Income taxes

12 Months Ended

Feb. 02, 2024

Income taxes

Income taxes

3.Income taxes

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

(In thousands)	2023		2022		2021
Current:
Federal	$	324,339	$	400,752	$	472,913
Foreign		880		279		384
State		59,181		63,562		76,261
		384,400		464,593		549,558
Deferred:
Federal		72,769		195,529		93,114
Foreign		(297)		(24)		(38)
State		1,373		40,527		21,283
		73,845		236,032		114,359
	$	458,245	$	700,625	$	663,917

A reconciliation between actual income taxes and amounts computed by applying the federal statutory rate to income before income taxes is summarized as follows:

(Dollars in thousands)	2023				2022				2021
U.S. federal statutory rate on earnings before income taxes	$	445,098	21.0	%	$	654,489	21.0	%	$	643,262	21.0	%
State income taxes, net of federal income tax benefit		47,855	2.2			82,134	2.6			77,086	2.5
Jobs credits, net of federal income taxes		(34,279)	(1.6)			(37,639)	(1.2)			(39,936)	(1.3)
Other, net		(429)	—			1,641	0.1			(16,495)	(0.5)
	$	458,245	21.6	%	$	700,625	22.5	%	$	663,917	21.7	%

The effective income tax rate for 2023 was 21.6% compared to a rate of 22.5% for 2022 which represents a net decrease of 0.9 percentage points. The effective income tax rate was lower in 2023 primarily due to the effect of certain rate-impacting items (such as federal tax credits) on lower earnings before taxes and a lower state effective rate resulting from increased recognition of state tax credits.

The effective income tax rate for 2022 was 22.5% compared to a rate of 21.7% for 2021 which represents a net increase of 0.8 percentage points. The effective income tax rate was higher in 2022 primarily due to decreased income tax benefits associated with stock-based compensation compared to 2021.

Deferred taxes reflect the effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:

	February 2,		February 3,
(In thousands)	2024		2023
Deferred tax assets:
Deferred compensation expense	$	13,441	$	12,029
Accrued expenses		13,112		7,274
Accrued rent		306		473
Lease liabilities		2,852,395		2,760,588
Accrued insurance		8,732		7,514
Accrued incentive compensation		5,356		26,534
Share based compensation		17,052		15,309
Interest rate hedges		—		31
Tax benefit of income tax and interest reserves related to uncertain tax positions		1,028		77
State and foreign tax net operating loss carry forwards, net of federal tax		9,781		4,279
State tax credit carry forwards, net of federal tax		19,463		7,812
Other		22,882		22,756
		2,963,548		2,864,676
Less valuation allowances, net of federal income taxes		(17,000)		(9,001)
Total deferred tax assets		2,946,548		2,855,675
Deferred tax liabilities:
Property and equipment		(736,322)		(684,468)
Lease assets		(2,815,466)		(2,728,507)
Inventories		(199,603)		(176,798)
Trademarks		(306,915)		(307,734)
Prepaid insurance		(20,275)		(17,870)
Other		(1,751)		(1,204)
Total deferred tax liabilities		(4,080,332)		(3,916,581)
Net deferred tax liabilities	$	(1,133,784)	$	(1,060,906)

The Company has state tax credit carryforwards of approximately $19.4 million (net of federal benefit) that will expire beginning in 2024 through 2035. The Company has approximately $8.1 million of state apportioned net

operating loss carryforwards, which will begin to expire in 2032 and will continue through 2042 and approximately $31.6 million of foreign net operating loss carryforwards, which will begin to expire in 2032 through 2034.

The Company has a valuation allowance for certain state tax credit carryforwards and foreign net operating loss carryforwards and deferred tax assets, in the amount of $17.0 million and $9.0 million (net of federal benefit) which increased income tax expense by $8.0 million and $3.8 million in 2023 and 2022, respectively. Management believes that the results from operations will not generate sufficient taxable income to realize the state deferred tax assets before they expire and, with respect to the foreign deferred tax assets, will assess the existing positive and negative evidence in evaluating a potential release of the valuation allowance on the deferred tax assets in future periods.

Management believes that it is more likely than not that the Company’s results of operations and its existing deferred tax liabilities will generate sufficient taxable income to realize the remaining deferred tax assets.

The Company’s 2019 and earlier tax years are not open for further examination by the Internal Revenue Service (“IRS”). The IRS, at its discretion, may choose to examine the Company’s 2020 through 2022 fiscal year income tax filings. The Company has various state income tax examinations that are currently in progress. Generally, with few exceptions, the Company’s 2020 and later tax years remain open for examination by the various state taxing authorities.

As of February 2, 2024, accruals for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $14.4 million, $1.0 million and $0.0 million, respectively, for a total of $15.4 million. As of February 3, 2023, accruals for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $8.0 million, $0.3 million and $0.0 million, respectively, for a total of $8.3 million. These totals are reflected in noncurrent Other liabilities in the consolidated balance sheets.

The Company’s reserve for uncertain tax positions is expected to be reduced by $2.1 million in the coming twelve months as a result of expiring statutes of limitations or settlements. As of February 2, 2024 and February 3, 2023, approximately $11.5 million and $8.0 million, respectively, of the uncertain tax positions would impact the Company’s effective income tax rate if the Company were to recognize the tax benefit for these positions.

The amounts associated with uncertain tax positions included in income tax expense consists of the following:

(In thousands)	2023		2022		2021
Income tax expense (benefit)	$	3,930	$	1,797	$	(1,311)
Income tax related interest expense (benefit)		710		28		(281)
Income tax related penalty expense (benefit)		—		—		—

A reconciliation of the uncertain income tax positions from January 29, 2021 through February 2, 2024 is as follows:

(In thousands)	2023		2022		2021
Beginning balance	$	7,988	$	6,191	$	7,502
Increases—tax positions taken in the current year		665		—		—
Increases—tax positions taken in prior years		8,101		3,499		2,803
Decreases—tax positions taken in prior years		—		—		—
Statute expirations		(1,931)		(1,239)		(1,456)
Settlements		(446)		(463)		(2,658)
Ending balance	$	14,377	$	7,988	$	6,191