Income Taxes

12 Months Ended

Feb. 03, 2024

Income Taxes

Income Taxes

5. Income Taxes

Income tax benefit (expense) consists of the following (in thousands):

	Fiscal Year
	2023		2022		2021
Current:
Federal	$	2,025	$	(12,616)	$	(11,326)
State		(329)		(4,426)		(2,473)
Total current		1,696		(17,042)		(13,799)
Deferred:
Federal		2,635		(1,031)		(2,629)
State		(424)		932		(574)
Total deferred		2,211		(99)		(3,203)
Total income tax benefit (expense)	$	3,907	$	(17,141)	$	(17,002)

Income tax benefit (expense) computed using the federal statutory rate is reconciled to the reported income tax benefit (expense) as follows (in thousands):

	Fiscal Year
	2023		2022		2021
Statutory rate applied to income before income taxes	$	3,337	$	(15,967)	$	(16,641)
State income taxes, net of federal benefit		240		(2,738)		(2,936)
State tax credits		(167)		(268)		152
State tax credits - valuation allowance (net of federal benefit)		(774)		393		158
General business credits		1,840		1,871		1,433
Nondeductible compensation		—		(44)		(455)
Excess (deficit) tax benefits from stock-based compensation		(519)		(507)		1,226
Other		(50)		119		61
Income tax benefit (expense)	$	3,907	$	(17,141)	$	(17,002)

Deferred tax assets and deferred tax liabilities consist of the following (in thousands):

	February 3,		January 28,
	2024		2023
Deferred tax assets:
Inventory capitalization	$	2,422	$	1,627
Vacation liability		489		911
Operating lease liabilities		59,556		67,075
State tax credits		2,599		2,765
Stock compensation		1,059		1,178
Insurance liabilities		855		972
Research and development		1,399		811
Net operating loss and charitable contribution carryforwards		2,434		—
Other		507		605
Subtotal deferred tax assets		71,320		75,944
Less: State tax credits valuation allowance - net		(1,937)		(1,163)
Total deferred tax assets		69,383		74,781
Deferred tax liabilities:
Right of use asset		(57,690)		(65,130)
Book and tax depreciation differences		(6,115)		(5,798)
Prepaid expenses		(473)		(960)
Total deferred tax liabilities		(64,278)		(71,888)
Net deferred tax asset	$	5,105	$	2,893

The Company files income tax returns in U.S. federal and state jurisdictions where it does business and is subject to examinations by the Internal Revenue Service (“IRS”) and other taxing authorities. With a few exceptions, the Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for years prior to fiscal 2019. The Company reviews and assesses uncertain tax positions, if any, with recognition and measurement of tax benefit based on a “more-likely-than-not” standard with respect to the ultimate outcome, regardless of whether this assessment is favorable or unfavorable. As of February 3, 2024, there were no material benefits taken on the Company’s income tax returns that do not qualify for financial statement recognition. If a tax position does not meet the minimum statutory threshold to avoid payment of penalties and interest, a company is required to recognize an expense for the amount of the interest and penalty in the period in which the company claims or expects to claim the position on its tax return. For financial statement purposes, companies are allowed to elect whether to classify such charges as either income tax expense or another expense classification. Should such expense be incurred in the future, the Company will classify such interest as a component of interest expense and penalties as a component of income tax expense.

At February 3, 2024, the Company had income tax net operating loss (“NOL”) carryforwards for federal purposes of $9.5 million (gross) and for state purposes of $0.4 million (tax effected). The federal tax NOL carryforwards have an indefinite carryforward, but are limited to offsetting 80% of taxable income in future years. The majority of state tax NOL carryforwards either follow federal indefinite carryforward or begin to expire in 2038, with one jurisdiction expiring in 2028.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible and income tax credits may be utilized, management believes it is more likely than not that the Company will realize the benefits of these deductible differences with the exception of certain tax credits available in one state. Beginning in 2011, the Company concluded that its ability to utilize a portion of such state’s tax credits was no longer more likely than not. Such recognition resulted in the establishment of a valuation allowance which necessitated a charge to income tax expense and a reduction in deferred tax assets. Subsequent to 2011, the Company has continued to earn such state credits and has further adjusted the related valuation allowance. At February 3, 2024, the valuation allowance, net of federal tax benefit, totaled $1.9 million.

The effective income tax rate for fiscal 2023, 2022 and 2021 included the recognition of benefits arising from various federal and state tax credits. Under current IRS and state income tax regulations, these credits may be carried back for one year or carried forward for periods up to 20 years. The income tax benefit included $2.2 million, $1.6 million and $1.6 million related to such credits in each of fiscal 2023, 2022 and 2021, respectively.