effected amount of $5,021) that may be used to reduce future state taxable income. The net operating loss carryforwards for state income tax purposes expire at varying rates.

Section 382 of the Internal Revenue Code of 1986 (“IRC”) subjects the future utilization of net operating losses to an annual limitation in the event of certain ownership changes, as defined. The Company determined that under Section 382, the P180 Acquisition resulted in an ownership change in January 2025. Due to the annual limitation of the Company’s net operating losses, gross federal net operating losses of $232,595 (federal tax effected amount of $48,844) incurred in tax years beginning before January 1, 2018 will expire unused prior to becoming available and therefore, the Company recorded an adjustment to write off these net operating losses. A corresponding adjustment was recorded to release the valuation allowance that was maintained on these net operating losses.

The valuation allowance for deferred tax assets was $53,394 and $125,913 as of February 1, 2025 and February 3, 2024, respectively. The valuation allowance decreased by $72,519 during fiscal 2024. The decrease was due primarily to the adjustment to the valuation allowance from the P180 Acquisition as described above, and the sale of Rebecca Taylor which resulted in the write-off of net operating losses for which a corresponding adjustment was recorded to release the valuation allowance. The Company maintains a full valuation allowance on all deferred tax assets except to the extent that the indefinite lived deferred tax assets (related to interest expense and net operating loss carryforwards) offset the future reversal of indefinite lived deferred tax liabilities. Adjustments to the valuation allowance are made when there is a change in management's assessment of the amount of deferred tax assets that are realizable.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding interest and penalties, is as follows:

 

 

Fiscal Year

 

(in thousands)

2024

 

 

2023

 

Beginning balance

$

556

 

 

$

556

 

Decreases for tax positions in prior years

 

(556

)

 

 

—

 

Ending balance

$

—

 

 

$

556

 

 

 

 

 

 

 

As of February 1, 2025 and February 3, 2024, the Company had unrecognized tax benefits in the amount of $0 and $556, respectively. The reduction in the unrecognized tax benefit resulted from the write-off of certain net operating losses under IRC section 382, whereby, the impact of the unrecognized tax benefit would no longer result in a change to the realizable net operating loss carryforward of the Company.

The Company includes accrued interest and penalties on underpayments of income taxes in its income tax provision. As of February 1, 2025 and February 3, 2024, the Company did not have any interest and penalties accrued on its Consolidated Balance Sheets and no related provision or benefit was recognized in each of the Company's Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended February 1, 2025 and February 3, 2024. Interest is computed on the difference between the tax position recognized net of any unrecognized tax benefits and the amount previously taken or expected to be taken in the Company's tax returns.

With limited exceptions, fiscal years January 29, 2022 through February 1, 2025 remain subject to examination. For years prior to fiscal year 2021, adjustments can be made by the taxing authorities only to the extent of the net operating losses carried forward.