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